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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
OR
[_] Transition Report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 000-24435
MICROSTRATEGY INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
51-0323571
(I.R.S. Employer Identification Number)
8000 Towers Crescent Drive, Vienna, VA
(Address of Principal Executive Offices)
22182
(Zip Code)
Registrant's telephone number, including area code: (703) 848-8600
Securities registered pursuant to Section 12(b) of the Act: Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, par value $0.001 per share
(Title of class)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant (based on the last reported sale price of the Registrant's Class A
common stock on March 1, 2000 on the Nasdaq National Market) was approximately
$4.6 billion.
The number of shares of the registrant's Class A common stock and Class B
common stock outstanding on March 1, 2000 was 23,563,492 and 55,466,929,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
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MICROSTRATEGY INCORPORATED
TABLE OF CONTENTS
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PART I Page
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Item 1. Business.................................................... 1
Item 2. Properties.................................................. 19
Item 3. Legal Proceedings........................................... 20
Item 4. Submission of Matters to a Vote of Security Holders......... 20
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters......................................... 21
Item 6. Selected Financial Data..................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 23
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.. 43
Item 8. Financial Statements and Supplementary Data................. 43
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 44
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 44
Item 11. Executive Compensation...................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 44
Item 13. Certain Relationships and Related Transactions.............. 44
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 44
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CERTAIN DEFINITIONS
All references in this Annual Report on Form 10-K to "MicroStrategy", "we",
"us", and "our" refer to MicroStrategy Incorporated and its consolidated
subsidiaries (unless the context otherwise requires).
FORWARD-LOOKING INFORMATION
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For
this purpose, any statements contained herein that are not statements of
historical fact, including without limitation, certain statements under "Item
1. Business" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and located elsewhere herein regarding
industry prospects and our results of operations or financial position, may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. The important
factors discussed below under the caption "Business--Risk Factors," among
others, could cause actual results to differ materially from those indicated by
forward-looking statements made herein and presented elsewhere by management
from time to time. Such forward-looking statements represent management's
current expectations and are inherently uncertain. Investors are warned that
actual results may differ from management's expectations.
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PART I
ITEM 1. BUSINESS
Overview
We are a leading worldwide provider of intelligent e-business software and
related services that enable the transaction of one-to-one electronic business
through web, wireless and voice communication channels. Our product line enables
both proactive and interactive delivery of information from large-scale
databases. Our objective is to provide the largest 2000 enterprises in the
world, leading Internet businesses and high-volume data providers with a
software platform to develop solutions that deliver insight and intelligence to
their enterprises, customers and supply-chain partners.
Our software platform enables users to query and analyze the most detailed,
transaction-level databases, turning data into business intelligence. In
addition to supporting internal enterprise users, the platform delivers critical
business information beyond corporate boundaries to customers, partners and
supply-chain constituencies through a broad range of communication channels such
as the Internet, e-mail, telephones and wireless communication devices. Our
platform is designed for developing e-business solutions that are personalized
and proactive and that reach millions of users. We offer a comprehensive set of
consulting, education and technical support services for our customers and
partners.
In July 1999, we launched a new business unit called Strategy.com.
Strategy.com is our personal intelligence network, a new form of media that
brings speed to transactions by actively delivering highly personalized,
relevant and timely information to individuals through a wide variety of
delivery methods, including e-mail, telephone and wireless devices. The
Strategy.com network leverages the MicroStrategy software platform and is
organized around a suite of information channels. The network currently operates
a Finance Channel and plans to launch additional channels on subjects such as
weather, news, politics, arts, traffic, travel and entertainment. Strategy.com
syndicates its channels through other companies that serve as network affiliates
and network associates, which we refer to collectively as affiliates. Affiliates
offer the Strategy.com channels and services on a co-branded basis directly to
their customers and in turn share with Strategy.com a percentage of the revenues
they generate. Strategy.com also provides application maintenance, development,
customer billing, hosting and support services for those channels, enabling
affiliates to focus on their core businesses. Strategy.com has established more
than 100 network affiliate agreements with leading Internet companies,
communications carriers, media companies and financial institutions and now has
approximately 300,000 subscribers for its Strategy.com Finance Channel.
Strategy.com had recognized no revenue as of December 31, 1999.
Recent Developments
Our operations and prospects have been and are significantly affected by the
recent developments described below.
Restatement of Financial Results. We are revising our 1999, 1998 and 1997
financial statements. The principal reason for these revisions to revenues and
operating results was to conform with the accounting principles articulated in
Statement of Position 97-2 "Software Revenue Recognition." These revisions
primarily addressed the recognition of revenue for certain software arrangements
which should be accounted for under the subscription method or the percentage of
completion method, which spread the recognition of revenue over the entire
contract period. For example, when fees are received in a transaction in which
we are licensing software and also performing significant development,
customization or consulting services, the fees should be recognized using the
percentage of completion method and, therefore, product license and product
support and other services revenue are recognized as work progresses. Revenue
from arrangements where we
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provide hosting services is generally recognized over the hosting term, which is
generally two to three years. The effect of these revisions is to defer the time
in which revenue is recognized for large, complex contracts that combine both
products and services. These revisions also resulted in a substantial increase
in the amount of deferred revenue reflected on our balance sheet at the end of
1999 and 1998. Additionally, these revisions include the effects of changes in
the reporting periods when revenue from certain contracts are recognized. In the
course of reviewing our revenue recognition on various transactions, we became
aware that, in certain instances, we had recorded revenue on certain contracts
in one reporting period where customer signature and delivery had been
completed, but where the contract may not have been fully executed by us in that
reporting period. We subsequently reviewed license agreements executed near the
end of the years 1999, 1998 and 1997 and determined that revisions were
necessary to ensure that all agreements for which we were recognizing revenue in
a reporting period were executed by both parties no later than the end of the
reporting period in which the revenue is recognized.
With the concurrence of our auditors, we reduced our 1999 reported revenue
from $205.3 million to $151.3 million and our results of operations from diluted
net income per share of $0.15 to a diluted net loss per share of $(0.44).
Correspondingly, deferred revenue at December 31, 1999 increased from $16.8
million to $71.3 million. We also reduced our reported revenue for 1998 from
$106.4 million to $95.5 million and our results of operations from diluted net
income per share of $0.08 to diluted net loss per share of $(0.03). In addition,
we reduced our reported revenue for 1997 from $53.6 million to $52.6 million and
our results of operations from diluted net income per share of $0.00 to diluted
net loss per share of $(0.02).
We also made certain revisions to our balance sheet as of December 31, 1999.
These revisions include a reclassification of approximately $21.5 million from
accounts receivable to short-term investments relating to the value of proceeds
from a software transaction that was received in the form of a right to receive
shares of the customer's common stock. We also recorded an increase to goodwill
of approximately $31.4 million, net of the increase in amortization, relating to
the purchase of the intellectual property and other tangible and intangible
assets, including the assembled workforce relating to NCR's Teracube project in
exchange for 566,372 shares of our Class A common stock. We made this revision
as a result of a re-measurement of the purchase price of the Teracube assets to
reflect the value of our Class A common stock on the transaction's closing date.
In addition, we reduced fixed assets by approximately $8.8 million, net of the
decrease in depreciation, in order to record software received for resale and
software acquired for internal use in barter transactions at the book value of
our assets surrendered in the exchange. Approximately $5.0 million of the
reduction in fixed assets is a reduction in revenue, as restated. Of this
amount, no revenue will be recorded unless this software is resold. See Note 3
to the Consolidated Financial Statements.
As a result of the foregoing revisions to our 1999, 1998 and 1997 financial
statements, we will also be amending other Securities and Exchange Commission
("SEC") filings to reflect the revisions to our quarterly results in those
periods. Our financial statements and announced earnings for those quarterly
periods should not be relied upon.
Legal Proceedings.
Actions Arising under Federal Securities Laws. In March 2000, numerous
separate complaints purporting to be class actions were filed in federal courts
in various jurisdictions alleging that we and certain of our officers and
directors violated section 10(b) of the Securities Exchange Act of 1934, as
amended, Rule 10b-5 promulgated by the SEC thereunder, and section 20(a) of the
Securities Exchange Act of 1934, as amended.
The complaints contain varying allegations, including that we made materially
false and misleading statements with respect to our 1999 and 1998 financial
results in our filings with the SEC, analysts' reports, press releases and media
reports. The complaints do not specify the amount of damages sought.
We have not filed any answers, motions to dismiss or other responsive
pleadings in this litigation. We intend to defend this matter vigorously.
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SEC Investigation. In March 2000, we were notified that the SEC had issued a
formal order of private investigation in connection with matters relating to our
restatement of our financial results. The SEC has requested that we provide them
with certain documents concerning the revision of our financial results and
financial reporting documents. The SEC indicated that its inquiry should not be
construed as an indication by the SEC or its staff that any violation of law has
occurred, nor as an adverse reflection upon any person, entity or security. We
are cooperating with the SEC in connection with this investigation and its
outcome cannot yet be determined.
Industry Background
The emergence and widespread acceptance of the Internet as a medium of
communication and commerce has dramatically changed the way businesses interact
with each other and with their customers. According to International Data
Corporation ("IDC"), worldwide spending on Internet business infrastructure will
increase from $211 billion in 1998 to $1.5 trillion in 2003, a compound annual
growth rate of approximately 48%. The Internet provides opportunities for
businesses to establish new revenue streams, create new distribution channels
and reduce costs. For example, companies are using Internet-based systems to
facilitate business operations, including sales automation, supply-chain
management, marketing, customer service and human resource management. Consumers
are also becoming increasingly sophisticated in their use of the Internet,
relying on the Internet not only to make online purchases, but to perform price
comparisons, analyze recommendations from like-minded individuals and educate
themselves about relevant products and offerings. The integration of the
Internet into business processes and increased consumer sophistication create
opportunities for companies to use intelligent e-business systems as part of a
more dynamic business model. Factors increasing demand for these systems
include:
Increased Electronic Capture of Transaction and Customer Information. The
rapid growth in the electronic capture of business transactions and the
increased availability of related profile data on the parties or products
involved in each transaction are providing businesses with a rich data
foundation for one-to-one customer interactions. Powerful data analysis tools
are required to sift through massive amounts of data to uncover information
regarding customer interactions, in turn enabling organizations to provide
superior service and products to customers.
Need to Create a Personalized, One-to-One Customer Experience While
Maintaining Privacy. Many companies are initiating one-to-one marketing
strategies that establish personalized relationships with each customer based on
their individual needs and preferences and earn customer loyalty by providing
superior service, security and convenience. In order to successfully acquire,
retain and upgrade customers, organizations need to understand their profiles,
their transaction history, their past responses to marketing campaigns, and
their interactions with customer service. Retrieving information from widely
dispersed and complex data sources and providing a holistic view of the customer
can be challenging. At the same time, while businesses have the opportunity to
collect a variety of information that could improve targeting, customers are
increasingly concerned about the potential for loss or abuse of their privacy.
Need to Integrate Online and Traditional Operations. While there are
substantial benefits to conducting business electronically, companies need to
ensure that their online operations work in concert with their traditional
bricks and mortar operations. Companies are seeking to ensure that an order
placed online can be reliably fulfilled according to the expectations of the
customer and to develop and maintain consistent interactions with customers
across different channels. Maintaining the integrity of, and enhancing, the
customer experience is crucial to fostering customer loyalty.
Emergence of Wireless Internet and Voice Technologies. Information can be more
valuable if there is untethered, ubiquitous access to the information. The
recent development of the wireless application protocol and improvements in
text-to-speech and voice-recognition technologies have created a uniform
technology
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platform for delivering Internet-based information and services to digital
mobile phones and other wireless devices. According to IDC, the total value of
wireless Internet transactions will increase from $4.3 billion in 1998 to more
than $38.0 billion by 2003, a compound annual growth rate of approximately 55%.
This development is expected to generate new business opportunities for
companies by providing an additional channel for existing services and creating
opportunities to provide new services that can be delivered any place and at any
time to anyone that has access to a wireless device. For instance, customers of
an online brokerage company will have the capability not only to get stock
portfolio updates and alerts over their phones, but will also be able to
immediately act on that information and buy or sell securities through a
wireless device.
The MicroStrategy Solution
MicroStrategy offers a comprehensive suite of software products and services
that enable businesses to develop and deploy intelligent e-business systems.
MicroStrategy's solution enables organizations seeking a strong, personalized
relationship with their customers to better understand customer interactions and
actively deliver personalized information to customers through the Internet, e-
mail, telephones or wireless devices.
Optimized Support for Large Data Volumes and All Major Relational
Database/Hardware Combinations. The MicroStrategy platform supports systems with
very large data volumes and is specifically designed to support all major
relational database platforms commonly used for intelligent e-business systems.
Important features of our solution in this area include:
. structured query language optimization drivers that improve performance of
each major database;
. ability to support very large user populations;
. designed to maximize up-time, even in high volume applications; and
. ability to work with many languages for international applications.
Extremely Powerful Analytics to Customer- and Transaction-Levels of Detail. We
believe that the MicroStrategy platform incorporates the most sophisticated
analysis engine available today, capable of answering highly detailed business
questions. The MicroStrategy platform offers support for information beyond the
summary level to include information at the customer transaction and interaction
level. This capability is critical to a wide range of applications, including
highly targeted direct marketing, e-commerce site personalization, customer and
product affinity analysis, call detail analysis, fraud detection, credit
analysis forecasting and trend metrics and campaign management. The
MicroStrategy platform allows the creation of highly sophisticated systems that
take e maximum advantage of the detail available in a company's databases.
Powerful Personalization Engine. The MicroStrategy platform includes a
customer transaction-level personalization engine. The underlying architecture
is designed to generate personalization parameters based on data gathered by an
organization from a variety of sources, including past customers' transactions,
customer clickstream information, stated user preferences and demographic
information. In addition, the MicroStrategy personalization engine is able to
determine when and under what circumstances a person is automatically provided
with a set of information.
Interactive Broadcast Engine for Delivery and Response Using Internet, E-mail,
Wireless or Voice Media. Our technology offers a high performance personalized
broadcast engine for delivering periodic- and alert-based information to people
via Internet, e-mail, wireless devices and traditional telephone via text-to-
speech conversion. The broadcast engine includes drivers for all major device
types used in both domestic and international markets enabling the delivery of
information to users when and where it is needed. In addition, users can respond
to a message delivered by the MicroStrategy broadcast engine. For example, a
store manager
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can be alerted via a personal digital assistant that an item is out of stock and
order additional inventory using this device.
Strategy
Our objective is to become the leading provider of intelligent e-business
software and related services to the largest 2000 enterprises in the world and
leading Internet businesses. The key elements of our strategy to achieve this
objective are as follows:
Marketing Strategy--Increase Brand Awareness. Our marketing strategy focuses
on communicating the possibilities for value creation through the use of our
intelligent e-business platform. We focus primarily upon the largest 2000
enterprises in the world, leading Internet businesses and high-volume data
providers. In January 2000, we launched an aggressive branding campaign through
traditional television and print media to expand awareness of the MicroStrategy
brand. We believe that by creating greater awareness of the company and the
value of our intelligent e-business solutions, we will generate not only greater
brand awareness for MicroStrategy, but also a larger group of potential
customers by helping them understand the advantages of intelligent e-business.
Technology Strategy--Provide a Scalable, Sophisticated and Maintainable
Intelligent E-Business Platform. We have designed our platform to be highly
scalable, sophisticated, reliable and easy to maintain. Our technology strategy
is focused on expanding our support for large customer oriented information
stores, enhancing our analysis and segmentation capabilities, strengthening our
personalization technology, enhancing our broadcasting functionality to the
broadest set of consumer devices and providing a platform that can be easily
integrated with e-commerce transaction engines. As part of this strategy, we are
developing technology that further differentiates our product offerings by
increasing functionality along the following key dimensions:
. personalization--the quality and sophistication of a one-to-one user
experience;
. content flexibility--the range of content, both structured and
unstructured, that can be efficiently utilized;
. media channel and interface flexibility--the range of media channels,
interface options, and display features supported;
. capacity--the volume of information that can be efficiently analyzed and
utilized;
. concurrency--the number of users which can be supported simultaneously;
. sophistication--the range of analytical methods available to the
application designer;
. performance--the response time of the system;
. database flexibility--the range of data sources, data warehouses and online
transaction processing databases which the software is capable of
efficiently querying without modification;
. robustness--the reliability and availability of the software in mission
critical environments; and
. deployability--the ease with which applications can be deployed, modified,
upgraded and tuned.
Sales Strategy--Increase Market Share Among World's 2000 Largest Companies,
Leading Internet Businesses and High-Volume Data Providers. Our sales strategy
focuses on building direct sales capabilities
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and relationships with indirect channel partners in order to increase market
share among the world's 2000 largest companies, leading Internet businesses, and
high-volume data providers, both domestically and abroad. We also seek to
increase sales to our installed base of customers by offering a range of
software and services utilizing our core intelligent e-business platform. In
order to improve customer satisfaction and to generate additional sales to
current and prospective customers, we are also expanding our active consulting
practice to enable existing customers to fully utilize the capabilities of their
existing product implementations and to ensure that current customers have
access to our field engineering and telephone support. Finally, we are expanding
our education program to enhance our potential customers' and channel partners'
understanding of the power of intelligent e-business applications.
Products
We offer a comprehensive suite of intelligent e-business software, known as
MicroStrategy 6, that is designed to enable businesses to turn information into
strategic insight, transform customer interactions into relationships and make
more effective business decisions. The following are the components of the
MicroStrategy 6 platform:
MicroStrategy Intelligence Server. MicroStrategy Intelligence Server is the
foundation for all of our intelligent e-business products. It performs
sophisticated analysis on information captured from multiple data sources. With
the ability to support millions of users, MicroStrategy Intelligence Server has
the capacity to power the most complex intelligent e-business solutions.
We believe that MicroStrategy Intelligence Server is the most sophisticated
analysis engine available today, capable of answering highly detailed business
questions. Its robust relational analysis technology enables organizations to
conduct large-scale product affinity and product profitability analyses,
research customer preferences through sales, contribution, and pricing analysis,
and compare present and historical customer retention data with forecasting and
trend metrics. MicroStrategy Intelligence Server generates highly optimized
queries through its very large database drivers, enabling high throughput and
fast response times.
MicroStrategy Intelligence Server is designed to be fault tolerant to ensure
system availability and guarantee high performance. Through an enterprise
management console, MicroStrategy Intelligence Server provides a sophisticated
array of enterprise management tools, such as caching and query prioritization
to streamline performance and batch job scheduling, which helps to maintain
disparate and diverse user communities. Administrators can automate the dynamic
adjustments of system and user governing settings, such as user thresholds and
database thread priorities, in order to smooth the database workload and ensure
the high performance that large user communities require.
MicroStrategy Web. MicroStrategy Web provides easy-to-use, interactive,
sophisticated analysis which extends the information access and analysis
capabilities of MicroStrategy Intelligence Server to any user with a web
browser. Using the MicroStrategy Web infrastructure, corporations can rapidly
implement systems that allow local and remote users to develop and access
sophisticated reports containing information from their relational databases.
MicroStrategy Web provides a graphical user interface designed to boost end-
user efficiency. Users gain access to an array of options for data exploration
and analysis, such as spreadsheet grids and a wide variety of graphs. A flexible
architecture enables businesses to implement a standardized structure for
analysis and ensure consistent work practices. Through MicroStrategy Web's
reporting capabilities, users receive key elements of a report in easily
understood, plain English messages. MicroStrategy Web also allows users to
dynamically analyze data with higher levels of detail to view the underlying
information or to create and save new analyses. In addition, MicroStrategy Web's
security plug-ins enable businesses to limit access to sensitive information.
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MicroStrategy Web includes an application protocol interface that allows
businesses to customize, integrate and embed MicroStrategy Web functionality
into other applications. For example, a data syndicate for healthcare
information could utilize MicroStrategy Web with a customized interface to sell
access to this information to HMOs, hospitals and pharmacies.
MicroStrategy Broadcaster. MicroStrategy Broadcaster is a powerful content
generation and information broadcast server designed to actively deliver
personalized information to millions of recipients via the Internet, e-mail,
telephone and wireless devices. MicroStrategy Broadcaster delivers targeted
information to individuals on an event-triggered or scheduled basis through the
consumer communication device that is most convenient. It provides both an
engine to implement targeted information messaging to acquire and retain
customers and a platform for distributing information throughout the corporate
enterprise and to customers, suppliers, and other constituencies.
MicroStrategy Agent. MicroStrategy Agent provides an advanced environment for
rapid application development and sophisticated analysis. It provides an object-
oriented view of business data--converting a company's business data into a
virtual library of valuable information, enabling users to develop sophisticated
business metrics, filtering criteria and pre-defined report templates.
Applications developed within MicroStrategy Agent are easily deployed throughout
the MicroStrategy architecture bringing integrated query and reporting
capabilities, powerful analytics and decision support workflow to analysts,
quantitative users and end users throughout the enterprise and beyond.
These applications provide better understanding of a business or customer base
through analyses such as customer profiling, clickstream analysis and sales and
inventory analyses.
MicroStrategy InfoCenter. MicroStrategy InfoCenter is a web-based interface
that can be used with existing web applications to provide targeted product
offerings over many devices. Through MicroStrategy InfoCenter, users subscribe
to information services by providing personal information and preferences,
ensuring that users receive personalized, appropriate product offerings and
information. Its integration with MicroStrategy Broadcaster and MicroStrategy
Telecaster is designed to allow the delivery of the appropriate offering via the
appropriate medium at the appropriate time.
MicroStrategy InfoCenter can be used by companies to create one-to-one
marketing campaigns, learn more about their customers and increase customer
click-through and sales. MicroStrategy InfoCenter also can be used within an
enterprise by customer relationship managers to view reports on their customer
base, analyze their campaigns and take action upon them.
MicroStrategy Telecaster. MicroStrategy Telecaster is an intelligent voice
broadcast server that enables organizations to deliver fully personalized
information services to employees, partners, suppliers or customers over any
telephone or voice mail system.
MicroStrategy Telecaster notifies end-users of relevant news based on
schedules or exception criteria such as a close of market portfolio update or an
inventory reorder point. When a user picks up the call, information is presented
in natural language and structured in a fully interactive and individually
tailored format. MicroStrategy Telecaster not only creates a personal message,
but also generates the appropriate menu of response options on a one-to-one
basis. Users can then select the appropriate option by simply pressing a button
on the phone keypad.
MicroStrategy Telecaster is designed to enable voice-based interaction via
two-way electronic devices. MicroStrategy Telecaster can process user input,
such as the selection of an alternate flight, or the number of shares that
should be traded, to communicate in real-time with any external database,
transaction or e-commerce system and call centers and telephone applications.
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MicroStrategy Telecaster's combination of analysis, broadcast, personalization
and interaction capabilities facilitates its use in a variety of intelligent e-
business applications, including:
. reminder services, such as drug refills;
. event based notification services, such as flight delays and bank account
notifications;
. personal intelligence, such as financial, news, weather, traffic and sports
information; and
. sales force automation and internal reporting services, such as sales
reports.
MicroStrategy Administrator. MicroStrategy Administrator enables
administrators to efficiently maintain large-scale data warehouse applications
supporting millions of users. Project migration utilities help administrators
develop, test and deploy systems. Performance analysis enables administrators to
monitor and tune systems for maximum performance and availability.
MicroStrategy Architect. MicroStrategy Architect is a development environment
for intelligent e-business applications. Software developers can use this
product to design powerful enterprise and e-business intelligence systems
rapidly. MicroStrategy Architect is highly automated and is based on an open,
flexible architecture, which greatly reduces the cost and time required to
implement and maintain systems.
Consulting, Education and Customer Support
Our services and customer support capabilities are as follows:
MicroStrategy Consulting--Intelligent E-Business Management and Technical
Consulting. MicroStrategy Consulting facilitates the development of high-end
applications for our customers. Our consultants design and implement scalable,
high performance applications that run against multi-terabyte databases for
companies throughout the world. MicroStrategy Consulting's mission is to provide
services that ensure customer success and return on investment through full use
of our advanced technology.
MicroStrategy Education--Intelligent E-Business Education Programs.
MicroStrategy Education provides our customers with a thorough understanding of
our products and the implementation of intelligent e-business systems through
quality instruction and hands-on experience. With nearly ten years of experience
training a diverse customer base, we have developed a comprehensive set of
education programs designed to help customers get up to speed quickly on
intelligent e-business technologies. Representative courses from our training
curriculum include:
. Introduction to Intelligent E-Business;
. MicroStrategy Fast Track for Developers;
. MicroStrategy Server Platforms: Administration;
. MicroStrategy Broadcaster: Intelligence Everywhere;
. E-Business: Methodology and Architecture;
. MicroStrategy InfoCenter: Personal Information Gateway; and
. MicroStrategy Telecaster: Personalized Voice Broadcast Server.
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MicroStrategy Support--Hotline, Knowledge Base and Field Engineering Services.
MicroStrategy technical support provides support services designed to help
customers extract the highest return on investment from our products.
MicroStrategy technical support offers a variety of support options geared to
resolve technical issues quickly and efficiently whenever they arise.
Customer Case Studies
The following case studies illustrate the application and implementation of
our products and related services by several of our customers.
GE Capital Fleet Services. GE Capital Fleet Services, one of the world's
leading vehicle fleet management companies, uses our intelligent e-business
platform to deliver innovative customer services as part of an overall e-
business strategy. The company deployed MicroStrategy Web to give its customers
desktop access to specific fleet information. MicroStrategy Web allows GE
Capital Fleet Services and its customers to extract valuable information from
its data warehouse. Customers use the tool to compare service histories of
different car models, identify drivers who are most accident-prone or review the
fleet's monthly mileage.
Additionally, with MicroStrategy Broadcaster, customers receive proactive
vehicle maintenance reminders. MicroStrategy Broadcaster automatically sends
personalized maintenance reminders directly to vehicle drivers via e-mail,
telephone or wireless device. According to GE Capital Fleet Services, the
innovative vehicle fleet management services made possible by the MicroStrategy
intelligent business platform are saving the company millions of dollars in
printing and postage costs and are creating stronger customer relationships.
First Union. First Union is the nation's sixth largest financial institution,
with more than $230 billion in assets under management. The company uses our
intelligent e-business platform to manage relationships with more than 16
million customers. First Union runs MicroStrategy Web against a 27-terabyte data
warehouse, one of the largest in the banking industry, to retrieve valuable
insights. MicroStrategy Web enables authorized First Union users to quickly and
easily obtain a comprehensive view of customer relationships, analyze their
current and potential profitability and improve business relationships with
them. The tool allows authorized users to analyze critical customer information
and create detailed product and marketing reports quickly. For example,
authorized users can quickly identify how many customers have a high balance
checking account and who would likely be interested in asset management
services. These sales leads are then automatically sent to First Union's sales
and services organizations for direct, personalized marketing efforts.
NBCi. NBC Interactive, known as NBCi, is a leading Internet integrated media
company. NBCi uses our intelligent e-business platform to conduct advanced
clickstream analysis of daily traffic to its Snap and XOOM.com web sites. The
resulting insight helps site managers improve their services and deliver a more
personal online experience for users. In addition, MicroStrategy Web enables
Snap and XOOM.com product, channel and marketing managers to identify user
preference and demographic information with the click of a mouse. NBCi also uses
MicroStrategy Broadcaster to send managers regular information updates via e-
mail.
With these tools, NBCi is able to identify the most popular content on its
sites, as well as areas that may need additional support. Detailed customer
information also supports Snap and XOOM.com efforts to attract advertisers who
want to reach specific demographic markets.
Strategy.com
In July 1999, we launched a new business unit called Strategy.com.
Strategy.com is our personal intelligence network, a new form of media that
brings speed to transactions by actively delivering highly
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personalized, relevant and timely information to individuals through a wide
variety of delivery methods, including e-mail, telephone and wireless devices.
The Strategy.com network leverages the MicroStrategy software platform and is
organized around a suite of information channels. The network currently operates
a Finance Channel and plans to launch additional channels on subjects such as
weather, news, politics, arts, traffic, travel and entertainment. Strategy.com
syndicates its channels through other companies that serve as network affiliates
and network associates, which we refer to collectively as affiliates. Affiliates
offer the Strategy.com channels and services on a co-branded basis directly to
their customers and in turn share with Strategy.com a percentage of the revenues
they generate. Strategy.com also provides application maintenance, development,
customer billing, hosting and support services for those channels, enabling
network affiliates and associates to focus on their core businesses.
Strategy.com has established more than 100 network affiliate agreements with
leading Internet companies, communications carriers, media companies and
financial institutions and now has approximately 300,000 subscribers for its
Strategy.com Finance Channel. Strategy.com has recognized no revenue as of
December 31, 1999. The key attributes of the Strategy.com network are as
follows:
Personal Intelligence Agent. Strategy.com functions as a personal intelligence
agent that operates on the user's behalf and is based on a set of permissions
and requirements specified by the user. Strategy.com goes beyond sending
scheduled information updates by allowing users to choose to be notified
immediately upon the occurrence of a predefined event. These capabilities enable
consumers to receive tailored, pertinent and timely information. As the
Strategy.com network expands, we intend to develop Strategy.com's software
agents to act, with permission, proactively on the user's behalf. For example,
in the future the user may be able to specify conditions under which
Strategy.com could transfer assets from one financial institution to another,
based on relative interest rates. We believe that this capability will provide
significant value to consumers.
Diverse Delivery Methods. We deliver Strategy.com services to devices in three
general categories -- web, wireless and voice. A major component of
Strategy.com's technology strategy is to take advantage of the capabilities of
the wireless application protocol and the improvements in text-to-speech and
voice-recognition technologies to create a robust and content-rich wireless
Internet portal. Strategy.com believes it can exploit its position as one of the
first to market in this area to facilitate e-commerce transactions and expand
its network and base of subscribers. In the future, Strategy.com intends to
provide users the ability to buy or sell stock, purchase merchandise and make
reservations after receiving information on their wireless and other devices,
eliminating the need to use a computer or speak with someone on the telephone.
Our goal is to allow users to move beyond the desktop and allow us to
significantly broaden our reach by interacting with consumers throughout the day
via the most convenient means available.
Unique Personalization. Unlike traditional television, radio and cable
networks which send the same content to all audience members and which require
users to initiate the use of a dedicated device, Strategy.com allows individuals
to subscribe to the selected programs and services that interest them and to
receive richer, more detailed information via the delivery mechanism of their
choice. Subscribers will be able to access personalized updates on a range of
subjects using their wireless devices.
Content. Strategy.com's network is organized around content-specific channels.
Its initial channels are:
. Strategy.com Finance: As the first channel of the Strategy.com network,
Strategy.com Finance provides consumers with personalized portfolio and
market reports via the device of their choice. Strategy.com Finance
provides users with a variety of information, from intra-day stock movement
alerts to a personalized portfolio analysis sent via Excel spreadsheets. In
the future, Strategy.com intends to also allow users to conduct trades and
other financial transactions through the Internet or using their wireless
devices after receiving Strategy.com Finance alerts.
. Strategy.com Weather: Strategy.com Weather is currently operating on a test
basis and is expected to be commercially available in the second quarter of
2000. Strategy.com delivers personalized weather
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reports, forecasts and alerts for over 55,000 locations across the globe.
Strategy.com will offer subscribers features such as severe weather alerts,
beach and boating reports and weekly forecasts, along with the convenience
of receiving personalized weather information.
. Strategy.com News: Strategy.com News is currently operating on a test basis
and is expected to be commercially available in the second quarter of 2000.
Strategy.com will deliver breaking news, news alerts and local and global
updates. Strategy.com News utilizes data from numerous content providers
and covers over 20,000 stories a day. Subscribers will have the ability to
easily personalize Strategy.com News so they only receive stories about the
issues and locations that are of importance to them.
Strategy.com has entered into agreements with leading content and data
providers, including the following:
Media General Financial Services Weather Labs
Standard & Poor's Briefing.com
Zacks AFP
National Weather Service Comtex
SportsTicker Metro Networks
We also have agreements with smaller local and specialized providers to supply
content for our channels. We expect to focus our efforts on content providers
that can provide comprehensive coverage and that feature content that has the
potential for targeting e-commerce opportunities.
We have established more than 100 network affiliate agreements with Internet
companies, communication carriers, media companies and financial institutions
such as Ameritrade, Belo, Metrocall, Nasdaq, Phillips International, Primark,
The Wall Street Journal, Earthlink, WashingtonPost.com and USA Today.com to
market our services directly to consumers. By offering Strategy.com services to
their customers, network affiliates seek to differentiate their core product
offerings, increase customer loyalty and create new revenue streams. The
affiliates provide the marketing and sales support for the service and
Strategy.com focuses on providing the technical infrastructure, including the
management of the software, hardware, billing and customer support processes and
the development and deployment of channels and content to users. Larger
Strategy.com affiliates have the ability to create co-branded web pages and
commission customized features, services and content using Strategy.com data.
Strategy.com also offers an associates program in which smaller businesses and
individuals can create co-branded web pages offering Strategy.com services to
their users.
Our vision for Strategy.com is to be the leading provider of personalized
intelligence to consumers. We believe that strengthening affiliate relationships
and strategic alliances with leading content providers is critical to attracting
and expanding our subscriber base. We also intend to engage in aggressive brand-
building in order to attain a leadership position.
We believe that Strategy.com capitalizes on both our powerful software
technology and the emerging development of wireless Internet information
delivery. We plan to aggressively invest significant resources to build the
Strategy.com personal intelligence network and increase brand awareness,
including investing in computer equipment and software, marketing, personnel and
other infrastructure.
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Customers
MicroStrategy has over 900 customers across such diverse industries as retail,
telecommunications, banking and finance, pharmaceuticals and healthcare,
technology and consumer packaged goods. A representative list of the firms that
purchased over $250,000 of our products and services since January 1, 1997 is as
follows:
Banking & Finance
American Express*
Ameritrade*
Banco Santander
Bank of America
CIBC
Fannie Mae
First Data Corporation
First Union Corporation*
First USA Bank
Freddie Mac*
GE Capital*
Nationwide Insurance*
Royal Bank of Canada
USAA
Visa International
Retail
Asda Stores
B & Q
Best Buy*
Comet
Elder Beerman
Fox Entertainment Group
Kmart*
Kohl's Department Stores
Littlewoods
Liz Claiborne*
Marks & Spencer*
ShopKo*
The Limited
Victoria's Secret
Woolworth's
Travel & Entertainment
Blockbuster Entertainment*
Continental Airlines
The SABRE Group
Starwood Hotels & Resorts
Universal Studios*
Telecommunications
Ameritech
AT&T Wireless Services
Bell Atlantic*
Bell South*
Cable & Wireless
Concert Management
Services*
MCI WorldCom
Pacific Bell*
Sprint*
Pharmaceutical & Healthcare
Cardinal Health
Glaxo Wellcome*
Ingenix*
MedPartners
Merck/Medco*
Premier
Smithkline Beecham
Warner Lambert*
Grocery & Pharmacy
American Stores*
Associated Food Stores
CVS Pharmacy
Eckerd Corporation*
Food Lion
Harris Teeter
Marsh Supermarkets
Government/Public Services
Housing and Urban
Development*
Ohio Department of
Education
US Air Force
US Postal Service*
Consumer Packaged Goods
Beverage Data Network
Brown & Williamson
Hallmark
Ralston Purina
S.C. Johnson Wax
Technology
Belo Interactive*
Earthlink*
Exchange Applications*
Gateway
IBM Corporation*
Lexis Nexis
Network Solutions
Nielsen Media Research
NCR*
Perot Systems
Snap.com
Tandem Computers
Western Digital*
Manufacturing & Industrial
Allied Signal
DuPont
General Motors
Lexmark*
Michelin*
Monsanto
Samsung*
Shaw Industries
Unisys
* Indicates customers that purchased more than $1.0 million of our products and
services since January 1, 1997.
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Sales and Marketing
Direct Sales Organization. We market our software and services primarily
through our direct sales force. As of December 31, 1999, we had domestic sales
offices in a number of cities, including Atlanta, Boston, Chicago, Cincinnati,
Dallas, Denver, Detroit, Kansas City, Los Angeles, Minneapolis, New York, San
Francisco, Seattle, Tampa and Washington, D.C., and international sales offices
located in Amsterdam, Barcelona, Madrid, Cologne, London, Paris, Sao Paolo,
Vienna, Milan, Toronto and Zurich. We are represented by distributors in
countries in which we do not have sales offices, including Australia, Chile,
Colombia, the Czech Republic, Finland, Greece, Ireland, New Zealand, Singapore,
South Africa, South Korea and Sweden.
Indirect Sales Channels. We have entered into relationships with more than 225
system integration, application development and platform partners whose products
and services are used in conjunction with our own. Agreements with these
partners generally provide them with non-exclusive rights to market our products
and services and allow access to our marketing materials, product training and
direct sales force for field level assistance. In addition, we offer our
partners product discounts. Favorable product recommendations from the leading
system integration, application development and platform partners to potential
customers facilitates the sale of our products. We believe that such indirect
sales channels allow us to leverage sales and service resources as well as
marketing and industry specific expertise to expand our user base and increase
our market coverage.
Value-Added Resellers. Value-added resellers who resell MicroStrategy software
bundled with their own software applications and/or syndicated data products
include:
Accrue Software
Acxiom
Beverage Data Network
Exchange Applications
Fair Isaac and Company
HNC Software
IDX Systems
M&I Data Services
Net Perceptions
Net.Genesis
Plum Tree
Prime Response
Radiant Systems
Radius Retail
Retek Information Systems
Systems Consulting Company
System Integrators. We have also entered into agreements to provide training,
support, marketing and sales assistance to a number of system integrators,
including:
American Management Systems
AnswerThink Consulting Group
Arthur Andersen
AutoMate Incorporated
BeggsHeidt Enterprise Consulting
BizIntel Technology
Braun Technology Group
CACI
Computer Sciences Corporation
Deloitte & Touche
Ernst & Young
Etensity
Greenbrier & Russel
KPMG Peat Marwick
Modis Solutions
NCR
Nex Genix
Perot Systems Corporation
Questra Corporation
Sapient Corporation
Silicon Graphics
Tessera Enterprise Systems
Whitman-Hart
Xpedior
Platform Partners. Our platform partners consist of firms which co-sell and
co-market complementary technology to the same target customer base. These
platform partners include IBM, Compaq, NCR, Sequent, ICL, Data General,
Informatica, Oracle, Informix, EDS and Deloitte & Touche.
Research and Product Development
We have made substantial investments in research and product development. We
believe that our future performance will depend in large part on our ability to
maintain and enhance our current product line, develop new products that achieve
market acceptance, maintain technological competitiveness and meet an expanding
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range of customer requirements. As of December 31, 1999, our research and
product development staff consisted of 338 employees. Our total expenses for
research and development for the years 1999, 1998 and 1997 were $28.0 million,
$12.1 million and $5.0 million (excluding $1.9 million of capitalized software
costs), respectively.
Competition
The markets for e-business, e-commerce, customer relationship management,
portals, business intelligence and Internet-based and wireless-based information
networks are intensely competitive and subject to rapidly changing technology.
In addition, many of our competitors in these markets are offering, or may soon
offer, products and services that may compete with our products and our
Strategy.com network.
Our most direct competitors provide:
. e-business infrastructure software;
. customer relationship management products;
. e-commerce transaction systems;
. business intelligence products;
. web portals and information networks;
. vertical Internet portals and information networks; and
. wireless communications and wireless access protocol enabled products.
Each of these market segments are discussed more fully below.
E-business Infrastructure Software. In the e-business infrastructure market,
BroadVision, E.piphany, Vignette, Net Perceptions, Broadbase, Art Technology
Group, Engage Technologies, Doubleclick and Personify all provide products that
compete directly or indirectly with our software platform. Many of these
companies provide alternatives to our technology for adding intelligence and
personalization to e-commerce applications. For example, customer information,
such as past purchases, clickstream data and stated preferences, can be used to
create a personalized e-commerce experience that targets customers with offers
and interactions to which they are more likely to respond.
Customer Relationship Management Products. Companies that deliver customer
relationship management products alone or in conjunction with e-commerce
applications, such as BroadVision, E.piphany, Vignette, and Siebel, compete with
our intelligent e-business products.
E-Commerce Transaction Systems. Products that support e-commerce transactions,
such as those provided by Microsoft, IBM, America Online's Netscape division,
BroadVision, Open Market, InterWorld, and Oracle could provide competition for
us. These products have the potential to extend their capabilities to use
customer information as the basis for generating targeted, personalized product
offers, which would compete with our e-business products.
Business Intelligence Products. In the business intelligence market, we
compete with providers of software used to enable businesses to analyze and
optimize their operations. In the enterprise category, which is generally
focused on large deployments, Information Advantage, which was recently acquired
by Sterling
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Software, competes with us. In the desktop analysis and reporting category, we
face competition from companies such as Business Objects, Cognos, and Brio
Technology. A third category includes products from companies such as Oracle,
Microsoft, and IBM that are generally bundled with or designed to work with
their own relational databases.
Web Portals and Information Networks. Web portals and information networks,
such as Microsoft Network, Yahoo, Lycos, Excite, America Online and
InfoSpace.com, offer an array of information that is similar to information
provided by Strategy.com. Strategy.com seeks to differentiate itself by:
. providing a greater level of personalization;
. allowing users to receive the precise information they want across the
broadest range of information delivery devices including through email,
wireless phone, pager, wireless access protocol enabled products, fax,
personal digital assistants and the telephone; and
. partnering with financial institutions, device manufacturers, Internet
companies, communication carriers, media companies and wireless companies,
to embed Strategy.com information services as an ingredient in their own
offerings.
One or more of these companies, however, could expand their offerings and
reduce our differentiation in these three areas.
Vertical Internet Portals and Information Networks. Expedia, Weather.com,
CNBC.com, ABC.com, ESPN.com, Microsoft Investor, StockBoss, Microsoft CarPoint,
InfoBeat, Internet Travel Network and others have developed custom applications
and products to commercialize, analyze and deliver specific information over the
Internet. These systems are usually tailored to one application, such as
providing news, sports or weather, but in the aggregate, they offer applications
similar to those provided by Strategy.com. Any one of these companies could
expand their offerings to more closely compete with Strategy.com.
Wireless Communications and Wireless Access Protocol Enabled Products.
Wireless communications providers, such as AT&T, Sprint, MCI WorldCom, Nextel
Communications, British Telecom, Deutsche Telekom, PageNet, Nokia, Ericsson,
Aether Systems, 3COM and Palm offer a variety of mobile phones and wireless
devices over which Strategy.com delivers information. These companies may
develop in-house information services or partner with other companies to deliver
information that is competitive to that offered by Strategy.com.
Many of our competitors have longer operating histories, significantly greater
financial, technical, marketing or other resources, and greater name recognition
than we do. In addition, many of our competitors have strong relationships with
current and potential customers and extensive knowledge of the e-business
industry. As a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than we can.
Increased competition may lead to price cuts, reduced gross margins and loss of
market share. We cannot be sure that we will be able to compete successfully
against current and future competitors or that the competitive pressures we face
will not have a material adverse affect on our business, operating results and
financial condition.
Current and future competitors may also make strategic acquisitions or
establish cooperative relationships among themselves or with others. By doing
so, they may increase their ability to meet the needs of our potential
customers. Our current or prospective indirect channel partners may establish
cooperative relationships with our current or future competitors. These
relationships may limit our ability to sell our products through specific
distribution channels. Accordingly, it is possible that new competitors or
alliances among current and future
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competitors may emerge and rapidly gain significant market share. These
developments could harm our ability to obtain maintenance revenues for new and
existing product licenses on favorable terms.
Intellectual Property and Licenses
We rely primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary technology. For example, we require software licensees to enter into
license agreements that impose certain restrictions on their use of the
software. In addition, we have made efforts to avoid disclosure of our trade
secrets, including but not limited to, requiring those persons with access to
our proprietary technology and information to enter into confidentiality
agreements with us and restricting access to our source code. We have no
patents. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
products is difficult, and while we are unable to determine the extent to which
piracy of our software products exists, software piracy can be expected to be a
persistent problem. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States. There can be no assurance that our means of protecting our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology.
Generally, our products are licensed through named-user licenses, under which
only one identified user may access the product for each named-user license fee
paid. A user is an individual to whom a licensee has assigned an identification
number for purposes of tracking use of a product and who is under an obligation
to the licensee to protect any of our confidential information. Under our
standard software license agreement, we have the ability to request certified
statements of records regarding identification numbers in particular, and use of
the products in general, once per year, and have the right to audit use of the
products at least once per year. Copying of products and documentation is
limited to the number of users for whom license fees have been paid.
There can be no assurance that third parties will not claim infringement by us
with respect to current or future products. We expect that software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in our industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all, which could have a material
adverse effect upon our business, operating results and financial condition.
Employees
As of December 31, 1999, we had a total of 1,662 employees, of whom 1,397 were
based in the United States and 265 were based internationally. Of the total, 579
were engaged in sales and marketing, 338 in product development, 486 in
professional services and 259 in finance, administration and corporate
operations. None of our employees is represented by a labor union. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
We believe that effective recruiting, education, and nurturing of human
resources is critical to our success and have traditionally made substantial
investments in these areas in order to differentiate ourselves from our
competition, increase employee loyalty and create a culture conducive to
creativity, cooperation and continuous improvement. These measures include:
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Professional Education. All newly hired professionals complete a professional
orientation course that ranges from 1 to 6 weeks long, presented by
"MicroStrategy University," our in-house education function. The curriculum
consists of lectures, problem sets and independent and group projects, covering
data, our products, competitors and customers. Certain lectures also deal with
general business practices, ethics and teamwork. At the end of this training,
students must pass a number of oral and written examinations in order to begin
their assignments. Following this introductory course, veteran employees
normally complete at least one week of continuing professional development each
year. Course content for MicroStrategy University is created by the most
experienced members of our professional staff, who generally have an annual
obligation to create expert content based upon the best practices they have most
recently observed in the field. This expert content is then used to upgrade and
revitalize our education, consulting, support, technology and marketing
operations.
Company Days. Each quarter, we invite most of the employee base together for
knowledge transfer within functions, across functions and across geographic
boundaries. These events are generally built around a set of company-wide
meetings and breakout sessions, but they also have particular cultural themes.
These events include:
. the "Company Retreat," which allows employees to network with colleagues in
an informal setting and which traditionally has consisted of a company-
sponsored cruise;
. "University Week," which focuses on continuing professional development
along with the creation and codification of industry-best practices;
. "Friends and Family Weekend," during which we sponsor a weekend-long open
house and host immediate and extended family, as well as friends of
employees; and
. "MicroStrategy World," where our business partners and customers are
encouraged to mix with the employee base in order to exchange information
and strengthen the firm's ties to the marketplace.
We believe that our "Company Day" events are long-term investments which will,
over time, result in superior productivity, morale and loyalty among the
employee base, and we expect to continue engaging in these activities in the
future.
Executive Officers and Directors
Our executive officers and directors and their ages and positions as of March
1, 2000 are as follows:
Name Age Title
- ---- --- -----
Michael J. Saylor.............. 35 President, Chief Executive Officer
and Chairman of the Board of
Directors
Sanju K. Bansal................ 34 Executive Vice President, Chief
Operating Officer and Director
Jonathan F. Klein.............. 33 Vice President, Law and General
Counsel
Mark S. Lynch.................. 36 Vice President, Finance and Chief
Financial Officer
Joseph P. Payne................ 35 Vice President, Marketing and Chief
Marketing Officer
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Stephen S. Trundle............. 31 Vice President, Technology and
Chief Technology Officer
Frank A. Ingari(1)(2).......... 50 Director
Jonathan J. Ledecky............ 42 Director
Ralph S. Terkowitz(1)(2)....... 49 Director
John W. Sidgmore............... 48 Director
_________________
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Set forth below is certain information regarding the professional experience
of each of the above-named persons.
Michael J. Saylor has served as president, chief executive officer and
chairman of the board of directors since founding MicroStrategy in November
1989. Prior to that, Mr. Saylor was employed by E.I. du Pont de Nemours &
Company as a Venture Manager from 1988 to 1989 and by Federal Group, Inc. as a
consultant from 1987 to 1988. Mr. Saylor received an S.B. in Aeronautics and
Astronautics and an S.B. in Science, Technology and Society from the
Massachusetts Institute of Technology.
Sanju K. Bansal has served as executive vice president and chief operating
officer since 1993 and was previously vice president, consulting since joining
MicroStrategy in 1990. He has been a member of the board of directors of
MicroStrategy since September 1997. Prior to joining MicroStrategy, Mr. Bansal
was a consultant at Booz Allen & Hamilton, a worldwide technical and management
consulting firm, from 1987 to 1990. Mr. Bansal received an S.B. in Electrical
Engineering from the Massachusetts Institute of Technology and an M.S. in
Computer Science from The Johns Hopkins University.
Jonathan F. Klein has served as vice president, law and general counsel since
November 1998 and as corporate counsel from June 1997 to November 1998. Prior to
that, Mr. Klein was an appellate litigator with the United States Department of
Justice. Mr. Klein received a B.A. in Economics from Amherst College and a J.D.
from Harvard Law School.
Mark S. Lynch has served as vice president, finance and chief financial
officer since September 1997. Prior to that, Mr. Lynch was chief financial
officer for WorldCorp and World Airways from 1996 to 1997, and before that was
vice president, finance for InteliData Technologies, an electronic commerce
firm, from 1991 to 1996. Mr. Lynch has also held several senior accounting
positions with KPMG Peat Marwick and Clark Construction Group. Mr. Lynch is a
certified public accountant and received a B.S. in Accounting from Penn State
and an M.B.A. from George Washington University.
Joseph P. Payne has served as vice president of marketing, and chief marketing
officer since April 1999. From 1996 to 1999, Mr. Payne held several executive-
level positions at InteliData Technologies, including president and chief
executive officer of its Telecommunications Division. Prior to that, Mr. Payne
served as vice president, marketing of Royal Crown Company from 1994 to 1996.
Before that, Mr. Payne was a brand manager at the Coca-Cola Company from 1991 to
1994. Mr. Payne received an A.B. in Public Policy from Duke University and an
M.B.A from the Fuqua School of Business at Duke University.
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Stephen S. Trundle has served as vice president, technology and chief
technology officer since July 1997 and as director, technology from 1994 to
1997. From 1992 to 1994, Mr. Trundle served as a consultant and then a senior
consultant with MicroStrategy. Prior to that, Mr. Trundle worked for Bath Iron
Works on the Aegis Destroyer program from 1991 to 1992. Mr. Trundle received an
A.B. in Engineering and an A.B. in Government from Dartmouth College.
Frank A. Ingari has been a member of the board of directors of MicroStrategy
since October 1997. Mr. Ingari is founder and chief executive officer of
Wheelhouse Corporation, an eMarketing services firm formed in April of 1999.
Between 1997 and April 1999, Mr. Ingari founded Growth Ally, L.L.C., a
consulting firm specializing in assisting private technology companies in
accelerating their growth and served as its chief executive officer. Mr. Ingari
was chairman and chief executive officer of Shiva Corporation from 1993 to 1997.
Prior to joining Shiva Corporation, Mr. Ingari was vice president, marketing at
Lotus Development Corporation. Mr. Ingari received a B.A. in Creative Writing
and U.S. Foreign Relations from Cornell University.
Jonathan J. Ledecky has been a member of the board of directors of
MicroStrategy since June 1998. Mr. Ledecky is currently vice chairman of Lincoln
Holdings LLC, which owns the Washington Capitals, the Washington Wizards and the
Washington Mystics sports teams. Mr. Ledecky founded U.S. Office Products
Company in October 1994 and served as its chairman of the board and chief
executive officer from inception through November 1997 and thereafter as a
director until May 1998. In February 1997, Mr. Ledecky founded Building One
Services Corp., now Encompass Services Corporation, and served as its chairman
until February 2000 and chief executive officer until June 1999. Mr. Ledecky is
also a director of publicly traded Aztec Technology Partners, UniCapital
Corporation and School Specialty.
Ralph S. Terkowitz has been a member of the board of directors of
MicroStrategy since September 1997. Mr. Terkowitz is vice president, technology
for the Washington Post Company, a position he has held since 1992. Until
February 1996, Mr. Terkowitz was chief executive officer, president and
publisher of Digital Ink, an Internet publishing venture that launched, among
other ventures, WashingtonPost.com and PoliticsNow. In 1998 he was co-chief
executive officer of HireSystems and instrumental in the formation of
BrassRing.com. Mr. Terkowitz is a director of ICSA, BigStep and OutTask. Mr.
Terkowitz received an A.B. in Chemistry from Cornell University an M.S. in
Chemical Physics from the University of California, Berkeley.
John W. Sidgmore has been a member of the board of directors of MicroStrategy
since February 2000. Mr. Sidgmore was the president and chief executive officer
of UUNET Technologies, Inc., a provider of worldwide Internet services, from
June 1994 until November 1998 and has served as chairman since November 1998.
Since December 1996, Mr. Sidgmore has served as the chief operating officer and
vice chairman of WorldCom Inc., now MCI WorldCom, a provider of long distance,
Internet and telecommunication services. Prior to joining UUNET, Mr. Sidgmore
was president and chief executive officer of Intelicom Solutions, now CSC
Intelicom, a telecommunications software company. Mr. Sidgmore is also a member
of the board of directors of MCI WorldCom and ADC Telecommunications, Inc.
ITEM 2. PROPERTIES
Our principal offices currently occupy over 300,000 square feet in Northern
Virginia pursuant to multiple leases, the majority of which expire between June
2003 and January 2007. We recently signed a lease agreement for an additional
146,000 square feet of office space, also in the Northern Virginia area, which
expires in February 2010. In addition, we also lease sales offices domestically
and internationally in a variety of locations, including Atlanta, Bedminster,
Boston, Chicago, Cincinnati, Dallas, Detroit, Los Angeles, Minneapolis, New
York, San Francisco, Seattle, Washington, D.C., Amsterdam, Barcelona, Cologne,
London, Madrid, Milan, Paris, Vienna and Zurich. We believe that suitable
additional or alternative space will be available in the future on commercially
reasonable terms as needed.
19
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Actions Arising under Federal Securities Laws
In March 2000, numerous separate complaints purporting to be class actions
were filed in federal courts in various jurisdictions alleging that we and
certain of our officers and directors violated section 10(b) of the Securities
Exchange Act of 1934, as amended, Rule 10b-5 promulgated by the SEC thereunder,
and section 20(a) of the Securities Exchange Act of 1934, as amended.
The complaints contain varying allegations, including that we made materially
false and misleading statements with respect to our 1999 and 1998 financial
results in our filings with the SEC, analysts' reports, press releases and media
reports. The complaints do not specify the amount of damages sought.
We have not filed any answers, motions to dismiss or other responsive
pleadings in this litigation. We intend to defend this matter vigorously.
SEC Investigation
In March 2000, we were notified that the SEC had issued a formal order of
private investigation in connection with matters relating to our restatement of
our financial results. The SEC has requested that we provide them with certain
documents concerning the revision of our financial results and financial
reporting documents. The SEC indicated that its inquiry should not be construed
as an indication by the SEC or its staff that any violation of law has occurred,
nor as an adverse reflection upon any person, entity or security. We are
cooperating with the SEC in connection with this investigation and its outcome
cannot yet be determined.
Other Proceedings
We are also involved in other legal proceedings through the normal course of
business. Management believes that any unfavorable outcome related to these
other proceedings will not have a material effect on our financial position,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our Class A common stock, $.001 par value, is traded on the Nasdaq National
Market under the symbol, MSTR. Following our initial public offering on June 16,
1998, the following high and low closing prices, adjusted to reflect the
two-for-one stock split which occurred in January 2000, were reported by Nasdaq
in each quarter:
For the quarter ended High Low
--------------------- ----- ---
June 30, 1998.................... $ 14.25 $ 10.38
September 30, 1998............... 22.25 12.06
December 31, 1998................ 16.94 10.38
March 31, 1999................... 16.44 9.31
June 30, 1999.................... 18.94 7.75
September 30, 1999............... 28.03 13.22
December 31, 1999................ 115.66 28.81
As of March 1, 2000, there were approximately 315 stockholders of record of
our Class A common stock and 13 stockholders of record of our Class B common
stock, $0.001 par value.
We have never paid any cash dividends on our Class A common stock and do not
expect to pay any such dividends in the foreseeable future. Our stock price has
fluctuated substantially since our initial public offering in June 1998. The
trading price of our Class A common stock is subject to significant fluctuations
in response to variations in quarterly operating results, the gain or loss of
significant orders, changes in earnings estimates by analysts, announcements of
technological innovations or new products by us or our competitors, general
conditions in the software and computer industries and other events or factors.
In addition, the equity markets in general have experienced extreme price and
volume fluctuations which have affected the market price for many companies in
industries similar or related to that of ours and which have been unrelated to
the operating performance of these companies. These market fluctuations have
affected and may continue to affect the market price of our Class A common
stock.
We sold 8,880,000 shares of our Class A common stock on June 16, 1998 in our
initial public offering pursuant to a registration statement on Form S-1
(Registration No. 333-49899), which was declared effective by the SEC on June
10, 1998. Certain stockholders of ours sold an aggregate of 320,000 shares of
Class A common stock pursuant to such registration statement. The managing
underwriters of this offering were Merrill Lynch & Co., Hambrecht & Quist, and
Friedman, Billings, Ramsey & Co., Inc. The aggregate gross proceeds raised in
the initial public offering by us and the selling stockholders were $53.3
million and $1.9 million, respectively. Our total expenses in connection with
the initial public offering were approximately $5.1 million, of which $3.7
million was for underwriting discounts and commissions and approximately $1.4
million was for other expenses. Our net proceeds from this offering were
approximately $48.2 million. From the effective date through December 31, 1999,
we used $13.6 million of the net proceeds of the initial public offering to
repay net borrowings under our business loan facility. In addition, we used
$10.0 million of such net proceeds to repay all of the borrowings under our
$10.0 million dividend notes which were issued to certain stockholders of ours
prior to the consummation of the initial public offering. Approximately $9.5
million of the $10.0 million dividend payment was paid to certain officers,
directors and 10% stockholders. As of December 31, 1999, we had used all
proceeds from the initial public offering for general corporate purposes to
support our growth.
We sold 3,170,000 shares of our Class A common stock, on February 10, 1999
pursuant to a registration statement on Form S-1 (Registration No. 333-70919),
which was declared effective by the SEC on February 10, 1999. Certain
stockholders of ours sold an aggregate of 830,000 shares of Class A common stock
under the same registration statement.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Restated)/2/ (Restated)/2/ (Restated)/2/
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data
Revenues:
Product licenses............................... $ 85,797 $61,635 $35,478 $15,873 $ 4,077
Product support and other services............. 65,461 33,854 17,073 6,730 5,700
-------- ------- ------- ------- -------
Total revenues................................ 151,258 95,489 52,551 22,603 9,777
-------- ------- ------- ------- -------
Cost of revenues:
Product licenses............................ 2,597 2,246 1,641 1,020 257
Product support and other services.......... 34,436 17,535 9,475 4,237 2,201
-------- ------- ------- ------- -------
Total cost of revenues................ 37,033 19,781 11,116 5,257 2,458
-------- ------- ------- ------- -------
Gross profit.................................... 114,225 75,708 41,435 17,346 7,319
Operating expenses:
Sales and marketing............................ 93,512 53,408 30,468 13,054 2,992
Research and development....................... 27,998 12,106 5,049 2,840 1,855
General and administrative..................... 24,448 12,743 6,552 3,742 2,395
In-process research and development............ 2,800 -- -- -- --
-------- ------- ------- ------- -------
Total operating expenses...................... 148,758 78,257 42,069 19,636 7,242
-------- ------- ------- ------- -------
(Loss) income from operations................... (34,533) (2,549) (634) (2,290) 77
Interest income................................. 2,174 1,028 94 22 16
Interest expense................................ (144) (720) (333) (127) (56)
Other income (expense), net..................... 6 (14) (12) 20 11
-------- ------- ------- ------- -------
(Loss) income before taxes...................... (32,497) (2,255) (885) (2,375) 48
Provision for income taxes...................... 1,246 -- -- -- --
-------- ------- ------- ------- -------
Net (loss) income............................... $(33,743) $(2,255) $ (885) $(2,375) $ 48
======== ======= ======= ======= =======
Basic and diluted net (loss) income per share/(1)/ $ (0.44) $ (0.03) $ (0.02) $ (0.04) $ 0.00
======== ======= ======= ======= =======
Weighted average shares used in computing
basic and diluted net (loss) income per share/(1)/ 77,028 66,986 58,988 58,988 57,793
======== ======= ======= ======= =======
As of December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Restated)/2/ (Restated)/2/ (Restated)/2/
(in thousands)
Balance Sheet Data
Cash and cash equivalents....................... $ 25,941 $27,491 $ 3,506 $ 1,686 $ 643
Working capital (deficit)....................... 53,109 23,919 (6,997) (2,237) 1,343
Total assets.................................... 203,368 76,571 29,101 13,004 5,838
Notes payable, long-term portion................ -- -- 2,428 460 600
Total stockholders' equity (deficit)............ 101,816 37,775 (1,433) (793) 1,546
</TABLE>
_________________
(1) Share and per share amounts for all periods presented have been restated to
reflect the two-for-one stock split which occurred in January 2000.
(2) See Note 3 of the Notes to Consolidated Financial Statements regarding
restatement of 1999, 1998 and 1997 financial statements.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We are a leading worldwide provider of intelligent e-business software and
related services that enable the transaction of one-to-one electronic business
through web, wireless and communication channels. Our product line enables both
proactive and interactive delivery of information from large-scale databases.
Our objective is to provide the largest 2000 enterprises in the world, leading
Internet businesses and high-volume data providers with a software platform to
develop solutions that deliver insight and intelligence to their enterprises,
customers and supply-chain partners.
Our software platform enables users to query and analyze the most detailed,
transaction-level databases, turning data into business intelligence. In
addition to supporting internal enterprise users, the platform delivers critical
business information beyond corporate boundaries to customers, partners and
supply chain constituencies through a broad range of communication channels such
as the Internet, e-mail, telephones and wireless communications devices. Our
platform is ideal for developing e-business solutions that are personalized and
proactive and that reach millions of users. We also offer a comprehensive set of
consulting, education and technical support services for our customers and
partners.
In July 1999, we launched a new business unit called Strategy.com.
Strategy.com is our personal intelligence network, a new form of media that
brings speed to transactions by actively delivering highly personalized,
relevant and timely information to individuals through a wide variety of
delivery methods, including e-mail, telephone and wireless devices. The
Strategy.com network leverages the MicroStrategy software platform and is
organized around a suite of information channels. The network currently operates
a Finance Channel and plans to launch additional channels on subjects such as
weather, news, politics, arts, traffic, travel and entertainment. Strategy.com
syndicates its channels through other companies that serve as network affiliates
and network associates, which we refer to collectively as affiliates. Affiliates
offer the Strategy.com channels and services on a co-branded basis directly to
their customers and in turn share with Strategy.com a percentage of revenues
they generate. Strategy.com also provides application maintenance, development,
customer billing, hosting and support services for these channels, enabling
affiliates to focus on their core businesses. Strategy.com has established more
than 100 network affiliate agreements with leading Internet companies,
communications carriers, media companies and financial institutions and now has
approximately 300,000 subscribers for its Strategy.com Finance Channel.
Strategy.com has recognized no revenue as of December 31, 1999.
Since 1995, we have significantly increased our sales and marketing, service
and support, research and development and general and administrative staff.
Although our revenues have significantly increased over the last three years, we
experienced fluctuating operating margins during 1997, 1998 and 1999 primarily
as a result of increases in staff levels. We expect to continue to increase
staffing levels and incur additional associated costs in future periods. In
addition, we intend to substantially increase our investment in Strategy.com. We
therefore expect operating losses to significantly increase in 2000.
Our revenues historically have been derived from two principal sources, fees
for product licenses and fees for maintenance, technical support, education and
consulting services, which we refer to collectively as product support and other
services. We recognize revenue in accordance with Statement of Position ("SOP")
97-2, "Software Revenue Recognition," as amended by SOP 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2" and SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition," and SOP 81-1, "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts," as
applicable.
Product license revenues are generally recognized upon the execution of a
contract and shipment of the related software product if no significant
obligations remain outstanding on our part and the resulting receivable is
deemed collectible by management.
23
<PAGE>
Technical support revenues are derived from customer support agreements
generally entered into in connection with initial product license sales and
subsequent renewals. Fees for our technical support services are displayed as
deferred revenue when paid by the customer and recognized ratably over the term
of the maintenance and support agreement, which is typically one year. We also
record as deferred revenue the fair value of implicit maintenance arrangements
when resellers or other customers that sell our software to end users offer
these end users the right to receive the then current version of our software at
the time of resale. Certain of these agreements extend over several years. Fees
for our education and consulting services are typically recognized at the time
the services are performed.
Revenues recognized from multiple-element software arrangements are allocated
to each element of the arrangement based on the relative fair values of the
elements, such as software products, upgrades, enhancements, technical support,
installation or education. The determination of fair value of each element is
based on objective evidence based on historical sales of the individual element
by us to other customers. If such evidence of fair value for each element of the
arrangement does not exist, all revenue from the arrangement is deferred until
such time that evidence of fair value does exist or until all elements of the
arrangement are delivered.
Customers at times require consulting and implementation services which
include evaluating their business needs, identifying resources necessary to meet
their needs and installing the solution to fulfill their needs. When the
software license arrangement requires the Company to provide significant
consulting services to produce, customize or modify software or when the
customer considers these services essential to the functionality of the software
product, both the product license revenue and product support and other services
revenue are recognized in accordance with the provisions of SOP 81-1. The
Company recognizes revenue from these arrangements using the percentage of
completion method and, therefore, both product license and product support and
other services revenue are recognized as work progresses. If the software
license arrangement obligates the Company to the delivery of unspecified future
products, then revenue is recognized on the subscription basis, ratably over the
term of the contract.
Beginning initially in the fourth quarter of 1998 and continuing throughout
1999, we began to sell our products and services to customers for large scale e-
commerce applications. In contrast to earlier periods in which our typical
customer transaction involved a stand-alone software license and maintenance,
these transactions typically involve multiple software products and services for
use by very large numbers of end users across web, wireless and voice
communications channels, and often incorporate elements from our Strategy.com
network. These multiple element transactions also often include significant
implementation and other consulting work and may also include our providing the
customer with hosting services, in which we manage the operation of hosting the
customer's specific e-commerce application. Customers often use our products and
services in a variety of ways, including internal use, integration with their
own products for resale to end users and creation of e-commerce applications.
These arrangements typically lead to our recording revenue from multiple
sources, including product license fees, product support fees and royalties
based on advertising, e-commerce transactions or the resale of solutions that
incorporate our software platform.
These large, multiple element transactions typically involve more complex
licensing and product support arrangements than the software licensing and
product support arrangements that comprised the bulk of our revenues in earlier
periods. Based on the revenue recognition criteria established in SOP 97-2 and
SOP 81-1, revenue from many of these large, multiple element contracts is not
recognizable upon full execution and delivery of the software product as in the
past, but instead is initially recorded as deferred revenue upon receipt of
cash, with product revenue recognized using the percentage of completion method
based on cost inputs or ratably over the entire term of the contract. As a
result of the size and complexity of these transactions, our results for any
quarter may depend significantly on the types of customer transactions that we
enter into during the quarter and on the mix of product licenses, support
agreements, implementation work and other specific
24
<PAGE>
terms of each transaction, each of which may have a significant effect on the
manner in which we recognize revenue from the transaction.
The sales cycle for our products may span nine months or more. Historically,
we have recognized a substantial portion of our revenues in the last month of a
quarter, with these revenues frequently concentrated in the last two weeks of a
quarter. Even minor delays in booking orders may have a significant adverse
impact on revenues for a particular quarter. To the extent that delays are
incurred in connection with orders of significant size, the impact will be
correspondingly greater. Product license revenues in any quarter can be
dependent on orders booked and shipped in that quarter. As a result of these and
other factors, our quarterly results have varied significantly in the past and
are likely to fluctuate significantly in the future. Accordingly, we believe
that quarter-to-quarter comparisons of our results of operations are not
necessarily indicative of the results to be expected for any future period.
We license our software through our direct sales force and increasingly
through, or in conjunction with, value-added resellers, system integrators and
original equipment manufacturers. Channel partners accounted for, directly or
indirectly, approximately 39.2%, 33.6% and 27.0% of our revenues for the years
ended December 31, 1999, 1998 and 1997, respectively. Although we believe that
direct sales will continue to account for a majority of product license
revenues, we intend to increase the level of indirect sales activities. However,
there can be no assurance that our efforts to continue to expand indirect sales
will be successful. We also intend to continue to expand our international
operations and have committed, and continue to commit, significant management
time and financial resources to developing direct and indirect international
sales and support channels.
Results of Operations
The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items reflected in our consolidated
statements of operations:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------
1999 1998 1997
---- ---- ----
(Restated)/1/ (Restated)/1/ (Restated)/1/
<S> <C> <C> <C>
Statements of Operations Data
Revenues:
Product licenses....................................... 56.7% 64.5% 67.5%
Product support and other services..................... 43.3 35.5 32.5
------ ----- -----
Total revenues........................................ 100.0 100.0 100.0
Cost of revenues:
Product licenses....................................... 1.7 2.4 3.1
Product support and other services..................... 22.8 18.4 18.0
------ ----- -----
Total cost of revenues................................ 24.5 20.8 21.1
------ ----- -----
Gross profit............................................ 75.5 79.2 78.9
Operating expenses:
Sales and marketing.................................... 61.8 55.9 58.0
Research and development............................... 18.5 12.7 9.6
General and administrative............................. 16.1 13.3 12.5
In-process research and development.................... 1.9 -- --
------ ----- -----
Total operating expenses.............................. 98.3 81.9 80.1
------ ----- -----
Loss from operations.................................... (22.8) (2.7) (1.2)
Interest income......................................... 1.4 1.1 0.2
Interest expense........................................ (0.1) (0.8) (0.6)
Provision for income taxes.............................. 0.8 -- --
------ ----- -----
Net loss................................................ (22.3)% (2.4)% (1.6)%
====== ===== =====
</TABLE>
_________________
(1) See Note 3 of Notes to the Consolidated Financial Statements regarding
restatement of 1999, 1998 and 1997 financial statements.
25
<PAGE>
Comparison of 1999, 1998 and 1997
Revenues. Total revenues consist of revenues derived from sales of product
licenses and product support and other services, including technical support,
education and consulting services. Total revenues increased from $52.6 million
in 1997 to $95.5 million in 1998 and to $151.3 million in 1999, resulting in a
revenue growth rate of 132.7% in 1997, 81.6% in 1998 and 58.4% in 1999. There
can be no assurance that total revenues will continue to increase at the rates
experienced in prior periods. The slower growth rates in 1999 and 1998 were
attributed to our new evolving business model. We entered into several new
multiple element transactions for large scale e-commerce applications and
complex Strategy.com deployments during 1999 and 1998. Based on the revenue
recognition criteria established in SOP 97-2 and SOP 81-1, revenue from many of
these large, multiple element arrangements is recorded as deferred revenue upon
receipt of cash, with both product license revenues and product support and
other services revenues recognized using the percentage of completion method
based on cost inputs or ratably over the entire term of the contract or over the
hosting period, as applicable.
In 1999, we launched the Strategy.com Finance Channel and plan to launch
additional information channels in the future. We expect to begin earning
subscription, advertising, transaction and other fees from our Strategy.com
service by the end of 2000.
Product License Revenues. Product license revenues increased from $35.5
million in 1997 to $61.6 million in 1998 and to $85.8 million in 1999, resulting
in a growth rate of 123.5% in 1997, 73.7% in 1998 and 39.3% in 1999. The
increase in product license revenues was due to continued demand for our core
products, new product offerings supporting intelligent e-business solutions and
increasing market demand for intelligent e-business solutions. We are attracting
new customers and our existing customer base is purchasing additional licenses
and new products to support their e-business solutions. As we continue to pursue
our new business model of larger-scale, multiple element transactions, we expect
product license revenues as a percentage of total revenues to fluctuate on a
period-to-period basis, and may vary significantly from the percentage of total
revenues achieved in prior years. In addition, there can be no assurance that we
will be able to maintain or continue to increase market acceptance for our
family of products.
Product Support and Other Services Revenues. Product support and other
services revenues increased from $17.1 million in 1997 to $33.9 million in 1998
and to $65.5 million in 1999, resulting in a growth rate of 153.7% in 1997,
98.2% in 1998 and 93.4% in 1999. The increase in product support and other
services revenues was primarily due to the increase in product licenses sold as
well as an increase in large scale e-commerce applications which require
significant implementation and other consulting work. An element of our sales
and marketing strategy is to use third-party implementation services to enable
us to more rapidly penetrate our target market. In addition, we plan to use our
consultants more aggressively to help sell our products and services, assist
with development of Strategy.com channels and other research and development
projects. To the extent that such efforts are successful, our product support
and other services revenues could decline as a percentage of total revenues. As
a result of the above mentioned trends, we expect product support and other
services revenues as a percentage of total revenues to fluctuate on a period-to-
period basis, and may vary significantly from the percentage of total revenues
achieved in prior years.
International Revenues. International revenues increased from $14.2 million in
1997 to $24.9 million in 1998 and to $36.4 million in 1999, resulting in a
growth rate of 466.7% in 1997, 74.9% in 1998 and 45.9% in 1999. The increase in
these revenues is due to the expansion of our international operations, new
product offerings and growing international market acceptance of our software
products. We opened sales offices in Brazil in 1999, in Canada and Italy in 1998
and in Austria, France, the Netherlands, Germany, United Kingdom and Spain prior
to 1998. We anticipate that international revenues will continue to account for
a significant amount of total revenues and management expects to continue to
commit significant time and financial
26
<PAGE>
resources to the maintenance and ongoing development of direct and indirect
international sales and support channels. We may not be able to maintain or
continue to increase international market acceptance for our family of products.
Costs and Expenses
Cost of Product License Revenues. Cost of product license revenues consists
primarily of the costs of product manuals, media, amortization of capitalized
software expenses and royalties paid to third party software vendors. Cost of
product license revenues increased from $1.6 million in 1997 to $2.2 million in
1998 and to $2.6 million in 1999. As a percentage of product license revenues,
however, cost of product license revenues decreased from 4.5% in 1997 to 3.6% in
1998 and to 3.0% in 1999. The decrease in cost of product license revenues as a
percentage of product license revenues was due to economies of scale realized by
producing larger volumes of product materials and decreased materials costs due
to an increase in the percentage of customers reproducing product documentation
at their sites. We anticipate that the cost of product license revenues will
continue to increase as product license revenues increase, but decrease as a
percentage of product license revenues. However, in the event that we enter into
any royalty arrangements with strategic partners in the future, cost of product
license revenues as a percentage of total product license revenues may increase.
Cost of Product Support and Other Services Revenues. Cost of product support
and other services revenues consists of the costs of providing technical
support, education and consulting services to customers and partners. Cost of
product support and other services revenues increased from $9.5 million in 1997
to $17.5 million in 1998 and to $34.4 million in 1999. As a percentage of
product support and other services revenues, cost of product support and other
services revenues was 55.6% in 1997, 51.8% in 1998 and 52.5% in 1999. The
increase in cost of product support and other services revenues was primarily
due to the increase in the number of personnel providing consulting, education
and technical support to customers as a result of the increase in product
licenses sold, new large scale e-commerce applications and complex Strategy.com
deployments. Despite the increase in personnel and other costs for 1998, the
total cost of product support revenues decreased as a percentage of revenues
during 1998 compared to 1997 primarily due to the increase in technical support
revenues which typically do not require proportionate increases in the costs
required to perform associated technical support services. This trend continued
in 1999; however, the improvements in margin due to increasing technical support
revenues were offset by the increased use of third parties to perform consulting
services.
We expect to continue to increase the number of customer education and
implementation consultants and technical support personnel in the future. To the
extent that our product support and other services revenues do not increase at
anticipated rates, the hiring of additional consultants and technical support
personnel could increase the cost of product support and other services revenues
as a percentage of product support and other services revenues. In addition, to
the extent that we cannot hire adequate numbers of support personnel to meet
demand, we may need to rely more heavily on third parties to perform consulting
services, further increasing cost of product support and other services revenues
as a percentage of product support and other services revenues.
Sales and Marketing Expenses. Sales and marketing expenses include personnel
costs, commissions, office facilities, travel, advertising, public relations
programs and promotional events, such as trade shows, seminars and technical
conferences. Sales and marketing expenses increased from $30.5 million in 1997
to $53.4 million in 1998 and to $93.5 million in 1999. As a percentage of total
revenues, sales and marketing expenses decreased from 58.0% in 1997 to 55.9% in
1998 and increased to 61.8% in 1999. The increase in sales and marketing
expenses was primarily the result of increased staffing levels in the sales
force, increased commissions earned, increased promotional activities and
advertising, increased marketing efforts for Strategy.com and general marketing
efforts. In addition, we began a national advertising campaign during the fourth
quarter of 1999, which we plan to continue in 2000. We have invested and will
continue to substantially increase our investment in sales and marketing over
the next twelve months in order to create better market
27
<PAGE>
awareness of the value-added potential of our product suite and to seek to
acquire market share. In addition, we intend to invest heavily over the next
twelve months to market Strategy.com.
Research and Development Expenses. Research and development expenses consist
primarily of salaries and benefits of software engineering personnel,
depreciation of equipment and other costs. Research and development expenses
increased from $5.0 million in 1997 to $12.1 million in 1998 and to $28.0
million in 1999. As a percentage of total revenues, research and development
expenses increased from 9.6% in 1997 to 12.7% in 1998 and to 18.5% in 1999. The
increase in research and development expenses was primarily due to hiring
additional research and development personnel to continue development of
Strategy.com channels, new products, product releases and e-commerce technology.
We intend to substantially increase our investment over the next twelve months
to develop sports, traffic and other channels as part of our suite of
information channels of our Strategy.com network. In addition, we expect that
research and development expenses will continue to increase as we continue to
invest in developing new products, applications and product enhancements for our
existing platform business.
In 1997, in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Equipment to Be Sold,
Leased, or Otherwise Marketed," we capitalized research and development costs
associated with the version 5.0 release of our software product line. As a
result, we capitalized approximately $1.9 million of research and development
costs during 1997. During 1998 and 1999, no costs were capitalized as the
establishment of technological feasibility and general release of such software
had substantially coincided.
General and Administrative Expenses. General and administrative expenses
include personnel and other costs of our finance, human resources, information
systems, administrative and executive departments as well as outside
professional fees. General and administrative expenses increased from $6.6
million in 1997 to $12.7 million in 1998 and to $24.4 million in 1999. As a
percentage of total revenues, general and administrative expense were 12.5% in
1997, 13.3% in 1998 and 16.1% in 1999. The increase in general and
administrative expenses was primarily the result of increased staff levels and
related costs associated with the growth of our business during these periods.
Although we expect that general and administrative expenses will continue to
increase in the foreseeable future, such expenses are not expected to
significantly vary as a percentage of total revenues in the future.
In-process Research and Development. In December 1999, we purchased the
intellectual property and other tangible and intangible assets, including the
assembled workforce, relating to NCR's Teracube project in exchange for 566,372
shares of Class A common stock, valued at $49.6 million, based on the price of
our stock at the closing. We will develop the Teracube assets in concert with
its existing proprietary technology to create a business intelligence platform
for datawarehouses using NCR's Teradata database. Our preliminary allocation of
the $49.6 million purchase price was $2.8 million for in-process research and
development and $46.8 million to tangible and intangible assets including core
technology, computer equipment, assembled work force and agreements not to
compete. We believe the weighted average estimated useful life of such assets,
based upon the final allocation, will be less than 5 years and anticipate the
final allocation will be completed during the first half of 2000. As a result,
we will incur substantially incresased amortization expense in future periods
relating to the amortization of these intangible assets. We recorded $341,000
in related amortization expense related to the Teracube project in 1999.
In estimating the fair value of the in-process research and development
projects acquired, we considered, among other factors, the stage of development
of the Teracube research and development projects at the time of the acquisition
and projected estimated cash flows from those projects when completed and the
percentage of the final products cash flows that is attributed to our core
technology and that was already developed by NCR. Associated risks include the
inherent difficulties and uncertainties in completing Teracube and, thereby,
achieving technological feasibility and risk related to the impact of potential
changes in future technology.
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We intend to incur expenses of approximately $900,000 over the next year in
order to complete the project. The project was approximately 85% complete at the
time of the acquisition and approximately 30% of the final product's estimated
cash in-flows are attributable to the acquired Teracube technology. We used a
discount rate of 35% when estimating the net present value of the projected
incremental cash flows. Remaining development efforts are focused on completing
development of certain sub-products of Teracube that will maximize efficiencies
in operation of our business intelligence and e-business products and make it
compliant with industry standards. Completion of these projects will be
necessary before revenues are produced. We expect to begin to benefit from the
purchased in-process research and development by the end of 2000. If these
projects are not successfully developed, we may not realize the value assigned
to the in-process research and development projects.
Deferred Compensation Expense. During 1998, we granted options to purchase
3,753,380 shares of Class A common stock, of which options to purchase 1,071,670
shares of Class A common stock were granted at exercise prices below fair market
value. We will amortize $1.4 million of compensation expense related to these
options ratably over the five-year vesting period. In 1999 and 1998,
compensation expense was $269,000 and $186,000, respectively. We will record
additional compensation expense of $270,000 in each year beginning 2000 through
2002, and $85,000 in 2003, if all of the related options vest.
Provision for Income Taxes. In 1999 and 1998, we recorded income tax expense
of $1.2 million and $0, respectively. Prior to our initial public offering, we
had elected to be treated as a Subchapter S corporation for federal and state
income tax purposes. Under Subchapter S, our income was allocated to our
individual stockholders rather than to us. Accordingly, no federal or state
income taxes have been provided for in the financial statements, prior to June
1998, when we converted to a C corporation.
Deferred Revenue
Deferred revenue represents product support and other services fees that are
collected in advance, product license and product support and other services
fees relating to multiple element software arrangements for which the fair value
of each element cannot be established or product license and product support and
other services fees relating to arrangements which required implementation
related services that are significant to the functionality of features of the
software product, including arrangements with subsequent hosting services.
Deferred revenue was $71.3 million as of December 31, 1999 compared to $13.0
million as of December 31, 1998. The increase in deferred revenue is primarily
attributable to a few large contracts with customers that involved multiple
elements, including software products, product support and other services,
hosting services and/or Strategy.com services and for which our revenue
recognition policy requires that the revenues be recognized on a percentage of
completion basis or recognized over the entire term of the contract or the
hosting period, as applicable. We expect to recognize approximately $38.0
million of this deferred revenue in 2000, however, the timing and ultimate
recognition of our deferred revenue depends on our performance of various
service obligations. Because of the possibility of customer changes in
development schedules, delays in implementation and development efforts and the
need to satisfactorily perform product support and other services, deferred
revenue as of any particular date may not be representative of actual revenue
for any succeeding period.
Liquidity and Capital Resources
From inception until our initial public offering, we primarily financed our
operations and met our capital expenditure requirements through cash flows from
operations and short- and long-term borrowings. On June 16, 1998, we raised
$48.2 million, net of offering costs, from our initial public offering, and we
raised an additional $40.1 million, net of offering costs, on February 10, 1999
from a public offering of 3,170,000 shares of Class A common stock. On December
31, 1999 and December 31, 1998, we had $68.4 million and $27.5 million of cash,
cash equivalents, and short-term investments, respectively.
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Cash provided by operations was $89,000 for 1999 and cash used in operations
was $2.5 million for 1998. The decrease in cash used in operations from 1998 to
1999 was primarily attributable to an increase in deferred income and prepaid
expenses offset by an increase in net loss. As discussed in the overview, we
intend to aggressively pursue financing to allow us to invest significant
resources to market, develop and operate Strategy.com. Because of this
anticipated ongoing investment, we expect to use significant cash in operations.
Cash used in investing activities was $43.2 million and $9.3 million for 1999
and 1998, respectively. The increase in cash used in investing activities from
1998 to 1999 reflected purchases of short-term investments and capital
expenditures related to the acquisition of computer and office equipment
required to support expansion of our operations and building of infrastructure
to support Strategy.com. As of December 31, 1999 we had $12.2 million in
commitments for computer software and equipment. Additionally, in November 1999,
we signed a three-year master lease agreement to lease up to $40.0 million of
computer equipment, of which we leased approximately $17.8 million as of March
30, 2000. The lease bears interest at a rate equal to interest on three-year
U.S. treasury notes plus 1.5% to 2.0%. Future draw downs and interest rates
under the lease agreement are subject to our credit worthiness. If the lessor
deems our credit unworthy, we may not be able to lease additional equipment
under the agreement.
Our financing activities provided cash of $42.2 million and $35.7 million for
1999 and 1998, respectively. The principal source of cash from financing
activities during 1999 was from the sale of 3,170,000 shares of Class A common
stock in which we raised $40.1 million, net of offering costs. In March 1999, we
entered into a line of credit agreement with a commercial bank which provides
for a $25.0 million unsecured revolving line of credit for general working
capital purposes. Borrowings under the line of credit will bear interest at a
variable rate equal to LIBOR plus 1.0% to 1.75%, depending upon the ratio of
funded debt to earnings before interest, taxes, depreciation and amortization.
The line of credit agreement includes a 0.2% unused line of credit fee and
expires on May 31, 2001. As of December 31, 1999, no amounts were outstanding
under the line of credit. The line of credit requires us to comply with certain
financial covenants. We currently do not comply with all of the covenants
contained in the line of credit agreement, but have received a waiver through
April 30, 2000 at which time we expect to restructure the credit facility. If
we are not in compliance with all covenants contained in the line of credit
agreement, we will not have the right to borrow amounts under the agreement.
We declared a $10.0 million dividend to our stockholders prior to our initial
public offering. The dividend was paid in the form of notes, prior to the
termination of our S corporation election, which occurred immediately prior to
the consummation of our initial public offering. As of December 31, 1999, the
entire $10.0 million of the dividend notes had been repaid.
We will require additional external financing through credit facilities, sale
of additional equity or other financing facilities to support our planned
investment of significant resources to build the Strategy.com personal
intelligence network, to continue to grow the MicroStrategy software platform
business, and to increase both MicroStrategy and Strategy.com brand awareness.
There are no assurances that such financing facilities would be available on
acceptable terms; however, we believe that our existing cash and cash generated
internally by operations will meet our working capital requirements for at least
the next 12 months with more modest growth in Strategy.com and MicroStrategy and
minimal brand awareness expenditures.
In December 1999, we received approximately 824,000 shares (adjusted for a
two-for-one stock split) of Exchange Applications, valued at $21.5 million in
consideration for the sale of MicroStrategy software, technical support and
consulting services. Subsequent to year end, we sold approximately 412,000 of
these shares at an average price of approximately $41.71 per share.
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Recent Accounting Pronouncements
In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. Subsequently, the SEC released SAB 101A, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. We are required to be in
conformity with the provisions of SAB 101, as amended by SAB 101A, no later than
April 1, 2000 and do not expect a material effect on our financial position,
results of operations or cash flows as a result of SAB 101.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
which delays the effective date of SFAS No. 133, ''Accounting for Derivative
Instruments and Hedging Activities,'' which will be effective for our fiscal
year 2001. This statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. We believe the adoption of
SFAS Nos. 133 and 137 will not have a material effect on our financial
statements.
Risk Factors
The following important factors, among others, could cause actual results to
differ materially from those contained in forward-looking statements made in
this Annual Report on Form 10-K or presented elsewhere by management from time
to time. The risks and uncertainties described below are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also impair our business operations.
If any of the events described in the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected. In such case, the trading price of our Class A common stock
could decline and you may lose all or part of your investment.
Our quarterly operating results, revenues and expenses may fluctuate
significantly, which could have an adverse effect on the market price of our
stock
For a number of reasons, including those described below, our operating
results, revenues and expenses may vary significantly from quarter to quarter.
These fluctuations could have an adverse effect on the market price of our Class
A common stock.
Fluctuations in Quarterly Operating Results. Our quarterly operating results
may fluctuate as a result of:
. the size, timing and execution of significant orders and shipments;
. the mix of products and services of customer orders, which can affect
whether we recognize revenue upon the signing and delivery of our software
products or whether revenue must be recognized as work progresses or over
the entire contract period;
. the timing of new product announcements;
. changes in our pricing policies or those of our competitors;
. market acceptance of business intelligence software generally and of new
and enhanced versions of our products in particular;
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. the length of our sales cycles;
. changes in our operating expenses;
. personnel changes;
. our success in expanding our direct sales force and adding to our indirect
distribution channels;
. the pace and success of our international expansion;
. delays or deferrals of customer implementation;
. changes in foreign currency exchange rates; and
. seasonal factors such as a lower pace of new sales in the summer.
Limited Ability to Adjust Expenses. Because we plan to expand our business, we
expect our operating expenses to increase substantially. In particular, during
2000 we expect to increase significantly the costs associated with marketing,
developing and operating our Strategy.com network and with expanding our
technical support, research and development and sales and marketing
organizations. We also expect to devote substantial resources to expanding our
indirect sales channels and international operations. We base our operating
expense budgets on expected revenue trends. In the short term we may not be able
to reduce the actual operating expenses associated with our expansion.
Based on the above factors, we believe that quarter-to-quarter comparisons of
our operating results are not a good indication of our future performance. It is
possible that in one or more future quarters, our operating results may be below
the expectations of public market analysts and investors. In that event, the
trading price of our Class A common stock may fall.
We have recently introduced Strategy.com and it is uncertain whether it will
achieve widespread acceptance
We have implemented the Finance Channel of our Strategy.com network, and our
weather and news channels have been introduced on a test basis. We plan on
introducing sports and traffic channels as part of our suite of information
channels, but they are still in development. While we expect to implement these
channels on a commercial basis by the end of 2000, we may encounter delays or
difficulties in this commercial introduction. We expect that a portion of our
future revenue will depend on fees from subscribers for the use of the
Strategy.com network service, from products and services offered through this
network, and from royalties from affiliates who bundle our Strategy.com network
with their own product and service offerings. We have not, to date, generated
any revenue from our Strategy.com network and may not be able to do so in the
future. If this service, or the products and services offered through it, fail
to achieve widespread customer acceptance, our business, operating results and
financial condition may be materially adversely affected. In addition, revenue
from Strategy.com would be adversely affected if our affiliates do not perceive
that the integration of our Strategy.com network with their product and service
offerings will increase demand for their products and services or will otherwise
be able to generate a sufficient return on their investment in the use of our
network.
We intend to make significant expenditures in developing our Strategy.com
network, which will result in us incurring operating losses
We plan to substantially increase the amounts we will expend on our
Strategy.com network compared to the expenses we have incurred to date. We
intend to substantially increase our investment in Strategy.com over the next
twelve months to market, develop and operate Strategy.com. We therefore expect
operating losses to
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increase in 2000. We also intend to continue making significant investments in
Strategy.com after 2000 and therefore believe we will continue to be
unprofitable for the foreseeable future.
We may lose sales, or sales may be delayed, due to the long sales and
implementation cycles for our products, which would reduce our revenues
To date, our customers have typically invested substantial time, money and
other resources and involved many people in the decision to license our software
products. As a result, we may wait nine months or more after the first contact
with a customer for that customer to place an order while they seek internal
approval for the purchase of our products. During this long sales cycle, events
may occur that affect the size or timing of the order or even cause it to be
canceled. For example, our competitors may introduce new products, or the
customer's own budget and purchasing priorities may change.
Even after an order is placed, the time it takes to deploy our products varies
widely from one customer to the next. Implementing our product can sometimes
last several months, depending on the customer's needs and may begin only with a
pilot program. It may be difficult to deploy our products if the customer has
complicated deployment requirements, which typically involve integrating
databases, hardware and software from different vendors. If a customer hires a
third party to deploy our products, we cannot be sure that our products will be
deployed successfully.
Our employees, investors, customers, vendors and lenders may react adversely to
the revision of our 1999, 1998 and 1997 revenues and operating results
Our future success depends in large part on the support of our key employees,
investors, customers, vendors and lenders, who may react adversely to the
revision of our 1999, 1998 and 1997 revenues and operating results. The
revision of our 1999, 1998 and 1997 revenues and operating results has resulted
in substantial amounts of negative publicity about us. We may not be able to
retain key employees and customers if they lose confidence in us, and our
vendors and lenders may reexamine their willingness to do business with us. In
addition, investors may lose confidence which may cause the trading price of our
Class A common stock to decrease. If we lose the services of our key employees
or are unable to retain and attract our existing and new customers, vendors and
lenders, our business, operating results and financial condition could be
materially and adversely affected.
Our recognition of deferred revenue is subject to future performance obligations
and may not be representative of actual revenues for succeeding periods
Our deferred revenue was $71.3 million as of December 31, 1999. The timing and
ultimate recognition of our deferred revenue depends on our performance of
various service obligations. Because of the possibility of customer changes in
development schedules, delays in implementation and development efforts and the
need to satisfactorily perform product support services, deferred revenue at any
particular date may not be representative of actual revenue for any succeeding
period.
We may need additional financing which could be difficult to obtain
We intend to grow our business rapidly, including investing substantial
amounts in our Strategy.com business and expect to incur operating losses for
the foreseeable future. Therefore, we may require significant external financing
in the future. Obtaining additional financing will be subject to a number of
factors, including:
. market conditions;
. our operating performance; and
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. investor sentiment.
These factors may make the timing, amount, terms and conditions of additional
financing unattractive to us. If we are unable to raise capital to fund our
growth, our business, financial condition and results of operations would be
materially and adversely affected.
We face litigation that could have a material adverse effect on our business,
financial condition and results of operations
We and some of our directors and executive officers are named as defendants in
a number of private securities litigation matters. Although we intend to defend
these actions vigorously, no assurance can be given as to the outcomes. It is
possible that we may be required to pay substantial damages or settlement costs
which could have a material adverse effect on our financial condition or results
of operation. In addition, the SEC has issued a formal order of private
investigation in connection with matters relating to our restatement of our
financial results. The SEC has requested that we provide the them with certain
documents concerning the revision of our financial results and financial
reporting documents. We are cooperating with the SEC in connection with this
investigation. Regardless of the outcome of any of these actions, it is likely
that we will incur substantial defense costs and that such actions will cause a
diversion of management time and attention.
We expect that our ability to borrow money under our existing credit facilities
will require waivers by our lenders or amendments to those facilities
Our credit facilities require that we comply with a number of financial
covenants. Although we have not borrowed any amounts under our $25.0 million
unsecured line of credit, we do not currently comply with all of the covenants
contained in the line of credit agreement; however, we have received a waiver
from the lender through April 30, 2000 at which time we expect to restructure
the credit facility. If we are in violation of any financial covenants, we will
not have the ability to borrow amounts under this facility.
In addition, we signed a three-year master lease agreement to lease up to
$40.0 million of computer equipment, of which we have leased approximately $17.8
million as of March 30, 2000. Future draw downs and interest rates under the
lease agreement are subject to our credit worthiness. If the lessor deems our
credit unworthy, we may not be able to lease additional equipment under the
agreement.
We face intense competition, which may lead to lower prices for our products,
reduced gross margins, loss of market share and reduced revenue
The markets for e-business, e-commerce, customer relationship management,
portals, business intelligence and Internet-based and wireless-based information
networks are intensely competitive and subject to rapidly changing technology.
In addition, many of our competitors in these markets are offering, or may soon
offer, products and services that may compete with our products and our
Strategy.com network.
Our most direct competitors provide:
. e-business products;
. customer relationship management products;
. e-commerce transaction systems;
. business intelligence products;
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. Internet and wireless information networks and portals;
. vertical Internet portals and information networks; and
. wireless communications and wireless access protocol enabled products.
Each of these market segments are discussed more fully below.
E-business Infrastructure Software. In the e-business infrastructure market,
BroadVision, E.piphany, Vignette, Net Perceptions, Broadbase, Art Technology
Group, Engage Technologies, Doubleclick and Personify all provide products that
compete directly or indirectly with our software platform. Many of these
companies provide alternatives to our technology for adding intelligence and
personalization to e-commerce applications. For example, customer information,
such as past purchases, clickstream data and stated preferences, can be used to
create a personalized e-commerce experience that targets customers with offers
and interactions to which they are more likely to respond.
Customer Relationship Management Products. Companies that deliver customer
relationship management products alone or in conjunction with e-commerce
applications, such as BroadVision, E.piphany, Vignette, and Siebel, compete with
our intelligent e-business products.
E-Commerce Transaction Systems. Products that support e-commerce transactions,
such as those provided by Microsoft, IBM, America Online's Netscape division,
BroadVision, Open Market, InterWorld, and Oracle could provide competition for
us. These products have the potential to extend their capabilities to use
customer information as the basis for generating targeted, personalized product
offers, which would compete with our e-business products.
Business Intelligence Products. In the business intelligence market, we
compete with providers of software used to enable businesses to analyze and
optimize their operations. In the enterprise category, which is generally
focused on large deployments, Information Advantage, which was recently acquired
by Sterling Software, competes with us. In the desktop analysis and reporting
category, we face competition from companies such as Business Objects, Cognos,
and Brio Technology. A third category includes products from companies such as
Oracle, Microsoft, and IBM that are generally bundled with or designed to work
with their own relational databases.
Web Portals and Information Networks. Web portals and information networks,
such as Microsoft Network, Yahoo, Lycos, Excite, America Online and
InfoSpace.com, offer an array of information that is similar to information
provided by Strategy.com. Strategy.com seeks to differentiate itself by:
. providing a greater level of personalization;
. allowing users to receive the precise information they want across the
broadest range of information delivery devices including through email,
wireless phone, pager, wireless access protocol enabled products, fax,
personal digital assistants and the telephone; and
. partnering with financial institutions, device manufacturers, Internet
companies, communication carriers, media companies and wireless companies,
to embed Strategy.com information services as an ingredient in their own
offerings.
One or more of these companies, however, could expand their offerings and
reduce our differentiation in these three areas.
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Vertical Internet Portals and Information Networks. Expedia, Weather.com,
CNBC.com, ABC.com, ESPN.com, Microsoft Investor, StockBoss, Microsoft CarPoint,
InfoBeat, Internet Travel Network and others have developed custom applications
and products to commercialize, analyze and deliver specific information over the
Internet. These systems are usually tailored to one application, such as
providing news, sports or weather, but in the aggregate, they offer applications
similar to those provided by Strategy.com. Any one of these companies could
expand their offerings to more closely compete with Strategy.com.
Wireless Communications and Wireless Access Protocol Enabled Products.
Wireless communications providers, such as AT&T, Sprint, MCI WorldCom, Nextel
Communications, British Telecom, Deutsche Telekom, PageNet, Nokia, Ericsson,
Aether Systems, 3COM and Palm offer a variety of mobile phones and wireless
devices over which Strategy.com delivers information. These companies may
develop in-house information services or partner with other companies to deliver
information that is competitive to that offered by Strategy.com.
Many of our competitors have longer operating histories, significantly greater
financial, technical, marketing or other resources, and greater name recognition
than we do. In addition, many of our competitors have strong relationships with
current and potential customers and extensive knowledge of the e-business
industry. As a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than we can.
Increased competition may lead to price cuts, reduced gross margins and loss of
market share. We cannot be sure that we will be able to compete successfully
against current and future competitors or that the competitive pressures we face
will not have a material adverse affect on our business, operating results and
financial condition.
Current and future competitors may also make strategic acquisitions or
establish cooperative relationships among themselves or with others. By doing
so, they may increase their ability to meet the needs of our potential
customers. Our current or prospective indirect channel partners may establish
cooperative relationships with our current or future competitors. These
relationships may limit our ability to sell our products through specific
distribution channels. Accordingly, it is possible that new competitors or
alliances among current and future competitors may emerge and rapidly gain
significant market share. These developments could harm our ability to obtain
maintenance revenues for new and existing product licenses on favorable terms.
Our business is expanding, and our failure to manage this expansion effectively,
as well as the strain on our resources, could have a material adverse effect on
our business, operating results and financial condition
We have been expanding rapidly and we expect to continue expanding our
operations. Our total number of employees has grown from 59 on December 31, 1994
to 1,662 on December 31, 1999 and we expect the number of employees to continue
to increase. We have placed significant demands on our administrative,
operational, financial and personnel resources and expect to continue doing so.
In particular, we expect the current and planned growth of our international
operations to lead to increased financial and administrative demands. For
example, expanded facilities will complicate operations, managing relationships
with new foreign partners will mean additional administrative burdens, and
managing foreign currency risks will require expanded treasury functions. We may
also need to expand our support organization to develop our indirect
distribution channels in new and expanded markets and to accommodate growth in
our installed customer base. Failure to manage our expansion effectively could
have a material adverse effect on our business, operating results and financial
condition.
In addition, the development of our Strategy.com network could divert the time
and attention of our senior management from our other business. Michael J.
Saylor, our chairman, president and chief executive officer, currently is
responsible for the strategic planning and direction of both our MicroStrategy
software platform
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and Strategy.com network businesses. If Mr. Saylor does not effectively manage
his time and attention between our businesses, it could materially adversely
affect our business, operating results and financial condition.
If we are unable to recruit or retain skilled personnel, or if we lose the
services of any of our key management personnel, our business, operating results
and financial condition would be materially adversely affected
Our future success depends on our continuing ability to attract, train,
assimilate and retain highly skilled personnel. Competition for these employees
is intense. We may not be able to retain our current key employees or attract,
train, assimilate or retain other highly skilled personnel in the future. Our
future success also depends in large part on the continued service of key
management personnel, particularly Michael J. Saylor, our chairman, president
and chief executive officer, and Sanju K. Bansal, our executive vice president
and chief operating officer. If we lose the services of one or both of these
individuals or other key personnel, or if we are unable to attract, train,
assimilate and retain the highly skilled personnel we need, our business,
operating results and financial condition could be materially adversely
affected.
Our inability to develop and release product enhancements and new products to
respond to rapid technological change in a timely and cost-effective manner
would have a material adverse effect on our business, operating results and
financial condition
The market for our products is characterized by rapid technological change,
frequent new product introductions and enhancements, changing customer demands
and evolving industry standards. The introduction of products embodying new
technologies can quickly make existing products obsolete and unmarketable. We
believe that our future success depends largely on three factors:
. our ability to continue to support a number of popular operating systems
and databases;
. our ability to maintain and improve our current product line; and
. our ability to rapidly develop new products that achieve market acceptance,
maintain technological competitiveness and meet an expanding range of
customer requirements.
Business intelligence applications are inherently complex, and it can take a
long time to develop and test major new products and product enhancements. In
addition, customers may delay their purchasing decisions because they anticipate
that new or enhanced versions of our products will soon become available. We
cannot be sure that we will succeed in developing and marketing, on a timely and
cost-effective basis, product enhancements or new products that respond to
technological change, introductions of new competitive products or customer
requirements, nor can we be sure that our new products and product enhancements
will achieve market acceptance.
The emergence of new industry standards may adversely affect our ability to
market our existing products
The emergence of new industry standards in related fields may adversely affect
the demand for our existing products. This could happen, for example, if new web
standards and technologies emerged that were incompatible with customer
deployments of our MicroStrategy applications. Although the core database
component of our business intelligence solutions is compatible with nearly all
enterprise server hardware and operating system combinations, such as OS/390,
AS/400, Unix and Windows, our application server component runs only on the
Windows operating system. Therefore, our ability to increase sales currently
depends on the continued acceptance of the Windows operating system. We cannot
market our current business intelligence applications to potential customers who
use Unix operating systems as their application server. We
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would have to invest substantial resources to develop a Unix product and we
cannot be sure that we could introduce such a product on a timely or cost
effective basis, if at all.
The legal environment regarding collection and use of personal information is
uncertain and new laws or government regulations could have a material adverse
effect on our business, operating results and financial condition
Although some existing laws govern the collection and use of personal
information obtained through the Internet or other public data networks, it is
unclear whether they apply to us and our products. Most of these laws were
adopted before the widespread use and commercialization of the Internet and
other public data networks. As a result, the laws do not address the unique
issues presented by these media.
Due to increasing use of the Internet and the dramatically increased access to
personal information made possible by technologies like ours, the U.S. federal
and various state and foreign governments have recently proposed limitations on
the collection and use of personal information of users of the Internet and
other public data networks.
Although we attempt to obtain permission from users prior to collecting or
processing their personal data, new laws or regulations governing personal
privacy may change the ways in which we and our customers and affiliates may
gather this personal information. There may be significant costs and delays
involved with adapting our products to any change in regulations.
Our business, and in particular our Strategy.com network, depends upon our
receiving detailed personal information about subscribers in order to provide
them with the services they select. Privacy concerns may cause some potential
subscribers to forego subscribing to our service. If new laws or regulations
prohibit us from using information in the ways that we currently do, or if users
opt out of making their personal preferences and information available to us and
our affiliates, the utility of our products will decrease, which could have a
material adverse effect on our business, operating results and financial
condition. If personal information is misused by us, our customers or our
network affiliates, our legal liability may be increased and our growth may be
limited.
The Federal Trade Commission has recently launched investigations of the data
collection practices of various Internet companies. In addition, numerous
individuals and privacy groups have filed lawsuits or administrative complaints
against other companies asserting that they were harmed by the misuse of their
personal information. If comparable legal proceedings were commenced against us,
regardless of the merits of the claim, we could be required to spend significant
amounts on legal defense and our senior management's time and attention could be
diverted from our business. In addition, demand for our products could be
reduced if companies are not permitted to use clickstream data derived from
their web sites. This could materially and adversely affect our business,
financial condition and results of operations.
In addition, in Europe, the European Union Directive on Data Protection, a
comprehensive administrative and regulatory program, currently limits the
ability of companies to collect, store and exchange personal data with other
entities. Because the U.S. may not currently provide a level of data protection
sufficient to meet the guidelines under the European Union Directive, U.S.
companies could be prohibited from obtaining personal data from or exchanging
such data with companies in Europe.
Our business may suffer if either the Internet infrastructure or the wireless
communication infrastructure is unable to effectively support the growth in
demand placed upon it
Our Strategy.com network and our other products depend increasingly upon the
Internet infrastructure and wireless communications infrastructures to collect
information and deliver information to customers. We cannot assure you that
either of these infrastructures will continue to effectively support the
capacity, speed and
38
<PAGE>
security demands placed upon them as they continue to experience increased
numbers of users, frequency of use and increased requirements for data
transmission by users. Even if the necessary infrastructure or technologies are
developed, we may incur considerable costs to adapt our solutions accordingly.
Furthermore, the Internet has experienced a variety of outages and other delays
due to damage to portions of its infrastructure or attacks by hackers. These
outages and delays could impact the web sites using our products or hosting our
Strategy.com network and could materially affect our business, operating results
and financial condition.
If the market for business intelligence software fails to grow as we expect, or
if businesses fail to adopt our products, our business, operating results and
financial condition would be materially adversely affected
Nearly all of our revenues to date have come from sales of business
intelligence software and related technical support, consulting and education
services. We expect these sales to account for a large portion of our revenues
for the foreseeable future. Although demand for business intelligence software
has grown in recent years, the market for business intelligence software
applications is still emerging. Resistance from consumer and privacy groups to
increased commercial collection and use of data on spending patterns and other
personal behavior may impair the further growth of this market, as may other
developments. We cannot be sure that this market will continue to grow or, even
if it does grow, that businesses will adopt our solutions. We have spent, and
intend to keep spending, considerable resources to educate potential customers
about business intelligence software in general and our solutions in particular.
However, we cannot be sure that these expenditures will help our products
achieve any additional market acceptance. If the market fails to grow or grows
more slowly than we currently expect, our business, operating results and
financial condition would be materially adversely affected.
Because of the rights of our two classes of common stock, and because we are
controlled by our existing stockholders, these stockholders could transfer
control of MicroStrategy to a third party without anyone else's approval or
prevent a third party from acquiring MicroStrategy
We have two classes of common stock: Class A common stock and Class B common
stock. Holders of our Class A common stock generally have the same rights as
holders of our Class B common stock, except that holders of Class A common stock
have one vote per share while holders of Class B common stock have ten votes per
share. As of March 1, 2000, holders of our Class B common stock owned or
controlled 55,466,929 shares of Class B common stock, or 95.9% of the total
voting power. Michael J. Saylor, our chairman, president and chief executive
officer, controlled 43,549,324 shares of Class B common stock, or 75.3% of the
total voting power, as of March 1, 2000. Accordingly, Mr. Saylor is able to
control MicroStrategy through his ability to determine the outcome of elections
of our directors, amend our certificate of incorporation and bylaws and take
other actions requiring the vote or consent of stockholders, including mergers,
going private transactions and other extraordinary transactions and their terms.
Our certificate of incorporation allows holders of Class B common stock,
almost all of whom are employees of our company or related parties, to transfer
shares of Class B common stock, subject to the approval of a majority of the
holders of outstanding Class B common stock. Mr. Saylor or a group of
stockholders possessing a majority of the outstanding Class B common stock
could, without seeking anyone else's approval, transfer voting control of
MicroStrategy to a third party. Such a transfer of control could have a material
adverse effect on our business, operating results and financial condition. Mr.
Saylor will also be able to prevent a change of control of MicroStrategy,
regardless of whether holders of Class A common stock might otherwise receive a
premium for their shares over the then-current market price.
We rely on our strategic channel partners and if we are unable to develop or
maintain successful relationships with them, our business, operating results and
financial condition will suffer
39
<PAGE>
In addition to our direct sales force, we rely on strategic channel partners,
such as original equipment manufacturers, system integrators and value-added
resellers, to license and support our products in the United States and
internationally. In particular, for the years ended December 31, 1999, 1998,
1997 and 1996, channel partners accounted for, directly or indirectly,
approximately 39.2%, 33.6%, 27.0% and 9.0% of our total revenues, respectively.
Our channel partners generally offer customers the products of several different
companies, including some products that compete with ours. Although we believe
that direct sales will continue to account for a majority of product license
revenues, we intend to increase the level of indirect sales activities through
our strategic channel partners. However, there can be no assurance that our
efforts to continue to expand indirect sales in this manner will be successful.
We cannot be sure that we will attract strategic partners who will market our
products effectively and who will be qualified to provide timely and cost-
effective customer support and service. Our ability to achieve revenue growth in
the future will depend in part on our success in developing and maintaining
successful relationships with those strategic partners. If we are unable to
develop or maintain our relationships with these strategic partners, our
business, operating results and financial condition will suffer.
We rely on our network affiliates to market our Strategy.com network to their
customers and if we are unable to enter into arrangements with a sufficient
number of affiliates, or if our affiliates are unable to interest their
customers in our services, our business will suffer
We rely on our network affiliates to market our Strategy.com network to their
customers. We cannot be sure that we will attract affiliates who will market our
services effectively. Our ability to achieve revenue growth in the future will
depend in part on our success in recruiting and maintaining successful
relationships with affiliates. If we are unable to recruit affiliates or
maintain our relationships with them, our business, operating results and
financial condition will suffer.
Third party providers of information and services for our Strategy.com network
may fail to provide us such information and services or may also provide such
information and services to our competitors
We rely on third parties to provide information and services for our
Strategy.com network. For example, we rely on Ameritrade to provide users of our
Strategy.com network with stock quote information and expect to rely upon a
third party to execute trades in securities when this capability is added to our
network. If one or more of these providers were to stop working with us, we
would have to rely on other parties to provide the information and services we
need. We cannot predict whether other parties would be willing to do so on
reasonable terms. Furthermore, we do not have long-term agreements with our
providers of information and services and we cannot restrict them from providing
similar information and services to our competitors. As a result, our
competitors may be able to duplicate some of the information and services that
we provide and may, therefore, find it easier to enter the market for personal
intelligence and compete with us.
We rely upon our network affiliates to deliver services we offer through our
Strategy.com network and if they have difficulty in doing so, we could be
exposed to liability and our reputation could suffer
We depend upon our affiliates to deliver services to subscribers of our
Strategy.com network. If our affiliates fail to deliver reliable services, we
could face liability claims from our subscribers and our reputation could be
damaged. In addition, we will be dependent on the performance of the systems
deployed and maintained by these parties, whom we will not control. We expect to
include contractual provisions limiting our liability to the subscriber for
failures and delays, but we cannot be sure that these limits will be enforceable
or will be sufficient to shield us from liability. We will seek to obtain
liability insurance to cover problems of this sort, but we cannot guarantee that
insurance will be available or that the amounts of our coverage will be
sufficient to cover all potential claims.
Our network affiliates will rely on us to maintain the infrastructure of the
Strategy.com network and any problems with that infrastructure could expose us
to liability from our affiliates and their customers
40
<PAGE>
Our network affiliates depend on us to maintain the software and hardware
infrastructure of our Strategy.com network. If this infrastructure fails or our
affiliates or their customers otherwise experience difficulties or delays in
accessing the network, we could face liability claims from them. We expect to
include contractual provisions limiting our liability to our affiliates for
system failures and delays, but we cannot be sure that these limits will be
enforceable or will be sufficient to shield us from liability. We will seek to
obtain liability insurance to cover problems of this sort, but we cannot
guarantee that insurance will be available or that the amounts of our coverage
will be sufficient to cover all potential claims.
We are vulnerable to system failures which could cause interruptions or
disruptions in our service
The hardware infrastructure on which the Strategy.com system operates is
located at the Exodus Communications data center in Northern Virginia. We cannot
assure you that we will be able to manage this relationship successfully to
mitigate any risks associated with having our hardware infrastructure maintained
by Exodus. Unexpected events such as natural disasters, power losses and
vandalism could damage our systems. Telecommunications failures, computer
viruses, electronic break-ins or other similar disruptive problems could
adversely affect the operation of our systems. Our insurance policies may not
adequately compensate us for any losses that may occur due to any damages or
interruptions in our systems. Accordingly, we could be required to make capital
expenditures in the event of damage. We do not currently have a formal disaster
recovery plan. Periodically, we experience unscheduled system downtime that
results in our web site being inaccessible to subscribers. Although we have not
suffered material losses during these downtimes to date, if these problems
persist in the future, users, network affiliates and advertisers could lose
confidence in our services.
System capacity constraints may diminish our ability to generate revenues from
Strategy.com
A substantial increase in the use of the products and services offered by
Strategy.com could strain the capacity of our systems, which could lead to
slower response time or system failures. System failures or slowdowns could
adversely affect the speed and responsiveness of our Strategy.com network. These
would diminish the experience for our subscribers and affect our reputation. The
ability of our systems to manage a significantly increased volume of
transactions in a production environment is unknown. As a result, we face risks
related to our ability to scale up to our expected transaction levels while
maintaining satisfactory performance. If our transaction volume increases
significantly, we may need to purchase additional servers and networking
equipment to maintain adequate data transmission speeds. The availability of
these products and related services may be limited or their cost may be
significant.
We have only limited protection for our proprietary rights in our software,
which makes it difficult to prevent third parties from infringing upon our
rights
We regard our software products as proprietary and we rely on a combination of
federal and international copyright, state and federal trademark and service
mark and state and common law trade secret laws, customer licensing agreements,
employee and third-party nondisclosure agreements and other methods to protect
our proprietary rights. However, these laws and contractual provisions provide
only limited protection. We have no patents, no registered trademarks, other
than MicroStrategy(R), DSS Agent(R) and QuickStrike(R). Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Policing such unauthorized
use is difficult, and we cannot be certain that we can prevent it, particularly
in countries where the laws may not protect our proprietary rights as fully as
in the United States.
Our products may be susceptible to claims by other companies that our products
infringe upon their proprietary rights, which could adversely affect our
business, operating results and financial condition
41
<PAGE>
As the number of software products in our target markets increases and the
functionality of these products further overlaps, we may become increasingly
subject to claims by a third party that our technology infringes such party's
proprietary rights. Regardless of their merit, any such claims could be time
consuming and expensive to defend, may divert management's attention and
resources, could cause product shipment delays and could require us to enter
into costly royalty or licensing agreements. If successful, a claim of
infringement against us and our inability to license the infringed or similar
technology could have a material adverse affect on our business, operating
results and financial condition.
Expanding our international operations will be difficult and our failure to do
so successfully or in a cost-effective manner would have a material adverse
effect on our business, operating results and financial condition
International sales accounted for 24.0%, 26.1%, 27.1% and 11.1% of our total
revenues for the years ended December 31, 1999, 1998, 1997 and 1996,
respectively. We plan to continue expanding our international operations and to
enter new international markets. This will require significant management
attention and financial resources and could adversely affect our business,
operating results and financial condition. In order to expand international
sales successfully, we must set up additional foreign operations, hire
additional personnel and recruit additional international resellers and
distributors. We cannot be sure that we will be able to do so in a timely
manner, and our failure to do so may limit our international sales growth.
There are certain risks inherent in our international business activities
including:
. changes in foreign currency exchange rates;
. unexpected changes in regulatory requirements;
. tariffs and other trade barriers;
. costs of localizing products for foreign countries;
. lack of acceptance of localized products in foreign countries;
. longer accounts receivable payment cycles;
. difficulties in managing international operations;
. tax issues, including restrictions on repatriating earnings;
. weaker intellectual property protection in other countries; and
. the burden of complying with a wide variety of foreign laws.
These factors may have a material adverse effect on our future international
sales and, consequently, our business, operating results and financial
condition.
The nature of our products makes them particularly vulnerable to undetected
errors, or bugs, which could cause problems with how the products perform and
which could in turn reduce demand for our products, reduce our revenue and lead
to product liability claims against us
Software products as complex as ours may contain errors or defects, especially
when first or subsequent versions are released. Although we test our products
extensively, we have in the past discovered software errors in new products
after their introduction. We cannot be certain that, despite testing by us and
by our current and
42
<PAGE>
potential customers, errors will not be found in new products or releases after
commercial shipments begin. This could result in lost revenue or delays in
market acceptance, which could have a material adverse effect upon our business,
operating results and financial condition.
Our license agreements with customers typically contain provisions designed to
limit our exposure to product liability claims. It is possible, however, that
these provisions may not be effective under the laws of certain domestic or
international jurisdictions. Although there have been no product liability
claims against us to date, our license and support of products may involve the
risk of these claims. A successful product liability claim against us could have
a material adverse effect on our business, operating results and financial
condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involves forward-
looking statements. Actual results could differ materially from those projected
in the forward-looking statements. We are exposed to the impact of interest rate
changes and foreign currency fluctuations.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily
to our cash equivalents and short-term investments. We do not use derivative
financial instruments. We invest our excess cash in short-term, fixed income
financial instruments. These fixed rate investments are subject to interest rate
risk and may fall in value if market interest rates increase. If market interest
rates were to increase immediately and uniformly by 10% from the levels at
December 31, 1999, the fair market value of the portfolio would decline by an
immaterial amount. We have the ability to hold our fixed income investments
until maturity and, therefore, we do not expect our operating results or cash
flows to be materially affected by a sudden change in market interest rates on
our investment portfolio.
Foreign Currency Risk
We face exposure to adverse movements in foreign currency exchange rates. Our
international revenues and expenses are denominated in foreign currencies,
principally the British Pound Sterling and the German Deutsche Mark. The
functional currency of each of our foreign subsidiaries is the local currency.
Our international business is subject to risks typical of an international
business, including, but not limited to differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Based on our
overall currency rate exposure at December 31, 1999, a 10% change in foreign
exchange rates would have had an immaterial effect on our financial position,
results of operations and cash flows. To date, we have not hedged the risks
associated with foreign exchange exposure. Although we may do so in the future,
we cannot be sure that any hedging techniques we may implement will be
successful or that our business, results of operations, financial condition and
cash flows will not be materially adversely affected by exchange rate
fluctuations. To date, our foreign currency gains and losses have been
immaterial.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements, together with the related notes and the
report of independent accountants, are set forth on the pages indicated in Item
14.
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors and executive officers required by
this Item 10 is incorporated herein by reference to our Proxy Statement for the
2000 Annual Meeting of Stockholders expected to be held in May, which is
anticipated to be filed with the SEC within 120 days after the close of our
fiscal year. Information relating to certain filings on Forms 3, 4, and 5 is
contained in the 2000 Proxy Statement under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by reference
to the information set forth under the caption "Executive Compensation" in the
2000 Proxy Statement. The sections entitled "Compensation Committee Report on
Executive Compensation" and "Stock Performance Graph" in the 2000 Proxy
Statement are not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated herein by reference
to our 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by reference
to our 2000 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................................ 47
Consolidated Financial Statements:
Balance Sheets........................................................................ 48
Statements of Operations.............................................................. 49
Statements of Stockholders' Equity (deficit).......................................... 50
Statements of Cash Flows.............................................................. 52
Notes to Consolidated Financial Statements............................................... 53
</TABLE>
44
<PAGE>
2. Consolidated Financial Statement Schedule
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule II - Valuation and Qualifying Accounts.......................................... 72
</TABLE>
3. Exhibits
Exhibit
Number Description
3.1 Certificate of Incorporation of the registrant, as amended. (Filed
as Exhibit 3.1 to the registrant's Registration Statement on Form
S-1 (Registration No. 333-49899) and incorporated by reference
herein.)
3.2 Bylaws of the registrant. (Filed as Exhibit 3.2 to the
registrant's Registration Statement on Form S-1 (Registration No.
333-49899) and incorporated by reference herein.)
4.1 Form of Certificate of Class A Common Stock of the registrant.
(Filed as Exhibit 4.1 to the registrant's Registration Statement
on Form S-1 (Registration No. 333-49899) and incorporated by
reference herein.)
10.1 1996 Stock Plan (as amended) of the registrant. (Filed as Exhibit
10.1 to the registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (File No. 000-24435) and
incorporated by reference herein.)
10.2 1997 Stock Option Plan for French Employees of the registrant.
(Filed as Exhibit 10.6 to the registrant's Registration Statement
on Form S-1 (Registration No. 333-49899) and incorporated by
reference herein.)
10.3 1997 Director Option Plan (as amended) of the registrant.
10.4 1998 Employee Stock Purchase Plan of the registrant. (Filed as
Exhibit 10.4 to the registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 (File No. 000-24435) and
incorporated by reference herein.)
10.5 Credit Agreement, dated March 26, 1999, between NationsBank, N.A.
and the registrant. (Filed as Exhibit 10.1 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(File No. 000-24435) and incorporated by reference herein.)
10.6 Modification to Credit Agreement, dated July 12, 1999, between
NationsBank, N.A. and the registrant. (Filed as Exhibit 10.2 to
the registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 000-24435) and incorporated by
reference herein.)
10.7 1999 Stock Option Plan of the registrant. (Filed as Exhibit 10.3
to the registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 000-24435) and incorporated by
reference herein.)
10.8 Master Lease Agreement No. VAC180, dated November 1, 1999, between
MLC Group, Inc. and the registrant.
45
<PAGE>
10.9 Letter Agreement, dated December 1, 1999, between ePlus, Inc.
(f/k/a MLC Group, Inc.) and the registrant.
10.10* Software Development and OEM Agreement, dated December 28, 1999,
between the registrant and Exchange Applications, Inc.
10.11 Software License Agreement, dated December 28, 1999, between the
registrant and Exchange Applications, Inc.
10.12 Value-Added Reseller Agreement, dated December 28, 1999, between
the registrant and Exchange Applications, Inc.
10.13 Payment and Registration Rights Agreement, dated December 28,
1999, between the registrant and Exchange Applications, Inc.
10.14* DSS Partner MicroStrategy Incorporated OEM Agreement, between the
registrant and NCR Corporation.
10.15 Memorandum of Understanding Purchase between, the registrant and
NCR Corporation.
10.16 Memorandum of Understanding Joint Marketing, between the
registrant and NCR Corporation.
10.17 Asset Purchase Agreement, dated December 23, 1999, between the
registrant and NCR Corporation.
10.18 Deed of Lease, dated January 7, 2000, between Tysons Corner
Property LLC and the registrant.
21.1 Subsidiaries of the registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
_________________
* Certain portions of this Exhibit were omitted by means of redacting a portion
of the text. This Exhibit has been filed separately with the Secretary of the
Commission with such text pursuant to our Application Requesting Confidential
Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the last quarter of the period covered
by this Annual Report on Form 10-K.
(c) Exhibits
We hereby file as part of this Form 10-K the exhibits listed in the Index to
Exhibits.
(d) Financial Statement Schedule
The following financial statement schedule is filed herewith:
Schedule II - Valuation and Qualifying Accounts
46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
MicroStrategy Incorporated
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and Item 14(a)(2) on page 44 and 45 present
fairly, in all material respects, the financial position of MicroStrategy
Incorporated and its subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 3 to the accompanying consolidated financial statements,
the Company has restated its financial statements for the years ended December
31, 1999, 1998 and 1997.
PricewaterhouseCoopers LLP /s/ PricewaterhouseCoopers LLP
McLean, Virginia
April 12, 2000
47
<PAGE>
MICROSTRATEGY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
(Restated) (Restated)
See Note 3 See Note 3
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents...................................................... $ 25,941 $27,491
Short-term investments......................................................... 42,418 --
Accounts receivable, net....................................................... 37,586 25,377
Prepaid expenses and other current assets...................................... 15,461 5,245
Deferred tax assets, net....................................................... -- 1,928
-------- -------
Total current assets.......................................................... 121,406 60,041
-------- -------
Property and equipment, net..................................................... 30,594 13,773
Goodwill and other intangible assets, net of accumulated amortization
of $503 and $81, respectively.................................................. 47,154 987
Deposits and other assets....................................................... 2,439 1,770
Deferred tax assets, net........................................................ 1,775 --
-------- -------
Total assets.................................................................. $203,368 $76,571
======== =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses.......................................... $ 13,582 $11,464
Accrued compensation and employee benefits..................................... 14,912 7,356
Deferred revenue and advance payments.......................................... 38,028 12,302
Deferred tax liabilities, net.................................................. 1,775 --
Dividend notes payable......................................................... -- 5,000
-------- -------
Total current liabilities..................................................... 68,297 36,122
Deferred revenue and advance payments........................................... 33,255 746
Deferred tax liabilities, net................................................... -- 1,928
-------- -------
Total liabilities............................................................. 101,552 38,796
-------- -------
Commitments and contingencies (Notes 12 and 13)
Stockholders' equity:
Preferred stock, par value $0.001 per share, 5,000 shares authorized;
no shares issued or outstanding............................................... -- --
Class A common stock, par value $0.001 per share, 100,000 shares
authorized; 22,384 and 10,104 shares issued and outstanding, respectively..... 22 11
Class B common stock, par value $0.001 per share, 100,000 shares
authorized; 55,867 and 61,266 shares issued and outstanding, respectively..... 56 61
Additional paid-in capital..................................................... 138,943 42,183
Deferred compensation.......................................................... (895) (1,164)
Accumulated other comprehensive income......................................... 1,643 894
Accumulated deficit............................................................ (37,953) (4,210)
-------- -------
Total stockholders' equity.................................................... 101,816 37,775
-------- -------
Total liabilities and stockholders' equity.................................... $203,368 $76,571
======== =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
48
<PAGE>
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(Restated) (Restated) (Restated)
See Note 3 See Note 3 See Note 3
<S> <C> <C> <C>
Revenues:
Product licenses............................................... $ 85,797 $61,635 $35,478
Product support and other services............................. 65,461 33,854 17,073
-------- ------- -------
Total revenues................................................ 151,258 95,489 52,551
-------- ------- -------
Cost of revenues:
Product licenses............................................... 2,597 2,246 1,641
Product support and other services............................. 34,436 17,535 9,475
-------- ------- -------
Total cost of revenues........................................ 37,033 19,781 11,116
-------- ------- -------
Gross profit.................................................... 114,225 75,708 41,435
Operating expenses:
Sales and marketing............................................ 93,512 53,408 30,468
Research and development....................................... 27,998 12,106 5,049
General and administrative..................................... 24,448 12,743 6,552
In-process research and development............................ 2,800 -- --
-------- ------- -------
Total operating expenses...................................... 148,758 78,257 42,069
-------- ------- -------
Loss from operations............................................ (34,533) (2,549) (634)
Interest income................................................. 2,174 1,028 94
Interest expense................................................ (144) (720) (333)
Other income (expense), net..................................... 6 (14) (12)
-------- ------- -------
Loss before income taxes........................................ (32,497) (2,255) (885)
Provision for income taxes...................................... 1,246 -- --
-------- ------- -------
Net loss........................................................ $(33,743) $(2,255) $ (885)
======== ======= =======
Basic and diluted net loss per share............................ $(0.44) $(0.03) $(0.02)
======== ======= =======
Weighted average shares used in computing basic and diluted
net loss per share........................................... 77,028 66,986 58,988
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
49
<PAGE>
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Common Stock Class A Common Stock Class B Common Stock
------------ -------------------- --------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................. 62,886 $ 63 -- -- -- --
------- ------- ------ ------- ------- ------
Net loss...................................... -- -- -- -- -- --
Foreign currency translation
adjustment................................... -- -- -- -- -- --
Comprehensive loss............................ -- -- -- -- -- --
Proceeds from payments on notes
receivable................................... -- -- -- -- -- --
Retirement of treasury stock.................. (3,898) (4) -- -- -- --
------- ------- ------ ------- ------- ------
Balance at December 31, 1997.................. 58,988 $ 59 -- -- -- --
------- ------- ------ ------- ------- ------
Net loss...................................... -- -- -- -- -- --
Foreign currency translation
adjustment................................... -- -- -- -- -- --
Comprehensive loss............................ -- -- -- -- -- --
Issuance of common stock in exchange
for minority interest of Company's
foreign subsidiaries......................... 2,803 3 -- -- -- --
Issuance of stock options below fair
value........................................ -- -- -- -- -- --
Declaration of dividend....................... -- -- -- -- -- --
Conversion of common stock to
Class B common stock......................... (61,791) (62) -- -- 61,791 62
S-Corporation to C-Corporation
conversion................................... -- -- -- -- -- --
Issuance of Class A common stock in
connection with initial public
offering, net of offering costs.............. -- -- 8,880 9 -- --
Issuance of Class A common
stock under stock option plan................ -- -- 699 1 -- --
Conversion of Class B to Class
A common stock............................... -- -- 525 1 (525) (1)
Issuance of Class A common stock warrants..... -- -- -- -- -- --
Amortization of deferred stock
compensation................................. -- -- -- -- -- --
------- ------- ------ ------- ------- ------
Balance at December 31, 1998.................. -- -- 10,104 $ 11 61,266 $ 61
------- ------- ------ ------- ------- ------
Net loss...................................... -- -- -- -- -- --
Unrealized gain on short-term
investments, net of applicable taxes......... -- -- -- -- -- --
Foreign currency translation
adjustment................................... -- -- -- -- -- --
Comprehensive loss............................ -- -- -- -- -- --
Issuance of Class A common stock
in connection with offering, net of
offering costs............................... -- -- 3,170 3 -- --
Conversion of Class B to Class A
common stock................................. -- -- 5,399 5 (5,399) (5)
Issuance of Class A common stock
under stock option and purchase
plans........................................ -- -- 3,145 3 -- --
Issuance of Class A common stock
related to purchase of NCR's
Teracube assets.............................. -- -- 566 -- -- --
Issuance of Class A common stock warrants..... -- -- -- -- -- --
Amortization of deferred stock
compensation................................. -- -- -- -- -- --
------- ------- ------ ------- ------- ------
Balance at December 31, 1999.................. -- $ -- 22,384 $ 22 55,867 $ 56
======= ======= ====== ======= ======= ======
<CAPTION>
Additional
Paid-in Capital
---------------
<S> <C>
Balance at December 31, 1996................... $ 181
--------
Net loss....................................... --
Foreign currency translation
adjustment.................................... --
Comprehensive loss............................. --
Proceeds from payments on notes
receivable.................................... --
Retirement of treasury stock................... (191)
--------
Balance at December 31, 1997................... $ (10)
--------
Net loss....................................... --
Foreign currency translation
adjustment.................................... --
Comprehensive loss............................. --
Issuance of common stock in exchange
for minority interest of Company's
foreign subsidiaries.......................... 1,065
Issuance of stock options below fair
value......................................... 1,350
Declaration of dividend........................ (10,000)
Conversion of common stock to
Class B common stock.......................... --
S-Corporation to C-Corporation
conversion.................................... 315
Issuance of Class A common stock in
connection with initial public
offering, net of offering costs............... 48,180
Issuance of Class A common
stock under stock option plan................. 349
Conversion of Class B to Class
A common stock................................ --
Issuance of Class A common stock warrants...... 934
Amortization of deferred stock
compensation.................................. --
--------
Balance at December 31, 1998................... $ 42,183
--------
Net loss....................................... --
Unrealized gain on short-term
investments, net of applicable taxes.......... --
Foreign currency translation
adjustment.................................... --
Comprehensive loss............................. --
Issuance of Class A common stock
in connection with offering, net of
offering costs................................ 40,046
Conversion of Class B to Class A
common stock.................................. --
Issuance of Class A common stock
under stock option and purchase
plans......................................... 7,018
Issuance of Class A common stock
related to purchase of NCR's
Teracube assets............................... 49,557
Issuance of Class A common stock warrants...... 139
Amortization of deferred stock
compensation.................................. --
--------
Balance at December 31, 1999................... $138,943
========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
50
<PAGE>
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Accumulated Other
-----------------
Comprehensive Income (Loss)
---------------------------
Unrealized Foreign Notes
---------- ------- -----
Gain on Currency Accumu- Deferred Receivable
------- -------- ------- -------- ----------
Short-term Translation lated Comp- from Stock-
---------- ----------- ----- ----- ------------
Investments Adjustment Deficit ensation holders
----------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996................ -- -- $ (755) -- $ (87)
----------- ---------- -------- --------- ---------
Net loss.................................... -- -- (885) -- --
Foreign currency translation adjustment..... -- 158 -- -- --
Comprehensive loss.......................... -- -- -- -- --
Proceeds from payments on notes
receivable................................. -- -- -- -- 87
Retirement of treasury stock................ -- -- -- -- --
----------- ---------- -------- --------- ---------
Balance at December 31, 1997................ -- 158 (1,640) -- --
----------- ---------- -------- --------- ---------
Net loss.................................... -- -- (2,255) -- --
Foreign currency translation adjustment..... -- 736 -- -- --
Comprehensive loss.......................... -- -- -- -- --
Issuance of common stock in exchange
for minority interest of Company's
foreign subsidiaries....................... -- -- -- -- --
Issuance of stock options below fair
value...................................... -- -- -- (1,350) --
Declaration of dividend..................... -- -- -- -- --
Conversion of common stock to
Class B common stock....................... -- -- -- -- --
S-Corporation to C-Corporation
conversion................................. -- -- (315) -- --
Issuance of Class A common stock in
connection with initial public
offering, net of offering costs............ -- -- -- -- --
Issuance of Class A common
Stock under stock option plan.............. -- -- -- -- --
Conversion of Class B to Class
A common stock............................. -- -- -- -- --
Issuance of warrants........................ -- -- -- -- --
Amortization of deferred stock
compensation............................... -- -- -- 186 --
----------- ---------- -------- --------- ---------
Balance at December 31, 1998................ -- 894 (4,210) (1,164) --
----------- ---------- -------- --------- ---------
Net loss.................................... -- -- (33,743) -- --
Unrealized gain on short-term investments,
net of applicable taxes.................... 1,367 -- -- -- --
Foreign currency translation
adjustment................................. -- (618) -- -- --
Comprehensive loss.......................... -- -- -- -- --
Issuance of Class A common stock in
connection with offering, net of offering
costs...................................... -- -- -- -- --
Conversion of Class B to Class A
common stock............................... -- -- -- -- --
Issuance of Class A common stock under
stock option and purchase plans............ -- -- -- -- --
Issuance of Class A common stock related
to purchase of NCR's Teracube assets....... -- -- -- -- --
Issuance of warrants........................ -- -- -- -- --
Amortization of deferred stock
compensation............................... -- -- -- 269 --
----------- ---------- -------- --------- ---------
Balance at December 31, 1999................ $ 1,367 $ 276 $(37,953) $ (895) --
=========== ========== ======== ========= =========
<CAPTION>
Treasury Stock
--------------
Shares Amount Total
------ ------ -----
<S> <C> <C> <C>
Balance at December 31, 1996................ 3,898 $ (195) $ (793)
-------- -------- --------
Net loss.................................... -- -- (885)
Foreign currency translation adjustment..... -- -- 158
--------
Comprehensive loss.......................... -- -- (727)
Proceeds from payments on notes
receivable................................. -- -- 87
Retirement of treasury stock................ (3,898) 195 --
-------- -------- --------
Balance at December 31, 1997................ -- -- (1,433)
-------- -------- --------
Net loss.................................... -- -- (2,255)
Foreign currency translation adjustment..... -- -- 736
--------
Comprehensive loss.......................... -- -- (1,519)
Issuance of common stock in exchange
for minority interest of Company's
foreign subsidiaries....................... -- -- 1,068
Issuance of stock options below fair
value...................................... -- -- --
Declaration of dividend..................... -- -- (10,000)
Conversion of common stock to
Class B common stock....................... -- -- --
S-Corporation to C-Corporation
conversion................................. -- -- --
Issuance of Class A common stock in
connection with initial public
offering, net of offering costs............ -- -- 48,189
Issuance of Class A common
Stock under stock option plan.............. -- -- 350
Conversion of Class B to Class
A common stock............................. -- -- --
Issuance of warrants........................ -- -- 934
Amortization of deferred stock
compensation............................... -- -- 186
-------- -------- --------
Balance at December 31, 1998................ -- -- 37,775
-------- -------- --------
Net loss.................................... -- -- (33,743)
Unrealized gain on short-term investments,
net of applicable taxes.................... -- -- 1,367
Foreign currency translation
adjustment................................. -- -- (618)
--------
Comprehensive loss.......................... -- -- (32,994)
Issuance of Class A common stock in
connection with offering, net of offering
costs...................................... -- -- 40,049
Conversion of Class B to Class A
common stock............................... -- -- --
Issuance of Class A common stock under
stock option and purchase plans............ -- -- 7,021
Issuance of Class A common stock related
to purchase of NCR's Teracube assets....... -- -- 49,557
Issuance of warrants........................ -- -- 139
Amortization of deferred stock
compensation............................... -- -- 269
-------- -------- --------
Balance at December 31, 1999................ -- -- $101,816
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
51
<PAGE>
MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(Restated) (Restated) (Restated)
See Note 3 See Note 3 See Note 3
<S> <C> <C> <C>
Operating activities:
Net loss.......................................................................... $(33,743) $ (2,255) $ (885)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization..................................................... 7,839 3,250 1,243
Provision for doubtful accounts................................................... 1,877 815 312
Acquired in-process research and development...................................... 2,800 -- --
Deferred income taxes............................................................. -- -- --
Amortization of deferred compensation............................................. 269 186 --
Issuance of warrants to a customer................................................ -- 934 --
Changes in operating assets and liabilities:
Accounts receivable............................................................... (14,598) (10,835) (7,271)
Prepaid expenses and other current assets......................................... (10,318) (3,758) (1,051)
Deposits and other assets......................................................... (1,054) (188) 102
Accounts payable and accrued expenses, compensation and benefits.................. 10,297 5,508 8,951
Deferred revenue.................................................................. 36,720 3,795 3,554
-------- -------- -------
Net cash provided by (used in) operating activities............................. 89 (2,548) 4,955
-------- -------- -------
Investing activities:
Purchases of property and equipment............................................... (23,733) (9,295) (5,954)
Purchases of short-term investments............................................... (24,491) -- --
Maturities of short-term investments.............................................. 5,000 -- --
Increase in capitalized software.................................................. -- -- (1,928)
-------- -------- -------
Net cash used in investing activities........................................... (43,224) (9,295) (7,882)
-------- -------- -------
Financing activities:
Proceeds from sale of Class A common stock and exercise of stock options,
net of offering costs............................................................ 47,197 48,539 --
Borrowings on short-term line of credit, net...................................... -- -- 1,750
Repayments on short-term line of credit, net...................................... -- (4,508) --
Payments of dividend notes payable................................................ (5,000) (5,000) --
Proceeds from issuance of notes payable........................................... -- 862 3,264
Principal payments on notes payable............................................... -- (4,190) (521)
Proceeds from payments on stockholders' notes receivable.......................... -- -- 87
-------- -------- -------
Net cash provided by financing activities....................................... 42,197 35,703 4,580
-------- -------- -------
Effect of foreign exchange rate changes on cash................................. (612) 125 167
-------- -------- -------
Net (decrease) increase in cash and cash equivalents............................... (1,550) 23,985 1,820
Cash and cash equivalents, beginning of year....................................... 27,491 3,506 1,686
-------- -------- -------
Cash and cash equivalents, end of year............................................. $ 25,941 $ 27,491 $ 3,506
======== ======== =======
Supplemental disclosure of noncash investing and financing activities:
Retirement of treasury stock...................................................... $ -- $ -- $ 195
======== ======== =======
Issuance of common stock in exchange for minority interest of Company's
foreign subsidiaries............................................................. $ -- $ 1,065 $ --
======== ======== =======
Issuance of Class A common stock related to purchase of Teracube assets........... $ 49,557 $ -- $ --
======== ======== =======
Stock received in exchange for product and services............................... $ 21,546 $ -- $ --
======== ======== =======
Issuance of Class A common stock warrants......................................... $ 139 $ 934 $ --
======== ======== =======
Unrealized gain on short-term investment, net of tax.............................. $ 1,367 $ -- $ --
======== ======== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............................................ $ 87 $ 714 $ 290
======== ======== =======
Cash paid during the year for income taxes........................................ $ 2,113 $ 2,996 $ --
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
52
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
MicroStrategy provides intelligent e-business software and related services
that enable the transaction of one-to-one electronic business through web,
wireless and voice communication channels. MicroStrategy's product line enables
both proactive and interactive delivery of information from large-scale
databases and provides Internet businesses with a software platform to develop
solutions that deliver insight and intelligence to their enterprises, customers
and supply-chain partners. In July 1999, MicroStrategy launched a personal
intelligence network called Strategy.com, which leverages MicroStrategy's
software platform to deliver personalized, requested information to consumers.
Strategy.com has recognized no revenues through December 31, 1999.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of the consolidated financial statements, in conformity
with generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(c) Reclassification
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform to the current year presentation.
(d) Cash and Cash Equivalents
Cash equivalents include money market instruments and commercial paper. The
Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
(e) Short-term Investments
Short-term investments are comprised of readily marketable equity
securities and debt securities with original maturities of more than three
months when purchased. Where the original maturity of marketable debt securities
is more than one year, the marketable debt securities are classified as short-
term investments if the Company's intention is to convert them to cash within
one year. Marketable debt securities are classified in one of three categories:
trading, available-for-sale, or held-to-maturity. Marketable equity securities
are classified as either trading or available-for-sale. Trading securities are
bought and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those debt securities which the Company has the
ability and intent to hold until maturity. All other marketable securities not
included in trading and held-to-maturity are classified as available-for-sale.
Management determines the appropriate classification of marketable securities at
the time of purchase and re-evaluates such designation as of each balance sheet
date. All of the Company's marketable securities are available-for-sale as of
December 31, 1999.
53
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Available-for-sale marketable securities are reported at fair value,
adjusted for other-than-temporary declines in value, of which there have been
none. Unrealized holding gains and losses, net of applicable taxes, on
available-for-sale marketable securities are reported in accumulated other
comprehensive income in stockholders' equity until realized. Interest income is
recognized when earned. Realized gains and losses for marketable securities are
determined using the specific identification method for determining the cost of
the securities sold.
(f) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, as follows: three years for computer equipment and
software and five to ten years for furniture and equipment. Leasehold
improvements are amortized using the straight-line method over the shorter of
the estimated useful lives of the assets or the term of the lease.
Expenditures for maintenance and repairs are charged to expense as
incurred. Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized and depreciated over the
remaining useful lives of the asset. When assets are retired or sold, the cost
and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in the results of operations.
(g) Goodwill and Other Intangible Assets
Goodwill and other intangible assets were acquired in connection with the
purchase of NCR's Teracube assets and related intangible assets and the purchase
of the minority interest in the Company's foreign subsidiaries. Other
intangible assets consist of trade name, customer list, and assembled work
force. Goodwill and other intangible assets are amortized on the straight-line
basis over their weighted average useful lives of approximately 3 years.
(h) Impairment of Long-Lived Assets
The Company reviews long-lived assets, including goodwill, for impairment
whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable or that the useful lives of
these assets are no longer appropriate. Each impairment test is based on a
comparison of the undiscounted cash flows to the recorded value of the asset.
If impairment is indicated, the asset is written down to its estimated fair
value of the discounted cash flow basis. There have been no impairment
provisions.
(i) Software Development Costs
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers.
Software development costs capitalized include direct labor costs and fringe
labor overhead costs attributed to programmers, software engineers, quality
control and field certifiers working on products after they reach technological
feasibility but before they are generally available to customers for sale.
Capitalized costs are amortized over the estimated product life of two to three
years using the greater of the straight-line method or the ratio of current
product revenues to total projected future revenues. Software development costs,
net of accumulated amortization, are $647,000 and $1.2 million at December 31,
1999 and 1998, respectively, and are included in deposits and other
54
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assets on the balance sheet. Amortization expense related to software
development costs was $600,000, $584,000 and $98,000 for the years ended
December 31, 1999, 1998 and 1997, respectively, and is included in cost of
revenues. During 1999 and 1998, no costs were capitalized as the establishment
of technological feasibility and general release of such software had
substantially coincided.
(j) Deferred Revenue and Advance Payments
Deferred revenue and advance payments related to product licenses result
primarily from multiple element arrangements that include development and other
customized services, which may also include subsequent hosting services, or
other arrangements with future deliverables. Certain of these services
significantly alter features or functionality of the software. Deferred revenue
and advance payments related to product support and other services result from
payments received prior to the performance of services for software development,
consulting, education and maintenance. Deferred revenue has been classified as
either deferred product revenue or deferred product support and other services
revenue based on the estimated fair value of the multiple elements of the
arrangement. Non-current deferred revenue and advance payments are expected to
be recognized into revenue in one to three years. The Company discloses
billable and unpaid amounts in deferred revenue as an offset to accounts
receivable.
(k) Revenue Recognition
Product license revenue is derived from sales of software licenses. Product
support and other services revenue consists of revenue derived from software
production and/or modification, maintenance services, customer and partner
education and consulting and other services. The Company's revenue recognition
policies are in accordance with Statement of Position ("SOP") 97-2, "Software
Revenue Recognition" which is the authoritative guidance for recognizing revenue
on software transactions and, in the case of software arrangements which require
significant production, modification, or customization of software, the Company
follows the guidance in SOP 81-1, "Accounting for Performance of Construction-
Type and Certain Production-Type Contracts."
SOP 97-2 requires that revenue recognized from software arrangements be
allocated to each element of the arrangement based on the relative fair values
of the elements, such as software products, maintenance services, installation,
training or other elements. Under SOP 97-2, the determination of fair value is
based on objective evidence that is specific to the vendor. If such evidence of
fair value for each element of the arrangement does not exist, all revenue from
the arrangement is deferred until such time that evidence of fair value does
exist or until all elements of the arrangement are delivered. SOP 97-2 was
amended in February 1998 by SOP 98-4 "Deferral of the Effective Date of a
Provision of SOP 97-2" and was amended again in December 1998 by SOP 98-9
"Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions." Those amendments deferred and then clarified, respectively, the
specification of what was considered vendor specific objective evidence of fair
value for the various elements in a multiple element arrangement. The Company
adopted the provisions of SOP 97-2 and SOP 98-4 as of January 1, 1998.
SOP 98-9 is effective for all transactions entered into by the Company in
fiscal year 2000. The adoption of this statement is not expected to have a
material impact on the Company's operating results, financial position or cash
flows.
The Company's revenue recognition policy is as follows:
Product license revenue: The Company recognizes revenue from sales of
software licenses to end users or resellers upon persuasive evidence of an
arrangement (as provided by agreements or contracts executed by both parties),
delivery of the software and determination that collection of a fixed or
determinable license fee is
55
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
considered probable. When the fees for software upgrades and enhancements,
maintenance, consulting and education are bundled with the license fee, they are
unbundled using the Company's objective evidence of the fair value of the
multiple elements represented by the Company's customary pricing for each
element in separate transactions. If such evidence of fair value for each
element of the arrangement does not exist, all revenue from the arrangement is
deferred until such time that evidence of fair value exists for undelivered
elements or until all elements of the arrangement are delivered, subject to
certain exceptions set forth in SOP 97-2. When the software license arrangement
requires the Company to provide consulting services for significant production,
customization or modification of the software or when the customer considers
these services essential to the functionality of the software product, both the
product license revenue and consulting services revenue are recognized in
accordance with the provisions of SOP 81-1. The Company recognizes revenue from
these arrangements using the percentage of completion method based on cost
inputs and, therefore, both product license and consulting services revenue are
recognized as work progresses. If the software license arrangement obligates the
Company to the delivery of unspecified future products, then revenue is
recognized on the subscription basis, ratably over the term of the contract.
Product support and other services: Maintenance includes technical support
and software updates and upgrades to customers. Maintenance service revenue is
recognized ratably over the term, which in most cases is one year. Revenue from
consulting and education services is recognized as the services are performed.
Revenue from arrangements where the Company provides hosting services is
recognized over the hosting period. Any fees paid or costs incurred prior to the
hosting period, such as license fees, consulting, customization or development
services, is deferred and also recognized ratably over the subsequent hosting
period, which is generally two years.
Amounts collected prior to satisfying the above revenue recognition
criteria are reflected in deferred revenue and advance payments. The Company
discloses billable and unpaid amounts in deferred revenue as an offset to
accounts receivable.
Cost of product license revenue consists of the costs to distribute the
product, including the costs of the media on which it is delivered and royalty
payments to third party vendors, as well as amortization of software development
costs. Cost of product support and other services revenue consists primarily of
consulting and support personnel salaries and related costs. Research and
development costs are excluded from the cost of revenue.
The Company occasionally enters into barter arrangements involving the
exchange of both products and services. Such transactions are recorded at the
estimated fair value of the products or services received or given where
significant objective evidence of this value exists. In the absence of
sufficient objective evidence of fair value, the acquired assets are recorded at
the book value of the surrendered assets.
For additional information regarding the Company's revenue recognition
policies in the years ended December 31, 1999, 1998 and 1997, see the discussion
in Note 3, below.
(l) Advertising Costs
Advertising production costs are expensed the first time the advertisement
takes place. Media placement costs are expensed in the month the advertising
appears. Advertising costs were $1.6 million, $134,000 and $93,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Additionally, as of
December 31, 1999, prepaid advertising costs were $3.5 million, of which a
substantial portion will be expensed in the first quarter of 2000.
(m) Year 2000 Costs
56
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's year 2000 activities are substantially complete. The Company
expenses costs for Year 2000 issues as incurred.
(n) Income Taxes
Prior to the initial public offering, the Company had elected to be treated
as a Subchapter S corporation for federal and state income tax purposes. Under
Subchapter S, the taxable income or loss was reported by the stockholders and,
accordingly, no federal or state income taxes have been provided for in the
financial statements prior to the Initial Public Offering.
In connection with the initial public offering, the Company converted to a
Subchapter C corporation and, accordingly, is no longer treated as a Subchapter
S corporation for tax purposes. The Company is now subject to federal and state
income taxes and recognizes deferred taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement provides for a liability approach
under which deferred income taxes are provided based upon enacted tax laws and
rates applicable to the periods in which the taxes become payable.
(o) Basic and Diluted Net Loss Per Share
The Company previously adopted SFAS No. 128, "Earning per Share." SFAS 128
specifies the calculation and presentation of basic and diluted net loss per
share. Basic net loss per share is determined by dividing the net loss
applicable to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted net loss per share is determined
by dividing the net loss applicable to common stockholders by the weighted
average number of common shares and common share equivalents outstanding during
the period. Common share equivalents are included in the diluted net loss per
share calculation when dilutive. Common share equivalents consisting of common
stock issuable upon exercise of outstanding common stock options and warrants
are computed using the treasury stock method. The Company's net loss per share
calculation for basic and diluted is based on the weighted average common shares
outstanding. There are no reconciling items in the numerator and denominator of
the Company's net loss per share calculation. Employee stock options and
warrants have been excluded from the net loss per share calculation because
their effect would be anti-dilutive. Refer to Note 14 below for stock options
and warrants excluded in each year.
(p) Foreign Currency Translation
The functional currency of the Company's international operations, which
are predominately in Europe, is the local currency. Accordingly, all assets and
liabilities of these subsidiaries are translated using exchange rates in effect
at the end of the period and revenue and costs are translated using weighted
average exchange rates for the period. The related translation adjustments are
reported in accumulated other comprehensive income in stockholders' equity.
Gains and losses resulting from foreign currency transactions are immaterial for
all periods presented.
(q) Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents,
short-term investments and accounts receivable. The Company places its cash
equivalents and short-term investments with high credit-quality financial
institutions and invests its excess cash primarily in money market instruments.
The Company has established guidelines relative to credit ratings and maturities
that seek to maintain safety and liquidity. The Company sells products and
services to various companies across several industries throughout the world in
the ordinary course of business. The Company
57
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
routinely assesses the financial strength of its customers and maintains
allowances for anticipated losses. For the years ended December 31, 1999 and
1998, no one customer accounted for 10% or more of net accounts receivable.
(r) Fair Value of Financial Instruments
The Company's financial instruments, which consist of cash, cash
equivalents, short-term investments, accounts receivable and accounts payable,
approximate fair value.
(s) Stock-based Compensation
The Company accounts for stock-based compensation under SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the
Company has elected to continue following the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and to adopt only the disclosure provisions of SFAS No. 123.
(t) Comprehensive Income (Loss)
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. This standard requires the Company to report the
total changes in stockholders' equity that do not result directly from
transactions with stockholders, including those which do not affect retained
earnings. Other comprehensive income (loss) recorded by the Company is solely
comprised of accumulated currency translation adjustments and unrealized gains
and losses on available-for-sale marketable securities, net of related tax
effects.
(u) Recent Accounting Standards
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. Subsequently,
the SEC released SAB 101A, which delayed the implementation date of SAB 101 for
registrants with fiscal years that begin between December 16, 1999 and March 15,
2000. The Company is required to be in conformity with the provisions of SAB
101, as amended by SAB 101A, no later than April 1, 2000 and does not expect a
material effect on the Company's financial position, results of operations or
cash flows as a result of SAB 101.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
which delays the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for the Company's
fiscal year 2001. This statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. The Company has not entered
into derivative contracts and does not have near term plans to enter into
contracts, accordingly the adoption of SFAS No. 133 and SFAS No. 137 is not
expected to have a material effect on the financial statements.
(3) Restatement of Financial Statements
Subsequent to the filing of a registration statement on Form S-3 with the
SEC which included the Company's audited financial statements for the years
ended December 31, 1999, 1998 and 1997 the Company
58
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
became aware that the timing and amount of reported earned revenues from license
transactions in 1999, 1998 and 1997 required revision.
These revisions primarily addressed the recognition of revenue for certain
software arrangements which should be accounted for under the subscription
method or the percentage of completion method, which spread the recognition of
revenue over the entire contract period. For example, when fees are received in
a transaction in which the Company is licensing software and also performing
significant development, customization or consulting services, the fees should
be recognized using the percentage of completion method and, therefore, product
license and product support and other services revenue are recognized as work
progresses. Revenue from arrangements where the Company provides hosting
services is generally recognized over the hosting term, which is generally two
to three years. The effect of these revisions is to defer the time in which
revenue is recognized for large, complex contracts that combine both products
and services. These revisions also resulted in a substantial increase in the
amount of deferred revenue reflected on the Company's balance sheet at the end
of 1999 and 1998. Additionally, these revisions include the effects of changes
in the reporting periods when revenue from certain contracts are recognized. In
the course of reviewing its revenue recognition on various transactions, the
Company became aware that, in certain instances, the Company had recorded
revenue on certain contracts in one reporting period where customer signature
and delivery had been completed, but where the contract may not have been fully
executed by the Company in that reporting period. The Company subsequently
reviewed license agreements executed near the end of the years 1999, 1998 and
1997 and determined that revisions were necessary to ensure that all agreements
for which the Company was recognizing revenue in a reporting period were
executed by both parties no later than the end of the reporting period in which
the revenue is recognized. The total effect of all revisions to revenue was to
reduce revenues by $54.0 million, $10.9 million and $1.0 million for the years
ended December 31, 1999, 1998 and 1997, respectively.
The Company also made certain revisions to our balance sheet as of December
31, 1999. These revisions include a reclassification of approximately $21.5
million from accounts receivable to short-term investments relating to the value
of proceeds from a software transaction that was received in the form of a right
to receive shares of the customer's common stock. We also recorded an increase
to goodwill of approximately $31.4 million, net of the increase in amortization,
relating to the purchase of the intellectual property and other tangible and
intangible assets, including the assembled workforce relating to NCR's Teracube
project in exchange for 566,372 shares of our Class A common stock. We made
this revision as a result of a re-measurement of the purchase price of the
Teracube assets to reflect the value of our Class A common stock on the
transaction's closing date. In addition, we reduced fixed assets by
approximately $8.8 million, net of the decrease in depreciation, in order to
record software received for resale and software acquired for internal use in
barter transactions at the book value of our assets surrendered in the exchange.
Approximately $5.0 million of the reduction in fixed assets is a reduction in
revenue, as restated. Of this amount, no revenue will be recorded unless this
software is resold.
Accordingly, such financial statements have been restated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- -----------------------
As As As
-- -- --
Reported Restated Reported Restated Reported Restated
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data
Revenues:
Product licenses....................... $143,193 $ 85,797 $72,721 $61,635 $36,601 $35,478
Product support and other services..... 62,136 65,461 33,709 33,854 16,956 17,073
Income (loss) from operations........... 18,319 (34,533) 9,326 (2,549) 372 (634)
Provision for income taxes.............. 7,735 1,246 3,442 -- -- --
Net income (loss)....................... 12,620 (33,743) 6,178 (2,255) 121 (885)
Net income (loss) per share:
</TABLE>
59
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Basic.................................. 0.16 (0.44) 0.09 (0.03) 0.00 (0.02)
Diluted................................ 0.15 (0.44) 0.08 (0.03) 0.00 (0.02)
Balance Sheet Data
Short-term investments.................. 19,627 42,418 -- -- -- --
Accounts receivable, net................ 61,149 37,586 33,054 25,377 16,085 15,121
Prepaid expenses and other current
assets................................. 15,782 15,461 2,198 5,245 1,435 1,435
Property and equipment, net............. 39,400 30,594 13,773 13,773 6,891 6,891
Goodwill and other intangible assets,
net.................................... 15,760 47,154 987 987 -- --
Deposits and other assets............... 1,559 2,439 1,770 1,770 2,148 2,148
Deferred tax assets, net (current and
non-current)........................... 3,337 1,775 716 1,928 -- --
Accounts payable and accrued expenses 14,388 13,582 11,904 11,464 9,636 9,636
Deferred revenue and advance 16,782
payments (current and non-current)..... 71,283 11,478 13,048 9,387 9,429
Deferred tax liabilities, net (current
and non-current)....................... -- 1,775 671 1,928 -- --
Additional paid-in capital.............. 117,556 138,943 42,183 42,183 20 20
Deferred compensation................... (1,641) (895) (2,098) (1,164) -- --
Accumulated other comprehensive
income................................. 197 1,643 894 894 158 158
Retained earnings (deficit)............. 17,849 (37,953) 5,229 (4,210) (634) (1,640)
</TABLE>
(4) Public Offerings
On February 10, 1999, the Company sold to the public 3,170,000 shares of
Class A common stock for approximately $40.1 million, net of offering costs. In
addition, certain holders of Class B common stock converted 830,000 shares of
Class B common stock to Class A common stock in connection with their sale of
such shares in the public offering. Class B common stock shares are convertible
to Class A common stock shares on a one-to-one basis at the election of
the stockholder.
On June 16, 1998, the Company issued 8,880,000 shares of Class A common
stock in an initial public offering, raising $48.2 million, net of offering
costs. In addition, certain stockholders of Class B common stock converted
320,000 shares of Class B common stock to Class A common stock in connection
with their sale of such shares in the initial public offering.
The holders of Class A common stock generally have rights identical to
those of holders of Class B common stock, except that holders of Class A common
stock are entitled to one vote per share while holders of Class B common stock
are entitled to ten votes per share on all matters submitted to a vote of
stockholders.
(5) Acquisitions
(a) Purchase of NCR's Teracube Assets
In December 1999, the Company purchased the intellectual property and other
tangible and intangible assets, including the assembled workforce relating to
NCR's Teracube project in exchange for 566,372 shares of Class A common stock,
valued at $49.6 million, based on the price of the Company's stock at the
closing. The Company will develop the Teracube assets in concert with its
existing proprietary technology to create a business intelligence platform for
data warehouses using NCR's Teradata database. The Company's preliminary
allocation of the $49.6 million purchase price was $2.8 million for in-process
research and development and
60
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$46.8 million for tangible and intangible assets including core technology,
computer equipment, assembled work force and agreements not to compete. The
Company believes the weighted average estimated useful life of such assets,
based upon the final allocation, will be less than 5 years and anticipates its
final allocation of the purchase price will be completed during the first half
of 2000.
In estimating the fair value of the in-process research and development
projects acquired, the Company considered, among other factors, the stage of
development of the Teracube research and development projects at the time of the
acquisition and projected estimated cash flows from those projects when
completed and the percentage of the final products cash flows that is attributed
to core technology of the Company and that was already developed by NCR.
Associated risks include the inherent difficulties and uncertainties in
completing Teracube and, thereby, achieving technological feasibility and risk
related to the impact of potential changes in future technology.
The Company intends to incur expenses of approximately $900,000 over the
next year in order to complete the project. The project was approximately 85%
complete at the time of the acquisition and approximately 30% of the final
product's estimated cash in-flows are attributable to the acquired Teracube
technology. The Company used a discount rate of 35% when estimating the net
present value of the projected incremental cash flows. Remaining development
efforts are focused on completing development of certain sub-products of
Teracube that will maximize efficiencies in operation of the Company's business
intelligence and e-business products and make it compliant with industry
standards. Completion of these projects will be necessary before revenues are
produced. The Company expects to begin to benefit from the purchased in-process
research and development by the end of 2000. If these projects are not
successfully developed, the Company may not realize the value assigned to the
in-process research and development projects.
During the year ended December 31, 1999, the Company recorded amortization
expense of $341,000 relating to these intangible assets.
(b) Purchase of Minority Interest in Foreign Subsidiaries and Related
Intangibles
Effective January 1, 1998, the Company issued a total of 2,803,282 shares
of Class B common stock to certain existing stockholders in exchange for their
approximate 21% minority interest in certain of the Company's foreign
subsidiaries. The transaction and the valuation of the percentage interests held
by each of the minority interest stockholders for purposes of determining the
number of shares of common stock to be issued to each of them were reviewed and
approved by the disinterested members of the Board of Directors. The Company
accounted for the transaction under the purchase method of accounting. The
2,269,324 shares issued to the majority stockholder of the Company in exchange
for his shares in the foreign subsidiaries' minority interest (representing 17%
interest of the foreign subsidiaries) was an exchange between entities under
common control and was therefore accounted for at historical cost. The
historical cost for the majority stockholder's investment in the minority
interest was approximately $58,000. The shares issued to the other minority
interest stockholder (representing 4% interest of the foreign subsidiaries) were
recorded at fair value. Accordingly, the Company recorded $1.1 million for
acquired intangible assets representing the excess of the fair market value of
533,958 of the shares issued in exchange for the non-controlling interests'
shares in the foreign subsidiaries. The Company has allocated the purchase price
amounts to the identifiable intangible assets, consisting primarily of
distribution channels, trade name and customer lists and is amortizing those
assets on a straight-line basis over weighted average useful lives of
approximately 14 years.
During the years ended December 31, 1999 and 1998, the Company recorded
amortization expense of $81,000, in each year, relating to these intangible
assets.
(6) Short-term Investments
61
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following available-for-sale securities are included in short-term
investments as of December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Corporate notes................................... $ 5,505 $ -- $ (50) $ 5,455
U.S. agency notes................................. 14,000 -- (78) 13,922
Common shares interests in U.S. domiciled
corporation...................................... 21,546 1,495 -- 23,041
------- ------- ------- -------
$41,051 $1,495 $ (128) $42,418
======= ======= ======= =======
</TABLE>
The following is a summary of contractual maturities of the Company's
investments in debt securities as of December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Amortized Cost Fair Value
------------------- -------------------
<S> <C> <C>
Within one year.................................................. $11,000 $10,960
After one year, within five years................................ 8,505 8,417
------- -------
$19,505 $19,377
======= =======
</TABLE>
There were no short-term investments as of December 31, 1998.
(7) Accounts Receivable
Accounts receivable, net of allowances, consist of the following, as of
December 31, (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Billed and billable.............................................. $ 66,181 $35,057
Less deferred revenue............................................ (25,266) (8,095)
-------- -------
40,915 26,962
Less allowance for doubtful accounts............................. (3,329) (1,585)
-------- -------
$ 37,586 $25,377
======== =======
</TABLE>
(8) Property and Equipment
Property and equipment consist of the following, as of December 31, (in
thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Computer equipment and software................................ $ 28,451 $14,967
Furniture and equipment........................................ 9,595 2,850
Leasehold improvements......................................... 3,647 697
-------- -------
41,693 18,514
Less: accumulated depreciation and amortization............... (11,099) (4,741)
-------- -------
$ 30,594 $13,773
======== =======
</TABLE>
Depreciation and amortization expense related to property and equipment was
$6.6 million, $2.6 million and $1.1 million for the years ended December 31,
1999, 1998 and 1997, respectively.
(9) Bank Borrowings
62
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 1999, the Company entered into a line of credit agreement with a
commercial bank which provides for an unsecured revolving line of credit for
general working capital purposes, up to $25.0 million, not to exceed 3.5 times
earnings before interest, taxes, depreciation and amortization for the prior
four quarters. The borrowings under the line of credit bear interest at a
variable rate equal to LIBOR plus 1.0% to 1.75%, depending upon the ratio of
funded debt to earnings before interest, taxes, depreciation and amortization.
The line of credit agreement includes a 0.2% unused line of credit fee and
expires on May 31, 2001. This line of credit agreement replaced the previous
loan agreement, which provided for a $5.0 million revolving line of credit. In
July 1998, the Company repaid all net borrowings under the previous loan
agreement. As of December 31, 1999 and 1998, there were no outstanding amounts
under the line of credit.
The line of credit agreement requires that the Company comply with certain
financial covenants. The Company is not in compliance with all of the covenants
contained in the line of credit agreement. However, the Company has received
a waiver through April 30, 2000 at which time the Company expects to restructure
the credit facility.
(10) Deferred Revenue and Advance Payments
Deferred revenue and advance payments from customers consist of the
following, as of December 31, (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Current:
Deferred product revenue......................................... $ 38,164 $ 1,366
Deferred product support and other services revenue.............. 24,267 15,885
-------- -------
62,431 17,251
Less amount in accounts receivable............................... (24,403) (4,949)
-------- -------
$ 38,028 $12,302
======== =======
Non-current:
Deferred product revenue......................................... $ 9,461 $ 471
Deferred product support and other services revenue.............. 24,657 3,421
-------- -------
34,118 3,892
Less amount in accounts receivable............................... (863) (3,146)
-------- -------
$ 33,255 $ 746
======== =======
</TABLE>
(11) Income Taxes
Prior to the initial public offering, the Company was an S Corporation, and
accordingly, the Company was not liable for corporate income taxes. Effective
June 12, 1998, the Company elected to become a tax-paying entity. In connection
with such conversion, the Company recorded a net deferred tax liability of
$576,000 reflecting the effect of its conversion from the cash to the accrual
basis for tax reporting.
U.S. and international components of income before income taxes were, for
the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
U.S............................................................... $(28,245) $ 206
Foreign........................................................... (4,252) (2,461)
-------- -------
Total............................................................. $(32,497) $(2,255)
======== =======
</TABLE>
63
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax provision consists of the following, for the years ended December 31,
(in thousands):
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Current:
Federal......................................................... $ -- $ --
State........................................................... -- --
Foreign......................................................... 1,246 --
-------- -------
1,246 --
Deferred:
Federal......................................................... (7,488) (136)
State........................................................... (1,872) (545)
Foreign......................................................... (2,313) (1,654)
-------- -------
(11,673) (2,335)
-------- -------
Increase in valuation allowance................................... 11,673 2,335
-------- -------
Total provision................................................. $ 1,246 $ --
======== =======
</TABLE>
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to the Company's income before taxes as
follows, for the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Income tax (benefit) expense at federal statutory rate............ $(11,374) $ (766)
Goodwill amortization and other non-deductibles................... 351 (72)
Impact of international operations................................ (200) (787)
Adjustment for tax method change.................................. 1,016 --
S Corporation income.............................................. (180) (637)
Research and development tax credit............................... (40) (73)
Change in valuation allowance..................................... 11,673 2,335
-------- --------
$ 1,246 $ --
======== ========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows, as of December 31, (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets, net:
Allowances and reserves........................................... $ 1,826 $ 1,561
Accrued compensation.............................................. 1,214 848
Net operating loss carryforwards.................................. 17,434 3,162
Deferred revenue adjustment....................................... 10,768 582
Cash to accrual conversion........................................ 1,892 --
Amortization...................................................... 329 --
Acquired in-process research and development...................... 1,064 --
Federal and state tax credit carry forwards....................... 1,649 541
-------- -------
36,176 6,694
Valuation allowance............................................... (25,169) (3,228)
-------- -------
Deferred tax assets, net of valuation allowance................... 11,007 3,466
-------- -------
Deferred tax liabilities:
Prepaid assets.................................................... 3,257 489
</TABLE>
64
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Depreciation...................................................... 2,311 424
Capitalized software.............................................. 208 476
Capitalized internal software..................................... 1,651 --
Amortization...................................................... 7 595
Unbilled receivables.............................................. 1,558 --
Cash to accrual conversion........................................ 1,496 1,482
Net unrealized gain on marketable securities...................... 519 --
-------- -------
Total deferred tax liabilities.................................... 11,007 3,466
-------- -------
Total net deferred tax liability.................................. $ -- $ --
======== =======
</TABLE>
The Company recorded a net $21.9 million increase in the valuation allowance
for the year ended December 31, 1999 related to deferred tax assets which, in
the Company's opinion, are not likely to be realized in future periods. The
Company has foreign net operating loss carryforwards of $13.3 million of which
$185,000, $1.7 million and $213,000 will expire in 2002, 2003 and 2004,
respectively. The remaining foreign net operating losses of $11.3 million can be
carried forward indefinitely. The Company has domestic net operating loss
carryforwards of $31.5 million, primarily related to the deductions associated
with the disqualified disposition of incentive stock options, which expire in
2019. The Company has research and development tax credit carryforwards of $1.4
million expiring in 2018 and 2019.
For the years ended December 31, 1999 and 1998 the Company recorded a total
tax provision of $1.2 million and $0, respectively. Upon the revocation of the
Company's federal S corporation election in June 1998, the Company accounts for
income taxes in accordance with SFAS No. 109, ''Accounting for Income Taxes.''
As of December 31, 1999 management has concluded that a full valuation allowance
is required on the domestic deferred tax assets and its foreign deferred tax
assets based on its assessment that current and expected future levels of
taxable income are not sufficient enough to realize these deferred tax assets.
(12) Commitments and Contingencies
The Company leases office space and computer and other equipment under
operating lease agreements expiring at various dates through 2010. In addition
to base rent, the Company is responsible for certain taxes, utilities, and
maintenance costs. Some of these leases contain renewal options and some contain
purchase options. Future minimum lease payments under noncancellable operating
leases with initial terms of one year or more consist of the following (in
thousands):
<TABLE>
<S> <C>
2000.................................................................................. $ 20,279
2001.................................................................................. 19,350
2002.................................................................................. 16,113
2003.................................................................................. 11,922
2004.................................................................................. 10,150
Thereafter............................................................................ 36,278
--------
$114,092
========
</TABLE>
Total rental expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $12.8 million, $4.0 million and $1.6 million, respectively.
As of December 31, 1999, the Company had $12.2 million in commitments for
computer software and equipment and $5.0 million in marketing agreements.
65
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2000, the Company entered into an agreement to lease approximately
146,000 square feet of office space in McLean, Virginia. Total commitments under
the lease, which expires in 2010, are approximately $51.6 million and are
included in the schedule above.
(13) Litigation
The Company is a defendant in numerous purported class action suits in which
the Company and several of its officers are alleged to have violated Section
10(b) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), Rule
10(b) (5) promulgated thereunder and Section 20(a) of the 1934 Act. The
complaints do not specify the amount of the damages sought. Accordingly, the
Company is unable to determine or estimate the outcome at this time. It is
possible that the Company may be required to pay substantial damages or
settlement costs which could have a material adverse effect on the Company's
financial condition or results of operations. The Company has not yet filed any
responsive pleadings, but intends to defend the matter vigorously.
In March 2000, the Company was notified that the SEC has issued a formal order
of private investigation in connection with matters relating to the Company's
previously announced restatement of its 1999 and 1998 financial results. The SEC
has requested that the Company provide the SEC with certain documents concerning
the Company's revision of its financial results for 1999 and 1998 and financial
reporting documents. The SEC indicated that its inquiry should not be construed
as an indication by the SEC or its staff that any violation of law has occurred,
nor as an adverse reflection upon any person, entity or security. The Company is
cooperating with the SEC in connection with this investigation and its outcome
cannot yet be determined.
The Company is also involved in other legal proceedings through the normal
course of business. Management believes that any unfavorable outcome related to
these other proceedings will not have a material effect on the Company's
financial position, results of operations or cash flows.
(14) Stockholders' Equity
(a) Stock Split
In January 2000, the Company's Board of Directors approved a two-for-one split
of the Company's common stock effective in the form of a stock dividend. The
stock dividend was distributed on January 26, 2000 to stockholders of record as
of January 20, 2000. Stockholders' equity has been restated to give retroactive
recognition to the split for all periods presented by reclassifying the par
value of the additional shares arising from the split from paid-in capital to
common stock. All references to share and per share amounts for all periods
presented have been restated to reflect this stock split.
(b) Stock Plans
In February 1996, the Company adopted the 1996 Stock Plan in order to provide
an incentive to eligible employees and officers of the Company. A total of
12,282,664 shares of Class A common stock are reserved under the 1996 Stock
Plan, as amended. As of December 31, 1999, options to purchase 15,341,838 shares
have been granted, of which 3,059,174 have been cancelled.
In March 1997, the Company adopted the 1997 Stock Option Plan for French
Employees, which provides for the granting of options on the Company's Class A
common stock to employees of MicroStrategy France SARL, the Company's French
subsidiary. A total of 600,000 shares of Class A common stock are reserved under
the French Stock Plan. As of December 31, 1999, options to purchase 251,500
shares have been granted.
66
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 1997, the Company adopted the 1997 Director Option Plan, which
provides for grants of nonqualified stock options to non-employee directors of
the Company. A total of 600,000 shares of Class A common stock are reserved
under the Director Option Plan, as amended. As of December 31, 1999, options to
purchase 320,000 shares have been granted.
In April 1999, the Company adopted the 1999 Stock Option Plan, which provides
for grants of stock options to eligible employees and officers of the Company. A
total of 5,000,000 shares of Class A common stock are reserved under the 1999
Stock Option Plan. As of December 31, 1999, options to purchase 3,262,964 shares
have been granted.
Shares of Class A common stock will be issued upon exercise of any of the
stock options granted under the stock plans. Stock options granted to date
generally vest ratably over five years from the date of grant and expire ten
years after grant. The stock option exercise price of incentive options under
the Company's stock option plans may not be less than the determined fair market
value at the date of grant.
A summary of the status of the Company's stock option plans are presented (in
thousands, except per share data):
<TABLE>
<CAPTION>
Price per Share Options Exercisable
--------------------------------- --------------------------------
Weighted
Weighted Number of Average
Shares Range Average Shares Exercise Price
------ ----- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 4,919 $0.25 - 0.63 $ 0.42
Granted.................... 5,321 0.75 - 2.00 1.22
Exercised.................. -- -- --
Cancelled.................. (416) 0.25 - 1.25 0.55
------ --------------- ------
Balance, December 31, 1997 9,824 0.25 - 2.00 0.85 913 $0.41
Granted.................... 3,753 2.00 - 21.25 7.14
Exercised.................. (700) 0.25 - 2.00 0.53
Cancelled.................. (726) 0.25 - 19.13 1.98
------ --------------- ------
Balance, December 31, 1998 12,151 0.25 - 21.25 2.73 2,292 $1.04
Granted.................... 5,245 7.75 - 115.66 28.42
Exercised.................. (2,513) 0.25 - 20.00 1.26
Cancelled.................. (2,065) 0.25 - 48.31 4.38
------ --------------- ------
Balance, December 31, 1999 12,818 $0.25 - 115.66 $13.07 2,128 $4.11
======
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable at
Options Outstanding at December 31, 1999 December 31, 1999
- ------------------------------------------------------------------------ ----------------------------------
Weighted Average
Remaining Weighted
Range of Number of Contractual Life Weighted Average Number of Average
Exercise Prices Shares (Years) Exercise Price Shares Exercise Price
- ---------------- ------ ------- --------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.25 - 0.75 2,468 6.2 $ 0.47 987 $ 0.45
1.00 - 1.25 2,376 7.4 1.22 545 1.22
1.50 - 10.00 2,928 8.1 5.03 352 4.60
10.21 - 14.00 1,764 9.0 12.14 131 11.66
14.03 - 38.50 1,860 9.1 20.18 73 18.04
41.31 - 115.66 1,422 9.5 63.12 40 79.67
------ --- ------ ----- ------
12,818 8.0 $13.07 2,128 $ 4.11
====== ===== ------
</TABLE>
67
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1998, the Company adopted the 1998 Employee Stock Purchase Plan and
reserved 800,000 shares, subject to annual increases. As of December 31, 1999, a
total of 1,000,000 shares of common stock were reserved. The Purchase Plan
became effective upon the completion of the Company's initial public offering.
The Purchase Plan permits eligible employees to purchase common stock, through
payroll deductions of up to 10%, not to exceed $15,000 per year, of the
employee's compensation, at a price equal to 85% of the fair market value of the
common stock at either the beginning or the end of each offering period,
whichever is lower. As of December 31, 1999, 531,640 shares have been issued
under the plan.
If compensation expense had been recorded based on the minimum or fair value
at the grant dates for awards under the stock option and purchase plans as set
forth in SFAS 123, "Accounting for Stock-based Compensation," the Company's net
loss would have been adjusted to the pro forma amounts presented below, for the
years ended December 31, (thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net loss:
As reported................................................... $(33,743) $(2,255) $ (885)
Pro forma..................................................... $(42,358) $(5,229) $(1,264)
Basic and diluted net loss per share, as reported............... $ (0.44) $ (0.03) $ (0.02)
Pro forma basic and diluted net loss per share.................. $ (0.55) $ (0.08) $ (0.02)
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
option grants under the Company's stock option plans issued during 1999, 1998
and 1997, respectively: volatility factors of 95%, 80% and 60%, weighted-average
expected life of 5 years, 5 years, and 2.5 years, risk-free interest rates of
6%, 5% and 6%, and no dividend yields.
The following assumptions were used for shares issued during 1999 and 1998,
respectively, under the Employee Stock Purchase Plan: volatility factors of 96%
and 80%, weighted-average expected life of 6 months, risk-free interest rate of
5% and no dividend yield. The pro forma amounts for options granted prior to
the Company's initial public offering are based on the minimum value method
proscribed by SFAS 123.
The weighted average minimum and fair value of grants made during 1999, 1998
and 1997 are $21.44, $9.52 and $1.04, respectively.
During the year ended December 31, 1998, the Company granted options to
purchase 3,753,380 shares of Class A common stock, of which options to purchase
1,071,670 shares of Class A common stock were granted at exercise prices below
fair market value. The Company will amortize $1.4 million of compensation
expense related to these options ratably over the five-year vesting period. For
the years ended December 31, 1999 and 1998, the Company recorded compensation
expense of $269,000 and $186,000, respectively. The Company will record
compensation expense of $270,000 in each of the years ending December 31, 2000,
2001 and 2002 and $85,000 in 2003, if all of the related options vest.
(c) Distribution to S Corporation Stockholders
The Company declared a $10.0 million dividend to the existing stockholders of
the S corporation in the form of short-term one-year notes prior to the
termination of the Company's S corporation election, which occurred immediately
prior to the initial public offering. The notes issued to the existing
stockholders of the Company bear interest at the applicable federal rate for
short-term obligations. As of December 31, 1999, the entire $10.0 million of
the dividend notes had been repaid.
68
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) Stock Warrants
In June 1999, the Company issued warrants to a customer to purchase 14,000
shares of Class A common stock at $12.47 per share which immediately vested and
were exercisable upon issuance. The fair value of the warrants of $139,000 was
recorded as a reduction of revenue at the date of grant. Fair value was
determined using the Black-Scholes option-pricing model with the following
assumptions: volatility factor of 80%, weighted average expected life of 8
years, risk-free interest rate of 6%, and no dividend yield.
In December 1998, the Company issued warrants to a customer to purchase
100,000 shares of Class A common stock at $11.75 per share which become
exercisable ratably over the five-year vesting period. The fair value of the
warrants of $934,000 was recorded as general and administrative expense at the
date of grant. Fair value was determined using the Black-Scholes option-pricing
model with the following assumptions: volatility factor of 80%, weighted average
expected life of 5 years, risk-free interest rate of 5%, and no dividend yield.
(15) Employee Benefit Plan
The Company sponsors a plan to provide retirement and incidental benefits for
its employees, known as the MicroStrategy 401(k) plan (the "Plan").
Participants may make voluntary contributions to the Plan of up to 20% of their
compensation not to exceed the Federally determined maximum allowable
contribution. The Plan permits for discretionary company contributions; however,
no contributions were made for the years ended December 31, 1999, 1998 and 1997.
(16) Segment Information
The Company adopted the provisions of SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," during 1998. SFAS No. 131
requires certain disclosures about operating segments, products and services,
geographic areas, and major customers. The method for determining what
information to report is based on the way that management organizes the
operating segments within the Company for making operational decisions and
assessments of financial performance. The Company's chief operating decision
maker is considered to be the Company's Chief Executive Officer ("CEO"). The
CEO reviews financial information presented on a consolidated basis accompanied
by disaggregated information about revenues by operating segments for purposes
of making operating decisions and assessing financial performance.
The Company has two operating segments, MicroStrategy Platform and
Strategy.com. MicroStrategy Platform provides scalable, sophisticated and
maintainable solutions that enable businesses to develop and deploy intelligent
e-business systems. Revenues are derived from sales of product licenses and
product support and other services, including technical support, education and
consulting and hosting services. Strategy.com delivers personalized information
to consumers through its personal intelligence network via the web, wireless
applications protocol-enabled devices, e-mail, mobile phone, fax, pager and
regular telephone. Strategy.com syndicates its channels through network
affiliates and offers them to consumers directly through its website. Revenues
are expected to be derived from subscription, advertising fees and transaction
fees. The Company began operating its business as two segments in the latter
part of 1999. Prior years' segment information has been restated to reflect the
operations of Strategy.com.
The accounting policies of both segments are the same as those described in
the summary of significant accounting policies. Certain corporate support costs
are allocated to Strategy.com based on factors such as headcount, gross asset
value and the specific level of activity directly related to such costs.
69
<PAGE>
MICROSTRATEGY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summary discloses certain financial information regarding the
Company's operating segments (in thousands):
<TABLE>
<CAPTION>
MicroStrategy
Platform Strategy.com Consolidated
-------- ------------ ------------
<S> <C> <C> <C>
Year ended December 31, 1999
Total license and service revenues........ $151,258 $ -- $151,258
Gross profit.............................. 114,225 -- 114,225
Depreciation and amortization............. 6,839 1,000 7,839
Operating expenses........................ 139,522 9,236 148,758
Loss from operations...................... (25,297) (9,236) (34,533)
Total assets.............................. 195,150 8,218 203,368
Year ended December 31, 1998
Total license and service revenues......... $ 95,489 $ -- $ 95,489
Gross profit............................... 75,708 -- 75,708
Depreciation and amortization.............. 3,242 8 3,250
Operating expenses......................... 77,916 341 78,257
Loss from operations....................... (2,208) (341) (2,549)
Total assets............................... 76,476 95 76,571
Year ended December 31, 1997
Total license and service revenues......... $ 52,551 $ -- $ 52,551
Gross profit............................... 41,435 -- 41,435
Depreciation and amortization.............. 1,243 -- 1,243
Operating expenses......................... 42,069 -- 42,069
Loss from operations....................... (634) -- (634)
Total assets............................... 29,101 -- 29,101
</TABLE>
The following summary discloses total revenues and long-lived assets,
excluding long-term deferred tax assets, relating to the Company's geographic
regions (in thousands):
<TABLE>
<CAPTION>
Domestic International Consolidated
-------------------- ------------------ ---------------------
<S> <C> <C> <C>
Year ended December 31, 1999
Total license and service revenues......... $114,907 $36,351 $151,258
Long-lived assets.......................... 78,159 2,028 80,187
Year ended December 31, 1998
Total license and service revenues......... $ 70,573 $24,916 $ 95,489
Long-lived assets.......................... 13,776 2,754 16,530
Year ended December 31, 1997
Total license and service revenues......... $ 38,304 $14,247 $ 52,551
Long-lived assets.......................... 7,097 1,942 9,039
</TABLE>
Transfers of $8.3 million, $6.6 million, and $ 4.4 million for the year ended
December 31, 1999, 1998 and 1997, respectively, from international to domestic
operations have been excluded from the above table and eliminated in the
consolidated financial statements.
For the year ended December 31, 1999, 1998 and 1997, no one customer
accounted for 10% or more of consolidated total revenue.
70
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Vienna,
Commonwealth of Virginia, on this 12th day of April 2000.
MICROSTRATEGY INCORPORATED
(Registrant)
By: /s/ Michael J. Saylor
---------------------------------------
Name: Michael J. Saylor
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Position Date
- ----------------------------------- ------------------------------------------- ---------------------------
<S> <C> <C>
/s/ Michael J. Saylor President, Chief Executive Officer and April 12, 2000
- ------------------------------- Chairman of the Board of Directors (Principal
Michael J. Saylor Executive Officer)
/s/ Mark S. Lynch Vice President and Chief Financial Officer April 12, 2000
- ------------------------------- (Principal Financial and Accounting Officer)
Mark S. Lynch
/s/ Sanju K. Bansal Director April 12, 2000
- -------------------------------
Sanju K. Bansal
/s/ Frank A. Ingari Director April 12, 2000
- --------------------------------
Frank A. Ingari
/s/ Jonathan J. Ledecky Director April 12, 2000
- --------------------------------
Jonathan J. Ledecky
/s/ John W. Sidgmore Director April 13, 2000
- --------------------------------
John W. Sidgmore
/s/ Ralph S. Terkowitz Director April 12, 2000
- ---------------------------------
Ralph S. Terkowitz
</TABLE>
71
<PAGE>
Schedule II
Valuation and Qualifying Account
For the years ended December 31, 1997, 1998 and 1999
(In thousands)
Allowance for doubtful accounts
Balance at
beginning Additions Balance at
of the charged to the end of
period expenses Deductions the period
31-Dec-97 458 312 -- 770
31-Dec-98 770 1,468 (653) 1,585
31-Dec-99 1,585 4,625 (2,881) 3,329
72
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ----------- -------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation of the registrant, as
amended. (Filed as Exhibit 3.1 to the registrant 's
Registration Statement on Form S-1 (Registration No.
333-49899) and incorporated by reference herein.)
3.2 Bylaws of the registrant. (Filed as Exhibit 3.2 to the
registrant's Registration Statement on Form S-1 (Registration
No. 333-49899) and incorporated by reference herein.)
4.1 Form of Certificate of Class A Common Stock of the registrant.
(Filed as Exhibit 4.1 to the registrant's Registration
Statement on Form S-1 (Registration No. 333-49899) and
incorporated by reference herein.)
10.1 1996 Stock Plan (as amended) of the registrant. (Filed as
Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 (File No. 000-24435)
and incorporated by reference herein.)
10.2 1997 Stock Option Plan for French Employees of the registrant.
(Filed as Exhibit 10.6 to the registrant's Registration
Statement on Form S-1 (Registration No. 333-49899) and
incorporated by reference herein.)
10.3 1997 Director Option Plan (as amended) of the registrant.
10.4 1998 Employee Stock Purchase Plan of the registrant. (Filed as
Exhibit 10.4 to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 (File No.
000-24435) and incorporated by reference herein.)
10.5 Credit Agreement, dated March 26, 1999, between NationsBank,
N.A. and the registrant. (Filed as Exhibit 10.1 to the
registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 000-24435) and incorporated by
reference herein.)
10.6 Modification to Credit Agreement, dated July 12, 1999, between
NationsBank, N.A. and the registrant. (Filed as Exhibit 10.2
to the registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 (File No. 000-24435) and
incorporated by reference herein.)
10.7 1999 Stock Option Plan of the registrant. (Filed as Exhibit
10.3 to the registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 (File No. 000-24435) and
incorporated by reference herein.)
10.8 Master Lease Agreement No. VAC180, dated November 1, 1999,
between MLC Group, Inc. and the registrant.
10.9 Letter Agreement, dated December 1, 1999, between ePlus, Inc.
(f/k/a MLC Group, Inc.) and the registrant.
</TABLE>
<PAGE>
10.10* Software Development and OEM Agreement, dated December 28,
1999, between the registrant and Exchange Applications, Inc.
10.11 Software License Agreement, dated December 28, 1999, between
the registrant and Exchange Applications, Inc.
10.12 Value-Added Reseller Agreement, dated December 28, 1999,
between the registrant and Exchange Applications, Inc.
10.13 Payment and Registration Rights Agreement, dated December 28,
1999, between the registrant and Exchange Applications, Inc.
10.14* DSS Partner MicroStrategy Incorporated OEM Agreement, between
the registrant and NCR Corporation.
10.15 Memorandum of Understanding Purchase, between the registrant
and NCR Corporation.
10.16 Memorandum of Understanding Joint Marketing, between the
registrant and NCR Corporation.
10.17 Asset Purchase Agreement, dated December 23, 1999, between the
registrant and NCR Corporation.
10.18 Deed of Lease, dated January 7, 2000, between Tysons Corner
Property LLC and the registrant.
21.1 Subsidiaries of the registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
* Certain portions of this Exhibit were omitted by means of redacting a portion
of the text. This Exhibit has been filed separately with the Secretary of the
Commission with such text pursuant to our Application Requesting Confidential
Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as
amended.
<PAGE>
Exhibit 10.3
MICROSTRATEGY INCORPORATED
1997 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1997 Director Option Plan are
to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive
to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Class A Common Stock of the Company.
(d) "Company" means Microstrategy Incorporated, a Delaware corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a Director's fee by the Company shall not be sufficient in and
of itself to constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(h) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the date of determination,
as reported in The Wall Street Journal or such other source as the
Board deems reliable, or;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "Inside Director" means a Director who is an Employee.
(j) "Option" means a stock option granted pursuant to the Plan.
(k) "Optioned Stock" means the Common Stock subject to an Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an Employee.
(n) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1997 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 10 of the Plan.
<PAGE>
(q) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares of Common Stock (the "Pool"). The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised
in full, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. The provisions set forth in this Section 4(a)
shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall
be made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(i) Each Outside Director shall be automatically granted an Option to
purchase 45,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) the effective date of this
Plan, as determined in accordance with Section 6 hereof, or (B) the
date on which such person first becomes an Outside Director, whether
through election by the shareholders of the Company or appointment by
the Board to fill a vacancy; provided, however, that an Inside Director
who ceases to be an Inside Director but who remains a Director shall
not receive a First Option.
(ii) Each Outside Director shall be granted an Option to purchase
5,000 Shares (a "Subsequent Option") each year on the date of the
annual stockholders' meeting provided he or she is then an Outside
Director and if as of such date, he or she shall have served on the
Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any exercise of an Option granted before the Company has
obtained stockholder approval of the Plan in accordance with Section 16
hereof shall be conditioned upon obtaining such stockholder approval of
the Plan in accordance with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall vest and become exercisable only
pursuant to the terms of the Director Option Agreement evidencing
such First Option, except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair Market
Value per Share on the date of grant of the First Option. In the
event that the date of grant of the First Option is not a trading
day, the exercise price per Share shall be the Fair Market Value on
the next trading day immediately following the date of grant of the
First Option.
(D) subject to Section 10 hereof, the First Option shall become
vested as to twenty percent (20%) of the Shares subject to the First
Option on each anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall be as
follows:
(A) the term of the Subsequent Option shall be ten (10) years.
<PAGE>
(B) the Subsequent Option shall vest and become exercisable only
pursuant to the terms of the Director Option Agreement evidencing
such Subsequent Option, except as set forth in Sections 8 and 10
hereof.
(C) the exercise price per Share shall be 100% of the Fair Market
Value per Share on the date of grant of the Subsequent Option. In
the event that the date of grant of the Subsequent Option is not a
trading day, the exercise price per Share shall be the Fair Market
Value on the next trading day immediately following the date of
grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option shall vest
as to one hundred percent (100%) of the Shares subject to the
Subsequent Option on the fifth anniversary of its date of grant,
provided that the Optionee continues to serve as a Director on such
date.
(vii) In the event that any Option granted under the Plan would cause
the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under
Options to the Outside Directors on a pro rata basis. No further grants
shall be made until such time, if any, as additional Shares become
available for grant under the Plan through action of the Board or the
stockholders to increase the number of Shares which may be issued under
the Plan or through cancellation or expiration of Options previously
granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth
in Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate the Director's relationship with the Company at
any time.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the stockholders of the
Company as described in Section 16 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 11 of the
Plan.
7. Form of Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (A) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (B) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) delivery of a
properly executed exercise notice together with such other documentation as
the Company and the broker, if applicable, shall require to effect an exercise
of the option and delivery to the Company of the sale or loan proceeds
required to pay the exercise price, or (v) any combination of the foregoing
methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall vest and become exercisable at such times as are set forth
in Section 4 hereof and pursuant to the Director Option Agreement;
provided, however, that no Options shall be exercisable until stockholder
approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
If otherwise exercisable, an Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance
with the terms of the Option by the person entitled to exercise the Option
and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may consist of any
consideration and method of payment allowable under Section 7 of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect
<PAGE>
to the Optioned Stock, notwithstanding the exercise of the Option. A share
certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is
prior to the date the stock certificate is issued, except as provided in
Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors must comply with the
applicable provisions of Rule 16b-3 promulgated under the Exchange Act or
any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify Plan transactions,
and other transactions by Outside Directors that otherwise could be matched
with Plan transactions, for the maximum exemption from Section 16 of the
Exchange Act.
(c) Termination of Continuous Status as a Director. Subject to Section 10
hereof, in the event an Optionee's status as a Director terminates other
than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code), the Optionee shall retain any
vested portion of this Option (determined in accordance with the terms of
the Director Option Agreement) and the Optionee (or his or her legal
representative, as applicable) may exercise his or her Option, but only
pursuant to the terms of the Director Option Agreement. To the extent that
the Option was not vested on the date of such termination, and to the
extent that the Optionee does not exercise such Option (to the extent
otherwise so entitled) within the time specified pursuant to the Director
Option Agreement, the Option shall terminate.
(d) Disability of Optionee. In the event Optionee's status as a Director
terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee shall retain any vested portion
of his or her Option (determined in accordance with the terms of the
Director Option Agreement) and the Optionee (or his legal representative,
as applicable) may exercise his or her Option, but only pursuant to the
terms of the applicable Director Option Agreement. To the extent that the
Option was not vested on the date of termination, or if he or she does not
exercise such Option (to the extent otherwise so entitled) within the time
specified pursuant to the Director Option Agreement, the Option shall
terminate.
(e) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance shall retain the vested portion of the Option
(determined in accordance with the terms of the Director Option Agreement)
and may exercise the Option, but only in accordance with the terms of the
Director Option Agreement (but in no event later than the expiration of its
ten (10) year term). To the extent that the Option was not vested on the
date of death, and to the extent that the Optionee's estate or a person who
acquired the right to exercise such Option does not exercise such Option
(to the extent otherwise so entitled) within the time specified in the
Director Option Agreement, the Option shall terminate.
9. Non-Transferability of Options. No Option may be sold, pledged, assigned
or transferred in any manner other than by a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder ("QDRO") or by will
or the laws of descent and distribution unless and until such Option has been
exercised, or the shares underlying such Option have been issued, and all
restrictions applicable to such shares have lapsed; provided, however, an
Optionee may transfer an Option to a Permitted Transferee (as defined below)
to the extent permitted by any applicable law or regulations and subject to
the following terms and conditions:
(a) An Option transferred to a Permitted Transferee shall not be
assignable or transferable by the Permitted Transferee other than by a QDRO
or by will or the laws of descent and distribution.
(b) Any Option which is transferred to a Permitted Transferee shall
continue to be subject to all the terms and conditions of the Option as
applicable to the original holder (other than the ability to further
transfer the Option).
<PAGE>
(c) The Optionee and the Permitted Transferee shall execute any and all
documents reasonably requested by the Board, including without limitation
documents to (i) confirm the status of the transferee as a Permitted
Transferee, (ii) satisfy any requirements for an exemption for the transfer
under applicable federal and state securities laws and (iii) evidence the
transfer.
(d) Shares of Common Stock acquired by a Permitted Transferee through
exercise of an Option have not been registered under the Securities Act of
1933, as amended, or any state securities act and may not be transferred,
nor will any assignee or transferee thereof be recognized as an owner of
such shares of Common Stock for any purpose, unless a registration
statement under the Securities Act of 1933, as amended, and any applicable
state securities act with respect to such shares shall then be in effect or
unless the availability of an exemption from registration with respect to
any proposed transfer or disposition of such shares shall be established to
the satisfaction of counsel for the Company.
As used in this Section 9, "Permitted Transferee" shall mean (i) one or more
of the following family members of an Optionee: spouse, former spouse, child
(whether natural or adopted), stepchild, any other lineal descendant of the
Optionee, (ii) a trust, partnership or other entity established and existing
for the sole benefit of, or under the sole control of the Optionee or one or
more of the above family members of the Optionee, or (iii) any other
transferee specifically approved by the Board after taking into account any
state or federal tax or securities laws applicable to transferable Options.
No interest or right therein shall be liable for the debts, contracts or
engagements of the holder thereof or his successors in interest or shall be
subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including
bankruptcy), and any attempted disposition thereof shall be null and void and
of no effect, except to the extent that such disposition is permitted by the
preceding provisions of this Section 9. Except as specifically provided in
this Section 9, an Option shall be exercised during the Optionee's lifetime
only by the Optionee or his guardian or legal representative.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share covered by each such outstanding
Option, and the number of Shares issuable pursuant to the automatic grant
provisions of Section 4 hereof shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification
of the Common Stock, or any other increase or decrease in the number of
issued Shares effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, to the extent that an Option has not been
previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation or the sale of substantially all of the assets of
the Company, outstanding Options may be assumed or equivalent options may
be substituted by the successor corporation or a Parent or Subsidiary
thereof (the "Successor Corporation"). If an Option is assumed or
substituted for, the Option or equivalent option shall continue to be
exercisable as provided in Section 4 hereof for so long as the Optionee
serves as a Director or a director of the Successor Corporation. Following
such assumption or substitution, if the Optionee's
<PAGE>
status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as
to Shares for which it would not otherwise be exercisable. Thereafter, the
Option or option shall remain exercisable in accordance with Sections 8(c)
through (e) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested
and exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall
terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger
or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares).
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. Except as set forth in Section 4, the
Board may at any time amend, alter, suspend, or discontinue the Plan, but
no amendment, alteration, suspension, or discontinuation shall be made
which would impair the rights of any Optionee under any grant theretofore
made, without his or her consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act (or any
applicable law or regulation), the Company shall obtain stockholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated.
12. Time of Granting Options. The date of grant of an Option shall, for all
purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without
any present intention to sell or distribute such Shares, if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
<PAGE>
15. Option Agreement. Options shall be evidenced by written option agreements
in such form as the Board shall approve.
16. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
<PAGE>
AMENDMENT NO. 1 TO THE 1997 DIRECTOR OPTION PLAN
OF MICROSTRATEGY INCORPORATED
The first sentence of Section 3 of the 1997 Director Option Plan (the
"Plan") of MicroStrategy Corporation is hereby amended and restated in its
entirety, subject to stockholder approval, to provide as follows:
"Subject to the provisions of Section 10 of the Plan (except as such
provisions relate to stock splits effected prior to February 16, 2000), the
maximum aggregate number of Shares which may be optioned and sold under the
Plan is 600,000 Shares of Common Stock (the "Pool')."
Adopted by the Board of Directors
on February 16, 2000
<PAGE>
Exhibit 10.8
MASTER LEASE AGREEMENT NO. VAC180
This Master Lease Agreement dated and effective as of November 1, 1999 between
MLC Group, Inc., a Virginia corporation with it's principal office at 400
Herndon Parkway, Herndon, Virginia 20170 (the "Lessor") and MicroStrategy
Incorporated with its principal office at 8000 Towers Crescent Drive, Vienna,
Virginia 22182 (the "Lessee").
TERMS AND CONDITIONS
1. Master Lease Definitions
Asset(s). All of the personal property, including hardware, software or
licensed products, services, and/or maintenance listed on any Schedule. When
Asset(s) refers to software licensed to Lessee it shall be understood that said
software shall continue to be owned by licensor as set forth in the applicable
software license agreement.
Commencement Date. The date(s) Lessee's obligation to pay Rent begins, which
-----------------
will be the Date of Acceptance for each Asset.
Initial Schedule Term. The period initially agreed to constitute the lease
---------------------
period as set forth in the Schedule.
Lessee. Lessee shall be defined as MicroStrategy Incorporated and/or any
------
Participating Affiliate and Participating Subsidiary provided that
MicroStrategy Incorporated will be responsible for all obligations.
Participating Affiliate and Participating Subsidiary shall be defined as an
affiliate or subsidiary of MicroStrategy Incorporated that orders or possesses
Assets that are covered by this lease.
Schedule Term. For each Schedule shall include the Initial Schedule Term and
-------------
any Renewal Schedule Terms.
Renewal Schedule Term. Any period subsequent to the Initial Schedule Term.
---------------------
Rent. The payment by Lessee to Lessor of money for the lease of the Asset(s)
----
covered by the Schedule.
Schedule. The document specifying the Asset(s), Rent payments, casualty
--------
values, Lessor's costs and other information.
2. Schedules. Lessor agrees to lease to Lessee, and Lessee agrees to lease
from Lessor, subject to the terms and conditions of this Master Lease
Agreement, the Asset(s) described in each Schedule. Each Schedule constitutes a
separately assignable agreement between the parties and incorporates in full
the terms and conditions of this Master Lease Agreement. Timely receipt of
this Master Lease Agreement, each Schedule and all related documents is of the
essence. If a Schedule is not returned, duly executed by Lessee, within
fifteen (15) days of Lessee's receipt thereof, Lessor may declare the Schedule
in default or Lessor may adjust the Rent in order to maintain Lessor's
originally anticipated rate of return.
3. Term of Master Lease Agreement and Schedules.
(a) The term of this Master Lease Agreement commences on the execution date
hereof and continues until (i) the obligations of Lessee under every
Schedule are fully discharged and (ii) either party provides ninety (90)
days prior written notice of termination.
(b) The Initial Schedule Term for each Schedule shall be as set forth
thereon. Until either party provides the other with prior written notice of
termination, Renewal Schedule Terms of each Schedule shall extend
automatically, at the Rent last in effect, for successive three-month terms
beyond the expiration of the initial Schedule Term. All such terminations
are effective only (i) following written notice received not less than
ninety (90) days prior to the end of the Schedule Term, (ii) on the last
day of the Initial Schedule Term or Renewal Schedule Term then in effect
and (iii) with respect to Individual Whole Units, as defined in Section
12(c) hereunder, under a Schedule. Notice of termination by Lessee may not
be revoked without Lessor's consent.
4. Rent; Non-Abatement; Late Payments.
(a) As Rent for the Asset(s), Lessee shall pay Lessor the amounts on the
due dates set forth in the Schedule regardless of receipt of invoices
therefore but in any event not prior to the Commencement Date.
(b) Each Schedule is a net lease and except as specifically provided
herein, Lessee shall be responsible for all costs and expenses arising in
connection with the Schedule or Asset(s). Lessee acknowledges and agrees
that its obligation to pay Rent and other sums payable thereunder, and the
rights of Lessor and Lessor's assigns, shall be absolute and unconditional
in all events, and shall not be subject to any abatement, reduction
set-off, defense, counterclaim or recoupment due or alleged to be due by
reason of any past, present or future claims Lessee may have against
Lessor, the manufacturer, vendor, or maintainer of the Asset(s), Lessor's
assigns, or any person for any reason whatsoever. Notwithstanding the
foregoing, Lessee expressly retains and may assert against Lessor any and
all past or future claims which Lessee may have against the Lessor and any
vendor.
(c) On all amounts not paid by Lessee when due, late charges shall accrue
at the rate of two and one half percent (2.5%) of the Rent per month (or
the maximum rate allowable by law, if less) from the due dates thereof
until received by Lessor. Late charges and attorneys fees necessary to
recover Rent are an integral part of this Master Lease Agreement.
5. Selection; Inspection; Acceptance.
(a) The Asset(s) are of a size, design, capacity and manufacture selected
by Lessee in its sole judgment and not in reliance on the advice or
representations of Lessor. Neither the manufacturer nor the vendor is an
agent of Lessor. No representation by the manufacturer or vendor shall in
any way affect Lessee's duty to pay Rent and perform its other obligations
hereunder.
(b) Promptly upon delivery, Lessee will inspect the Asset(s), and, not
later than fifteen (15) days thereafter, unless otherwise requested in
writing by the Lessee, Lessee will execute and deliver either (i) an
Acceptance Certificate in the form of Exhibit A hereto for the Asset(s), or
(ii) written notification of any defects in the Asset(s). If Lessee has not
given notice within such time period, the Asset(s) shall be conclusively
deemed accepted. Lessor and Lessee agree that fifteen (15) days is a
reasonable opportunity to inspect the Assets, unless otherwise requested in
writing by the Lessee.
6. Warranties: Assignment, Quiet Enjoyment and Disclaimer; Indemnity.
(a) Each Schedule is a "finance lease" as defined by the Uniform Commercial
Code and provided there is no Event of Default or the Schedule has not
otherwise been terminated or expired, Lessor hereby assigns to Lessee all
assignable warranties made with
1
<PAGE>
regard to the Asset(s). In the event that the warranty is not assignable,
Lessor agrees to take any and all actions reasonably requested by Lessee to
enforce such warranties on behalf of Lessee solely at Lessee's expense.
(b) Provided Lessee is not in default, Lessor will not interfere with
Lessee's quiet use and enjoyment of the Asset(s).
(c) EXCEPT FOR THE PROVISIONS OF 6(b) ABOVE, WITH REGARD TO THE ASSET(S),
LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, INCLUDING
WITHOUT LIMITATION: THOSE OF MERCHANTABILITY OR FITNESS FOR PURPOSE OR USE,
OF CONDITION, PERFORMANCE, SUITABILITY OR DESIGN, OR CONFORMITY TO ANY LAW,
RULE, REGULATION, AGREEMENT OR SPECIFICATION, OR OF INFRINGEMENT OF ANY
PATENT, TRADE SECRET, TRADEMARK, COPYRIGHT OR OTHER INTANGIBLE PROPERTY
RIGHT. Lessor shall have no liability to Lessee, or any other party, nor
shall Lessee abate payments, for any loss, claim or damage of any nature
caused or alleged to be caused directly, indirectly, incidentally or
consequentially by the Asset(s), any inadequacy thereof, deficiency or
defect therein (whether known or knowable by Lessor), by any incident
whatsoever arising in connection therewith, whether in strict liability or
otherwise, or in any way related to or arising out of this Master Lease
Agreement or any Schedule Lessee may sue Lessor in the event of Lessor's
gross negligence or willful misconduct.
(d) Except as may directly result from Lessor's gross negligence or willful
misconduct, Lessee hereby indemnifies Lessor and its assignee(s) against,
and holds them harmless from, any and all claims, including court costs and
attorneys' fees, arising out of this Master Lease Agreement, any Schedule,
or the Asset(s), including without limitation: the manufacture, selection,
purchase, license, delivery, possession, use, operation, control,
maintenance, infringement of any patent, trade secret, trademark, copyright
or other intangible property right, or personal injury or death, arising in
strict liability, breach of warranty or negligence. Lessee's obligations
hereunder shall survive the expiration of the Master Lease Agreement and
the Schedule(s). Lessor hereby licenses to Lessee, all of the Intellectual
Property rights Lessor possesses with respect to the Asset(s) leased under
a Schedule.
7. Installation; Use; Repair and Maintenance.
(a) Lessee shall provide a place of installation which conforms to the
requirements of the manufacturer.
(b) Subject to the terms hereof, Lessee shall be entitled to unlimited use
of the Asset(s) except that software use shall be in accordance with the
terms and conditions of the applicable software license agreement which
during the term, the Lessee shall have the benefits thereof. Lessee shall
not use or permit the use of the Asset(s) for any purpose which, according
to the specifications of the manufacturer, the Asset(s) are not designed or
reasonably suited. Lessee shall use the Asset(s) in a careful and proper
manner and shall comply with all of the manufacturer's instructions,
governmental rules, regulations, requirements and laws, and all insurance
requirements, if any, with regard to the use, operation or maintenance of
the Asset(s). Lessor shall provide Lessee any information received from a
vendor or licensor related to the Assets. Lessee shall not make any changes
or alterations in or to the Assets except as necessary to comply with the
provisions of Section 7(c) hereof.
(c) Lessee shall be solely responsible for the delivery, installation,
maintenance and repair of the Asset(s). During the Schedule Term, Lessee
shall (i) keep the Asset(s) in good repair, condition and working order,
ordinary wear and tear excepted; maintain equipment by qualified employees
of Lessee or a service organization if applicable (ii) permit access to the
Asset(s) for installation of engineering changes required to maintain the
Asset(s) at the manufacturer's current engineering levels upon prior
written notice and during reasonable business hours.
8. Ownership; Inspection, Relocation, Personal Property.
(a) The Asset(s) shall at all times be and remain the sole and exclusive
property of Lessor, subject to the parties' rights under any applicable
software license agreement. Lessee shall have no right, title or interest
in the Asset(s) outside of the leasehold interest created by the Schedule.
Lessee agrees to execute or allow Lessor to execute on Lessee's behalf
Uniform Commercial Code financing statements evidencing the interests of
Lessor or its assigns in any Schedule, any amounts due thereunder, or the
Asset(s).
(b) Lessor, its assigns or their agents shall be permitted free access
during normal business hours to inspect the Asset(s) upon prior written
notice.
(c) Lessee shall at all times keep the Asset(s) within its exclusive
possession and control. Upon Lessor's prior written consent, which shall
not be unreasonably withheld, Lessee may move the Asset(s) to another
location of Lessee within the continental United States provided (i) Lessee
is not in default on any Schedule, (ii) Lessee executes and causes to be
filed at its expense such instruments as are reasonably necessary to
preserve and perfect the interests of Lessor and its assigns in the
Asset(s), (iii) Lessee pays all costs of, and provides adequate insurance
during such movement, and (iv) Lessee pays all costs, including taxes and
insurance at the new location. Notwithstanding the foregoing, the Lessee
may move Asset(s) that are considered mobile, such as laptops, cellular
phones and PDA's without prior written notification to Lessor; however,
Lessee shall notify Lessor if Asset(s) that are considered mobile are
permanently moved to a new location.
(d) Lessee agrees that the Asset(s) shall be and remain personal property
and shall not be so affixed to realty as to become a fixture or otherwise
to lose its identity as the separate property of Lessor. Upon request,
Lessee will affix labels to the Asset(s) indicating Lessor's ownership
therein.
9. Liens; Taxes.
(a) Lessee shall at its expense keep the Asset(s) free and clear of all
levies, liens, and encumbrances caused by Lessee, except those in favor of
Lessor or its assigns.
(b) Throughout the Schedule Term, Lessee shall pay all license fees,
registration fees, assessments, and charges, related to the Asset(s)and
declare and pay all taxes (to include any charges by any governmental
agency) related to the Assets, excluding any taxes based or measured solely
on Lessor's net income. Lessee may in good faith and by appropriate
proceedings contest any such taxes so long as such proceedings do not
involve any substantial risk of sale, forfeiture or loss of the Asset(s) or
any interest therein. In such event, Lessee agrees to indemnify Lessor and
hold it harmless from any damages, claims or charges which may result from
Lessee's commencement of such proceedings. Lessee is hereby appointed
attorney-in-fact of Lessor solely to declare, file and pay all of the
aforementioned amounts when due and owing for any period assessed while,
Lessee is in possession of the Asset(s). Upon Lessor's request, Lessee
shall provide proof of payment to Lessor within fifteen (15) days.
2
<PAGE>
10. Risk of Loss.
(a) Commencing upon delivery, Lessee shall bear the entire risk of loss
with respect to any Asset damage, destruction, loss, theft, or governmental
taking, whether partial or complete, for any reason. No event of loss shall
relieve Lessee of its obligation to pay Rent under any Schedule.
(b) If any Asset is damaged, Lessee shall promptly notify Lessor and at
Lessee's expense, within 60 days of such damage, cause to be made such
repairs as are necessary to return such item to its previous condition.
(c) In the event any Asset(s) are destroyed, damaged beyond repair, lost,
stolen, or taken by governmental action for a stated period extending
beyond the term of any Schedule (an "Event of Loss"), Lessee shall promptly
notify Lessor and pay to Lessor, on the next Rent payment date following
such Event of Loss, an amount equal to the Casualty Value (as set forth in
Section 5 of the Schedule) for the Asset suffering the Event of Loss then
in effect as set forth on the Schedule. After payment of such Casualty
Value and all Rent due and owing on and before such Rent payment date,
Lessee's obligation to pay further Rent allocable to the Asset which
suffered the Event of Loss shall cease. After receipt of such Casualty
Value by Lessor or its assigns, Lessee shall be entitled to receive any
insurance or other recovery received by Lessor or its assigns in connection
with such Event of Loss, and the Asset(s) for which such Casualty Value was
received shall be conveyed to Lessee AS IS, WHERE IS and free and clear of
all liens and encumbrances created by or arising through or against Lessor
except those caused by Lessee but otherwise WITHOUT FURTHER WARRANTY
(EXPRESS OR IMPLIED) WHATSOEVER, INCLUDING WITHOUT LIMITATION, WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR PURPOSE OR USE.
(d) In the event of a governmental taking of Asset(s) for an indefinite
period or for a stated period which does not extend beyond the Schedule
Term, all obligations of the Lessee with respect to such Asset(s) shall
continue. So long as Lessee is not in default hereunder, Lessor shall pay
to Lessee all sums received by Lessor from the government by reason of such
taking.
11. Insurance. Lessee, at its expense, shall maintain all risks, including fire
and extended coverage, insurance against loss, theft, damage, or
destruction of the Asset(s), in an amount not less than the Casualty Value
of the Asset(s). This coverage shall have standard commercial terms and
conditions and may not contain endorsements excluding coverage for
mysterious or mere disappearance, seizure or other governmental acts or
dishonesty of Lessee's officers or employees or restrict recovery for the
kinds of Asset(s) covered by the Lease. Lessee shall further, at its
expense, provide and maintain comprehensive public liability insurance in
an amount of $1,000,000 per occurrence against claims for bodily injury,
death and/or property damage arising out of the use, ownership, possession,
operation or condition of the Asset(s), together with such other insurance
as may be required by law. Both coverages shall name Lessee as an insured
and Lessor and its lender or assignee(s) as additional insureds as their
respective interest may appear, shall be reasonably satisfactory to Lessor,
and shall contain a clause requiring the Insurer to give Lessor at least
one month prior written notice of the cancellation or any alteration in the
terms of such policy. Each policy of property damage insurance shall name
Lessor and its assignee(s) as loss payees. No insurance shall be subject to
any co-insurance clause. Each insurance policy shall be with an insurance
carrier licensed to provide the insurance required herein in the State
where the Asset(s) are located. Lessee will not make adjustments with
insurers except with Lessor's prior written consent, which consent shall
not be unreasonably withhold. Lessee shall furnish to Lessor certificates
of insurance or other evidence satisfactory to Lessor that such insurance
coverage is in effect and that Lessor and its assignees are named as
additional insureds, and, upon Lessor's request, Lessee shall promptly
provide Lessor with a copy of the insurance policy. Lessee's liability for
loss under Section 10 shall not be diminished by any insurance payment less
than the actual amount of the loss.
12. Surrender of Asset(s).
(a) On the last day of the Schedule Term, Lessee shall return the Asset(s)
to Lessor in good repair, condition and working order, ordinary wear and
tear alone excepted, to the location specified by Lessor within the
continental United States. Lessee shall arrange and pay for deinstallation
and packing in accordance with the manufacturer's specifications and for
insured transportation to the destination, such insurance coverage to be
not less than the Asset(s) Casualty Value last in effect. Lessee shall, at
its expense, cause each returned Asset to be repaired as necessary to
quality for maintenance by the manufacturer and to contain all current
manufacturer- prescribed engineering changes. Upon request, Lessee shall
provide Lessor, within ten (10) days of Asset(s) deinstallation, written
certification by the manufacturer that each Asset qualifies for
maintenance. Lessee shall immediately return all copies of the software
portion of the Asset(s) ("Software") and erase all Software resident in
computer memory of computers, or other Assets in which memory can be
erased, for the Asset(s) returned to Lessor as provided for hereunder.
(b) If on the last day of the Schedule Term, Lessee shall fail to return to
Lessor any Asset listed on the Schedule, Lessee shall be treated as a
holdover tenant for all such unreturned Asset(s) listed on the Schedule for
a Renewal Schedule Term of three months and shall continue to pay Rent in
the amount set forth in the Schedule for all such unreturned Asset(s). This
provision shall continue for periods beyond the first such renewal term. In
no event may the Lessee avoid the effect of this provision by returning
less than the Whole Units, as defined in Section (c) below listed on any
Schedule unless Lessor, in its sole discretion, shall expressly agree in
writing. Lessee may return comparable substitute Assets of greater or equal
value, provided those Assets are not owned by Lessor and are free and clear
of all liens and encumbrances. Items, such as manuals, that do not affect
the value of the assets are not required to be returned.
(c) Lessee may have the ability to return individual Whole Units at the end
of the Schedule Term, following written notice received not less than
ninety (90) days prior to the end of the Schedule Term specifically
identifying those Whole Units to be returned. The term "Whole Units" shall
be defined as the Asset(s) on each Schedule, including the sum of any
components or accessories, as ordered by the Lessee. Examples may include:
(i) Servers consisting of CPUs and or processors, server cabinets, memory,
base disk drives, expanded disk storage, storage controllers, network
controllers, graphics cards, power supplies, cables, tapes drives and
external devices to include disk subsystems, optical systems, additional
tape drives, etc. (ii) Personal Computers and/or Desktops consisting of the
CPU, memory, hard drives, monitor, modems, CD ROM, diskette drives,
Ethernet cards, keyboards, etc. (iii) Printers consisting of base printer.
cables, memory, trays, etc. (iv) Laptops consisting of memory, hard drives,
modems, CDROM, diskettes drives, Ethernet cards, etc. or (v) Individual
Hubs and Routers consisting of all internal devices.
(d) This Section shall not derogate from Lessor's right, to be exercised in
its sole discretion, to obtain return of all Asset(s) on the last day of
any Schedule Term, or to declare an Event of Default for any failure of
Lessee to so return the Asset(s).
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<PAGE>
13. Representations and Warranties of Lessee and Lessor. Lessee represents and
warrants for the benefit of Lessor and its assigns, as of the time of
execution of the Master Lease Agreement and each Schedule:
(a) Lessee is a corporation in good standing under the laws of the
jurisdiction of its incorporation; has adequate corporate power to enter
into and perform the Master Lease Agreement and each Schedule; and uses no
trade names in operating its business;
(b) The Master Lease Agreement and each Schedule have been duly
authorized, executed and delivered by Lessee and constitute valid, legal
and binding agreements of Lessee, enforceable in accordance with their
terms;
(c) No approval, consent or withholding of objection is required from any
federal or other governmental authority or instrumentality with respect to
the entering into or performance by Lessee of this Master Lease Agreement
or any Schedule;
(d) The entering into and performance of the Master Lease Agreement or any
Schedule will not violate any judgment, order, law or regulation applicable
to Lessee or any provision of Lessee's articles of incorporation or bylaws,
or result in any breach of, or constitute a default under, or result in the
creation of any lien, charge, security interest or other encumbrance upon
any asset(s) of Lessee or on the Asset(s) or pursuant to any instrument to
which Lessee is a party or by which it or its asset(s) may be bound;
(e) To the best of Lessee's knowledge and belief, there are no suits or
proceedings pending or threatened against or affecting Lessee, which if
determined adversely to Lessee will have a material adverse effect on the
ability of Lessee to fulfill its obligations under the Master Lease
Agreement or any Schedule.
(f) Lessor represents and warrants for the benefit of Lessee and its
assigns, as of the time of execution of the Master Lease Agreement and each
Schedule:
(g) Lessor is a corporation in good standing under the laws of the
jurisdiction of its incorporation; has adequate corporate power to enter
into and perform the Master Lease Agreement and each Schedule;
(h) The Master Lease Agreement and each Schedule have been duly authorized,
executed and delivered by Lessor and constitute valid, legal and binding
agreements of Lessor, enforceable In accordance with their terms;
(i) No approval, consent or withholding of objection is required from any
federal or other governmental authority or instrumentality with respect to
the entering into or performance by Lessor of this Master Lease Agreement
or any Schedule;
(j) The entering into and performance of the Master Lease Agreement or any
Schedule will not violate any judgment, order, law or regulation applicable
to Lessor or any provision of Lessor's articles of incorporation or bylaws,
or result in any breach of, or constitute a default under, or result in the
creation of any lien, charge, security interest or other encumbrance upon
any asset(s) of Lessor or on the Asset(s) or pursuant to any instrument to
which Lessor is a party or by which it or its asset(s) may be bound;
(k) To the best of Lessor's knowledge and belief, there are no suits or
proceedings pending or threatened against or affecting Lessor, which if
determined adversely to Lessor will have a material adverse effect on the
ability of Lessor to fulfill its obligations under the Master Lease
Agreement or any Schedule.
14. Default and Remedies.
(a) The occurrence of any of the following events shall constitute an event
of default ("Event of Default") under a Schedule: (i) nonpayment by Lessee
of Rent or any other sum payable by its due date which is not cured within
ten days from due date; (ii) failure by Lessee to perform or observe any
other material term, covenant or condition of this Agreement, any Schedule,
or any applicable software license agreement, which is not cured within ten
(10) days after notice thereof from Lessor; (iii) insolvency by Lessee;
(iv) Lessee's filing of any proceedings commencing bankruptcy, or the
filing of an involuntary petition against Lessee involving a substantial
part of Lessee's property or the appointment of any receiver not dismissed
within sixty (60) days from the date of said filing or appointment; (v) The
subjection of a substantial part of Lessee's property or any part of the
Asset(s) to any levy, seizure, assignment or sale for or by any creditor of
Lessee or governmental agency; (vi) Any representation or warranty made by
Lessee in this Master Lease Agreement, a Schedule, or in any document
furnished by Lessee to Lessor in connection therewith or with the
acquisition or use of the Asset(s) shall be untrue in any material respect;
(vii) any termination of an applicable software license agreement unless
due to Lessors actions. (viii) a change of control of Lessee which
materially changes the financial structure of Lessee, whether by merger,
acquisition or asset sale or otherwise, provided that, in the event of such
change of control, Lessor's written consent shall constitute a waiver of
this restriction and if, but only if, Lessee provides Lessor with such
information as Lessor requests regarding the change of control, Lessor
shall not unreasonably withhold consent. In the event of any sale of
assets by Lessee as part of a change of control, all of Lessee's assets
sold shall remain available to satisfy a judgment for Lessor arising from a
default under this Lease regardless of provisions in the asset sale
agreement absolving the purchaser of such liability; or (ix) Lessee winds
up, dissolves or otherwise terminates its corporate existence, or
consolidates with or merges with or into any entity, or sells, leases or
otherwise transfers substantially all of its assets to any entity, or
incurs a substantial amount of indebtedness other than in the ordinary
course of its business, or engages in a leveraged buy-out or any other form
of corporate reorganization, including conversion to Sub 'S' corporation
status.
(b) Upon the occurrence of an Event of Default and during continuance
thereof Lessor may, in its sole discretion, do any one or more of the
following: (i) By notice to Lessee, terminate any or all Schedules; (ii)
Proceed by appropriate court action to enforce the performance of the terms
of the Schedule and/or recover damages; (iii) Whether or not the Schedule
is terminated, upon notice to Lessee, take possession of the Asset(s)
wherever located, without demand, liability, court order or other process
of law, and for such purposes Lessee hereby authorizes Lessor, its assigns
or the agents of either to enter upon the premises where such Asset(s)
is/are located or cause Lessee, and Lessee hereby agrees, to return such
Asset(s) to Lessor in accordance with the requirements of Section 12(a)
hereof; (iv) By notice to Lessee, to the extent permitted by law, declare
immediately due and payable and recover from Lessee, as liquidated damages
and not as a penalty, the sum of (a) the Casualty Value set forth on the
Schedule as of the date of default, or if Casualty Values are not shown on
such Schedule, all Rent due during the remainder of the Schedule Term; (b)
all Rent and other amounts due and payable on or before the date of
default; and (c) costs, fees (including all attorneys' fees and court
costs), expenses and (d) interest on (a) and (b) from the date of default
at 1 1/2% per month or portion thereof (or the highest rate allowable by
law, if less) and, on (c) from the date Lessor incurs such fees, costs or
expenses. Upon Lessor's receipt of all monies due under 14 (b)(iv) above,
Lessor shall pass title of the Asset(s) under the Schedule that is in
default to Lessee.
(c) Upon return or repossession of the Asset(s), Lessor shall use
reasonable efforts to sell, re-lease or otherwise dispose of such Asset(s)
in such commercially reasonable manner and upon such commercially
reasonable terms as Lessor may determine in its sole discretion (the
amount, if any, which Lessor certifies it obtained through remarketing
shall be conclusively presumed to be the
4
<PAGE>
Asset(s) fair market value). In the event Lessor is unable (pursuant to
the conditions of any applicable software license agreement or otherwise)
to relicense any software included in the Asset(s), Lessee waives any
rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell, license or otherwise use any Software in mitigation of
Lessor's damages or which may otherwise limit or modify any of Lessor's
rights or remedies. Upon disposition of the Asset(s), Lessor shall credit
the Net Proceeds (as defined below) to the damages paid or payable by
Lessee. Proceeds upon sale of the Asset(s) shall be the sale price paid to
Lessor less the Casualty Value in effect as of the date of default. "Net
Proceeds" shall be the proceeds of sale or re-lease determined above, less
all reasonable costs and reasonable expenses incurred by Lessor in the
recovery, storage and repair of the Asset(s), in the remarketing or
disposition thereof, or otherwise as a result of Lessee's default,
including any court costs and attorneys' fees. Lessee shall remain liable
for the amount by which all sums, including liquidated damages, due from
Lessee exceed the Net Proceeds. Net Proceeds in excess thereof are the
property of and shall be retained by Lessee.
(d) No termination, repossession or other act by Lessor in the exercise of
its rights and remedies upon an Event of Default shall relieve Lessee from
any of its obligations hereunder. No remedy referred to in this Section 14
is intended to be exclusive, but each shall be cumulative and in addition
to any other remedy referred to above or otherwise available to Lessor at
law or in equity.
15. Effect of Waiver; Substitute Performance by Lessor.
(a) No delay or omission to exercise any right or remedy accruing to Lessor
upon any breach or default of Lessee shall impair any such right or remedy
or be construed to be a waiver of any such breach or default, nor shall any
waiver of any single breach or default be construed to waive or impair
Lessor's rights and remedies with respect to any breach or default
theretofor or thereafter occurring. Any waiver, permit, consent of
approval on the part of Lessor of any breach or default under this
Schedule, or of any provision or condition hereof, must be in writing and
shall be effective only to the extent such writing specifically sets forth.
(b) Should Lessee fall to make any payment or do any act as herein
provided, Lessor shall have the right, but not the obligation, and without
releasing Lessee from any obligation hereunder, to make or do the same upon
notice to Lessee. All sums so incurred or expended by Lessor shall be
immediately due and payable by Lessee and shall bear interest at eighteen
percent (18%) per annum (or the highest rate allowable by law, if less),
calculated from the date incurred until received by Lessor.
16. Assignment by Lessor; Assignment or Sublease by Lessee.
(a) Lessor may (i) assign all or a portion of Lessor's right, title and
interest in this Master Lease Agreement and/or any Schedule; (ii) grant a
security interest in the right, title and interest of Lessor in the Master
Lease Agreement, any Schedule and/or any Asset(s); and/or (iii) sell or
transfer its title and interest as owner of any Asset(s) and/or as Lessor
under any Schedule; and Lessee further understands and agrees that Lessor's
assigns may each do the same (hereunder collectively "Assignment"). All
such Assignments shall be subject to Lessee's rights under the assigned
Schedule. Lessee hereby consents to such Assignments, agrees to comply
fully with the terms thereof, and agrees to execute and deliver promptly
such acknowledgments, and other instruments reasonably requested to effect
such Assignment. Lessee acknowledges that the assigns do not assume
Lessor's obligations hereunder and agrees to make all payments owed to the
assigns without abatement and not to assert against the assigns any claim,
defense, setoff or counterclaim which the Lessee may possess against the
Lessor or any other party for any reason. Upon any such Assignment, all
references to Lessor shall also include all such assigns, whether specific
reference thereto is otherwise made herein. Lessor and Lessee acknowledge
and agree that no Assignment shall be deemed to materially change Lessee's
duties or obligations or materially increase the burden of risk imposed on
Lessee hereunder.
(b) Without the prior written consent of Lessor which shall not be
unreasonably withheld, Lessee shall not assign, sublease, transfer, pledge
or hypothecate the Master Lease Agreement, any Schedule, the Asset(s), any
part thereof, or any interest in the foregoing. Notwithstanding the
foregoing, Lessee may assign all or a portion of Lessee's rights, title and
interest in this Master Lease Agreement and any Schedule, the Asset(s), and
any part thereof, to a Participating Subsidiary, or Participating
Affiliate. Such assignment shall not relieve Lessee of all obligations
hereunder without written consent from Lessor and its assigns, which
consent shall not be unreasonably withheld.
17. Delivery of Related Documents. For each Schedule, Lessee will provide
the following documents and information satisfactory to Lessor: (a)
Certificate of Acceptance; (b) Certificate of insurance; (c) Incumbency
Certificate, if differing from the one previous supplied; and (d) Other
documents as reasonably required by Lessor or otherwise specified herein.
18. Miscellaneous.
(a) Notices shall be conclusively deemed to have been received by a party
hereto on the day it is delivered to such party at the address first given
above (or at such other address as such party shall specify to the other
party in writing) or, if sent by certified mail, on the third business day
after the day on which mailed.
(b) Applicable Law and Disputes. The Master Lease Agreement and each
Schedule SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE COMMONWEALTH OF VIRGINIA. In the event of a dispute between the
parties, suit may be brought in the federal or state courts of Virginia or
where Lessee has its principal office or where the Asset(s) are located.
(c) Counterparts. Only one original counterpart of each Schedule shall be
marked "Original". Any and all other counterparts shall be marked "Copy".
NO SECURITY INTEREST IN ANY OF THE SCHEDULE(S) MAY BE CREATED, TRANSFERRED,
ASSIGNED OR PERFECTED BY THE TRANSFER AND POSSESSION OF THIS MASTER LEASE
AGREEMENT ALONE OR ANY "COPY" OF A SCHEDULE, BUT RATHER SOLELY BY THE
TRANSFER AND POSSESSION OF THE "ORIGINAL" COUNTERPART OF THE SCHEDULE
INCORPORATING THIS MASTER LEASE AGREEMENT BY REFERENCE.
(d) Suspension of Obligations of Lessor. Prior to delivery of any Asset(s),
the obligations of Lessor hereunder shall be suspended to the extent that
it is hindered or prevented from performing because of causes beyond its
control.
(e) Severability. In the event any provision of the Master Lease Agreement
or any Schedule shall be determined by a court of competent jurisdiction to
be invalid or unenforceable, the parties hereto agree that such provision
shall be ineffective without invalidating the remaining provisions thereof.
(f) Entire Agreement. Lessor and Lessee acknowledge that there are no
agreements or understandings, written or oral, between them with respect to
the Asset(s), other than as set forth in this Master Lease Agreement and in
each Schedule and that this Master Lease Agreement and each Schedule
contain the entire agreement between Lessor and Lessee. Neither this Master
Lease
5
<PAGE>
Agreement nor any Schedule may be altered, modified, terminated, or
discharged except in writing, signed by the party against whom enforcement
of such action is sought.
(g) Time is of the Essence. Time is of the essence with respect to this
Master Lease Agreement and each Schedule.
(h) LESSEE AND LESSOR UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT,
ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED
TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN
LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS
WAIVER 1S IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED
DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS
TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Master Lease Agreement to
be executed by their duty authorized representatives.
LESSOR: MLC GROUP, INC. LESSEE: MicroStrategy Incorporated
BY: /s/ Maura S. Cliff BY: /s/ Mark Lynch
------------------ -----------------------
NAME: Maura S. Cliff NAME: Mark Lynch
-------------- ----------------------
TITLE: Vice President TITLE: CFO
-------------- --------------------
DATE: 11/11/99 DATE: 11/5/99
-------------- ----------------------
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
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Exhibit 10.9
[Logo for ePlus, Inc.]
December 1, 1999
Mark Lynch, EVP and CFO
MicroStrategy
8000 Towers Crescent Drive
14th Floor
Vienna, VA 22182
Dear Mark:
EPlus, Inc. will offer a line of credit of $40,000,000.00 to lease assets under
MLA VAC180. In consideration MicroStrategy agrees to issue the Press Release
attached as exhibit A. All other terms and conditions of the Master Lease
Agreement VAC180 remain in full force and effect.
EPlus will issue MicroStrategy a warrant to purchase 7,500 shares of ePlus
common stock at an exercise price of $23.00 per share. These warrants have a
10-year term and shall vest immediately upon approval by the Board of Directors
of ePlus.
This line of credit is committed by ePlus provided there is no material change
in the financial condition of MicroStrategy.
Sincerely,
/s/ Chad Fredrick
Chad Fredrick
Proposal Acceptance
Lessee accepts the above terms and conditions this 1st day of December, 1999.
MicroStrategy Incorporated
By: /s/ Mark Lynch Title: CFO
---------------------------- --------------
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Exhibit 10.10
SOFTWARE DEVELOPMENT AND OEM AGREEMENT
THIS SOFTWARE DEVELOPMENT AND OEM AGREEMENT (this "Agreement") is
entered into as of December 28, 1999 (the "Effective Date"), by and between
MICROSTRATEGY INCORPORATED, a Delaware corporation ("MicroStrategy") and
EXCHANGE APPLICATIONS, INC., a Delaware corporation ("EA").
RECITALS
1. EA has developed certain proprietary customer relations management
("CRM") software, including, without limitation, VALEX(TM) and eXstatic(TM), all
as described in greater detail herein.
2. MicroStrategy desires to develop certain industry-specific data
models for a set of vertical industries, as described in greater detail herein,
and certain CRM applications which will function in connection with such data
models and with the EA Products (as defined below).
3. EA desires to integrate the MicroStrategy Software (as defined
herein) with the data models and CRM applications and/or with the EA Products
(as defined herein) and to sublicense such Exchange Applications Solutions
directly to end users.
4. EA and MicroStrategy believe that it is in their respective best
interests that the foregoing data models, CRM applications, development
environments and certain other developed software (collectively, the "Developed
Products", as defined and described in greater detail in Section 1), be
developed.
5. To achieve the development of the Developed Products, EA and
MicroStrategy have agreed to engage in certain joint development work and to
grant certain technology licenses as set forth in this Agreement.
6. To facilitate the development of the Developed Products and
integration of the Developed Products with the EA Products and the MicroStrategy
Software, MicroStrategy has agreed to create a business unit dedicated to the
development and maintenance of the foregoing.
7. EA and MicroStrategy have also agreed on the basis on which they
will engage in certain joint marketing efforts to achieve commercial success for
the Developed Products.
ACCORDINGLY, EA and MicroStrategy agree as follows:
AGREEMENT
1. Definitions. In addition to those terms that are defined where first used,
the following definitions shall apply:
"Applications" means the CRM applications developed by MicroStrategy
pursuant to this Agreement, which will consist of a set of analytic CRM
functionalities for certain horizontal and/or vertical industries as applied to
the Data Models. The Applications may include, without
<PAGE>
limitation, customer and segment analysis, sales and channel analysis, campaign
and offer analysis and market basket analysis.
"Confidential Information" means any confidential or proprietary
information, including without limitation any source code, software tools,
designs, schematics, plans or any other information relating to any research
project, work in process, future development, scientific, engineering,
manufacturing, marketing or business plan, or financial or personnel matter
relating to either party, its present or future products, sales, suppliers,
customers, employees, investors or business, identified by the disclosing party
as Confidential Information, whether in oral form, or in written, graphic or
electronic form and marked as confidential or disclosed under circumstances that
would lead a reasonable person to conclude that the information was
confidential, including without limitation, the source code related to the EA
Products, the MicroStrategy Software and the Developed Products.
"Data Models" means the industry-specific models for the storage of
information developed by MicroStrategy pursuant to this Agreement, which may
include, without limitation, the following vertical industries: banking, mutual
fund and brokerage, telecommunications, transportation, automotive, retail
catalogue, business-to-business high technology and business-to-consumer
Internet.
"Derivative Work" means a work which is based on the Developed
Products, such as a revision, enhancement, modification, translation,
abridgement, condensation, expansion, or any other form in which the Developed
Products may be recast, transformed, or adapted, and which, if prepared without
authorization of the owner of the copyright in such product, would constitute a
copyright infringement. For purposes hereof, Derivative Work shall also include
any compilation that incorporates a Developed Product.
"Developed Products" means, collectively, the Data Models, Applications
and certain other developed software developed pursuant to the Work Plan (as
defined in Section 2.1(a)) as such Work Plan may be amended and/or modified from
time to time pursuant to the terms of the Work Plan.
"EA Know-How" means the techniques, inventions, practices, methods,
knowledge, designs, skill and experience relating to the EA Products that are to
be disclosed by EA to MicroStrategy pursuant to this Agreement and that are
proprietary to EA.
"EA Patents" means patents related to the EA Products, including
without limitation, all foreign counterparts, all substitutions, extensions,
reissues, renewals, divisions, continuations and continuations in part relating
to such patents and their foreign counterparts, and which are owned or
controlled by EA (where "controlled" means licensed by EA with a royalty-free
right to grant sublicenses).
"EA Products" means EA's proprietary CRM and email software products
and other CRM products and CRM applications, currently existing or which may be
later developed by EA, including, without limitation, VALEX(TM) and eXstatic(TM)
and which may include third party licensed software products as an integrated
component thereof.
2.
<PAGE>
"EA Technology" means (i) the inventions, designs, discoveries and
processes claimed in the EA Patents and (ii) the EA Know-How.
"Evaluation" means an installation of an Exchange Applications Solution
(as defined herein) for a period of sixty (60) days or less under the terms and
conditions specified herein during which an end user may evaluate the Exchange
Applications Solution for its internal use.
"Improvements" means any improvements, discoveries, developments,
modifications or derivative works, whether or not patentable.
"Intellectual Property Rights" means all current and future trade
secrets, copyrights, patents and other patent rights, trademark rights, service
mark rights, mask work rights and any and all other intellectual property or
proprietary rights now known or hereafter recognized in any jurisdiction.
"MicroStrategy Know-How" means the techniques, inventions, practices,
methods, knowledge, designs, skill and experience that are proprietary to
MicroStrategy and that were employed by MicroStrategy in the development of the
MicroStrategy Software or will be employed by MicroStrategy in the development
of the Developed Products, pursuant to this Agreement.
"MicroStrategy Patents" means patents related to the MicroStrategy
Software, including without limitation, all foreign counterparts, all
substitutions, extensions, reissues, renewals, divisions, continuations and
continuations in part relating to such patents and their foreign counterparts,
and which are owned or controlled by MicroStrategy (where "controlled" means
licensed by MicroStrategy with a royalty-free right to grant sublicenses).
"MicroStrategy Software" means the entire MicroStrategy product suite
which is made generally available to end users during the term of this Agreement
and which is set forth in Exhibit A in the form in which such product suite
exists as of the Effective Date and as such may be amended by MicroStrategy from
time to time during the term hereof, subject to the requirements set forth in
Section 4.9(g)(ii).
"MicroStrategy Technology" means (i) the inventions, designs,
discoveries and processes claimed in the MicroStrategy Patents and (ii) the
MicroStrategy Know-how.
"Operative Agreements" means, collectively, this Agreement, the Payment
and Registration Rights Agreement, the Joint Marketing Agreement, the License
Agreement and the Strategy.com Master Affiliation Agreement.
"Qualified Event" means the sale of all or a substantial part of a
party's assets or a stock sale where pre-event shareholders hold less than a
majority of the capital stock of the party after such event, whether by
acquisition, merger or otherwise.
"Territory" means the World.
3.
<PAGE>
"Testing" means the testing of the G. A. version of the Developed
Products contemplated by Section 2.4 to ensure compatibility, in all material
respects, with the Specifications to be developed by the Steering Committee (as
defined in Section 2.1).
"User Documentation" means all instructional and technical materials
and related literature provided by MicroStrategy which is to be distributed to
end users in connection with the Developed Products and/or the MicroStrategy
Software.
"VAR Agreement" means the value-added reseller agreement between the
parties that will exist upon conversion of this Agreement in accordance with the
provisions herein which shall be substantially in the form set forth in Exhibit
B hereto.
2. Development of Developed Products; License Fee; VAR Agreement Superseded.
2.1 Development Program; Creation of Business Unit and Steering
Committee; Ongoing Obligations.
(a) Promptly following the execution of this Agreement, MicroStrategy
will create a business unit (the "Business Unit"), which will include an
engineering team, dedicated to the development and maintenance, support,
integration and testing of the Developed Products pursuant to the terms of this
Agreement. The composition of the Business Unit, development overview and the
development objectives are set forth in Exhibit C, which shall be subject to
modification as set forth in the Work Plan. The parties will establish a
steering committee (the "Steering Committee") promptly following the Effective
Date, which committee will be dedicated to setting the direction for development
of the Developed Products and the other development obligations of the Business
Unit as set forth in the Work Plan, including, without limitation, the
establishment of quarterly milestones ("Milestones"). The composition, process-
related responsibilities and operations of the Steering Committee are set forth
in Exhibit D (collectively, with Exhibit C, the "Work Plan"). MicroStrategy will
allow EA complete access to the Business Unit at all times during normal
business hours, and all reasonable efforts shall be made by EA so that such
access does not interfere with the development responsibilities of the Business
Unit and/or the achievement of Milestones. EA will have the option, at its
discretion, to locate up to ten (10) members of its own engineering and
development team at the site established by MicroStrategy for the location of
the Business Unit, and MicroStrategy will provide EA with adequate space to
accommodate the foregoing. The Steering Committee shall develop the
specifications for the Developed Products (the "Specifications"). Upon
termination of the Business Unit duties by EA as provided in this Agreement or
upon termination of this Agreement for any reason, excluding material breach by
EA, MicroStrategy shall promptly deliver to EA the source code to all Developed
Products which have been completed and/or are in process as of the termination
date, product and design specifications, User Documentation, test data, and
other related information reasonably requested by EA (collectively, the
"Deliveries"). From time-to-time as the Developed Products are completed and
tested pursuant to Work Plan and/or upon the request of EA, MicroStrategy shall
make the Deliveries (or that portion thereof requested by EA) to EA.
(b) MicroStrategy shall maintain and support (by providing research and
development support and bug fixes to EA) the Developed Products and all software
licensed by
4.
<PAGE>
MicroStategy hereunder during the term of this Agreement and any renewal periods
thereof as such software is actually used by the end user. The foregoing support
shall be provided in accordance, in all material respects, with MicroStrategy's
standard technical support procedures. In addition, MicroStrategy will provide
testing and quality engineering support for the Developed Products utilizing its
Quality Engineering and Beta Programs groups, which group will provide the
results of their tests to EA. MicroStrategy will designate a dedicated product
manager for the Developed Products, create demonstrations of the Applications
and develop pre-sales consulting materials for the Applications.
(c) Subject to the right of either party under Section 10 to terminate
this Agreement, the Business Unit will develop the Developed Products in
accordance with the Specifications in all material respects, and will perform
the tasks and furnish the deliverables described in the Work Plan, as such may
be modified pursuant to the procedures set forth therein. The parties shall meet
on a periodic basis in connection with the establishment of deliverables
pursuant to the Work Plan to identify with specificity and in writing the
Developed Products.
(d) The parties shall work in good faith to finalize the form of VAR
Agreement within thirty (30) days after the Effective Date.
2.2 License Fee.
(a) EA will pay MicroStrategy a license fee (the "License Fee") of sixty
five million dollars ($65,000,000) in cash and EA common stock in the respective
amounts and in accordance with the payment schedule set forth in the Payment and
Registration Rights Agreement by and between the parties dated as of the
Effective Date and attached hereto as Exhibit E (the "Payment and Registration
Rights Agreement"), in consideration of the rights, licenses and obligations of
the parties under this Agreement and the Exhibits hereto.
(b) Except as set forth in the foregoing paragraphs of this subsection
2.2 or as otherwise expressly provided in this Agreement, each party will bear
its own costs incurred by it to accomplish its responsibilities in the
development effort.
2.3 Business Unit Changes. The parties' respective project managers
shall participate in project review meetings as mutually agreed. MicroStrategy
may change or substitute members of the Business Unit at its discretion from
time to time. Notwithstanding the foregoing, MicroStrategy shall adhere to the
then-current requirements of the Work Plan regarding the skill levels and other
qualifications of the Business Unit members.
2.4 Conformance Testing. MicroStrategy will complete development and
delivery of the deliverable items set forth in the Work Plan in accordance with
the Milestones set forth therein. Upon completion of the Milestones, including,
without limitation, final completion of the Developed Products and the
performance of product quality and conformance testing of the G.A. version of
the Developed Products by MicroStrategy based upon testing criteria and
Specifications established by the Steering Committee, EA have the right to
confirm the results of such product quality and performance testing.
2.5 Demonstration Environment. MicroStrategy agrees to allocate a
portion of the Business Unit toward the development of a demonstration
environment for the Exchange
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Applications Solution and the Developed Products at EA's site. In
connection with the foregoing, MicroStrategy shall provide the MicroStrategy
Software, the Developed products and certain Business Unit personnel as selected
by MicroStrategy (collectively, the "MicroStrategy Resources"), and EA shall be
responsible for all third party software, all hardware and all costs related to
the demonstration environment, excluding those directly related to the
MicroStrategy Resources, or as otherwise specifically provided for in the Work
Plan.
2.6 Termination of VAR Agreement. The parties acknowledge and agree that
this Agreement supersedes and replaces that DSS Partner Value-Added Reseller
Agreement between the parties dated June 1, 1999, which is hereby terminated
pursuant to Section 15.9 thereof. All licenses to end users granted under the
foregoing agreement will survive such termination, all obligations set forth in
Section 14.6 shall survive, and MicroStrategy's obligations under Section 9.2
thereof for support shall be pursuant to this Agreement in lieu of its support
obligations thereunder.
2.7 Source Code Escrow. Within ten (10) days after the Effective Date,
the parties shall enter into a Source Code Escrow Addendum in respect of the
MicroStrategy Software in substantially the form provided to MicroStrategy's
other customers (the "Source Code Escrow Addendum").
3. Joint Marketing And Sales; Joint Marketing Agreement. The parties' respective
obligations regarding marketing and promotion of the Developed Products and
certain mutually agreed upon details regarding their relationship as embodied in
this Agreement shall be as set forth in a Joint Marketing Agreement in the form
attached hereto as Exhibit F.
4. Joint Ownership of Developed Products; OEM License Grants to MicroStrategy
Software.
4.1 Joint Ownership; Restriction on Sale. MicroStrategy and EA shall
jointly own all right, title and interest worldwide in and to the Developed
Products including, without limitation, patents, copyrights, trade secrets and
any other Intellectual Property Rights (including trademarks and trade names
related to the Developed Products, but excluding any trademarks and trade names
owned individually by either party) incorporated in the Developed Products,
whether in the United States or abroad, which ownership rights shall be subject
to the restrictions set forth in Sections 4.7, 4.8 and elsewhere in this
Agreement. EA acknowledges that MicroStrategy has not filed any patent
applications nor obtained any issued patents on the Developed Products as of the
Effective Date. It is the intention of the parties that all the Intellectual
Property Rights (including any related trademarks and trade names, but excluding
those owned individually by either party) in the Developed Products shall be
jointly owned without any duty to account (except in the event of infringement
as provided in Section 4.12 or share any royalties (except as provided in
Section 11.1) based on the licensing or use of the Developed Products by the
other party. Notwithstanding the foregoing and except pursuant to Section 10.3,
during the period of time that the Business Unit obligations are continuing
hereunder and for a period of six (6) months thereafter (the "Lockup Period"),
neither party may sell, assign, transfer or encumber its ownership interest in
the Developed Products (a "Transfer of Ownership") without the other party's
prior written consent, which may be granted or withheld in such party's sole
discretion. After the Lockup Period, either party shall have the
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right to engage in a Transfer of Ownership, provided that such transfer shall
shall be a transfer of the transferring party's joint ownership interest in the
Developed Products only (subject to the restrictions set forth in this
Agreement), and shall not entail a transfer or assignment of any license or
other rights granted by MicroStrategy pursuant to this Agreement or of any
obligations of MicroStrategy hereunder.
4.2 Enforcement of Intellectual Property Rights. Upon reasonable
request, each party (the "Assisting Party") will assist the other party (the
"Requesting Party") in every proper way to obtain and from time to time enforce,
United States and foreign Intellectual Property Rights related to the Developed
Products in any and all countries. To that end, the Assisting Party will
execute, verify and deliver such documents and perform such other acts
(including appearances as a witness) as the Requesting Party may reasonably
request for use in applying for, obtaining, perfecting, evidencing, sustaining
and enforcing such Intellectual Property Rights and the Requesting Party's joint
ownership interest therein. The Assisting Party's obligation to assist the
Requesting Party with respect to such Intellectual Property Rights relating to
the Developed Products in any and all countries shall continue for a period of
five (5) years after expiration or termination of this Agreement, which expenses
shall be shared by the parties as they may mutually agree. In addition, the
Assisting Party will execute any license agreement which is consistent with the
rights granted and the terms set forth in this Agreement requiring the names of
both co-owners to make the license granted therein enforceable.
4.3 Execution of Documents. In the event the Requesting Party is unable
for any reason, after reasonable effort (which shall include the issuance of a
final notice pursuant to the notice provisions hereof), to secure the Assisting
Party's signature on any document needed in connection with the actions
specified in Section 4.2 above, the Assisting Party hereby irrevocably
designates and appoints the Requesting Party and its duly authorized officers
and agents as its agent and attorney in fact, which appointment is coupled with
an interest, to act for and in its behalf to execute, verify and file any such
documents and to do all other lawfully permitted acts to further the purposes of
the preceding paragraph with the same legal force and effect as if executed by
the Assisting Party.
4.4 Copyright Notices on Developed Products. EA and MicroStrategy agree
that all copies of the Developed Products and any Derivative Works, whether or
not modified, made by EA or MicroStrategy, or their respective licensees or
sublicensees, will contain applicable proprietary notices as described in
greater detail in Exhibit G. In addition, EA and MicroStrategy agree to include
an applicable copyright notice, as described in greater detail in Exhibit G, in
or on the media of all copies of the Developed Products or any Derivative Work.
4.5 Derivative Works. Neither party shall have the obligation to share
or disclose its own respective Derivative Works to the other party.
Notwithstanding the provisions of Section 8, either party may prepare and file a
patent application for its own Derivative Work in any country; provided that
such party (i) notifies the other party, in writing, at least sixty (60) days
prior to submitting such patent application; and (ii) describes the scope of the
proposed patent application and the countries in which it desires to seek patent
protection. The ownership of the patent on the Derivative Work and the
application therefor, excluding any patent or other intellectual property rights
related to the Developed Product underlying the Derivative Work or upon which
such Derivative Work is based, shall be vested in the party which is the
developer of
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such Derivative Work. Notwithstanding any of the foregoing, in no event shall
either party (the "Non-Creating Party") bring an action to enforce any rights to
seek remedies against the other party (the "Creating Party"), its customers or
licensees based upon a claim that the Creating Party's Derivative Works infringe
upon the Non-Creating Party's Intellectual Property Rights. Notwithstanding the
foregoing, nothing stated herein shall allow either party to create Derivative
Works in violation of its obligations with respect to Confidential Information
contained in Section 8 or to create Derivative Works which infringe upon the
other party's intellectual property rights related to the MicroStrategy Software
or the EA Products, as applicable.
4.6 Trademark License. MicroStrategy hereby grants to EA an
unrestricted, terminable (pursuant to Section 10), non-exclusive, royalty-free,
world-wide license (without the right of sublicense) to use all trademarks and
trade names owned by MicroStrategy and associated with the Developed Products
and the MicroStrategy Software (herein the "Trademarks") in conjunction with any
licensing and/or sublicensing, as applicable, of such products to end users in
accordance with the terms of this Agreement. EA agrees to state in appropriate
places, as designated by MicroStrategy and described in greater detail in
Exhibit H, that the Trademarks are the trademarks of MicroStrategy and to
include the symbols TM and (R) as appropriate. EA agrees to maintain the quality
of the EA Products licensed in connection with the use of the Trademarks, to use
the Trademarks in accordance with guidelines and instructions as may be
reasonably promulgated by MicroStrategy from time to time, and to provide to
MicroStrategy, upon reasonable request, representative samples of product
packaging using the Trademarks. EA agrees to take all actions reasonably
necessary or requested by MicroStrategy to protect MicroStrategy's rights in the
Trademarks.
4.7 Channel Distribution. Both parties agree to only license the
Developed Products directly to end users. Neither MicroStrategy nor EA will sell
or license the Developed Products to any third party distributor,
subdistributor, multiple tiers of subdistributors, any value-added reseller,
resellers or original equipment manufacturers (a "Channel") without the express
written consent of the other party. In the event that the non-transferring party
consents to the proposed sublicensing or distribution of the Developed Products
by a Channel, the parties will negotiate in good faith the terms of a three-
party agreement providing, among other things as negotiated by the parties, that
MicroStrategy and EA would share in the revenue generated from the sublicensing
and/or distribution by the Channel of the integrated solutions that include
Developed Products, any EA Products and/or MicroStrategy Software bundled
therewith. Notwithstanding the foregoing, nothing stated herein shall prohibit
EA from sublicensing and/or distributing the Developed Products and/or the
MicroStrategy Software (subject to the other restrictions and obligations set
forth in this Agreement) using Axiom Corporation ("Axiom") as a Channel,
provided that Axiom sublicenses and/or distributes the foregoing software
products directly to End Users and not by means of a Channel. In the event of
the foregoing, the parties shall negotiate in good faith and mutually agree in
advance upon a revenue sharing arrangement that compensates MicroStrategy
adequately based upon the amount of MicroStrategy Software embedded or
integrated with each product sublicensed or distributed by Axiom.
4.8 Additional Usage Restrictions. Both parties acknowledge and agree
that either party may license the object code of the Developed Products and/or
its own respective Derivative Works (in object code format only) to end users in
accordance with its standard licensing practices, provided that such license
includes adequate prohibitions on obtaining Source Code
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through reverse engineering. For the purposes of this Agreement, the term
"Source Code" shall mean the human-readable coded version of the Developed
Products and all related program documentation such that a programmer reasonably
skilled in the relevant programming language could read, understand and modify
the Developed Products. For the avoidance of doubt, the parties acknowledge and
agree that the Developed Products may be used by the parties (but not their
licensees) to provide time sharing, service bureau and/or ASP services.
4.9 MicroStrategy OEM License Grants to MicroStrategy Software; OEM
License Restrictions.
(a) Internal Use License. Subject to the fees payable hereunder,
MicroStrategy hereby agrees to grant to EA a royalty-free (except as provided in
Section 10), worldwide, limited (as provided in the License Agreement, as
defined below), non-exclusive and non-transferable license to use the
MicroStrategy Software in accordance with the terms and conditions set forth in
the form of License Agreement attached hereto as Exhibit I and hereby
incorporated by reference into this Agreement (the "License Agreement"). The
foregoing license grant shall be coterminous with this Agreement and the VAR
Agreement. For the avoidance of doubt, EA may use the MicroStrategy Software in
connection with providing time sharing, service bureau and/or ASP services.
(b) Development License. MicroStrategy hereby grants EA a non-exclusive,
non-transferable license to use the MicroStrategy Software in a non-production
environment for the limited purpose of establishing the compatibility of the
products included in the MicroStrategy Software with the EA Products.
(c) License to Market, Sublicense and Distribute. MicroStrategy hereby
grants EA a license to copy (in object code form only), market, sublicense and
distribute the MicroStrategy Software and related User Documentation, including
any updates thereto provided to EA pursuant to this Agreement, in conjunction
with an Exchange Applications Solution and/or a Developed Product in the
Territory. All licenses to the MicroStrategy Software granted hereunder shall be
"ramped" or granted on a staggered basis in accordance with the delivery
schedule set forth in Exhibit J. This is not a license to market, sublicense or
distribute the MicroStrategy Software or User Documentation separately or to
copy the MicroStrategy Software for such purposes, and such action shall be a
material breach of this Agreement. EA shall sublicense and distribute the
MicroStrategy Software and User Documentation directly to end users solely
through a written sublicense agreement ("End User License Agreement") that
includes, at a minimum, contractual provisions that:
(i) Restrict use of the MicroStrategy Software solely to use
with an Exchange Applications Solution and/or a Developed Product. For purposes
of this provision, an "Exchange Applications Solution" is the combination of the
EA Products with the MicroStrategy Software in order to create a "CRM/eCRM
Application." For purposes of this subsection, a CRM/eCRM Application means an
application that contains a substantial customer-centric data model with at
least 100 elements and a reasonable number of packaged analytical reports (i.e.,
10 or more such reports). MicroStrategy acknowledges and agrees that there may
be more than one Exchange Applications Solution.
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(ii) Restrict use of the MicroStrategy Software to use in object
code form.
(iii) License the MicroStrategy Software on a named user basis
exclusively for each named end user's internal business purposes.
(iv) Prohibit transfer or duplication of the MicroStrategy
Software except for temporary transfer in the event of computer malfunction and
duplication as part of routine back-up procedures.
(v) Prohibit assignment of the MicroStrategy Software without
the prior written consent of EA.
(vi) Prohibit the use of the MicroStrategy Software by any third
party except agents and consultants of end users who have signed a
confidentiality agreement that requires at least a reasonable standard of care
in the protection of MicroStrategy Confidential Information.
(vii) Prohibit causing or permitting the reverse engineering,
disassembly or decompilation of the MicroStrategy Software.
(viii) Prohibit title to the MicroStrategy Software from passing
to end users.
(ix) Disclaim MicroStrategy's liability for damages, whether
direct or indirect, incidental or consequential, arising in connection with the
End User License Agreement.
(x) State that MicroStrategy makes no direct warranty of any
kind to end users under the End User License Agreement.
(xi) Prohibit disclosure to any third party of any results of
any benchmark tests or quantitative analyses of the MicroStrategy Software.
(xii) Require end users to use a commercially reasonable degree
of care to protect the Confidential Information of MicroStrategy and prohibit
end users from, directly or indirectly, (a) using any Confidential Information
of MicroStrategy to create any computer software program or user documentation
that is substantially similar to any MicroStrategy product or user
documentation, or (b) using or disclosing Confidential Information of
MicroStrategy, except as authorized by this Agreement.
(xiii) Disclaim MicroStrategy's liability for any taxes or
duties, however designated or levied (including, but not limited to sales, use
and personal property taxes).
(d) License to Demonstrate. MicroStrategy hereby grants to EA a license
to demonstrate the MicroStrategy Software in conjunction with an Exchange
Applications Solution and/or a Developed Product in the Territory. MicroStrategy
shall provide EA copies of the MicroStrategy Software for demonstration
purposes. EA shall take all reasonable precautions
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against unauthorized disclosure or copying of MicroStrategy Software while the
Exchange Applications Solution is being demonstrated. EA shall take all
reasonable steps to ensure that the MicroStrategy Software is inaccessible
during inactive demonstration times, delete any demonstration copies of the
MicroStrategy Software installed on the potential customer's computers upon
completion of any demonstration at a customer site and further exercise
commercially reasonable efforts to ensure the security of the MicroStrategy
Software.
(e) License to Grant Evaluation Licenses. MicroStrategy grants to EA a
license to allow Evaluations of the MicroStrategy Software in conjunction with
the EA Products in the Territory, but only pursuant to a written agreement that
contains the restrictions set forth in this Section. MicroStrategy shall provide
EA with copies of the MicroStrategy Software for Evaluations. EA shall take all
reasonable precautions against unauthorized disclosure or copying of
MicroStrategy Software during Evaluations. When an Evaluation ends, if an End
User does not license the Exchange Applications Solutions, EA shall require that
all copies of the Exchange Applications Solutions be promptly removed from such
end user's facilities and returned to EA.
(f) EA covenants. In connection with the license granted in this Section
4.9, EA covenants and agrees: (i) not to distribute the MicroStrategy Software,
except as part of an Exchange Applications Solution (as defined in Section
4.9(c)(i)); (ii) not to distribute the MicroStrategy Software electronically;
and (iii) not to distribute the MicroStrategy Software through Channels of
distribution, except as permitted under Section 4.7.
(g) MicroStrategy Software OEM License Restrictions and EA Covenants.
The rights granted in this Section 4.9 are expressly limited to and restricted
by the following:
(i) No copies may be made of MicroStrategy Software except as
explicitly authorized by this Agreement or the applicable End User License
Agreement. EA shall have no right to manufacture, modify, or copy User
Documentation. Notwithstanding the foregoing, EA shall have the right to make a
reasonable number of copies of the User Documentation for purposes consistent
with this Agreement, provided that such copies are of the same quality as the
originals as provided by MicroStrategy.
(ii) MicroStrategy reserves the right to amend, modify, enhance,
add to or delete from the list of MicroStrategy Software upon thirty (30) days'
written notice to EA so long as the list includes at all times any software
product then actively marketed by MicroStrategy in the United States, provided,
however, that such modifications to the list of MicroStrategy Software shall not
apply to proposals to end users outstanding on the notice date of such
modifications until the earlier of (i) the proposal expiration date or (ii)
sixty (60) days from the notice date, provided that EA provides a list of such
end users to MicroStrategy within thirty (30) days of the notice date. The list
of end users shall include (i) the name of the end user, (ii) the date of the
proposal, and (iii) the expiration date of the proposal. This Agreement shall
automatically cover all such amendments, modifications, or enhancements to the
list of MicroStrategy Software. MicroStrategy's support obligations for
MicroStrategy Software (for End Users and EA) that is phased out in accordance
with this subsection shall be handled pursuant to MicroStrategy's standard
support policies and procedures then in effect, but in no event, shall EA or its
end users be accorded less favorable treatment than MicroStategy's direct
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customers. Notwithstanding the foregoing, EA shall continue to retain its
license rights under this Section 4.9 for all MicroStrategy Software, including
those products that are phased out or discontinued as provided above
(collectively, the "Discontinued Products"), provided, however, that,
notwithstanding the foregoing, MicroStrategy shall have no warranty, support,
indemnification or other obligations whatsoever with respect to the Discontinued
Products, which shall be licensed on an "AS IS" basis as of the date which is
thirty (30) days after the date of written notice to EA as provided herein. EA
shall be entitled to the source code to a Discontinued Product pursuant to the
terms and restrictions of the Source Code Escrow Addendum at such time, if ever,
that MicroStrategy ceases to provide Technical Support Services (as defined in
the Source Code Escrow Addendum) for that particular Discontinued Product.
(iii) EA agrees that it will not, either directly or through a
third party, use MicroStrategy Software, the source code, or a derivative
thereof, or any Confidential Information of MicroStrategy, to create, modify or
enhance any computer software programs or user documentation which is
functionally, visually, or otherwise identical or substantially similar to any
MicroStrategy Software.
(iv) EA agrees that it will not, either directly or through a
third party, reverse engineer, disassemble or decompile any of the MicroStrategy
Software, or make any attempt to obtain or derive the source code from any
MicroStrategy Software, whether or not such product is listed in Exhibit A.
(v) EA agrees that it will not permit any End Users to rent or
lease MicroStrategy Software or use of MicroStrategy Software (i.e., timeshares
or service bureaus).
(vi) Regardless of any disclosure by EA to MicroStrategy of an
ultimate destination of MicroStrategy Software, EA shall not transfer or re-
export MicroStrategy Software, any goods created with MicroStrategy Software,
related documentation, or other related proprietary information, to anyone
outside the United States as to which export may be in violation of the United
States export laws or regulations, without first obtaining the appropriate
license from the U.S. Department of Commerce and/or any other agency or
department of the U.S. Government, as required.
4.10 Reserved Rights. Any rights to or under MicroStrategy's
Intellectual Property Rights or the MicroStrategy Software not expressly granted
in this Agreement are expressly reserved by MicroStrategy. In addition,
MicroStrategy reserves the right to amend the list of provisions that must
appear in the End User License Agreement as set forth in Section 4.9(c)(ii)
through (xiii) upon ninety (90) days' advance, written notice; provided,
however, that such amended provisions shall be commercially reasonable and apply
only to End User License Agreements executed by EA subsequent to the expiration
of the ninety (90) day notice period.
4.11 Intellectual Property Markings on MicroStrategy Software. EA will
comply with MicroStrategy's instructions regarding the marking of the
MicroStrategy Software and accompanying User Documentation with a notice
reflecting MicroStrategy's ownership of certain Intellectual Property Rights
embodied therein.
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4.12 Infringement by Third Parties. If either party learns of any
possible infringement or misappropriation of the other party's Intellectual
Property Rights, it shall immediately give notice thereof to the other party.
Each party agrees to cooperate with the other party's reasonable efforts to seek
legal remedies for such infringements and misappropriations. In the event of any
successful claim of infringement (a "Claim") of the Intellectual Property Rights
embodied in the Developed Products against a third party or any settlement
thereof involving a monetary recovery, MicroStrategy and EA agree to share
equally the net proceeds derived from the disposition or settlement of such
Claim after deducting from such proceeds each party's costs in connection
therewith to the extent that such costs are not otherwise directly covered by
the settlement amount or court award.
5. WARRANTY; DISCLAIMER OF WARRANTIES.
5.1 Warranty. MicroStrategy warrants to EA for a period of ninety (90)
days from the date of delivery of the MicroStrategy Software to EA that each
unmodified MicroStrategy Software product will perform in substantial
conformance with the functions described in the User Documentation. In addition,
MicroStrategy warrants to EA through December 31, 2001 that the unmodified
MicroStrategy Software products will not fail or produce incorrect results when
processing with four (4)- digit dates for the year 2000; provided, however, that
MicroStrategy makes no warranty with respect to any such failure or incorrect
result that may arise due to: (i) the quality of the data sought to be processed
with the MicroStrategy Software; (ii) the effect of other software not licensed
by MicroStrategy to EA or developed by MicroStrategy for EA; or (iii) the use of
the MicroStrategy Software in an operating environment or on a platform not
specified by MicroStrategy. MicroStrategy Software warranty claims must be
brought within the warranty period. For any breach of the warranties contained
herein, EA's exclusive remedy and MicroStrategy's entire liability shall be, at
MicroStrategy's sole discretion, the correction of the MicroStrategy Software
errors that cause breach of the warranty, replacement of the MicroStrategy
Software which is experiencing the error or return of the License Fees allocable
to the non-conforming MicroStrategy Software product (or in the case of a breach
of the warranty contained in the second sentence of this Section 5.1, a pro-
rated portion of such license fees) upon EA's return of such MicroStrategy
Software product to MicroStrategy.
5.2 MICROSTRATEGY DISCLAIMER. EXCEPT AS PROVIDED HEREIN, THE
MICROSTRATEGY SOFTWARE IS BEING LICENSED "AS IS" WITHOUT WARRANTY OF ANY KIND.
EXCEPT FOR THE RIGHT OF EA TO CONFIRM THE RESULTS OF MICROSTRATEGY'S CONFORMANCE
TESTS PURSUANT TO SECTION 2.4, THE DEVELOPED PRODUCTS ARE BEING FURNISHED "AS
IS" WITHOUT WARRANTY OF ANY KIND. EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION
5, MICROSTRATEGY MAKES NO WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE,
AS TO ANY MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
5.3 EA DISCLAIMER. EXCEPT AS PROVIDED IN THIS AGREEMENT, EA MAKES NO
WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE DEVELOPED
PRODUCTS AND/OR ITS DERIVATIVE WORKS.
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6. Support, Maintenance And Consulting.
6.1 EA Support Options. EA will have the option of either: (i) providing
level I support to end users ("End Users") ("Level 1 Support") for all EA-
branded offerings of the Developed Products with MicroStrategy providing level 2
support ("Level 2 Support"), or (ii) MicroStrategy providing both Level 1 and
Level 2 Support for such offerings. Level 1 Support will consist of (i) initial
contact with the End User to define a code or documentation problem; (ii)
provision of answers to questions about product functionality to the extent
reasonably possible; and (iii) an attempt to resolve the call. Level 2 Support
will consist of (i) receipt of problem definition and scope and all related data
and materials from first level support personnel of EA; (ii) an attempt to
provide solutions or workarounds for the problem; (iii) formulation of plans for
collection of additional data relating to the problem; (iv) the collection of
additional data relating to the problem, and (v) the provision of bug fixes
and/or patches for problems in conformance with MicroStrategy's standard support
procedures then in effect.
6.2 Support Royalties. Regardless of which of the options set forth in
Section 6.1 that EA chooses, EA shall pay to MicroStrategy a royalty of eight
percent (8%) of the license fees (assuming a maintenance rate of 16% of the
applicable end user license fees) EA receives for, or that are attributable to,
the MicroStrategy Software component of the product licensed by EA. The
MicroStrategy Software component value shall be calculated based on the lesser
of: (a) thirty percent (30%) of the MicroStrategy list price then in effect for
the MicroStrategy Software which is bundled with, or included in, the Exchange
Applications Solution, or (b) fifty percent (50%) of the actual price for the
Exchange Application Solution. This arrangement will be reciprocal for support
provided by EA (i.e., MicroStrategy will pay EA an 8% royalty) in connection
with MicroStrategy-branded offerings of the Developed Products. In connection
with the foregoing, each party agrees to charge End Users an amount equal to
sixteen percent (16%) of the applicable product license fees for maintenance and
support services. The royalty payment terms in Section 11.1 shall apply to the
payment of all royalties hereunder.
7. Indemnities.
7.1 Indemnification.
(a) MicroStrategy shall indemnify, defend and hold EA harmless from and
against any and all liabilities, losses, damages, fees, costs and expenses,
including without limitation reasonable attorneys' fees, incurred by EA
resulting from a third party claim, suit, action or proceeding (a "Claim")
alleging that the MicroStrategy Software, the Developed Products or
MicroStrategy's Derivative Works (collectively, the "Indemnified Products")
infringes or misappropriates a third party U.S. patent, copyright, trade secret
or other intellectual property right; provided that EA (i) promptly notifies
MicroStrategy in writing of such Claim; (ii) provides MicroStrategy sole control
of the defense or settlement of such claim; and (iii) provides MicroStrategy
assistance at MicroStrategy's request and reasonable expense. EA may participate
in the defense or settlement of the Claim at its own expense. If a final
injunction is obtained against EA for use of the MicroStrategy Software or the
Developed Products or licensing of the Developed Products in accordance with the
terms of this Agreement, or if MicroStrategy reasonably believes that such
injunction is likely, MicroStrategy may, at its option and its expense, either
(i) procure for EA the right to continue using and/or licensing the
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MicroStrategy Software or the Developed Products, as applicable, or (ii) modify
the MicroStrategy Software or the Developed Products, as applicable, or the
infringing portions thereof so that they become non-infringing. If in
MicroStrategy's opinion neither of the above is commercially feasible, EA shall
promptly cease licensing the infringing MicroStrategy Software, or the Developed
Products, as applicable, and MicroStrategy shall pay to EA an amount equal to
the License Fee, reasonably attributable to such component as a fraction of all
licenses granted hereunder depreciated on a three-and-one-half (3 1/2) year
straight line basis, calculated backwards from the date of infringing event to
the Effective Date. MicroStrategy will have no liability or obligation to
indemnify for any claim arising from (i) the combination of the Indemnified
Products with EA or third party materials or intellectual property, unless such
infringement would have occurred without such combination; (ii) the modification
or translation of the Indemnified Products or any portion of the MicroStrategy
Technology by EA or any third party not authorized to do so by MicroStrategy
(collectively, "EA Modifications"); (iii) any use by EA of the Indemnified
Products after directed by MicroStrategy to discontinue use thereof; or (iv) any
Improvements to the Indemnified Products created by a party other than, or not
specifically authorized by, MicroStrategy.
(b) EA shall indemnify, defend and hold MicroStrategy harmless from and
against any and all liabilities, losses, damages, fees, costs and expenses,
including without limitation reasonable attorneys' fees, incurred by
MicroStrategy resulting from the EA Modifications or from a Claim that the
manufacture, use or licensing by EA of the MicroStrategy Software and/or the
Developed Products other than in accordance with the terms of this Agreement or
that EA's Derivative Works infringes any patent, copyright or other proprietary
rights of any third party or misappropriates any trade secret of any third
party; provided that such Claim is not a Claim based on the Indemnified Products
for which MicroStrategy indemnifies EA pursuant to Section 7.1(a); and provided
further that MicroStrategy (i) promptly notifies EA in writing of such Claim;
(ii) provides EA sole control of the defense or settlement of such claim; and
(iii) provides EA reasonable assistance at EA's request and expense.
(c) Any failure by either party to promptly notify the other of a claim
for which indemnification may be sought or to cooperate in such claim shall only
relieve the other of its indemnity obligations hereunder to the extent that it
is prejudiced by the delay or failure to cooperate.
7.2 Entire Liability. The foregoing provisions of this Section 7 state
the entire liability and obligations of each party and the exclusive remedy of
each party with respect to any alleged Intellectual Property Rights infringement
or misappropriation by the MicroStrategy Software, the Developed Products, the
Derivative Works or the parties' respective Technology incorporated in the
Developed Products. Neither party shall be liable for claims by the other
party's end users relating to the Developed Products, the EA Products and/or the
Exchange Applications Solution.
8. Confidentiality.
8.1 Confidentiality. Each party hereto will maintain in confidence all
Confidential Information disclosed by the other party hereto. Neither party will
use, disclose or grant use of such Confidential Information except as expressly
authorized by this Agreement. To the extent
15.
<PAGE>
that disclosure is authorized by this Agreement, the disclosing party will
obtain prior written agreement from its employees, agents or consultants to whom
disclosure is to be made to hold in confidence and not make use of such
information for any purpose other than those permitted by this Agreement, and
each party shall be liable for the unauthorized disclosure of the other party's
Confidential Information by such employees, agents or consultants. Each party
will use at least the same standard of care as it uses to protect its own most
confidential information to ensure that such employees, agents or consultants do
not disclose or make any unauthorized use of such Confidential Information. Each
party will promptly notify the other upon discovery of any unauthorized use or
disclosure of the Confidential Information. In no event shall either party
disclose the other party's confidential information to the disclosing party's
competitors as defined in Exhibit K (the "Competitors") even if such Competitor
is a consultant or contractor of the receiving party.
8.2 Exceptions. The obligations of confidentiality contained in Section
8.1 will not apply to the extent that such Confidential Information:
(a) was already known to the receiving party, other than under an
obligation of confidentiality to the disclosing party, at the time of disclosure
by the other party;
(b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the other party;
(c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the receiving party in breach of this Agreement;
(d) was disclosed to the receiving party, by a third party who had no
obligation to the disclosing party not to disclose such information to others;
(e) is independently developed by the receiving party without reference
to the Confidential Information;
(f) was the subject of a court- or government-ordered disclosure,
provided that the disclosing party gives reasonable prior notice to the non-
disclosing party and limits the scope and the instances of the disclosure to
that required by the relevant order and cooperates and assists the disclosing
party in obtaining a protective order relating to such disclosure, if
applicable.
9. Limitation Of Liability. EXCLUDING EACH PARTY'S INDEMNIFICATION OBLIGATIONS
FOR DAMAGES PAYABLE TO A THIRD PARTY FOR INFRINGEMENT OF THIRD PARTY
INTELLECTUAL PROPERTY RIGHTS AND BREACHES OF THE CONFIDENTIALITY OBLIGATIONS SET
FORTH IN SECTION 8, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR TO ANY
ENTITY CLAIMING THROUGH OR UNDER THE OTHER PARTY FOR ANY LOSS OF USE, PROFIT OR
INCOME, ANY LOST DATA, ANY WORK STOPPAGE, ANY EQUIPMENT DOWNTIME, OR FOR ANY
CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE, OR SPECIAL DAMAGES, WHETHER IN AN
ACTION FOR CONTRACT OR TORT OR BASED ON A WARRANTY, IN CONNECTION WITH THIS
AGREEMENT, EVEN IF SUCH PARTY HAS
16.
<PAGE>
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCLUDING EACH PARTY'S
INDEMNIFICATION OBLIGATIONS FOR DAMAGES PAYABLE TO A THIRD PARTY FOR
INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS AND BREACHES OF THE
CONFIDENTIALITY OBLIGATIONS SET FORTH IN SECTION 8, IN NO EVENT SHALL EITHER
PARTY'S LIABILITY TO THE OTHER HEREUNDER EXCEED THE LICENSE FEES PAID TO
MICROSTRATEGY PURSUANT TO THIS AGREEMENT. The foregoing limitations are
independent from all other terms and provisions of this Agreement and shall
apply notwithstanding the failure of any remedy provided herein.
10. Term; Termination Based Upon Certain Occurrences.
10.1 Term; Effect of Termination by EA. This Agreement shall commence
upon the Effective Date and shall continue for an initial term of three-and-one-
half (3 1/2) years. Notwithstanding the foregoing, EA may terminate the
obligations of the Business Unit set forth in Section 2.1 and Exhibit C at any
time during the initial term upon (i) 30 days' prior notice if such notice
occurs prior to June 30, 2000, or (ii) 60 days' prior notice if such notice
occurs at any time thereafter. If EA elects to terminate the Business Unit
obligations as provided above, EA will be relieved of any payment not yet due
and payable to MicroStrategy pursuant to the Payment and Registration Rights
Agreement. If EA elects to terminate the Business Unit obligations during the
first four (4) quarters of this Agreement, then MicroStrategy shall have the
right to immediately terminate the Strategy.com Master Affiliation Agreement
described in greater detail in Section 13 hereof and to immediately cease all
development, engineering and related work hereunder, provided that MicroStrategy
shall make the Deliveries as specified in this Agreement. In addition, if EA
elects to terminate the Business Unit obligations, then this Agreement shall
terminate and be superseded by the VAR Agreement, and the Credit as defined and
described in Section 10.3 shall apply. If EA terminates this Agreement based
upon a material breach by MicroStrategy pursuant to Section 11.4, then this
Agreement shall be superseded and converted into the VAR Agreement. In addition,
in the event that this Agreement is converted into a VAR Agreement as described
in the preceding sentence, then the Credit defined and described in Section 10.3
shall apply.
10.2 Renewal Options. EA shall have the right to extend the OEM license
rights contained in Section 4.9 of this Agreement for an additional three (3)
year term for a fee of $30,000,000, provided that EA has not exercised its
termination rights pursuant to Section 10.1 prior to the expiration of the
initial term. In addition, EA shall have the right to extend the Business Unit
commitment set forth in Section 2.1(a) for an additional three (3) year term for
a fee of $30,000,000, provided that EA has not exercised its termination rights
pursuant to Section 10.1 prior to the expiration of the initial term.
Alternatively, the parties agree that EA may extend the term of the OEM license
rights hereunder pursuant to the VAR Agreement for additional one (1) year terms
in consideration of the payment of incremental per unit royalties for the
MicroStrategy Software (as bundled with the EA Products) equal to the thirty
percent (30%) of the then-current list prices for such software. The renewal
option described in the immediately preceding sentence shall not be exercisable
by EA in the event that MicroStrategy terminates this Agreement pursuant to
Section 11.4 based upon a material breach by EA.
17.
<PAGE>
10.3 Termination Based Upon the Occurrence of a Qualified Event. In the
event of a Qualified Event, the party which is not the subject of such event may
terminate this Agreement, provided that such termination occurs within ninety
(90) days after the closing date of the Qualified Event. Upon any such
termination, this Agreement shall be superseded by the VAR Agreement, including,
without limitation, a provision for a credit toward future royalties payable to
MicroStrategy in an amount equal to $30 million less 30% of the list price for
all MicroStrategy Software licensed by EA prior to the date of
termination/conversion (the "Credit"). In the event of the foregoing, the
royalty for the MicroStrategy Software payable to MicroStrategy will be 30% of
the then-current list prices for such products until the credit is exhausted
and, thereafter, shall be 35% of the then-current list prices for such products.
11. Royalties; Taxes; Audit; Termination for Breach; Additional Effects of
Termination.
11.1 Maintenance Royalty Payment Terms. All royalties accruing in a
particular calendar quarter shall be paid within thirty (30) days after the end
of each such calendar quarter and shall be accompanied by a report detailing the
number of Exchange Applications Solutions licensed (or the nature of support
provided, if applicable pursuant to Section 6.2) during the quarter to which the
royalty payment set forth above applies, the rates at which royalties were
computed, the amount of royalties due, and all additional details reasonably
necessary to show how these amounts were determined.
11.2 Taxes. The license fees specified in this Agreement are exclusive
of any sales, use, excise, or similar taxes, and of any export and import
duties, which may be levied upon or collectible by either party as a result of
the licensing or shipment of products to end users, any services performed under
this Agreement and use of products by end users. Each party agrees to pay and
otherwise be fully responsible for, and indemnify and hold the other harmless
from and against any and all such taxes and duties, unless in lieu thereof the
party responsible for collecting such taxes provides to the other an exemption
certificate acceptable to the relevant governmental authorities. Notwithstanding
the foregoing, each party, to the extent permitted by applicable law, shall have
the right to claim any and all costs expended pursuant to this Agreement for
qualified research and development per Internal Revenue Code Section 41,
research tax credit.
11.3 Audit.
(a) Records. EA shall keep complete and accurate records pertaining to
the licensing of the Exchange Applications Solutions. Such records will be
maintained for a five (5) year period following the year in which any license
fee and/or maintenance fee payments are made by customers pertaining to the
licensing of Exchange Applications Solutions or the provision of services
related thereto.
(b) Audit Request. MicroStrategy will have the right to engage, at its
own expense, an independent auditor reasonably acceptable to EA, to examine EA's
records not more than twice per calendar year to determine, with respect to any
calendar year, the correctness of any report or payment made under this
Agreement. If any such audit reveals an underpayment of more than five percent
(5%) of the correct amount of royalties due hereunder, such audit will be
18.
<PAGE>
at the expense of EA. If any audit shall show that EA underpaid any royalties
due to MicroStrategy as to the period subject to the audit, then EA shall
immediately pay to MicroStrategy any such deficiency with interest thereon at a
rate equal to the lower of one and a half percent per month or the highest rate
allowed by law from the date due until paid.
11.4 Termination for Breach. If either party materially defaults in the
performance of its obligations hereunder or under the other Operative
Agreements, the defaulting party agrees to use its commercially reasonable
efforts to correct the default within thirty (30) days after written notice of
default from the non-defaulting party. If any such default is not corrected
within the cure period, then the non-defaulting party at its option may, in
addition to any other remedies it may have, terminate this Agreement at the end
of such cure period.
11.5 Additional Effects of Termination.
(a) Return of Documentation and Confidential Information. Upon any
termination of this Agreement, each party shall immediately return to the other
party all documentation, Confidential Information and any other tangible items
in its possession or under its control evidencing the know-how of the other
party, except as provided in the VAR Agreement and except with respect to
Confidential Information related to the Developed Products.
(b) License Termination, MicroStrategy Deliveries. Except as set forth
in this Agreement, upon any termination of this Agreement, all licenses granted
by either party under this Agreement shall be terminated. In the event of a
termination of this Agreement for any reason, excluding termination based on a
material breach by EA in the form of a failure to make payment as required by
the Payment and Registration Rights Agreement, MicroStrategy shall promptly make
the Deliveries (as defined in Section 2.1(a)).
(c) Inventory. Upon termination of this Agreement resulting from a
breach by EA, EA shall cease all marketing efforts for the Product and shall
return any and all copies of the Product to MicroStrategy. In the case of the
foregoing, MicroStrategy shall have no ongoing obligations with respect to
delivery of the Product to end user customers. Upon termination of this
Agreement resulting from a breach by MicroStrategy, MicroStrategy shall be
obligated to fulfill all orders for the delivery of Products which were licensed
to end user customers prior to the termination date of this Agreement.
(d) Ongoing Support. Upon termination of this Agreement, MicroStrategy
and/or EA shall be entitled to provide reasonable support to customers as set
forth in this Agreement; provided, however, that such support shall not include
any updates or upgrades to the Product other than minor error corrections or
repairs.
(e) Survival. Except as otherwise set forth in the applicable section,
the following sections shall survive a termination or expiration of this
Agreement : 4 (other than 4.9), 5, 7, 8, 9, 10, 11, 12 and 14.
12. Equitable Relief. Neither party shall be precluded hereby from securing
equitable remedies in courts of any jurisdiction, including, but not limited to,
temporary restraining orders
19.
<PAGE>
and preliminary injunctions to protect its rights and interests but such relief
shall not be sought as a means to avoid or stay mediation or arbitration.
13. Strategy.com Master Affiliation. On the Effective Date and upon the
execution by EA of a Strategy.com Master Affiliation Agreement in the form set
forth in Exhibit L, MicroStrategy shall grant EA "Master Affiliate" status for
Strategy.com as provided in such agreement.
14. General Provisions.
14.1 Assignment. Neither party may assign this Agreement or any right
under this Agreement (except as provided in Section 10.3 or Section 4.1), nor
delegate any obligation under this Agreement, without the other party's prior
written consent. The rights and obligations of the parties under this Agreement
shall be binding upon and inure to the benefit of the successors and permitted
assigns of the parties. Any attempted assignment or delegation in contravention
of this Section 14.1 shall be null and void.
14.2 Force Majeure. Neither party shall be liable to the other party,
under this Agreement or otherwise, for any delay or lack of performance (other
than non-payment) resulting from an event of Force Majeure (as defined below).
If a Force Majeure event occurs, the party prevented from performing its
obligations under this Agreement shall inform the other party as soon as
possible and the time period for performance shall be extended by a period
equivalent to the delay caused by the Force Majeure event plus any additional
period reasonably necessary to allow the prevented party to resume performance
of its obligations. The prevented party shall inform the other party as soon as
possible after the Force Majeure event ends. If the Force Majeure event lasts
for more than one hundred and twenty (120) consecutive days after the initial
notice of such event, the parties shall attempt in good faith to solve the
problem of further performance of this Agreement through friendly consultation.
If the parties cannot solve the problem of further performance within an
additional sixty (60) days, either party may terminate this Agreement without
penalty. As used above, an event of "Force Majeure" means any act of God, war,
fire, typhoon, flood, earthquake, natural disasters, governmental action, labor
disruptions, materials shortages, or any other event beyond the reasonable
control of the prevented party.
14.3 Notices. All notices and other communications provided for
hereunder shall be in writing and shall be mailed by first-class, registered or
certified mail, postage paid, or delivered personally, by overnight delivery
service or by facsimile, with confirmation of receipt, addressed as follows:
If to MicroStrategy: MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, VA 22182
Attn: Adam Ruttenberg, Esq.
Fax No.: (703)848-8748
With a copy to: David M. Janet, Esq.
Cooley Godward LLP
2002 Edmund Halley Drive
20.
<PAGE>
Suite 300
Reston, VA 20191-3436
Fax No.: (703)262-8100
If to EA: Exchange Applications
One Lincoln Plaza
89 South Street
Boston, MA 02111
Attn: Andrew Frawley,
President and
Wayne Townsend, Vice
President
Fax No.: (617)790-2849
With a copy to: Neil Townsend, Esq.
Bingham, Dana LLP
150 Federal Street
Boston, MA 02110
Fax No. (617) 951-8736
Either party may, by like notice, specify or change an address to which notices
and communications shall thereafter be sent. Notices sent by facsimile shall be
effective upon confirmation of receipt, notices sent by mail or overnight
delivery service shall be effective upon receipt or upon refusal of delivery,
and notices given personally shall be effective when delivered or when delivery
is refused.
14.4 Governing Law and Venue. All matters arising in connection with
this Agreement or the enforcement or construction thereof shall be governed by
and resolved in accordance with the laws of State of New York, without regard to
conflict-of-laws provisions. Service of process in any suit, action or
proceeding may be made in any manner permitted by law.
14.5 Construction. The headings of sections and subsections of this
Agreement are for convenience only and shall not be construed to affect the
meaning of any provision of this Agreement. Any inconsistency between provisions
in this Agreement and the exhibits shall be resolved in favor of the main body
of this Agreement.
14.6 Relationship of the Parties. Except as expressly provided herein,
neither party is, nor will be deemed to be, an agent or legal representative of
the other party for any purpose. Neither party will be entitled to enter into
any contracts in the name of or on behalf of the other party, and neither party
will be entitled to pledge the credit of the other party in any way or hold
itself out as having authority to do so. Neither party will incur any debts or
make any commitments for the other, except to the extent, if at all,
specifically provided herein.
14.7 Waiver. No provision of the Agreement, unless such provision
otherwise provides, will be waived by any act, omission or knowledge of a party
or its agents or employees
21.
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except by an instrument in writing expressly waiving such provision and signed
by a duly authorized officer of the waiving party.
14.8 Severability. Whenever possible, each provision of the Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of the Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
the Agreement.
14.9 Entire Agreement; Modifications. This Agreement, together with the
Exhibits attached hereto and the Operative Agreements, constitutes the entire
agreement between the parties and supersedes all prior oral or written
negotiations and agreements between the parties with respect to the subject
matter hereof. Any and all representations and warranties set forth in the
Exhibits and/or Schedules hereto shall be incorporated herein by reference and
be deemed a material part of this Agreement. No modification, variation or
amendment of this Agreement shall be effective unless made in writing and signed
by the parties. Any additional or different terms stated in any purchase order
or other document delivered to EA by MicroStrategy in connection with this
Agreement shall have no effect.
IN WITNESS WHEREOF, EA and MicroStrategy have each caused this
Agreement to be executed by their duly authorized representatives.
MICROSTRATEGY INCORPORATED EXCHANGE APPLICATIONS, INC.
By: /s/ Sanju Bansal By: [illegible]
----------------------------------- ---------------------------
Name: Sanju Bansal Name:
--------------------------------- ------------------------------
Title: COO Title:
-------------------------------- ------------------------------
<PAGE>
Exhibit A
MicroStrategy Software
SOFTWARE DESCRIPTION
MicroStrategy's Current Product Offerings
Client/Workstation Based Software (Windows 3.11, Windows NT, Windows 95)
<TABLE>
<CAPTION>
Software Product Description
- --------------------------------------------------------------------------------------------------
<S> <C>
MicroStrategy Agent End-user OLAP tool which gives knowledge workers access to data for
analysis, presentation, integration, and action.
- --------------------------------------------------------------------------------------------------
MicroStrategy Objects Relational OLAP OLE API for custom application development.
- --------------------------------------------------------------------------------------------------
MicroStrategy Architect Administration tool used to automatically populate and modify
metadata, create dimensions, attributes, hierarchies, facts, metrics,
as well as connections to the data warehouse.
- --------------------------------------------------------------------------------------------------
MicroStrategy Executive Application design tool for building Executive Information Systems
(EIS) on top of a multidimensional object library. Provides
developers with a tool to define key components of and EIS (screens,
buttons, analyses, images, and navigation paths).
- --------------------------------------------------------------------------------------------------
MicroStrategy Broadcaster Broadcaster interface capable of delivering personalized messages to
(Requires MicroStrategy many thousands of recipients via E-mail, Fax, Pager and Mobile Phone.
Broadcaster Server) Using exception conditions and recurring schedules as triggers.
MicroStrategy Broadcaster helps maximize the value of data warehouses
by delivering critical information to end-users as part of the normal
business process.
- --------------------------------------------------------------------------------------------------
MicroStrategy Web Identical features set to that of MicroStrategy Web Professional
Standard Edition (SE); Edition (PE) with three exceptions:
Requires MicroStrategy o Drill Down only
Web Server o No Surfing
o No Report Creation
o No Report Save
- --------------------------------------------------------------------------------------------------
MicroStrategy Web Allows users to connect to the data warehouse via an intranet or the
Professional Edition internet and use HTML hyperlinks and Java applets to perform dynamic
(PE): Requires OLAP queries in real time. MicroStrategy Web works with any WWW
MicroStrategy Web Server browser and supports adhoc reporting, drill down, drill across, drill
within, drill up, multidimensional reports, reports with ranking,
advanced comparisons, and metric qualifications.
- --------------------------------------------------------------------------------------------------
</TABLE>
DOCUMENTATION
Documentation consists of the user guides and manuals for use that Licensor
normally distributes with the Software.
MicroStrategy Confidential And Proprietary
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
MicroStrategy Monitoring, management, and tuning toolset for decision support
Administrator projects built using the MicroStrategy ROLAP architecture, initial
fee includes license for two named users.
- --------------------------------------------------------------------------------------------------
MicroStrategy Web Server Allows users to connect to the data warehouse via an intranet or the
(Requires MicroStrategy internet and use HTML hyperlinks and Java applets to perform dynamic
Server) OLAP queries in real time. MicroStrategy Web works with any WWW
browser and supports adhoc reporting, drill down, multidimensional
reports, reports with ranking, advanced comparisons, and metric
qualifications.
- --------------------------------------------------------------------------------------------------
MicroStrategy Broadcaster Information broadcast server capable of delivering personalized
Server (Requires messages to many thousands of recipients via E-mail, Fax, Pager and
MicroStrategy Server and Mobile Phone.
Microsoft SQL Server,
which is not provided)
- --------------------------------------------------------------------------------------------------
Telecast Server (Requires
third party hardware and
software, not provided)
- --------------------------------------------------------------------------------------------------
MicroStrategy Info Center Information subscription server capable of allowing individuals to
Server (Requires subscribe for content from MicroStrategy Web and MicroStrategy
MicroStrategy Broadcaster Products.
Intelligence Server,
MicroStrategy
Broadcaster Server and
Microsoft SQL Server,
which is not provided)
- --------------------------------------------------------------------------------------------------
MicroStrategy The middle tier in MicroStrategy's three tier architecture.
Intelligence Server MicroStrategy Intelligence Server is an OLAP server that enables
complex, analytically-intensive requests to be issued against the
data warehouse. It supports asynchronous query processing,
permitting execution of both interactive and scheduled batch analysis.
- --------------------------------------------------------------------------------------------------
</TABLE>
DOCUMENTATION
Documentation consists of the user guides and manuals for use that Licensor
normally distributes with the Software.
MicroStrategy Confidential And Proprietary
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
EXHIBIT B
---------
Page 1
<PAGE>
DSSPARTNER
MICROSTRATEGY INCORPORATED
VALUE-ADDED RESELLER AGREEMENT
This Value-Added Reseller Agreement (the "Agreement") is entered into as of this
first day of June 1999 (the "EffectiveDate"), by and between MicroStrategy
Incorporated ("MicroStrategy"), a Delaware corporation, having its principal
place of business at 8000 Towers Crescent Drive, Vienna, Virginia 22182, and
Exchange Applications, Inc. ("VAR"), a Delaware corporation, having its
principal place of business at One Lincoln Plaza, 89 South Street, Boston,
Massachusetts 02111.
1. DEFINITIONS
1.1 "Affiliate" means any firm, individual, corporation or other business
entity that directly, indirectly or through one or more intermediaries Controls
or is Controlled by VAR or End User, as appropriate, but only as long as such
Control exists. For purposes of this definition, "Control" shall mean ownership
of more than fifty (50) percent of voting securities, or otherwise having the
power to cause the direction of the management and policies of the controlled
entity.
1.2 "Benchmark Test" means any quantitative analysis of the Products.
--------------
1.3 "Collateral" means any marketing, trade press, product sales, education,
----------
consulting and support material publicly used by MicroStrategy in the United
States.
1.4 "Confidential Information" means any information disclosed by one party to
------------------------
the other party marked `confidential" or disclosed under circumstances that
would lead a reasonable person to conclude that the information was
confidential. Notwithstanding the foregoing, regardless of whether they are
marked "confidential" and regardless of the circumstances under which they are
disclosed, the following shall be considered the Confidential Information of the
disclosing party: software products, user documentation, inventions, technical
specifications, technical know-how, product development plans, program
flowcharts, file layouts, educational materials (other than Collateral), pricing
and marketing plans.
1.5 "Development Package" means the MicroStrategy products specified in Exhibit
-------------------
A for use by the number of Named Users set forth therein in accordance with the
terms of this Agreement.
1.6 "End User" means any customer of VAR that purchases or may purchase the
--------
Software Package for use in accordance with the End User License Agreement.
1.7 "Evaluation" means an installation of the VALEX Response Analyzer product
----------
along with the Software Package for a period of time during which an End User
may evaluate the VALEX Response Analyzer product and Software Package together
for its internal use. VAR shall exercise best efforts to restrict Evaluation
periods to thirty (30) days. In no event, however, shall an Evaluation period
exceed sixty (60) days.
1.8 "Named User" means an individual to whom the End User has assigned an
----------
identification number for purposes of tracking use of a Product included in the
Software Package. If and when a Named User no longer has access to the Product,
the End User may allow an alternate Named User to assume the initial Named
User's identification number and use the Product in place of the initial Named
User. Typically, the Named User will be an employee of the End User.
1.9 "Products" means the software included in the Software Package.
--------
1.10 "Software Package" means the English-language version of the following
----------------
software for use by the specified number of Named Users: DSS Server for 10 Named
Users, DSS Web PE (with the drill up, drill across, drill within, report wizard,
and saving features disabled) for 10 Named Users, and DSS Architect for one
Named User.
1.11 "Territory" means the world.
---------
1.12 "User Documentation" means the MicroStrategy user manual(s) and other
------------------
written materials on proper installation and use of the Products that are
normally distributed with the Products.
2. LICENSES
2.1 Rights Granted
A. Development License. Subject to the fees payable hereunder, MicroStrategy
hereby grants VAR a non-exclusive, non-transferable license to use the
Development Package in a non-production environment for the limited purpose of
establishing the compatibility of the Products included in the Development
Package with VAR's VALEX Response Analyzer product.
B. License to Market, Sublicense and Distribute. Subject to the fees payable
hereunder, MicroStrategy hereby grants VAR a license to market, sublicense and
distribute the Software Package and related User Documentation, including any
updates thereto provided to VAR as part of technical support services, in
conjunction with its VALEX Response Analyzer product in the Territory. One
Software Package (but no more than one) shall be sublicensed by VAR with each
copy of the VALEX Response Analyzer product licensed by VAR. This is not a
license to market, sublicense or distribute the Software Package or User
Documentation separately, and such action shall be a material breach of this
agreement. VAR shall sublicense and distribute the Software Package and User
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<PAGE>
Documentation solely through a written sublicense agreement ("End user License
Agreement") that includes, at a minimum, contractual provisions that:
(i) Restrict use of the Products to use for response attribution analysis
in the Response Analyzer module with the VALEX response-attribution related
data.
(ii) Restrict use of the Products to use in object code form.
(iii) License the Products on a Named User basis exclusively for End User's
internal business purposes.
(iv) Prohibit transfer or duplication of the Products except for temporary
transfer in the event of computer malfunction and duplication as part of routine
back-up procedures.
(v) Prohibit assignment of the Products without prior, written consent of
VAR.
(vi) Prohibit the sue of the Products by any third party except agents and
consultants of End User who have signed a confidentiality agreement that
requires at least a reasonable standard of care in the protection of
MicroStrategy Confidential Information.
(vii) Prohibit causing or permitting the reverse engineering, disassembly
or decompilation of the Products.
(viii) Prohibit title to the Products from passing to the End User.
(ix) Disclaim MicroStrategy's liability for damages, whether direct or
indirect, incidental or consequential, arising in connection with the End User
License Agreement.
(x) State that MicroStrategy makes no direct warranty of any kind to End
User under the End User License Agreement.
(xi) Prohibit disclosure to any third party of any results of any Benchmark
Tests of the Products.
(xii) Require End User to use a commercially reasonable degree of care to
protect the Confidential Information of MicroStrategy and prohibit End Users
from, directly or indirectly, (a) using any Confidential Information of
MicroStrategy to create any computer software program or user documentation that
is substantially similar to any MicroStrategy product or user documentation, or
(b) using or disclosing Confidential Information of MicroStrategy, except as
authorized by this Agreement.
(xiii) Disclaim MicroStrategy's liability for any taxes or duties, however
designated or levied (including, but not limited to, sales, use and personal
property taxes).
C. License to Demonstrate. MicroStrategy hereby grants to VAR a license to
demonstrate the Products in conjunction with the VALEX Response Analyzer Product
(the "Value-Added Solution") in the Territory. MicroStrategy shall provide VAR
copies of the Products for demonstration purposes as provided in Exhibit C. VAR
shall take all reasonable precautions against unauthorized disclosure or copying
of Products while the Value-Added Solution is being demonstrated. VAR shall
take all reasonable steps to ensure that the Products are inaccessible during
inactive demonstration times, delete any demonstration copies of the Products
installed on the potential customer's computers upon completion of any
demonstration at a customer site and further exercise commercially reasonable
efforts to ensure the security of the Products.
D. License to Grant Evaluation Licenses. MicroStrategy grants to VAR a license
to allow Evaluations of the Products in conjunction with the VALEX Response
Analyzer Product in the Territory, but only pursuant to a written agreement that
contains the restrictions set forth in Section 2.1. MicroStrategy shall provide
VAR with copies of the Products for Evaluations provided in Exhibit C. VAR
shall take al reasonable precautions against unauthorized disclosure or copying
of Products during Evaluations. When an Evaluation ends, if an End User does
not license the VALEX Response Analyzer Product and the Software Package, VAR
shall require that all copies of the Products be promptly removed from End
User's facilities and returned to VAR.
2.2 Restrictions
A. Copying of Products and User Documentation. VAR shall not make any copies
of the Products except as explicitly authorized by the Agreement. VAR shall
have no right to manufacture, modify or copy User Documentation unless
explicitly set forth herein.
B. Reverse Engineering. VAR shall not, either directly or through a third
party, reverse engineer, disassemble, or decompile any of the Products.
C. Unauthorized Use. VAR shall not rent the Products, provide third parties
with access to the Products through a service bureau or commercial time-sharing
arrangement or use the Products for outsourcing. VAR shall not use the Products
for third-party training, except as may be authorized herein.
3. RESERVATION OF RIGHTS
3.1 Right to Amend End User License Agreement Requirements. MicroStrategy
reserves the right to amend the list of provisions that must appear in the End
User License Agreement as set forth in Section 2.1 upon ninety (90) days'
advance, written notice; provided, however that such amended provisions shall
apply only to End User license Agreements executed by VAR subsequent to the
expiration of the ninety (90)-day notice period.
3.2 Other Rights. MicroStrategy reserves all rights not expressly granted in
this Agreement. Use of the terms "resell," "purchase" and "price" shall not
connote transfer of title or ownership.
4. PAYMENT AND PRICING
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4.1 Volume Commitment and Fees. VAR hereby commits to purchase thirty (30)
Software Packages for a fee of $212,868. The parties acknowledge that VAR has
paid and MicroStrategy has received $150,000 of such fee. VAR shall wire the
balance of $62,868 to MicroStrategy by July 30, 1999. Additional copies of the
Software Package are available to VAR for sublicensing under this Agreement for
a fee of $5,575 each. When purchasing additional Software Package licenses, VAR
may substitute other-than-English-language versions of a Product or double-byte
versions of a Product, if available, for the English-language-version of Product
included in the Software Package for a fee equal to $1,673.
4.2 Payment Terms.
A. Payment in United States Dollars. All payments by VAR under this Agreement
shall be made to MicroStrategy in United States dollars and shall be drawn on a
United States bank. No payment is refundable, except as may be provided herein.
B. Payment Due Date. Except as set forth in Section 4.1, payment is due within
thirty (30) days of receipt by VAR of the MicroStrategy invoice, which invoice
shall be sent concurrently with Product shipment.
C. Taxes. MicroStrategy's license fees do not include any national , state or
local sales, use, value-added or other taxes, customs duties or similar tariffs
and fees that MicroStrategy may be required to pay upon delivery of the Products
or upon collection of the license fees or otherwise. Should any tax, levy or
other fees be assessed, VAR agrees to pay such tax or levy and indemnify
MicroStrategy for any claim for such tax or levy demanded. VAR shall provide
MicroStrategy with copies of all VAR certificates.
5. ORDER FULFILLMENT AND DELIVERY
5.0 Delivery of Products. Immediately after execution of this Agreement,
MicroStrategy shall deliver to VAR the current versions of the Products in
respect of (a) the Development Package, (b) the demonstration license set forth
in Section 2.1(C), (c) the evaluation licenses set forth in Section 2.1 (D) and
(d) the initial thirty (30) Software Packages.
5.1 Placement of Orders. VAR shall submit orders to the attention of the
Contracts Analyst at the address provided in the MicroStrategy signature block.
5.2 MicroStrategy Acceptance. All orders for Products by VAR shall be
considered accepted unless MicroStrategy notifies VAR in writing of the
reason(s) for non-acceptance of such order within five (5) business days of
receipt of the order; provided, however, that MicroStrategy's acceptance shall
not be unreasonably with held. MicroStrategy shall deliver the then-current
version of the Products as specified in VAR's order (in the quantity, to the
ship-to address and by the delivery date, all as specified in such order).
5.3 Controlling Terms. The provisions of VAR's purchase order or other
ordering document, except those provisions relating to such matters as quantity
of Products being ordered, ship-to address and delivery date, shall not apply to
any order, regardless of whether MicroStrategy accepts the purchase order,
unless VAR's purchase order is signed by both VAR and MicroStrategy.
5.4 Cancellation. MicroStrategy reserves the right to cancel any orders placed
by VAR and accepted by MicroStrategy as set forth above, or to refuse or delay
shipment thereof, if VAR fails to make any payment as provided in this Agreement
or under the invoice payment terms or as otherwise agreed to in writing by the
parties; provided, however, that MicroStrategy shall not cancel orders or refuse
or delay shipment thereof for failure to pay unless MicroStrategy has first
provided VAR with written notice of its failure to pay and allowed VAR a cure
period of thirty (30) days.
5.5 Collateral. MicroStrategy shall provide reasonable quantities of Collateral
to VAR at no cost except shipping charges.
6. OBLIGATIONS AND COVENANTS
6.1 VAR's Obligations
A. Promotion Efforts. VAR shall promote and coordinate the distribution of the
Products in conjunction with the VALEX Response Analyzer product in the
Territory. Such promotion shall include, within six (6) months of the execution
of this Agreement, reference to the Products as being "best of breed" during
press/analyst briefings.
B. Sales and Consulting Staff. VAR shall train a sufficient number of
technical and sales personnel, including any VAR distributors, so that they are
able to: (I) inform End Users of the features and capabilities of the Products;
(ii) service and support the Products in accordance with VAR's obligations under
this Agreement; and (iii) otherwise carry out the obligations and
responsibilities of VAR under this Agreement.
C. Technical Expertise. VAR's staff shall be conversant with the technical
language conventional to MicroStrategy Products (including specifications,
features and benefits) so as to be able to explain in detail the use of the
Products in conjunction with the VALEX Response Analyzer product to End Users.
D. Sales Forecasts. VAR shall provide MicroStrategy with a forecast of license
sales for the Products upon reasonable request.
E. Prospect Account Information. VAR shall share prospect account information
with MicroStrategy sales professionals as reasonably requested.
F. Compliance with the Law. VAR shall comply with all applicable
international, national, state, regional and local laws and regulations in
performing its duties hereunder and in any of its undertakings with respect to
the Products. VAR acknowledges that all MicroStrategy Products and other
technical data, may be subject to export controls imposed by the U.S. Export
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Administration Act of 1979, as amended (the "Act"), and the applicable
regulations. VAR shall not export or re-export (directly or indirectly) any
Products without complying with the act and the regulations thereunder. VAR
shall not sign any End User License Agreement that would authorize use of the
Products in any location where use of the Products is restricted by the Act.
G. Costs and Expenses. Except as expressly provided herein or agreed to in
writing by MicroStrategy and VAR, VAR shall pay all costs and expenses incurred
in the performance of VAR's obligations under this Agreement.
H. Use of MicroStrategy Technology. VAR shall communicate to each End User
that the VALEX Response Analyzer utilizes MicroStrategy technology. VAR shall
also communicate to each End User that MicroStrategy technology can be sued to
create enterprise decision support applications, and encourage each End User to
meet with a MicroStrategy account executive to discuss additional uses of and
licensing opportunities for MicroStrategy technology.
I. Feature Restriction in DSS Web PE. VAR shall be responsible for disabling
the drill up, drill across, drill within, report wizard and saving features of
DSS Web PE when using DSS Web PE under its development, evaluation,
demonstration and sublicensing licenses solely through use of a methodology,
provided by MicroStrategy as set forth in Section 6.3(C) below. So long as VAR
properly applies the methodology, VAR shall have no responsibility or liability
in respect of any failure of the methodology to disable such features properly
or fully.
6.2 VAR Covenants. VAR shall : (I) refrain from deceptive, misleading or
unethical practices related to the Products; (ii) make no false or misleading
representations with regard to the Products; and (iii) refrain from publishing
or employing, or cooperating in the publication or employment of, any misleading
or deceptive advertising material with regard to the Products. Further, VAR
shall not knowingly take any action in conflict with the terms of this Agreement
or its obligations hereunder. In addition, during the term of this Agreement,
VAR shall not enter into any agreements that are substantially similar to this
one with Oracle, Arbor, Cognos, Business Objects or Information Advantage for
the right to sublicense business intelligence product competitive to the
Products in conjunction with the VALEX Response Analyzer module.
6.3 MicroStrategy Obligations.
A. Promotion of VAR. Within six (6) months of the execution of this Agreement,
MicroStrategy shall promote VAR as a preferred and best breed of CRM solution
partner during press/analyst briefings.
B. Compliance with Law. V shall comply with all applicable international,
national, state, regional and local laws and regulations in performing its
duties hereunder and in any of its undertakings with respect to the Products.
C. Feature-Disabling Methodology for DSS Web PE. MicroStrategy shall provide
VAR with a methodology for disabling the drill up, drill across, drill within,
report wizard and saving features of DSS Web PE by June 14, 1999.
6.4 MicroStrategy Covenants. MicroStrategy shall not knowingly take any action
in conflict with the terms of this Agreement or its obligations hereunder.
6.5 Joint Marketing Obligations. Within six (6) months of execution of this
Agreement, the parties (each at its own expense) shall : issue a joint press
release, jointly develop collateral on the MicroStrategy/VALEX solution, jointly
develop web-site information and links, jointly attend regional and national
sales meetings, jointly develop a solution overview white paper that discusses
the benefits of integrating DSS Analysis into a CRM solution and coordinate a
multi-city joint seminar series on the value of an integrated business
intelligence/CRM solution.
7. INTENTIONALLY OMITTED
8. TRAINING
8.1 Partner Certification Program. Within ninety (90) days of the execution of
this Agreement and at all times thereafter, VAR shall have on staff at least two
(2) employees who have completed the Gold Level Certification course
("Certification"). Tuition for the first two (2) VAR employees to undergo
Certification is included in the fee for the first thirty (30) Software Packages
set forth in Section 4.1. Tuition for additional VAR employees who undergo
Certification is not included in such fee. The fee for each additional VAR
employee who undergoes Certification shall be the fee for the Gold Level
Certification course set forth in Exhibit B, and shall be paid by VAR in
accordance with the payment terms set forth in Section 4.2. VAR shall be
responsible for all expenses incurred by its employees in connection with
Certification.
8.2 Training Consultants. Given reasonable advance notice, MicroStrategy shall
make its training consultants available to VAR to provide training on the
Products to VAR's employees. VAR shall pay MicroStrategy for such services at
the rates set forth in Exhibit B, plus reasonable travel and living expenses.
8.3 Professional Services. MicroStrategy shall make its consultants available
to provide professional services to VAR on mutually-agreeable terms at the rates
set forth in Exhibit B. MicroStrategy agrees to provide an associate consultant
to VAR for thirty(30), eight (8)-hour days to assist with matters related to the
use of the Products in conjunction with the VALEX Response Analyzer under the
terms and conditions of this Agreement, the fee for which is included in the fee
for the first thirty (30) Software Packages set forth in Section 4.1.
9. MAINTENANCE
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9.1 MicroStrategy's Technical Support Services. The fee for first-year
technical support with respect to each Software Package is included in the fee
for each Software Package. The initial technical support period for each
Software Package shall begin upon delivery of the Software Package to the
applicable End User. Such technical support services, including maintenance and
upgrade releases of the Products, shall be provided in accordance with
MicroStrategy's current Technical Support Policies and Procedures (attached
hereto as Exhibit D) or policies and procedures that are at least as favorable
to VAR ad those set forth in Exhibit D. Thereafter, VAR may elect to contract
for additional yearly technical support services. The annual fee for subsequent
periods of Technical Support shall be equal to eighteen percent (18%) of the net
price paid for the Software Package. Upon release of a new Product version, VAR
may request, and upon request from AR MicroStrategy shall provide, technical
support for the immediately preceding version of such Product for up to one (1)
year after the release of the new version at no additional cost so long as VAR
is current in payment of its technical support fees.
9.2 Support Services in the Event of Termination. In the case of termination
of this Agreement, so long as VAR has paid for technical support services,
MicroStrategy shall continue to provide technical support services to VAR for
the balance of any existing technical support period. After termination of this
Agreement, VAR may choose to purchase technical support from MicroStrategy under
a separate agreement for a period of up to one (1) year. Subsequently,
MicroStrategy shall make technical support services available directly to the
End User. MicroStrategy agrees that the fee it charges for technical support it
provides directly to End Users shall not increase by more than twenty percent
(20%) per year in the first two years during which it provides support directly
to End Users.
9.3 Support Services to End Users of VAR. VAR shall provide any maintenance
and support services required by its End Users, including telephone and, if
provided to End Users for VAR's VALEX software, Internet-based support. Unless
otherwise agreed between MicroStrategy and VAR, VAR shall not place its End
Users in direct contact with MicroStrategy for support and/or maintenance of
either the Products or the VAR Solution.
10. FEES, RECORDS AND AUDIT
10.1 Records. VAR shall keep complete and accurate records of all Product
licenses sold. These records shall include, without limitation, the name of the
Product, date of licensing, the number of licenses sold and the complete name,
address and other contact information for each End User of the Products (the
"Records"). VAR shall maintain, for at least two (2) years after expiration or
termination of this Agreement, its Records, contracts and accounts reasonably
relating to the sale or license of the Products under this Agreement. VAR shall
permit examination thereof by authorized representatives of MicroStrategy upon
reasonable notice, during VAR's normal business hours, at all reasonable times
during the term of this Agreement and for such two (2) year period thereafter.
MicroStrategy may not audit VAR more than once annually, unless irregularities
are discovered.
10.2 Reporting Obligations. Within five (5) business days after the end of
each month, VAR shall provide MicroStrategy with a written report summarizing
the Records related to sublicensing transactions concluded during such month.
10.3 Notification. VAR shall: (i) report promptly to MicroStrategy all claimed
or suspected defects in the Products and (ii) notify MicroStrategy in writing of
any change in VAR's voting control or transfer of all or substantially all of
VAR's assets within thirty (30) days of such occurrence.
11. LIMITATION OF WARRANTY AND LIABILITY
11.1.1 LIMITED WARRANTY
A. Media Warranty. MicroStrategy warrants to VAR that the media containing the
Products sublicensed to a particular End User is free from defects in material
and workmanship for a period of ninety (90) days from the date of delivery to
such End User. MicroStrategy also warrants to VAR that the media containing the
Products licensed to VAR for use in respect of the Development Package,
evaluation license and demonstration license is free from defects in material
and workmanship for a period for ninety (90) days from the date of delivery to
VAR. For any breach of these warranties, VAR's exclusive remedy and
MicroStrategy's entire liability shall be replacement of defective media
returned within the warranty period.
B. Product Warranty. MicroStrategy warrants to VAR for a period of ninety (90)
days from the date of delivery of the Products to a particular End User that,
with respect to such End User, each unmodified Product sublicensed to such End
User will perform in substantial conformance with the functions described in the
User Documentation. In addition, MicroStrategy warrants to VAR through June 30,
2000 that the unmodified Products will not fail or produce incorrect results
when processing with four (4)-digit dates for the year 2000 and later years;
provided, however, that MicroStrategy makes no warranty with respect to any such
failure or incorrect result that may arise due to: (i) the quality of the data
sought to be processed with the Software; (ii) the effect of other software not
licensed by MicroStrategy to VAR or developed by MicroStrategy for VAR; or (iii)
the use of the software in an operating environment or on a platform not
specified by MicroStrategy. Product warranty claims must be brought within the
warranty period. For any breach of this warranty, VAR's exclusive remedy and
MicroStrategy's entire liability shall be, at MicroStrategy's sole discretion,
the correction of the Product errors that cause breach of warranty, replacement
of the Product, or return of the fees paid to MicroStrategy for the Product upon
VAR's return of the Product to MicroStrategy.
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C. Disclaimer of Other Warranties. THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN
LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
MICROSTRATEGY DOES NOT WARRANT THAT USE OF PRODUCTS WILL BE UNINTERRUPTED OR
ERROR FREE, OR THAT THE FUNCTIONS CONTAINED IN PRODUCTS WILL MEET THE USERS'
REQUIREMENTS.
11.2 Limitation of Liability. EXCEPT AS SET FORTH IN SECTION 12 BELOW,
MICROSTRATEGY'S LIABILITY FOR DAMAGES UNDER THIS AGREEMENT SHALL BE LIMITED TO
MONETARY DAMAGES, AND THE AGGREGATE AMOUNT THEREOF FOR ALL CLAIMS RELATING TO
ANY PARTICULAR PRODUCT SHALL IN NO EVENT EXCEED AN AMOUNT EQUAL TO THE AGGREGATE
FEES PAID BY VAR FOR SUCH PRODUCT. THE WARRANTIES GRANTED TO VAR HEREIN ARE
PERSONAL TO VAR AND SHALL NOT ACCRUE TO ANY THIRD PARTY INCLUDING ANY END USER.
UNDER NO CIRCUMSTANCES SHALL MICROSTRATEGY BE LIABLE FOR WARRANTIES GRANTED BY
VAR IN EXCESS OF THOSE GRANTED TO VAR HEREIN. EXCEPT WITH RESPECT TO ANY THIRD-
PARTY CLAIM FOR INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR
AMAGES FOR LOSS FO PROFITS, REVENUE, DATA OR USE, THAT IS PART OF A CLAIM FOR
WHICH A PARTY HAS AN INDEMNIFICATION OPLIGAGION UNDER SECTION 12, NEITHER PARTY
SHALL BE LIABLE TO THE OTHER OR TO ANY THIRD PARTY UNDER ANY CIRCUMSTANCES FOR
ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS
OF PROFITS, RVENUE, DATA OR SUE, EVEN IF THE PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
11.3 Reliance on Disclaimers. Each party acknowledges that the other party has
set its prices and/or entered into this Agreement in reliance on the disclaimers
of liability, the disclaimers of warranty and the limitations of liability set
forth in this Agreement and that the same form an essential basis of the bargain
between the parties.
12. INDEMNIFICATION
12.1 Indemnification of VAR. MicroStrategy shall defend and indemnify VAR
(including paying all reasonable attorney's fees and costs of litigation)
against and hold VAR harmless from any and all third-party claims that the
Products infringe a patent, trade secret or copyright of any third party in the
Territory, provided that VAR: (i) promptly notifies MicroStrategy in writing
such a claim, (ii) allows MicroStrategy to have sole control of the defense and
all related settlement negotiations, and (iii) provides MicroStrategy with the
information, authority and assistance, at MicroStrategy's expense, necessary to
perform MicroStrategy's obligations under this Section. In the event the
Products are held or believed to infringe, MicroStrategy may, at its sole
option, (I) obtain for VAR a license to continue using the Product, (ii) replace
or modify the Product so that it becomes noninfringing and is substantially
similar in functionality and operation or (iii) if neither (I) nor (ii) can be
reasonably effected by MicroStrategy, refund to VAR an amount equal to the
prices paid for the Products less twenty percent (20%) of the prices paid for
each year that has passed since the Products were delivered to VAR, provided
that such Products are returned to MicroStrategy in an undamaged condition and
all licenses to such Products are terminated. MicroStrategy acknowledges and
agrees that its indemnity obligations as set forth above shall apply to any End
User claim to VAR for indemnity under the End User License Agreement; provided
that MicroStrategy shall not be liable to VAR for VAR's losses, damages,
liabilities, or expenses in respect of any End User claim to the extent VAR's
indemnity obligation to such End User exceeds MicroStrategy's indemnity
obligations hereunder.
12.2 Excluded Claims. Notwithstanding Section 12.1 above, MicroStrategy shall
not be liable to VAR for any claim caused by the combination, operation or sue
of any Product with equipment, data or programming not supplied by MicroStrategy
(including the VALEX Response Analyzer product) or for other than an intended
purpose as set forth in the User Documentation, or arising from any alteration
or modification of the Products.
12.3 Limitation. THE PROVISIONS OF THIS SECTION SET FORTH THE ENTIRE LIABILITY
OF MICROSTRATEGY AND THE SOLE REMEDIES OF VAR WITH RESPECT TO INFRINGEMENT AND
ALLEGATIONS OF INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OR OTHER PROPRIETARY
RIGHTS OF ANY KIND IN CONNECTION WITH THE INSTALLATION, OPERATION, DESIGN,
DISTRIBUTION OR SUE OF MICROSTRATEGY PRODUCTS.
12.4 Indemnification of MicroStrategy.
VAR shall defend and indemnify MicroStrategy (including paying all reasonable
attorney's fees and costs of litigation) against and hold MicroStrategy harmless
from any and all claims by any other party resulting from VAR's negligent or
tortious acts, omissions or misrepresentations relating to the marketing,
sublicensing, distribution, demonstration, evaluation or use of the Products,
and any and all claims by any other party resulting from VAR's warranty of the
Products in a manner that is more favorable than the manner in which
MicroStrategy warrants the Products to VAR in Section 11 of this Agreement,
regardless of the form of action of provided that MicroStrategy : (i) promptly
notifies VAR in writing of any such claim, (ii) allows VAR to have sole control
of the defense and all related settlement negotiations, and (iii) provides VAR
with the information, authority and assistance necessary to perform VAR's
obligations under this Section.
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13. CONFIDENTIAL AND PROPRIETARY INFORMATION
13.1 Confidentiality. The parties agree to hold each other's Confidential
Information in confidence during the term of this Agreement and for a period of
five (5) years after termination of this Agreement. The parties agree that,
unless required by law, they shall not make each other's Confidential
Information available in any form to any third party or use each other's
Confidential Information for any purpose other than the implementation of this
Agreement. The receiving party shall not, either directly or through any third
party, use any Confidential Information of the disclosing party to create,
modify or enhance any computer software program or user documentation that is
substantially similar to any Confidential Information of the disclosing party.
The obligation of the parties not to disclose information shall not apply to
information that: (i) is or becomes a part of the public domain through not act
or omission of the other party; (ii) was in the other party's lawful possession
prior to the disclosure and had not been obtained by the other party either
directly or indirectly from the disclosing party; (iii) is lawfully disclosed to
the other party by a third party without restriction on disclosure; or (iv) is
independently developed by the other party as demonstrated by documentary
evidence. In the event that the receiving party becomes aware of an
unauthorized use or disclosure of Confidential Information of the disclosing
party, the receiving party shall promptly inform the disclosing party and
provide reasonable assistance to the disclosing party, at the disclosing
party's expense, in the investigation and prosecution of any such unauthorized
disclosure.
13.2 Authorized Disclosure. Either party may disclose the existence of this
Agreement, but not its content, without the prior consent of the other party.
13.3 Copyright and Trademark Notices. The use of MicroStrategy's trademark(s),
brand-names, and other notices of proprietary rights shall be in the manner
reasonably specified by MicroStrategy from time to time. VAR agrees not to
alter, erase, deface or overprint any such notice on anything provided by
MicroStrategy VAR shall include the appropriate trademark notices when
referring to any MicroStrategy Product in advertising and promotional materials.
13.4 Limited Trademark License. Subject to the restrictions herein,
MicroStrategy hereby grants to VAR a limited, revocable license to us the trade
names, trademarks, service marks, logos and designations associated with the
Products solely in connection with the activities of VAR that are permitted
under this Agreement. VAR shall submit to MicroStrategy for approval, such
approval not to be unreasonably withheld, prior to use, distribution, or
disclosure, any advertising, promotion or publicity in which the trade names,
trademarks, service marks, logos or designations of MicroStrategy are used.
MicroStrategy shall have the right to require, at its sole reasonable
discretion, the correction or deletion of any misleading, false or objectionable
material from any such advertising, promotion or publicity.
13.5 No Proprietary Rights. VAR has paid no consideration for the use of
MicroStrategy's trade names, trademarks, logos or designations, and nothing
contained in this Agreement will give VAR any ownership right, title or interest
in any of them other than as explicitly set forth in Section 13.4. VAR
acknowledges that MicroStrategy owns and retains all trade names, trademarks,
service marks, logos, designations, copyrights, and patent and moral rights in
or associated with the Products. VAR shall not have or acquire by virtue of
this Agreement or otherwise any vested, proprietary or other right in the
promotion of MicroStrategy Products or in "goodwill" created by its efforts
hereunder. All such "goodwill" shall accrue to MicroStrategy.
13.6 No Continuing Rights. Upon expiration or termination of this Agreement,
VAR shall, within fifteen (15) days of the effective date of such expiration or
termination, cease all display, advertising and use of all MicroStrategy
trademarks, trade names, logos or designation that are, or any part of which
are, similar to or confusing with any trademarks, trade names, logos or
designations associated with MicroStrategy.
13.7 Obligation to Protest. VAR agrees to use commercially reasonable efforts
to protect MicroStrategy's proprietary rights and to cooperate with
MicroStrategy in MicroStrategy's efforts to protect its proprietary rights. VAR
agrees to notify MicroStrategy promptly of any known or suspected breach or
infringement of MicroStrategy's proprietary rights that comes to VAR's
attention.
14. TERM AND TERMINATION
14.1 Term. This Agreement shall be effective as of the Effective Date, and
shall have a term of one (1) year.
14.2 Termination for Cause. A party may terminate this Agreement upon written
notice at any time prior to the expiration of its stated tern if: (i)
intentionally omitted; (ii) a receiver is appointed for the other party or any
of its property; (iii) the other party makes an assignment for the benefit of
its creditors; (iv) any proceedings are commenced by, for or against the other
party under any bankruptcy, insolvency or debtor's relief law; (v) the other
party is liquidated or dissolved; or (vi) the other party is in default with
respect to any material term or condition of this Agreement or any other
agreement between the parties and such failure or default continues unremedied
for a period of thirty (30) days following the defaulting party's receipt of
written notice of such failure or default.
14.3 Orders After Termination Notice. If any notice of termination of this
Agreement is given by MicroStrategy, MicroStrategy shall be entitled to reject
all or part of any orders received from VAR after notice but prior to the
effective date of termination if availability of Products is insufficient at
that time to fully meet the needs of MicroStrategy and its customers. If any
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notice of termination of this Agreement is given by VAR, MicroStrategy shall
fulfill all orders received from VAR up to and including the effective date of
termination, subject to Section 5.2.
14.4 Effect of Termination or Expiration. Upon termination of this Agreement,
VAR shall return to MicroStrategy, or destroy and certify in writing to
MicroStrategy the destruction of, all MicroStrategy Confidential Information
(including inventory) and all Collateral in VAR's possession.
14.5 No Damages for Termination or Expiration. NEITHER PARTY SHALL BE LIABLE
TO THE OTHER FOR DAMAGES OF ANY KIND, INCLUDING INCIDENTAL OR CONSEQUENTIAL
DAMAGES, SOLELY BECAUSE OF TERMINATION OR EXPIRATION. VAR acknowledges that (i)
VAR has no expectation and has received no assurances that any investment by VAR
in the promotion of MicroStrategy Products will be recovered or recouped or that
VAR will obtain any anticipated amount of profits by virtue of this Agreement.
THE PARTIES ACKNOWLEDGE THAT THIS SECTION HAS BEEN INCLUDED AS A MATERIAL
INDUCEMENT FOR THEM TO ENTER INTO THIS AGREEMENT AND THAT THE PARTIES WOULD NOT
HAVE ENTERED INTO THIS AGREEMENT BUT FOR THE LIMITATIONS OF LIABILITY AS SET
FORTH HEREIN.
14.6 Survival. MicroStrategy's rights to payment of, and VAR's obligations to
pay MicroStrategy, all amounts due hereunder, as well as VAR's obligations under
Sections 10.1, 12,13,14, and 15 and MicroStrategy's obligations under Sections
9.2, 11, 12, 13, 14 and 15 shall survive termination or expiration of this
Agreement.
15. GENERAL
15.1 Independent Contractors. Both parties to this Agreement are independent
contractors, and shall so represent themselves to all other parties. There is
no relationship of partnership, agency, employment, franchise, or joint venture
between the parties. Neither party has any express or implied right or
authority to bind the other or incur any obligation on behalf of the other. In
particular, nothing herein shall be interpreted as making VAR the commercial
agent of Micro Strategy.
15.2 Assignment. This Agreement shall not be assigned by either party without
the prior, written consent of the other party; provided, however, that neither
party shall unreasonably withhold its consent to the assignment of this
Agreement to the successor-in-interest of the other party. VAR may only consent
to the assignment of the Products by an End User who has licensed the Products
under an End User License Agreement if the party to whom the assignment is made
agrees in writing to be bound by the terms of the End User License Agreement.
VAR shall provided written notice of any assignment by an End User to
MicroStrategy.
15.3 Force Majeure. Neither party shall be responsible for failure of
performance due to causes beyond its control, including, but not limited to,
acts of God or nature, labor disputes, actions of any Government agency, and
shortage of materials. This provision shall not apply to any obligation to pay
money to the other party under this Agreement.
15.4 Notices. All notices, including notices of address change, required to be
sent under this Agreement shall deemed to have been given when mailed by first
class mail to the relevant address listed in the signature block of this
Agreement or the address stated in any applicable notice of change of address.
To expedite order processing, VAR agrees that MicroStrategy may treat documents
faxed by VAR to MicroStrategy as original documents; nevertheless, either party
may require the other to exchange original, signed documents.
15.5 Waiver. The waiver by either party of any default or breach of this
Agreement (a) shall be in a writing signed by the waiving party and (b) shall
not constitute a waiver of any other or subsequent default or breach. Except
for actions for nonpayment or material breach of MicroStrategy's proprietary
rights in the Products or for indemnification of VAR by MicroStrategy for
infringement by the Products, no action, regardless of form, arising out of the
Agreement may be brought by either party more than one (1) year after the cause
of action has accrued.
15.6 Severability. If any provision of this Agreement is held to be invalid or
unenforceable, the remaining portions of this Agreement shall remain in full
force.
15.9 Entire Agreement. This Agreement constitutes the complete agreement
between the parties and supersedes all prior agreements and representations,
written or oral, concerning the subject matter of this Agreement. This
Agreement may not be modified or amended except in a writing signed by a duly-
authorized representative of each party. No other act, document, usage or
custom shall be deemed to amend or modify this Agreement.
15.10 Section Headings. Section headings are for purposes of convenience and
shall not be considered part of this Agreement.
15.11 Governing Laws. This Agreement, and all matters arising out of or
relating to this Agreement, shall be governed by the laws of the Commonwealth of
Virginia, excluding its conflicts laws. In the event of any conflict between
foreign laws, rules and regulations and those of the United States, the laws,
rules and regulations of the United States shall govern. The United Nations
Convention on Contracts for the International Sale of Goods shall not apply to
this Agreement.
15.12 Due Executions. The signatory executing this Agreement on behalf of each
party represents and warrants that he or she is duly-authorized to do so.
Page 9
<PAGE>
MICROSTRATEGY INCORPORATED EXCHANGE APPLICATIONS, INC.
By: _____________________________ By: [Illegible]
-------------------------
Name: ___________________________ Name: _________________________
Title: __________________________ Title: ________________________
Date: ___________________________ Date: ________________________
Page 10
<PAGE>
EXHIBIT A
DEVELOPMENT PACKAGE AND TERRITORY
o Development Package. The Development Package includes the following
MicroStrategy products, along with related User Documentation, for the
number ofNamed Users specified.
DSS Web PE (data surf feature only) for 10 Named Users
DSS Server for 10 Named Users
DSS Architect for 10 Named Users
DSS Agent for 10 Named Users
MicroStrategy shall waive the license fee for the Development Package
and the annual maintenance fee for the Development Package for the
first technical support period (April 1, 1999 through March 31, 2000).
The annual maintenance fee for the Development Package for the
technical support period beginning on April 1, 2000 and running through
March 31, 2001, as well as for subsequent technical support periods,
shall be $11,792.
During the term of the Agreement, MicroStrategy shall offer VAR the
option of participating in any beta programs run by MicroStrategy with
respect to the software included in the Development Package.
Page 11
<PAGE>
EXHIBIT B
FEES
Education Price Schedule
STANDARD COURSES
<TABLE>
<CAPTION>
Course Price Per Student Price Per Day at Duration
at MicroStrategy Customer Site
Site (limit 15 students)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Introduction to DSS $1,495 Not Available 2 days
and Data
Warehousing
- ---------------------------------------------------------------------------------
Fundamentals of $1,495 $4,000 plus 2 days
DSS Agent and expenses
Architect
- ---------------------------------------------------------------------------------
Data Warehousing $1,495 $4,000 plus 2 days
Data Modeling expenses
and Design
- ---------------------------------------------------------------------------------
Enterprise DSS-- $2,095 $4,000 plus 3 days
Managing Your expenses
Environment
- ---------------------------------------------------------------------------------
Advanced DSS $1,495 $4,000 plus 2 days
Agent and Architect expenses
- ---------------------------------------------------------------------------------
DSS Fast Track $2,995 $4,000 plus 5 days
expenses
- ---------------------------------------------------------------------------------
Building $1,495 $4000 plus 2 days
Applications Using expenses
DSS Objects
- ---------------------------------------------------------------------------------
Building $2,095 $4,000 plus 3 days
Applications Using expenses
the DSS Web API
- ---------------------------------------------------------------------------------
DSS $1,495 $4,000 plus 2 days
Implementation expenses
Methodoloy and
Risk Management
- ---------------------------------------------------------------------------------
DSS Engine SQL $1,495 $4,000 plus 2 days
Generation expenses
- ---------------------------------------------------------------------------------
DSS $ 750 $4,000 plus 1 day
Troubleshooting expenses
- ---------------------------------------------------------------------------------
</TABLE>
CERTIFICATION COURSES
<TABLE>
<CAPTION>
Course Price Per Student Price Per Day at Duration
at MicroStrategy Customer Site
Site (limit 15 students)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Train the Trainer $2,095 $4,000 plus 3 days
for DSS Agent expenses
- ---------------------------------------------------------------------------------
Gold Level $3,000 $4,000 plus 5 days
Certification expenses
- ---------------------------------------------------------------------------------
MCDSE* $5,000 $4,000 plus 15 days
(Platinum Level) expenses
Certification
- ---------------------------------------------------------------------------------
*MCDSE-MicroStrategy Certified Decision Support Engineer
</TABLE>
For detailed descriptions of all education courses and certifications contact
your Account Manager.
VAR is entitled to a thirty percent (30%) discount off the prices identified
under the Standard Course Listings in the Education Price Schedule. This is the
only discount that applies to Standard Course Listings and is in lieu of any
other discounts offered to VAR. Certification Courses are not subject to any
VAR discount.
Courseware Licensing
VAR has the option to license MicroStrategy courseware, both instructor-led and
web-based templates. Licensing courseware includes electronic versions of
course manual or web-based tutorial, exercises, and databases where applicable.
MicroStrategy courseware is subject to product discounts. Courseware is
licensed on a Named User basis and subject to the MicroStrategy Product
licensing restrictions set forth in the VAR Agreement.
Page 12
<PAGE>
COURSEWARE CUSTOMIZATION
MircroStrategy Education Courses, including instructor-led and web-based
training applications, can be customized by a MicroStrategy training consultant
at a fee of $2,500 per day, plus reasonable travel and living expenses. This
price is not subject to VAR discount.
2.0 User Documentation Pricing. The User Documentation is included with each
copy of the software. Additional copies of the User Documentation may be
purchased by VAR for $49 per manual.
3.0 Consulting Price Schedule
<TABLE>
<S> <C> <C>
Assoc. Consultant $200 per hour
- --------------------------------------------
Sr. Consultant or $225 per hour
Manager
- --------------------------------------------
Senior Manager $250 per hour
- --------------------------------------------
</TABLE>
VAR is entitled to a twenty present (20%) discount off the prices identified in
the Consulting Price Schedule.
Page 13
<PAGE>
EXHIBIT C
VAR DEMONSTRATION AND EVALUATION LICENSES
MicroStrategy authorizes VAR to use up to twenty (20) copies of the Products in
connection with its license to demonstrate the Products. MicroStrategy shall
provide VAR with up to one (1) copy of each Product for demonstration use. VAR
may make copies of the Products for demonstration use so long as the total
number of copies of each Product being used in connection with the license to
demonstrate the Products does not exceed twenty (20).
MicroStrategy authorizes VAR to use up to ten (10) copies of the Products in
connection with its license to grant evaluation licenses. MicroStrategy shall
provide VAR with up to one (1) copy of each Product for evaluation use. VAR may
make copies of the Products for evaluation use so long as the total number of
copies of each Product being used in connection with the license to grant
evaluation licenses does not exceed ten (10).
Page 14
<PAGE>
EXHIBIT D
TECHNICAL SUPPORT POLICES AND PROCEDURES
For customers who purchase Technical Support services for software products it
has licensed from MicroStrategy (the "Products"), MicroStrategy provides
maintenance and support, and free Product Updates (as such term is defined in
the Software License Agreement between the customer and MicroStrategy). Support
services include answering questions with regard to the operation of the
software and troubleshooting. Support services do not include services which,
in the usual course of MicroStrategy's business, are provided to customers as
consulting services. Such consulting services include, but are not limited to,
custom application development, date warehouse design, requirements analysis,
and database design.
TECHNICAL SUPPORT
Telephone support from the United States office may be obtained by a Customer's
Support Liaison (as defined below) in the following ways:
o Phone: (703) 848-8700
9:00 A.M. - 7:00 P.M. EST;
1400-000 GMT
Monday through Friday on non-holidays
o Fax: (703) 848-8710
o E-mail: [email protected]
o Message: (703) 848-8709
If a customer is unable to reach MicroStrategy Technical Support by phone, a
voice mail message may be left. When leaving a voice mail message, the
following information should be stated:
o Name
o Company
o Phone Number
o MicroStrategy software Product(s) being used, including software
version and Product registration numbers
o Fax Number
o E-mail Address
Upon logging an issue, a customer will receive an issue identification number
for future reference.
A "Support Liaison" is defined as a person whom Customer has designated as a
point-of-contact with MicroStrategy's support personnel. The Customer must
designate a single employee to serve as the Support Liaison. Customer may
change its Support Liaison on occasion, if necessary, so long as it provides
written notice to MicroStrategy of such change.
TECHNICAL SUPPORT OBJECTIVES
MicroStrategy's Technical Support staff is committed to responding to and
resolving customer issues in a manner which satisfies our customers. The
objectives of Technical Support are the following:
o Keeping customers informed of the status of their issues as those
issues are being resolved.
o Keeping customers informed of the status of upcoming production
releases and maintenance versions.
o Providing customers with a mechanism for escalating issues.
Our policy is to meet the following response objectives:
o Answering customer contacts directly, whenever possible; otherwise,
acknowledging all contacts within 2 hours.
o Responding to each issue immediately whenever possible; and
otherwise, responding to the customer within 1 business day, with
details on MicroStrategy's progress in resolving the issue and/or
intended plan of action.
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<PAGE>
o Notifying each customer within 1 business day when the status of any
of that customer's feature requests or ongoing issues changes, or
when a fix for any of the customer's issues or feature requests is
ready in a new version of the software;
o Consider an issue to be resolved only when the customer understands
and agrees with the actions that have been taken and the
consequences of those actions.
PRIORITIZATION OF ISSUES
Priority levels are assigned to each issue during the initial call, whenever
possible. Our objective is to assign a prioritization level to all issues
within one business day. These prioritization levels are used to ensure that
important issues are resolved quickly and determine the escalation procedures
for an issue.
Priority 1: A production system is down or severely impacted as a result of a
MicroStrategy software Product. Examples include, General Protection Faults
(crashes), corrupted or incorrect data, or connection problems due to the
software.
Priority 2: Customer has a serious issue with a feature necessary to its work
for which it has discovered no workaround and which completely prevents the
feature from being used.
Priority 3: Customer has a serious issue with a feature for which a work-around
exists, a minor issue with a feature for which no work-around exists or a
critical usage question.
Priority 4: Customer has a minor issue with a feature for which a work-around
exists, a usage question or a high priority enhancement request.
Priority 5: Customer has a minor question, issue or enhancement request.
ESCALATION PROCEDURES
MicroStrategy Technical Support will attempt to resolve, as quickly as possible,
all technical support issues and questions regarding the Products. If, however,
the customer is not satisfied with the responsiveness or the quality of the
Support received, it may indicate a desire to escalate the priority level of an
issue.
Escalation Level 1: Incoming customer call is received by MicroStrategy
Technical Support and logged. A Technical Support Representative attempts to
resolve the issue. Feature requests, questions, and known bugs may be
immediately resolved.
Escalation Level 2: A Technical Support Engineer is assigned
responsibility for the issue and attempts to resolve the issue to the
satisfaction of the customer.
Escalation Level 3: The issue is escalated to the Technical Support
Team Lead.
Escalation Level 4: The issue is escalated to either the Field
Engineering, Development or Consulting departments for resolution.
Escalation Response
MicroStrategy's goal is to meet the following response times:
Priority 1 Issues:
Escalated to Level 1 within 2 Hours.
Escalated to Level 2 within 4 Hours.
Escalated to Level 3 within 24 Hours.
Escalated to Level 4 within 48 Hours.
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<PAGE>
Priority 2 Issues:
Escalated to Level 1 within 2 Hours.
Escalated to Level 2 within 24 Hours.
Escalated to Level 3 within 48 Hours.
Escalated to Level 4 within 5 Days.
Priority 3 Issues:
Escalated to Level 1 within 2 Hours.
Escalated to Level 2 within 48 Hours.
Escalated to Level 3 within 5 Days.
Escalated to Level 4 during monthly status report.
Priority 4 Issues:
Escalated to Level 1 within 2 Hours.
Escalated to Level 2 within 5 Days.
Escalated to Level 3 during monthly status report.
Escalated to Level 4 during monthly status report.
Priority 5 Issues:
Escalated to Level 1 within 2 Hours.
Escalated to Level 2 within 10 Days
Escalated to Level 3 during monthly status report.
Escalated to Level 4 during monthly status report.
A customer may request escalation of an issue to a higher priority level if any
of the following occurs:
o The MicroStrategy Technical Support
staff is not adhering to the policies outlined in this Technical Support
Policy.
o Customer feels that an issue was assigned a lower priority than it
deserves,
o Customer feels that escalation is warranted by special circumstances.
Customer may request escalation of an issue to a higher priority level by
calling the support line and asking to discuss the matter with the Technical
Support Manager.
PRODUCT UPGRADES
Technical Support includes free Product Updates (as such term is defined in the
Software License Agreement between the customer and MicroStrategy).
Page 17
<PAGE>
Confidential Materials ommitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omission.
Exhibit C
Work Plan
This Exhibit A sets forth the development objectives and resource commitments of
the parties.
A. Resource Commitments
As part of this Agreement, MicroStrategy will provide an average over any six
(6) month period, of at least [**] the Developed Products. Exchange Applications
will provide at least [**] and [**] to ensure relevant and successful product
releases. The parties acknowledge and agree that there will be some time (not to
exceed 30 days) to get all the personnel on board and working.
While the skill profile may vary over the term of the agreement, MicroStrategy
initially will supply people with the following skills breakdown:
[**]
[**]
[**]
[**]
[**]
[**]
[**]
B. Product Development Overview
The dedicated resources outlined above will strive to develop world class CRM
applications that can be distributed independently of or in combination with
[**] products. The product development process will be prioritized to achieve
the following objectives:
1. Creation [**] and applications to the following [**]. The data models will
include schemas to support the [**] to include [**] and standard industry
customer data. The applications will include (without limitation) [**] and
[**] and [**] and [**], and [**].
2. Provide a full demonstration software environment to be run at Exchange
Applications facilities and demonstrated by remote sales personnel.
3. Provide platform support for [**].
4. Ensure Internationalization of the full application code base (including
MicroStrategy applications) which will include [**] Provide resources to
localize the application as required.
5. Provide the following eCRM specific functionality:
- Develop [**] between [**] and [**].
- Provide [**] control. This capability will allow for [**]; and
must also be [**].
1
<PAGE>
Confidential Materials ommitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
- Create [**] campaigns. This would allow for fitting of a [**] to
the [**].
- Provide [**]
6. Define [**] or incorporate a [**] for [**] between this application, [**].
7. Integrate [**] with that of [**].
8. Complete [**] that is [**] to provide [**] for a [**]. The [**] definition
and report [**].
9. Integrate [**].
The parties may also consider implementing the following functionality in the
latter part of the initial term if the parties determine the functionality is
feasible and makes commercial sense. These will not be part of the initial
implementation.
1. Design [**] and reporting [**] as an [**].
2. Establish [**] an [**] analysis and [**] analysis.
3. Develop [**] data [**] data.
4. Integrate [**] this [**] and other [**].
5. Integrate this [**] with [**] to provide a vehicle for [**] and [**].
6. Design [**] that [**] or [**] data to [**]. These packaged
solutions may also utilize [**]. Following is list of applications and
initial prioritization:
a. [**] and [**] through [**].
b. [**] and [**], etc.
C. [**] notice, etc.
2
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
C. Product Development Short Term Milestones
The dedicated resources will work towards the following initial deliverables.
The details behind these deliverables will be established by the Steering
Committee.
Number of Days
After Execution Deliverable Milestone
--------------- ---------------------
[**] [**] complete
[**] complete
[**] complete
[**] complete
[**] [**] complete
[**] complete
[**] complete
D. Product Development Medium-Term Milestones
The parties agree to use commercially reasonable efforts to work towards meeting
the following additional milestones, provided that Exchange Applications
constrains the scope so that it is feasible to complete the project within these
timeframes of the milestones.
Number of Days
After Execution Deliverable Milestone
--------------- ---------------------
[**] [**] complete
[**] [**] complete
[**] [**] complete
[**] complete
[**] [**] platforms
3
<PAGE>
Exhibit D
Steering Committee
This Exhibit 8 sets forth the general operating parameters of the Steering
Committee contemplated by the parties.
A. General Philosophy and Intent
The development effort outlined in this Agreement, will be jointly managed by a
four person steering committee. MicroStrategy and Exchange Applications will
each provide two members to participate in the steering committee. This
committee will meet weekly and will have the responsibility and complete
authority for delivering on product commitments.
The steering committee will establish and approve an oversight process to define
mechanisms for participation in and approval of key strategy, product and
management decisions. The committee will appoint a leader of each of the
processes from the organization (either MicroStrategy or Exchange Applications)
as identified below.
In the event that the steering committee does not reach agreement on the
approval, content or strategy of specific deliverables, the lead organization
for each process will have final rights to define the deliverable. The
organization identified as lead for each process will have final say in the
event that the steering committee deadlocks on specific decisions.
B. Process
Overall this team will be responsible for all processes associated with delivery
of Developed Products including the following processes:
Process 1 (Lead Exchange Applications and MicroStrategy) Product direction and
planning (including requirements and functional prioritization)
- Exchange will provide a team leader to establish and manage a standard
product planning process to include the following process steps:
- Vision Solution Definition
- Product description and objectives
- Product Requirements
- Competitive Analysis
- Plan Approval and Coordination
- Product Plan Change Management
- Specification Approval
- Each quarter, this team will define deliverables and milestones for the
following quarter's delivery to be used as a measure for successful
progress for this overall relationship.
- Technical and functional standards definition and functional and
technical specification approval.
Process 2 (Lead Exchange Applications) Release management and final release
approval
- Exchange will assign the team lead for this activity and define the
standard processes and deliverables on an ongoing basis.
Process 3 (Lead MicroStrategy) Staffing and Technical Operations
- MicroStrategy will assign a senior development manager to lead the
design and development processes. MicroStrategy will allow Exchange to
interview and approve candidates for this role within seven days of the
agreement of the OEM agreement.
<PAGE>
Process 4 (Lead MicroStrategy) Technical Design and Development processes.
Process 5 (Lead MicroStrategy) QA processes and standards.
C. Escalation
In the event that the parties fail to agree on the items contemplated by Process
1, to the satisfaction of the other party then either party may call a special
meeting of the 'Principals' who shall be Sanju Bansal and Andy Frawley. The
Principals shall confer at their earliest reasonable opportunity and make their
best efforts to agree a resolution within ten (10) working days. If the
Principals fail to reach an agreement in that time frame Andy Frawley may make
the final decision.
For all other Processes, in the event that any part of the process defined
herein fails to be resolved to the satisfaction of the other party then either
party may call a special meeting of the 'Principals' who shall be defined as the
authorized signatories of this agreement or their mutually agreed upon nominee.
The Principals shall confer at their earliest reasonable opportunity and make
their best efforts to agree a resolution within ten (10) working days.
<PAGE>
EXHIBIT E
---------
<PAGE>
-2-
PAYMENT AND REGISTRATION RIGHTS AGREEMENT dated as of December 28,
1999 (this "Agreement"), between EXCHANGE APPLICATIONS, INC., a Delaware
corporation ("Exchange"), and MICROSTRATEGY INCORPORATED, a Delaware
corporation ("MicroStrategy").
The parties hereby agree as follows:
ARTICLE I.
Definitions and Construction
Section 1.01. Certain Definitions. As used in this Agreement, the
following terms shall have the meanings specified below:
"Business Day" shall mean any day other than a day, which is a
Saturday, or Sunday or any other day on which commercial banks in New York,
New York are authorized or required to remain closed.
"Business Unit" shall have the meaning set forth in the Development
Agreement.
"Closing" shall mean the payment of the Closing Payment on the Closing
Date.
"Closing Date" shall mean December 28, 1999.
"Closing Share Amount" shall mean the number of shares of Common Stock
(rounded to the nearest whole number) equal to the result obtained by
dividing (a) $20, 000, 000 by (b) the Fair Market Value of the Common Stock
as of the Closing Date.
"Common Stock" shall mean the Common Stock, par value $0.001 per
share, of Exchange.
"control" (including, with its correlative meanings, "controlled by"
and "under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
"Designee" shall mean any wholly-owned subsidiary of MicroStrategy
designated in writing by MicroStrategy as the recipient and registered
holder of any or all of the Payment Shares to be issued under Article II.
"Development Agreement" shall mean the Software Development and OEM
Agreement, dated as of the Closing Date, by and between MicroStrategy and
Exchange. The final form of the Development Agreement is attached hereto as
Exhibit A.
"dollars" or "$" shall mean lawful money of the United States of
America.
<PAGE>
-3-
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Fair Market Value" means, as of any date of determination, the lowest
closing sale price (if listed on a stock exchange or quoted on the Nasdaq
National Market System or any successor thereto), or the lowest of the mean
between the closing bid and asked prices (if quoted on NASDAQ or otherwise
publicly traded), of the Common Stock during the period commencing on the
third trading day prior to (and including) such date and ending on the
third trading day after such date.
"Governmental Authority" shall mean any court, administrative agency
or commission or other governmental agency or instrumentality, domestic or
foreign, or any arbitrator, of competent Jurisdiction.
"Group" shall mean a "Group" within the meaning of Section 13(d)(3) of
the Exchange Act.
"Installment Share Amount" shall mean, with respect to any Installment
for which Exchange has elected in accordance with Section 2.02(b) to pay
all or any portion of the Payment Amount in Common Stock, the number of
shares of Common Stock (rounded to the nearest whole number) equal to the
result obtained by dividing (a) the Payment Amount to be paid on the
applicable Installment Date minus the Cash Component set forth in the
applicable Stock Election Notice by (b) the Fair Market Value of the
Common Stock as of the originally scheduled Installment Date set forth in
the table contained in Section 2.01(c); provided, however, that for
purposes of this definition, in no event shall the "Fair Market Value" as
at any date be less than 75% of the Fair Market Value determined as of the
Closing Date or exceed 125% of the Fair Market Value determined as of the
Closing Date.
"Marketing Agreement" shall mean the Joint Marketing Agreement, dated
as of the Closing Date, by and between MicroStrategy and Exchange. The
final form of the Marketing Agreement is attached hereto as Exhibit B.
"MicroStrategy License Agreement" shall mean the License Agreement,
dated as of the Closing Date, by and between MicroStrategy and Exchange.
The final form of the MicroStrategy License Agreement is attached hereto as
Exhibit C.
"Milestones" shall mean, at any time of determination, the milestones
for the Business Unit in effect at such time. On the Closing Date, the
Milestones shall be set forth on Exhibit A to the Development Agreement,
and thereafter, may be established or modified from time to time by the
Steering Committee.
"Operative Agreements" shall mean this Agreement, the Development
Agreement, the Marketing Agreement, the MicroStrategy License Agreement and
the Strategy.com Agreement.
"Payment Shares" shall mean all shares of Common Stock issued to
MicroStrategy under Article II.
<PAGE>
-4-
"Person" shall mean any individual, firm, corporation, partnership,
Group trust, joint venture, Governmental Authority or other entity, and
shall include any successor (by merger or otherwise) of such entity.
"Registration Shares" shall mean (i) all Payment Shares issued to
MicroStrategy or a Designee and (ii) all securities issued or issuable to
MicroStrategy or a Designee in respect thereof by way of stock dividend,
stock split or reclassification or in connection with a combination of
shares, recapitalization, merger or, consolidation or other reorganization
or otherwise.
"Registration Statement" shall mean, as applicable, the Shelf
Registration Statement or a registration statement filed with the SEC in
connection with a Piggyback Registration.
"Registration Termination Date" means, with respect to any
Registration Statement, the earlier of (i) the date when all of the
Registration Shares registered thereunder shall have been sold or (ii) the
third anniversary of the Closing Date; provided however, that in the event
that the right of MicroStrategy or any Designee to use such Registration
Statement (and the prospectus relating thereto) is delayed or suspended
pursuant to Section 5.07 or 5.09, Exchange shall be required to extend the
Registration Termination Date beyond the third anniversary of the Closing
Date by the same number of days as such delay or Suspension Period.
"SEC" shall mean the Securities and Exchange Commission or any
successor commission or agency having similar powers.
"Securities Act" shall mean the Securities Act of 1933.
"Shelf Registration" shall mean the registration of Registration
Shares pursuant to the Shelf Registration Statement.
"Steering Committee" shall have the meaning set forth in the
Development Agreement.
"Strategy.com Agreement" shall mean the Strategy.com Affiliate
Agreement, dated as of the Closing Date, by and between MicroStrategy and
Exchange. The final form of the Strategy.com Agreement is attached hereto
as Exhibit D.
"Transactions" shall mean the transactions contemplated by the
Operative Agreements.
"Transfer" shall mean to sell, transfer or assign.
<PAGE>
-5-
Section 1. 02. Additional Definitions.
Defined Term Section Defined in
------------ ------------------
Accelerated Installment Date 2.03(c)
Closing Payment 2.01(a)
Cash Component 2.02(b)
Election Date 2.02(b)
Extension Date 2.03(b)
Installment Dates 2.01(c)
Installments 2.01(c)
Payment Amounts 2.01(c)
Piggyback Registration 5.02(a)
Preferred Stock 3.01(c)
Registered Sale 4.01
Sale 4.01
SEC Documents 3. 01(e)
Securities 3.01(c)
Shelf Registration Statement 5.01(a)
Stock Election Notice 2.02(b)
Suspension Period 5.09
Unachieved Milestones 2.03(b)
Section 1.03. Terms Generally. The definitions in Sections 1.01 and
1.02 shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and, neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". All references herein to Articles, Sections, Exhibits
and Schedules shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context shall
otherwise require. The headings of the Articles and Sections are inserted
for convenience of reference only and are not intended to be a part of or
to affect the meaning or interpretation of this Agreement. Unless the
context shall otherwise require, any reference to any agreement or other
instrument or statute or regulation are to it as amended and supplemented
from time to time (and, in the case of a statute or regulation, to any
successor provision). Any reference in this Agreement to a "day" or a
number of "days" (without the explicit qualification of "Business') shall
be interpreted as a reference to a calendar day or number of calendar days.
If any action or notice is to be taken or given on or by a particular
calendar day, and such calendar day is not a Business Day, then such action
or notice shall be deferred until, or may be taken or given on, the next
Business Day.
<PAGE>
-6-
ARTICLE 11.
Payments and Issuance of Shares
-------------------------------
Section 2.01. Payments and Issuance of Shares. In reliance upon the
representations, warranties and agreements of MicroStrategy set forth in
the Operative Agreements, and upon the terms and conditions set forth
herein, in consideration for the rights, services, interests and benefits
received or to be received by Exchange under the Development Agreement, the
Marketing Agreement, the MicroStrategy License Agreement and the
Strategy.com Agreement during the initial terms thereof.
(a) At the Closing, Exchange shall pay MicroStrategy the sum of
$10,000,000 (the "Closing Payment").
(b) On or before January 20, 2000, Exchange shall issue to
MicroStrategy or a Designee the number of shares of Common Stock equal to
the Closing Share Amount. Exchange shall prepare and deliver to
MicroStrategy on or prior to January 14, 2000 a certificate setting forth
its calculation of the Closing Share Amount, which certificate shall be
conclusive absent manifest error.
(c) Subject to Section 2.03, Exchange shall pay to MicroStrategy
on the dates set forth below (the "Installment Dates") the amounts (the
"Payment Amounts") set forth opposite such dates (the "Installments"):
Installment Dates Payment Amounts
----------------- ---------------
June 30, 2000 $ 5,833,333
September 1, 2000 $ 5,833,333
December 1, 2000 $ 5,833,333
March 1, 2001 $ 5,833,333
June 1, 2001 $ 5,833,333
September 1, 2001 $ 5,833,335;
provided, however, that if Exchange has elected in accordance with Section
2.02(b) to pay all or any portion of the Payment Amount due on any
Installment Date in Common Stock, the relevant Installment Date shall be
extended until the tenth Business Day immediately following the date set
forth above. If Exchange has elected to pay all or any portion of any
Payment Amount in Common Stock, Exchange shall prepare and deliver to
MicroStrategy on the third Business Day prior to the Installment Date (as
so extended) a certificate setting forth its calculation of the Installment
Share Amount, which certificate shall be conclusive absent manifest error.
(d) Payments under Section 2.01(a) or (b) are non-cancelable and, once
made, are non-refundable. Payments made under Section 2.01(c) are non-
refundable.
Section 2.02. Payment in Common Stock; Stock Election Notice. (a) If
Exchange elects in accordance with Section 2.02(b) to pay all or any
portion of the Payment Amount for any Installment Date in Common Stock, the
<PAGE>
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number of shares of Common Stock to be issued to MicroStrategy or a
Designee on such Installment Date shall be the Installment Share Amount
determined as of the Installment Date.
(b) On or before the fifteenth day prior to Installment Date set forth
in the table contained in Section 2.01(c) (such fifteenth day being the
"Election Date"), Exchange may by written notice to MicroStrategy (each, a
"Stock Election Notice") elect to pay all or any portion of the Payment
Amount payable in respect of the Installment in Common Stock. Each Stock
Election Notice shall indicate the portion of the Payment Amount in respect
of such Installment to be paid in cash (the "Cash Component"), and shall be
irrevocable. If Exchange does not deliver a Stock Election Notice to
MicroStrategy on or before the Election Date for any Installment, then the
entire Payment Amount shall be paid in cash on the applicable Installment
Date set forth in the table contained in Section 2.01(c).
Section 2.03. Termination of Installment Obligations; Extension of
Installment Dates. Anything to the contrary notwithstanding:
(a) If either Exchange or MicroStrategy delivers a notice of
termination in accordance with Section 10.3 of the Development Agreement or
Exchange delivers a notice of termination in accordance with Section 10.1
of the Development Agreement, the obligations of Exchange to pay any and
all Installments not yet due and payable at the time of such notice of
termination shall automatically terminate. If either Exchange or
MicroStrategy terminates the Development Agreement in accordance with
Section 11.4 of the Development Agreement, the obligations of Exchange to
pay any and all Installments not yet due and payable at the time of
delivery of the written notice of default giving rise to such termination
shall automatically terminate.
(b) If any of the Milestones for a particular Installment Date have
not been achieved by the Business Unit (the "Unachieved Milestones") on or
prior to that Installment Date with respect to any Installment payable
after June 30, 2000, Exchange may elect by written notice to MicroStrategy
on or before the Installment Date to extend the applicable Installment Date
until the earlier (i) the 45th day immediately following the scheduled
Installment Date contained in the table set forth in Section 2.01(c) and
(ii) the third Business Day following the achievement of the Unachieved
Milestones. If at the end of the 45 day period described in this Section
2.03(b) (the "Extension Date"), the Business Unit has not achieved the
Milestone, then Exchange shall either (a) pay the Payment Amount by the
third Business Day following the Extension Date or (b) terminate the
Business Unit obligations pursuant to Section 1 0. 1 of the Development
Agreement.
(c) If the Business Unit achieves a Milestone for a particular
Installment Date prior to such Installment Date, then MicroStrategy may
elect by written notice to Exchange to accelerate the applicable
Installment Date to the 20th Business Day following such notice (the
"Accelerated Installment Date"). The Accelerated Installment Date shall be
deemed an Installment Date for the purposes of Section 2.02 above.
<PAGE>
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Section 2.04. Payments: Delivery of Shares. (a) On each date on which
Exchange is obligated to make a payment of cash to MicroStrategy under this
Article II, Exchange shall deliver to MicroStrategy the applicable sum by
check or by wire transfer to a bank account designated in writing by
MicroStrategy.
(b) On each date on which Exchange is obligated to deliver shares of
Common Stock to MicroStrategy or a Designee under this Article II, Exchange
shall deliver to MicroStrategy a certificate representing the applicable
number of shares of Common Stock registered in the name of MicroStrategy or
such Designee.
Section 2.05. Designees. Each reference to MicroStrategy in Section
3.02, Article IV and Article V shall be deemed a reference to MicroStrategy
and, where applicable, each of its Designees.
ARTICLE III.
Representations and Warranties
------------------------------
Section 3.01. Representations and Warranties of Exchange. Exchange
hereby represents and warrants to MicroStrategy on and as of the Closing
Date as follows:
(a) Organization. Exchange 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 in each Jurisdiction in which the character of
its properties or the nature of its business requires such qualification,
except where the failure to so qualify would not have a material adverse
effect upon Exchange.
(b) Authorization. All corporate action on the part of Exchange, its
officers, directors and stockholders, necessary for the authorization,
execution, delivery and performance of this Agreement and the other
Operative Agreements and the consummation of the transactions contemplated
herein and therein has been taken. Each of this Agreement and the other
Operative Agreements constitute the legal, valid and binding obligation of
Exchange, enforceable against Exchange in accordance with its terms, except
as such may be limited by bankruptcy, insolvency, reorganization or other
laws affecting creditors' rights generally and by general equitable
principles. Exchange has all requisite corporate power to enter into this
Agreement and the other Operative Agreements and to carry out and perform
its obligations under this Agreement and the other Operative Agreements.
(c) Capitalization. The authorized capital stock of Exchange
consists of (i) 30,000,000 shares of Common Stock and (ii) 10,000,000
shares of preferred stock, par value $.001 per share (the "Preferred
Stock"). The number of outstanding shares of each class of capital stock
are set forth in Schedule 3.01(c) hereto. Except as set forth in Schedule
3.01(c) hereto, there are no existing options, warrants, calls, preemptive
(or similar) rights, subscriptions or other rights, agreements,
arrangements or commitments of any character obligating Exchange to issue,
transfer or sell, or cause to be issued, transferred or sold, any shares of
<PAGE>
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capital stock of Exchange or other equity interests in Exchange or any
securities convertible into or exchangeable for such shares of capital
stock or other equity interests (collectively, "Securities"). Schedule
3.01(c) sets forth the number of stock options outstanding under Exchange's
stock incentive plans, and the number of shares reserved for issuance under
such plans that are not subject to outstanding options. Except as set forth
in Schedule 3. 01(c), no holder of any capital stock or Securities of
Exchange has any outstanding registration rights.
(d) Valid Issuance of the Payment Share. The Payment Shares to be
issued to MicroStrategy or any Designee hereunder, upon issuance pursuant
to the terms hereof, will be duly authorized and validly issued, fully
paid, nonassessable and free of any liens or encumbrances created by
Exchange and, assuming the accuracy of the representations and warranties
made by MicroStrategy to Exchange, will be issued and sold by Exchange to
MicroStrategy or such Designee in compliance with applicable state and
federal securities laws.
(e) SEC Documents. Exchange has furnished to MicroStrategy (or
otherwise provided access by MicroStrategy to) true and complete copies of
the documents filed by Exchange with the SEC and set forth on Schedule
3.01(e) hereto (all such documents, collectively, the "SEC Documents"). As
of their respective filing dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or the
Securities Act, as applicable, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading, as of their respective filing dates, except to the extent
corrected by a subsequently filed SEC Document.
(f) No Conflict. The execution and delivery of this Agreement and the
other Operative Agreements by Exchange and the consummation of the
transactions contemplated hereby and thereby will not conflict with or
result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit or
give rise to an event which results in the creation of any lien, charge or
encumbrance upon any of Exchange's properties or assets under (i) any
provision of the Certificate of Incorporation or By-laws of Exchange or
(ii) any agreement or instrument, permit, franchise, license, judgment,
order, statute, law, ordinance, rule or regulation, applicable to Exchange
or its respective properties or assets, except where any such event under
clause (ii) could not reasonably be expected to have a material adverse
effect on the Transactions contemplated by this Agreement and the other
Operative Agreements.
(g) Consents. All consents, approvals, orders, authorizations,
registrations, qualifications, and filings required on the part of Exchange
to be obtained or made prior to the Closing in connection with the
execution, delivery or performance of this Agreement and the other
Operative Agreements, and the consummation of the transactions contemplated
herein and therein have been obtained or made prior to the Closing.
(h) Absence of Certain Changes or Events. Since the last filing date
of the SEC Documents, no event has occurred that has had a material adverse
effect on Exchange (excluding for this purpose the execution or
announcement of the transactions contemplated by this Agreement and the
other Operative Agreements and any adverse effect resulting therefrom).
<PAGE>
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Section 3.02. Representations and Warranties of MicroStrategy.
MicroStrategy hereby represents and warrants to Exchange on and as of the
Closing Date as follows:
(a) Organization. MicroStrategy 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 in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification, except where the failure to so qualify would not have a
material adverse effect upon MicroStrategy.
(b) Authorization. All corporate action on the part of MicroStrategy,
its officers, directors and stockholders, necessary for the authorization,
execution, delivery and performance of this Agreement and the other
Operative Agreements and the consummation of the transactions contemplated
herein and therein has been taken. Each of this Agreement and the other
Operative Agreements constitute the legal, valid and binding obligation of
MicroStrategy, enforceable against MicroStrategy in accordance with its
terms, except as such may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally and by
general equitable principles. MicroStrategy has all requisite corporate
power to enter into this Agreement and the other Operative Agreements and
to carry out and perform its obligations under this Agreement and the other
Operative Agreements.
(c) Acquisition Solely for the Purpose of Investment. MicroStrategy is
acquiring the Payment Shares being acquired by it hereunder, for
investment, for its own account, and not for resale or with a view to
distribution thereof in violation of the Securities Act or any other
applicable securities law. MicroStrategy has no intention of participating
in, and, so long as MicroStrategy holds or has any right to acquire any
Payment Shares MicroStrategy will not participate in, the formulation,
determination or direction of the basic business decisions of Exchange
within the meaning of 16 C.F.R. 801.1(i)(1).
(d) Investor Status, etc. MicroStrategy certifies and represents to
Exchange that, at the time MicroStrategy acquires any of the Payment
Shares, MicroStrategy will be an "accredited investor" as defined in Rule
501 of Regulation D promulgated under the Securities Act. MicroStrategy's
financial condition is such that it is able to bear the risk of holding any
and all of the Payment Shares acquired by it for an indefinite period of
time and the risk of loss of its entire investment. MicroStrategy has been
afforded the opportunity to ask questions of and receive answers from the
management of Exchange concerning Exchange and its business and this
investment, and has also been afforded the opportunity to review any
relevant documents and records concerning the business of Exchange.
MicroStrategy has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an
investment in Exchange.
(e) Payment Shares Not Registered. MicroStrategy understands that
because the Payment Shares are issued by Exchange in a transaction exempt
from the registration requirements of the Securities Act, the Payment
Shares have not been registered under the Securities Act, and that the
Payment Shares must continue to be held by MicroStrategy unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration. MicroStrategy understands that the
<PAGE>
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exemptions from registration afforded by Rule 144 (the provisions of which
are known to it) promulgated under the Securities Act depend on the
satisfaction of various conditions, and that, if applicable, Rule 144 may
afford the basis for sales only in limited amounts.
(f) No Conflict. The execution and delivery of this Agreement and the
other Operative Agreements by MicroStrategy and the consummation of the
transactions contemplated hereby and thereby will not conflict with or
result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit under
(i) any provision of the Certificate of Incorporation or Bylaws of
MicroStrategy or (ii) any agreement or instrument, permit, franchise,
license, judgment, order, statute, law, ordinance, rule or regulation,
applicable to MicroStrategy or its respective properties or assets, except
where any such event under clause (ii) could not reasonably be expected to
have a material adverse effect on the Transactions contemplated by this
Agreement and the other Operative Agreements.
(g) Consents. All consents, approvals, orders, authorizations,
registrations qualifications and filings required on the part of
MicroStrategy to be obtained or made prior to the Closing in connection
with the execution, delivery or performance of this Agreement and the other
Operative Agreements and the consummation of the Transactions contemplated
herein or therein have been obtained or made prior to the Closing.
(h) Certain Acknowledgements. MicroStrategy has reviewed and
understands the SEC Documents, including the "Risk Factors" set forth
therein, and acknowledges that Exchange has made no representations or
warranties to MicroStrategy to induce MicroStrategy to enter into the
Transactions, except for those set forth herein (or, in the case of the SEC
Documents, incorporated herein by reference) and in the other Operative
Agreements. MicroStrategy acknowledges that investments in the Common Stock
are risky, that the market price of the Common Stock is volatile and
subject to a variety of factors, many of which are outside Exchange's
control, and that no assurances can be or are given by Exchange or any of
its officers or directors as to the market price at which MicroStrategy may
be able to sell the Payment Shares.
ARTICLE IV.
-----------
Other Covenants
---------------
Section 4.01. Restrictions on Transfer of the Payment Shares.
MicroStrategy shall not offer, sell, assign, transfer, endorse, pledge,
mortgage, hypothecate or otherwise convey or dispose of (a "Sale") any of
the Payment Shares acquired by it, or any interest therein, unless (i) any
such sale shall be effected (A) pursuant to and in conformity with an
effective registration statement under the Securities Act (a "Registered
Sale"), or (B) pursuant to and in conformity with Rule 144 under the
Securities Act, and (ii) in the case of any Sale under such Rule 144, if
requested by Exchange, MicroStrategy shall have obtained and delivered to
Exchange a written legal opinion of counsel (reasonably satisfactory to
Exchange as to such counsel and as to the substance of such opinion) to the
effect that any such proposed Sale by MicroStrategy does not violate the
registration provisions of the Securities Act and any applicable state
securities or blue sky laws.
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Section 4.02. Effect of Violation of Transfer Restrictions; Preventive
Measures. Any Sale of any Payment Shares, or of any interest therein, 'n
violation of this Article IV shall be null and void. Exchange may make a
notation on its records or give instructions to any of its transfer agents
in order to implement the restrictions on transfer set forth in this
Article IV. Exchange shall not incur any liability for any delay in
recognizing any transfer of any Purchased Shares if Exchange reasonably
believes that any such transfer may have been or would be in, violation of
the provisions of the Securities Act, applicable blue sky laws or this
Article IV.
Section 4.03. Legends. (a) Each certificate evidencing any of the
Payment Shares shall be endorsed with the legend set forth below, and
MicroStrategy covenants that, except to the extent such restrictions are
waived by Exchange, it shall not transfer the Payment Shares represented by
any such certificate without complying with the restrictions on transfer
described in this Agreement and the legends endorsed on such certificate:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED,
ENDORSED, PLEDGED, MORTGAGED, HYPOTHECATED OR OTHERWISE CONVEYED OR
DISPOSED OF, UNLESS SUCH SHARES ARE (1) SO REGISTERED OR (2) AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND, IF REQUESTED BY
EXCHANGE APPLICATIONS, INC. (THE "COMPANY"), A WRITTEN LEGAL OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY IS PROVIDED BY THE
TRANSFEROR. IF THE SHARES REPRESENTED BY THIS CERTIFICATE ARE NOT
TRANSFERRED PURSUANT TO AND IN CONFORMITY WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR IN
ACCORDANCE WITH RULE 144 OF THE SECURITIES ACT OF 1933, SUCH SHARES
ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN
ARTICLE IV OF A PAYMENT AND REGISTRATION RIGHTS AGREEMENT DATED AS OF
DECEMBER 28, 1999, AND NO TRANSFER OF SUCH SHARES SHALL BE VALID OR
EFFECTIVE IF IT IS NOT EFFECTED IN COMPLIANCE WITH ALL OF SUCH
RESTRICTIONS ON TRANSFER. A COPY OF SUCH PAYMENT AND REGISTRATION
RIGHTS AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF SUCH SHARES TO THE SECRETARY OF THE COMPANY."
(b) Each certificate evidencing any of the Payment Shares
shall be endorsed with any legend required under any applicable state
securities or blue sky laws.
<PAGE>
ARTICLE V.
Registration Rights
-------------------
Section 5. 01. Shelf Registration. (a) As soon as possible and, in
any event, on or prior to January 31, 2000, Exchange will prepare and file
with the SEC a registration statement on Form S-3 (or Form S-1 if
registration on Form S-3 is not available to Exchange at such time) for the
purpose of registering under the Securities Act all of the Registration
Shares for resale by, and for the account of, MicroStrategy as selling
stockholder thereunder (the "Shelf Registration Statement"); provided,
however, that Exchange may extend the period to file the Shelf Registration
Statement for not more titan an additional 60 days if (i) such delay would
relieve Exchange of the obligation to include any interim financial
statements in the Registration Statement or (ii) Exchange would be required
to disclose in the Registration Statement any material nonpublic
information and Exchange concludes that the disclosure of such information
would be inadvisable at that time. The Shelf Registration Statement shall
permit MicroStrategy to offer and sell, on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act, any or all of the
Registration Shares for the periods set forth herein.
(b) The initial number of Registration Shares to be registered under
the Shelf Registration Statement shall equal 50% of the Closing Share
Amount. Exchange agrees to prepare and file such amendments and
supplements to the Shelf Registration Statement to increase the number of
Registration Shares eligible to be sold thereunder by an amount equal to
the balance of the Closing Share Amount on or before May 1, 2000. Exchange
also agrees to prepare and file such amendments and supplements to the
Shelf Registration Statement as may be necessary so that at any time after
May 1, 2000 the Shelf Registration Statement will cover the Payment Shares
already issued to MicroStrategy (unless such shares have been sold under
the Shelf Registration Statement or sold in connection with a Piggyback
Registration) and the Installment Share Amount for the next Installment
(assuming that such Installment will be paid entirely in Common Stock and
that the Fair Market Value on such Installment Date will equal 75% of the
Fair Market Value calculated as of the Closing Date).
(c) Sales of the Registrable Shares pursuant to the Shelf Registration
Statement shall not be underwritten.
Section 5.02. Piggyback Registrations. (a) If Exchange proposes to
register any Common Stock under the Securities Act for sale for cash in an
underwritten offering, Exchange shall give MicroStrategy notice of such
proposed registration (a "Piggyback Registration") at least 30 days prior
to the filing of the registration statement. At the written request of
MicroStrategy delivered to Exchange within 10 days after the receipt of the
notice from Exchange, which request shall state the number of Registration
Shares that MicroStrategy wishes to sell under the registration statement
proposed to be filed by Exchange, Exchange will use reasonable efforts to
include in such underwritten registration the Registration Shares requested
to be included by MicroStrategy.
<PAGE>
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(b) If the managing underwriters of a Piggyback Registration advise
Exchange in writing that in their opinion the number of securities
requested to be included in the registration exceeds the number which can
be sold in the offering, Exchange may exclude from the registration any or
all Registration Shares that MicroStrategy proposes to sell; provided,
however, that no Registration Shares may be excluded if the registration
includes Common Stock of holders other than MicroStrategy unless
MicroStrategy is permitted to participate in such registration with such
holders on pro rata basis.
(c) All necessary amendments to the Shelf Registration Statement will
be made to reduce the number of shares to be sold by MicroStrategy
thereunder, in the event that shares are sold by MicroStrategy in a
Piggyback Registration.
Section 5.03. Indemnification by Exchange. In the event of any
registration of any Registration Shares of MicroStrategy under the
Securities Act, Exchange shall, and hereby does, indemnify and hold
harmless MicroStrategy, its directors and officers, each other Person who
participates as an underwriter in the offering or sale of such Registration
Shares and each other Person, if any, who controls such party or any such
underwriter within the meaning of Section 15 of the Securities Act against
any losses, claims, damages or liabilities, joint or several, to which such
party or any such director or officer or underwriter or controlling Person
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which the Registration Shares
were registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made
not misleading, and Exchange shall reimburse such party and each such
director, officer, underwriter and controlling Person for any legal or any
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or proceeding;
provided, however, that Exchange shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information about such party as a
stockholder of Exchange furnished to Exchange through an instrument duly
executed by such party specifically stating it is for use in the
preparation thereof. Such indemnity shall remain in full force and affect
regardless of any investigation made by or on behalf of such party or any
such director, officer, controlling Person or underwriter and shall survive
any transfer of the Registration Shares.
<PAGE>
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Section 5.04. Indemnification by MicroStrategy. Exchange may require,
as a condition to including any Registration Shares of MicroStrategy in any
registration statement filed pursuant to Section 5. 01 or 5.02, that
Exchange shall have received an undertaking satisfactory to it from
MicroStrategy to indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 5.03) Exchange, each director of
Exchange, each officer of Exchange signing such Registration Statement,
each Person who participates as an underwriter in the offering or sale of
such Registration Shares and each other Person, if any, who controls
Exchange or any such underwriter within the meaning of Section 15 of the
Securities Act with respect to any untrue statement or alleged untrue
statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein or any amendment or supplement thereto, if
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written
information about MicroStrategy furnished to Exchange through an instrument
duly executed by MicroStrategy specifically stating that it is for use in
the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement; provided,
however, that the liabilities of MicroStrategy hereunder shall be limited
to an amount equal the net proceeds to MicroStrategy and its permitted
assignees from the Registration Shares sold in connection with any such
registration statement. Such indemnity shall remain in full force and
effect, regardless of any investigation made by or an behalf of Exchange or
any such director, officer or controlling Person and shall survive the
Transfer by MicroStrategy of the Registration Shares being registered.
Section 5.05. Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 5.03 or 5.04, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party, give notice to the latter of the commencement of such
action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of
its obligations under Section 5.03 or 5.04, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice.
In case any such action is brought against an indemnified party, unless in
such indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist or the indemnified
party may have defenses not available to the indemnifying party in respect
of such claim, the indemnifying party shall be entitled to participate in
and to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof,
the indemnifying party shall not be liable to such indemnified party for
any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of
any action or proceeding effected without its written consent. No
indemnifying party shall, without the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in
respect to such claim or litigation.
Section 5. 06. Indemnification Payments. The indemnification required
by this Article shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
<PAGE>
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Section 5.07. Registration Covenants of Exchange. In the event
that any Registration Shares are to be registered pursuant to Section 5.01
or 5.02, Exchange covenants and agrees that it shall use its best efforts
to effect the registration and cooperate in the sale of the Registration
Shares to be registered and shall as expeditiously as possible:
(i) notify MicroStrategy, promptly after Exchange shall receive
notice thereof, of the time when the Registration Statement becomes
effective or when any amendment or supplement or any prospectus forming a
part of the Registration Statement has been filed;
(ii) notify MicroStrategy promptly of any request by the SEC for
the amending or supplementing of the Registration Statement or prospectus
or for additional information;
(iii) (A) advise MicroStrategy after Exchange shall receive
notice or otherwise obtain knowledge of the issuance of any order by the
SEC suspending the effectiveness of the Registration Statement or any
thereto or of the initiation or threatening of any proceeding for that
purpose and (B) promptly use reasonable efforts to prevent the issuance of
any stop order or to obtain its withdrawal promptly if a stop order should
be issued;
(iv) (A) prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus forming a part
thereof as may be necessary to keep the Registration Statement effective
until the Registration Termination Date and (B) comply with the provisions
of the Securities Act with respect to the disposition of all Registration
Shares covered by the Registration Statement in accordance with the
intended methods of disposition by MicroStrategy set forth in the
Registration Statement;
(v) furnish to MicroStrategy such number of copies of the
Registration Statement, each amendment and supplement thereto, the
prospectus included in the Registration Statement (including any
preliminary prospectus) and such other documents as MicroStrategy may
reasonably request in order to facilitate the disposition of the
Registration Shares owned by MicroStrategy;
(vi) notify MicroStrategy, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the Registration Statement
would contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and, at the request of MicroStrategy,
prepare a supplement or amendment to the Registration Statement so that the
Registration Statement shall not, to Exchange's knowledge, contain an
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that upon such notification by Exchange,
MicroStrategy will not offer or sell Registration Shares until Exchange has
notified MicroStrategy that it has prepared a supplement or amendment to
such prospectus and delivered copies of such supplement or amendment to
MicroStrategy;
<PAGE>
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(vii) if the Registration Shares are securities of a class then
listed on a securities exchange or traded through a self-regulatory
organization, cause the Registration Shares to be so listed or traded;
(viii) provide a transfer agent and registrar, which may be a
single entity, for all the Registration Shares not later than the effective
date of the Registration Statement;
(ix) use its best efforts to cause the Registration Shares
covered by the Registration Statement to be registered with or approved by
such other Governmental Authorities as may be necessary to enable
MicroStrategy to consummate the disposition of such Registration Shares;
and
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and timely file all reports required to be
filed by it under the Exchange Act, and the rules and regulations adopted
by the SEC thereunder, all to the extent required to enable MicroStrategy,
to sell, its Payment Shares pursuant to Rule 144 and the Registration
Statement.
Section 5.08. Expenses. Exchange shall pay, on behalf of
MicroStrategy, all the expenses in connection with the Shelf Registration
or any Piggyback Registration, including all registration, filing and
regulatory review fees, all fees and expenses of complying with securities
or blue sky laws, all listing fees, all word processing, duplicating and
printing expenses, all messenger and delivery expenses, the fees and
disbursements of counsel for Exchange and of its independent public
accountants (including the expenses of comfort letters required by or
incident to such performance and compliance), and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding any underwriting discounts and commissions and
transfer taxes, if any, on the Registration Shares. In any registration,
MicroStrategy shall pay for its own underwriting discounts and commissions
and transfer taxes, and its own legal fees.
Section 5.09. Deferral. Notwithstanding anything in this Agreement to
the contrary, if Exchange shall furnish to MicroStrategy a certificate
signed by the President or Chief Financial Officer of Exchange stating that
the Board of Directors of Exchange has made the good faith determination
(i) that continued use by MicroStrategy of a Registration Statement for
purposes of effecting offers or sales of Registration Shares pursuant
thereto would require, under the Securities Act, premature disclosure in
the Registration Statement (or the prospectus relating thereto) of
material, nonpublic information concerning Exchange, its business or
prospects or any proposed material transaction involving Exchange, (ii)
that such premature disclosure would be materially adverse to Exchange, its
business or prospects or any such proposed material transaction
significantly less likely and (iii) that it is therefore advisable to
suspend the use by MicroStrategy of such Registration Statement (and the
prospectus relating thereto) for purposes of effecting offers or sales of
Registration Shares pursuant thereto, then the right of MicroStrategy to
use the Registration Statement (and the prospectus relating thereto) for
purposes of effecting offers or sales of Registration Shares pursuant
thereto shall be suspended for a period (the "Suspension Period") of not
more than 60 days after delivery by Exchange of the certificate referred to
above in this Section 5.09. During the Suspension Period, MicroStrategy
shall not offer or sell any Registration Shares pursuant to or in reliance
upon the Registration Statement (or the prospectus relating thereto).
Notwithstanding the foregoing, Exchange shall not be entitled to Suspension
Periods totaling more than 90 days in any consecutive twelve-month period
during the term of this Agreement.
<PAGE>
-18-
Section 5.10. Assignment of Registration Rights. The registration
rights set forth in this Article V may not be assigned to any Person, other
than an affiliate of MicroStrategy.
ARTICLE VI.
Miscellaneous
-------------
Section 6.01. Notices. Except as expressly provided herein, notices
and other communications provided for herein shall be in writing and shall
be delivered by hand or overnight courier service, mailed or sent by
telecopier, as follows:
(a) if to Exchange,
Exchange Applications, Inc.
89 South Street
Boston, Massachusetts 02111
Telephone: (617) 737-2244
Telecopier. (617) 790-2849
Attention: Andrew J. Frawley and Wayne Townsend
(b) if to MicroStrategy,
MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, Virginia 22182
Telephone: (703) 848-8657
Telecopier: (703) 848-8748
Attention: Adam J. Ruttenberg
or to such other address or attention of such other person as any party
shall advise the other party in writing. All notices and other
communications given to a party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given on the date of receipt.
Section 6.02. APPLICABLE LAW: WAIVER OF JURY TRIALS. THE VALIDITY,
CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS,
APPLICABLE TO CONTRACTS EXECUTED IN AND PERFORMED ENTIRELY WITHIN SUCH
<PAGE>
-19-
COMMONWEALTH, WITHOUT REFERENCE TO ANY CHOICE OF LAW PRINCIPLES OF SUCH
COMMONWEALTH. WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF THIS
AGREEMENT, ANY OF THE OTHER OPERATIVE AGREEMENTS OR ANY TRANSACTION, THE
PARTIES EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A JURY TRIAL AND AGREE
THAT ANY SUCH LEGAL PROCEEDING SHALL BE TRIED BY A JUDGE WITHOUT A JURY.
Section 6.03. Severability. If any provision of this Agreement shall
be hold to be illegal, invalid or unenforceable, that provision will be
enforced to the maximum extent permissible so as to effect the intent of
the parties, and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. If
necessary to effect the intent of the parties, the parties will negotiate
in good faith to amend this Agreement to replace the unenforceable language
with enforceable language which as closely as possible reflects such
intent.
Section 6.04. Amendments. This Agreement may be modified or waived
only by a written a persons authorized to so bind each party.
Section 6.05. Waiver. The waiver by any party of any instance of the
other party's noncompliance with any obligation or responsibility herein
shall not be deemed a waiver of other instances or of any party's remedies
for such noncompliance.
Section 6.06. Counterparts. This Agreement may be executed in one or
more counterparts (including by telecopier), all of which shall be
considered one and the same agreement, and shall become effective when one
or more counterparts shall have been signed by each party and delivered to
each other party.
Section 6.0 7. Entire Agreement. The provisions of this Agreement, and
the other Operative Agreements set forth the entire agreement and
understanding among the parties as to the subject matter hereof and
supersede all prior agreements, oral or written, and all other
communications between the parties relating to the subject matter hereof
Section 6.08. Assignment. (a) Except as expressly set forth in this
Agreement, no party shall assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other
parties, provided, that no such consent shall be required for a transfer by
operation of law in connection with a merger or consolidation of such party
(without prejudice to any other rights the parties may have under any other
Operative Agreement).
(b) Any attempted assignment of this Agreement in violation of
this Section shall be void and of no effect.
(c) This Agreement shall be binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective successors
and permitted assigns.
Section 6.09. Survival of Agreement. All covenants, agreements,
representations and warranties made by any party herein and in the
certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement shall be considered to have been relied upon
by the other parties and shall survive the Closing, regardless of any
investigation made by the other parties hereto or on their behalf.
<PAGE>
-20-
Section 6.10. No Third-Party Beneficiaries. This Agreement is for
the sole benefit of the parties and their permitted assigns and nothing
herein expressed or implied shall give or be construed to give to any
Person, other than the parties and such assigns, any legal or equitable
rights hereunder, except that Sections 5.03 and 5.04 and are intended to be
for the benefit of the Persons named therein
Section 6.11. Expenses. (a) All costs and expenses incurred in
connection with the Operative Agreements and the Transactions shall be paid
by the party incurring such cost or expense, except as the parties shall
otherwise agree.
(b) The provisions of this Section shall remain operative and in full
force and effect regardless of the expiration of this Agreement or the
consummation of the Transactions.
Section 6.12. Remedies. In no event will any party be liable to
another party for incidental damages, lost profits, lost savings, or any
other consequential damages, even if such party has been advised of the
possibility of such damages, resulting from the breach of its obligations
under any Operative Agreement or from the use of any confidential or other
information.
Section 6.13. Publicity. No public release, announcement or other
form of publicity concerning the Transactions shall be issued by any party
without the prior consent of the other party, except as such release or
announcement may be required by law or the rules or regulations of any
securities exchange, in which case the party required to make the release
or shall, to the extent possible, allow the other party reasonable time to
comment on such release or announcement in advance of such issuance.
<PAGE>
-21-
Section 6.14. Construction. This Agreement has been negotiated by the
parties and their respective counsel and will be fairly interpreted in
accordance with its terms and without any strict construction in favor of
or against any party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
EXCHANGE APPLICATIONS, INC.
By: ILLEGIBLE
-------------------------
Name:
Title:
MICROSTRATEGYINCORPORATED
By: /s/ Sanju Bansal
-------------------------
Sanju Bansal
Name:
Title: COO
<PAGE>
EXHIBIT F
---------
Page 1
<PAGE>
JOINT MARKETING AGREEMENT
-------------------------
THIS AGREEMENT is made and entered into effective as of December___, 1999
by and between MicroStrategy Incorporated ("MicroStrategy"), a Delaware
corporation with its principal place of business at 8000 Towers Crescent Drive,
Suite 1400, Vienna, Virginia 22182 and Exchange Applications, Inc. a Delaware
corporation, having its principal place of business at
___________________________________ ("Exchange Applications") (collectively, the
"Parties").
RECITALS
A. MicroStrategy has developed certain proprietary computer programs and
will be developing certain CRM software with Exchange Applications.
B. Exchange Applications has developed certain proprietary computer
programs and will be jointly developing certain CRM software with MicroStrategy.
C. The Parties desire to enter into a nonexclusive, nontransferable and
terminable agreement pursuant to which the parties will jointly market the CRM
products.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration and in consideration of
the mutual covenants and conditions herein contained, MicroStrategy and Exchange
Applications agree as follows:
A. DEFINITIONS
For the purposes of this Agreement, the terms set forth below shall be
defined as follows:
1. MicroStrategy Product. The term "MicroStrategy Software" shall have the
same meaning as is set forth in the OEM agreement between the parties dated
December 28, 1999 ("OEM Agreement").
2. Exchange Applications Product. The term "EA Products" shall have the
same meaning as is set forth in the OEM Agreement.
3. CRM Product. The term "Developed Software" shall have the same meaning
as is set forth in the OEM Agreement.
B. MARKETING RIGHTS AND RESPONSIBILITIES
1. MicroStrategy Marketing Obligations. MicroStrategy will launch a CRM
co-marketing campaign, for the term of this Agreement. MicroStrategy will spend
at least five million dollars ($5,000,000) on this campaign. If MicroStrategy
fails spend the $5,000,000, such a failure shall be considered a material breach
of the agreement. It is currently contemplated that MicroStrategy's efforts will
include:
Page 2
<PAGE>
(i.) A full media advertising campaign touting the benefits of CRM
and Exchange Applications abilities in this space.
(ii.) Creating joint product collateral for each CRM application
and each vertical.
(iii.) Launching a full analyst tour with Exchange Applications
promoting the partnership and the resulting Applications.
(iv.) Launching a complete press tour with Exchange Applications
with press briefings in every major city.
(v.) Creating a set of white papers on CRM and each vertical
industry.
(vi.) Creating a complete sales force education program.
(vii.) Creating a comprehensive product management programs.
(viii.) Promoting the partnership at a major Exchange Applications
Partner/User conference.
(ix.) Giving Exchange Applications premiere booth space at
MicroStrategy's annual user conference.
(x.) Creating an article in MicroStrategy's magazine highlighting
Exchange Applications and its abilities in the CRM space.
(xi.) Creating a dedicated CRM space on MicroStrategy's web page
with prominent links and information about Exchange
Applications.
(xii.) Establishing dedicated marketing contacts.
(xiii.) Distributing marketing literature to prospective customers in
such quantities and form as is reasonable.
(xiv.) Working with Exchange Applications to jointly drive and
coordinate all joint marketing and public relations
activities.
(xv.) Posting joint press releases to MicroStrategy's website.
(xvi.) Providing coverage (including Exchange Applications logo) in
MicroStrategy's newsletter.
(xvii.) Displaying a Exchange Applications link to Exchange
Applications' homepage on MicroStrategy's website.
(xviii.) Displaying a Exchange Applications link to Exchange
Applications' homepage from MicroStrategy's web site search
engine.
(xix.) Coordinating customer case studies with Exchange Applications
if strategic joint customers exist.
(xx.) Such other activities to which the parties may jointly agree
2. The parties will develop and implement a joint CRM marketing plan on or
prior to March 31, 2000. The parties will work together on the direction and
messaging of the marketing initiatives as well as the nature of the branding of
the marketing messages. The goal of the parties is to make sure that both
parties get equal branding in the overall marketing campaign. As part of the
agreement, MicroStrategy will commit to spend at least $5,000,000 for this CRM
marketing campaign on or before June 30, 2001. Exchange Applications shall have
the right to confirm that this $5,000,000 has been spent as required by the
approved marketing plan. If the parties fail to reach agreement as to the joint
CRM marketing plan by March 31, 2000 the date by
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<PAGE>
which MicroStrategy must spend the $5,000,000 will be extended by an amount of
time equal to the amount of time from March 31, 2000 until the parties reach
agreement as to the marketing plan. If MicroStrategy fails spend the
$5,000,000, such a failure shall be considered a material breach of the
agreement.
3. Costs. MicroStrategy will pay all costs and expenses incurred in the
performance of its obligations under this Agreement.
4. Coordination. All of these initiatives will be coordinated, planned and
implemented in conjunction with Exchange Applications through a working group.
Operations of this working group are described in Exhibit A. MicroStrategy and
Exchange Applications will meet on a monthly basis to set the direction of the
marketing initiatives and evaluate progress. No joint marketing initiatives
under the agreement will occur without the agreement of both parties.
C. TERM
The term of this Agreement shall be for eighteen (18) months from the
effective date first set forth above. The Agreement shall automatically
renew for successive one (1) year term unless, a party provides the other
party notice of its intent to terminate at least forty-five (45) days before
the expiration of the initial term or any renewal term. In the event this
Agreement expires or is terminated in accordance with the provisions hereof,
neither MicroStrategy nor Exchange Applications shall be liable to the other
because of such expiration or termination for any compensation, damages,
reimbursements or loss of prospective or anticipated profits based upon any
expenditure, investments of capital, leases, licenses or commitments made by
either MicroStrategy or Exchange Applications for any reason whatsoever. If
the OEM Agreement terminates for any reason, this Agreement shall
automatically terminate.
D. LIMITATION OF LIABILITY
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL,
CONSEQUENTIAL, OR INCIDENTAL DAMAGES ARISING OUT OF THE PERFORMANCE OF THIS
AGREEMENT, WHETHER SUCH CLAIM ARISES IN TORT OR CONTRACT, EVEN IF A PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT FOR A BREACH OF THE
OBLIGATIONS SET FORTH IN SECTIONS 5 AND 6, IN NO EVENT SHALL EITHER PARTY'S
LIABILITY FOR DAMAGES HEREUNDER, IF ANY, EXCEED $10,000.000.
E. PROTECTION OF PROPRIETARY MATERIAL. "Proprietary Material" shall mean
any information or data, in written, graphic or machine readable form which by
its nature or type should reasonably be considered proprietary or confidential
or which the disclosing party labels as being proprietary or confidential,
provided, however, that "Proprietary Material" does not include:
Page 4
<PAGE>
(i) Information which is or becomes available in the public domain other than
through disclosure by the receiving party (the "Recipient") in breach of
this Agreement;
(ii) Information disclosed or made available at any time to the Recipient by a
third party without restriction and without breach of any relationship of
confidentiality to the party having rights to such information (the
"Discloser");
(iii) Information independently developed by the Recipient where the Recipient
establishes that such development was accomplished without use of the
confidential information of the Discloser;
(iv) Information which was already known to the Recipient, without an
obligation of confidentiality to the Discloser, at the time of disclosure
hereunder.
Each party acknowledges and agrees that Proprietary Material of the
Discloser is confidential and constitutes a valuable asset of the Discloser or
(as applicable) of the Discloser's third-party licensor. The Recipient shall not
use any of the other party's Proprietary Material for any purpose not
specifically authorized in this Agreement, shall hold such Proprietary Material
in strict confidence, and shall not disclose such Proprietary Material to any
third party.
Each party will limit access to the other party's Proprietary Material to
those employees and Authorized Contractors (as defined below) whose use of or
access thereto is necessary to the Recipient's authorized use of such
Proprietary Material. Each party has entered or will enter into appropriate
written agreements with its Authorized Contractors to prevent the unauthorized
use, disclosure or copying of the other party's Proprietary Material and shall
take all reasonable precautions to protect and maintain the confidentiality of
such Proprietary Material, including at a minimum, those precautions which the
Recipient employs to protect its own confidential information, but not less than
a reasonable degree of care. Each party shall bear the responsibility for any
breach of confidentiality by its employees, contractors and consultants.
"Authorized Contractor" shall mean each of a party's contractors and
consultants whose access to the Proprietary Material is required for Recipient's
authorized use of such Proprietary Material and with whom a party has executed a
written agreement which prevents the unauthorized use, disclosure or copying of
the Proprietary Materials; provided, however, that in no event shall any
Competitor be permitted to be an Authorized Contractor hereunder even if such
person or entity is a consultant to or contractor of a party. For Exchange
Applications, "Competitor" means any person or entity that develops, markets or
licenses campaign management software.
Each party agrees not to cause or permit the reverse engineering, reverse
assembly or reverse compilation of the other's Proprietary Material for any
purpose, or to otherwise attempt to derive source code from the other's
Proprietary Material. Each party agrees not to use, or allow any third party to
use, any Proprietary Material of the other party to aid in the development
and/or marketing of any product similar to or competitive with the other party's
Proprietary Material. The Recipient shall not disclose, publish, display or
otherwise make available to any person any of the other party's Proprietary
Material or copies thereof without the express prior written consent of the
Discloser.
Page 5
<PAGE>
The Recipient shall not duplicate, copy or reproduce any of the other
party's Proprietary Material, except with the prior written consent of such
party or as otherwise permitted under this Agreement. All title, copyright and
other proprietary rights to all of a Discloser's Proprietary Material, including
all furnished by to the Recipient and in all copies made by the Recipient shall
be retained by such Discloser or (as applicable) by its third party licensor.
Neither party shall use any of the other's Proprietary Material to create works
that are based on the other party's Proprietary Material.
Each party recognizes and acknowledges that irreparable damage might
result to the other if Proprietary Material is improperly used or disclosed by
the Recipient. Accordingly, each party agrees that legal proceedings at law or
in equity, including injunctive relief, shall be appropriate in the event of a
breach of this Section of the Agreement.
Nothing herein shall prevent the Recipient from disclosing all or part of
the other party's Proprietary Material as necessary pursuant to the lawful
requirement of a governmental agency or when disclosure is required by operation
of law; provided that prior to any such disclosure, the Recipient shall (i)
promptly notify the Discloser in writing of such requirement to disclose, and
(ii) cooperate reasonably with the Discloser in protecting against any such
disclosure or obtaining a protective order.
Each party's rights and obligations under this Section shall survive any
termination of this Agreement.
F. TRADEMARKS AND TRADE NAMES AND INTELLECTUAL PROPERTY
1. Exchange Applications Useage During Agreement. During the term of this
Agreement, Exchange Applications is authorized by MicroStrategy to use the
trademarks set forth in Exhibit A in connection with Exchange Applications'
advertisement and promotion of the MicroStrategy Softwares and Exchange
Application Products. Exchange Applications' use of such trademarks shall be in
accordance with MicroStrategy's policies in effect from time to time, including
but not limited to trademark usage and cooperative advertising policies. Nothing
contained in this Agreement shall give Exchange Applications any interest in
such trademarks. Exchange Applications agrees that it will not at any time
during or after this Agreement assert or claim any interest in or do anything
that may adversely affect the validity or enforceability of any trademark or
trade name belonging to or licensed to MicroStrategy.
2. MicroStrategy Usage During Agreement. During the term of this
Agreement, MicroStrategy is authorized by Exchange Applications to use the
trademarks set forth in Exhibit B in connection with MicroStrategy's
advertisement and promotion of the EA Products and MicroStrategy Softwares.
MicroStrategy's use of such trademarks shall be in accordance with Exchange
Applications' policies in effect from time to time, including but not limited to
trademark usage and cooperative advertising policies. Nothing contained in this
Agreement shall give MicroStrategy any interest in such trademarks.
MicroStrategy agrees that it
Page 6
<PAGE>
will not at any time during or after this Agreement assert or claim any
interest in or do anything that may adversely affect the validity or
enforceability of any trademark or trade name belonging to or licensed to
Exchange Applications.
3. After Expiration or Termination. Upon expiration or termination of
this Agreement, Exchange Applications and MicroStrategy shall cease all display,
advertising and use of the other party's tradenames and marks unless otherwise
permitted by the other operative agreements.
4. Other Intellectual Property Rights. Each party reserves all rights not
explicitly granted in this Agreement. Each Party retains ownership in all
copyrights, trademarks, patents and trade secrets created by that Party.
G. GENERAL
1. Waiver, Amendment or Modification. The waiver, amendment or
modification of any provision of this Agreement or any right, power or remedy
hereunder shall not be effective unless in writing and signed by the party
against whom enforcement of such waiver, amendment or modification is sought.
The terms of this Agreement shall not be amended or changed by the terms of any
purchase order, acknowledgment, invoice or similar document, even though
MicroStrategy may have signed or accepted such documents. No failure or delay by
either party in exercising any right, power or remedy with respect to any of the
provisions of this Agreement shall operate as a waiver thereof.
2. Notices. Any and all notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given two (2)
business days after deposit in the United States Mail, certified or registered
mail, postage prepaid, or one business day after deposit with an overnight
delivery service of national reputation, and in any case addressed as follows:
To MicroStrategy:
MicroStrategy Incorporated
8000 Towers Crescent Drive
Suite 1400
Vienna, VA 22182
ATTN: [Contracts Department]
To Exchange Applications:
3. No Assignment or Successors. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their successors, assigns and legal representatives. This Agreement shall
not be assigned by either
Page 7
<PAGE>
party without the prior written consent of the other party; provided, however,
that neither party shall unreasonably withhold its consent to the assignment of
this Agreement to the successor in interest of the other party. Notwithstanding
anything in the foregoing to the contrary, Exchange Applications reserves the
right to assign this Agreement to an affiliate without such consent; provided,
however, that Exchange Applications shall notify MicroStrategy of any assignment
of this Agreement to an affiliate, and Exchange Applications shall indemnify
MicroStrategy for any failure of a subsidiary to whom this Agreement has been
assigned for any failure of such subsidiary to act in accordance with the terms
of this Agreement. Should Exchange Applications either party merge into or be
consolidated with any other organization, the other party may, at its option,
terminate this Agreement.
4. Disclaimer of Partnership and Agency. The parties hereto are
independent contractors and shall have no power, nor will either of the parties
represent that either has any power, to bind the other party or to assume or to
create any obligation or responsibility, express or implied, on behalf of the
other party or in the other party's name. This Agreement shall not be construed
as establishing a partnership between Exchange Applications and MicroStrategy or
creating any other form of legal association that would impose liability upon
one party for the act or failure to act of the other.
5. Execution of Agreement, Governing Law, and Arbitration. This
Agreement may be executed simultaneously in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York, excluding that body of law
known as conflict of laws. The parties will attempt in good faith to resolve any
controversy or claim by negotiation or mediation. If they are unable to do so,
and regardless of the causes of action alleged, the claim will be resolved by
arbitration before a sole arbitrator in the headquarters city of the non-
initiating party pursuant to the then current Commercial Rules of the American
Arbitration Association. The arbitrator's award will be final and binding, and
may be entered in any court having jurisdiction thereof. The arbitrator will not
have the power to award punitive or exemplary damages, or any damages excluded
by, or in excess of, any damage limitations expressed in this Agreement. Each
party will bear its own attorney's fees and costs related to the arbitration.
Any claim or action must be brought within five years after the cause of action
accrues.
6. Severability. If any provision of this Agreement is held by a tribunal
of competent jurisdiction to be contrary to the law, all other provisions of
this Agreement shall remain in full force and effect.
7. Authorized Disclosure. Either party may disclose the existence of this
Agreement, but not its content, without the prior consent of the other party.
8. Headings. Section headings are included solely for convenience, are
not to be considered a part of this Agreement and are not intended to be full
and accurate descriptions of the contents thereof.
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<PAGE>
9. Entire Agreement. This Agreement, including the Exhibits hereto that
are incorporated herein by reference, represents the entire understanding of the
parties with respect to the subject matter hereof and supersedes all prior
representations and agreements, whether oral or written, with respect to the
same subject matter.
10. Mutual Drafting. The parties acknowledge and agree that this
Agreement was drafted through the mutual effort of both parties.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement effective as of the day and year first above written.
Exchange Applications, Inc. MICROSTRATEGY
By: [Illegible] By:/s/ Sanju Bansal
-------------------- -------------------------
Name:_____________________ Name: Sanju Bansal
----------------------
Title:____________________ Title: COO
----------------------
Date:_____________________ Date:________________________
Page 9
<PAGE>
EXHIBIT A
---------
Page 8
<PAGE>
EXHIBIT B
---------
Page 9
<PAGE>
EXHIBIT G
---------
<PAGE>
Copyright 2000, MicroStrategy Incorporated and Exchange Applications, Inc. All
Rights reserved. The information contained herein is confidential.
<PAGE>
EXHIBIT H
---------
<PAGE>
This exhibit lists the current trademarks of MicroStrategy. This list will be
updated from time-to-time, by MicroStrategy, by giving OEM written notice.
MicroStrategy is currently updating this list.
PRODUCT ICONS
[ICON] MICROSTRATEGY ADMINISTRATOR
[ICON] MICROSTRATEGY AGENT
<PAGE>
[ICON] MICROSTRATEGY ARCHITECT
[ICON] MICROSTRATEGY EXECUTIVE
[ICON] MICROSTRATEGY OBJECTS
[ICON] MICROSTRATEGY PARTNERS
<PAGE>
[ICON] MICROSTRATEGY SERVER
[ICON] MICROSTRATEGY TRAINING
[ICON] MICROSTRATEGY WEB
<PAGE>
[ICON] MICROSTRATEGY CONSULTING
[ICON] MICROSTRATEGY SUPPORT
[ICON] MICROSTRATEGY BROADCASTER
<PAGE>
PRODUCT LOGOS
- -------------
[logo for DSS Administrator]
[logo for DSS Agent]
[logo for DSS Architect]
[logo for DSS Broadcaster]
[logo for DSS Consulting]
[logo for DSS Executive]
[logo for DSS Objects]
[logo for DSS Partners]
[logo for DSS Server]
[logo for DSS Support]
[logo for DSS Training]
[logo for DSS Web]
<PAGE>
CORPORATE ART/TAG LINES
- -----------------------
[ARTWORK] MICROSTRATEGY FULL AGENT ART
[ARTWORK] CRYSTAL BALL ART
Crystal Ball on Every Desk
Information Like Water
<PAGE>
The Power of Intelligent E-Business
<PAGE>
PRODUCT WORDS
MicroStrategy Broadcaster
MicroStrategy Agent
MicroStrategy Executive
MicroStrategy Web
MicroStrategy Web SE (Standard Edition)
MicroStrategy Web PE (Professional Edition)
Strategy.com
MicroStrategy InfoCenter
MicroStrategy Office
MicroStrategy Architect
Object Manager
Warehouse Monitor
MicroStrategy Administrator
Information Broadcasting
Query Tone
Information Like Water
The Power of Intelligent E-Business
<PAGE>
EXHIBIT I
---------
<PAGE>
MicroStrategy
Software License
And Services Agreement
This Software License Agreement ("Agreement") is entered into by and between
MicroStrategy Incorporated ("MicroStrategy"), with its principal place of
business at 8000 Towers Crescent Drive, Suite 1400, Vienna, VA 22182, and
Exchange Applications ("Licensee"), with its principal place of business at the
address listed below. The terms of this Agreement shall apply to each Product
license granted and to all services provided by MicroStrategy under this
agreement.
1. DEFINITIONS
1.1 "Affiliate" shall mean any person, corporation or other entity which,
---------
directly or indirectly, controls or is controlled by, or is under common control
with, Licensee.
1.2 "Agent" shall mean any third party, other than an Affiliate, providing
-----
services to Licensee and under contract with Licensee.
1.3 "Confidential Information" shall mean, with respect to Microstrategy, the
------------------------
Products, Product information, trade secrets and technical information disclosed
by MicroStrategy in relation to this Agreement, the terms and pricing under this
Agreement, all information clearly identified by MicroStrategy as confidential
and all information disclosed hereunder by MicroStrategy in whatever form which
by its nature or type should reasonable be considered proprietary or
confidential. "Confidential Information" shall mean, with respect to Licensee,
trade secrets and technical information disclosed by Licensee in relation to
this Agreement, all information clearly identified by Licensee as confidential
and all information disclosed hereunder by Licensee in whatever form which by
its nature or type should reasonably be considered proprietary or confidential.
1.4 "Effective Date" shall mean, with respect to the Agreement, the date on
--------------
which the Agreement is signed by MicroStrategy and, with respect to a
MicroStrategy Sales Order Form, the date on which such MicroStrategy Sales Order
Form is signed by MicroStrategy.
1.5 "MicroStrategy Professional Services Sales Order Form" shall mean the
----------------------------------------------------
MicroStrategy document by which Licensee orders consulting and/or training
services. To be effective, the MicroStrategy Professional Services Sales Order
Form, must reference this Agreement and its Effective Date and be signed and
dated by both parties.
1.6 "MicroStrategy Product License Sales Order Form" shall mean the
----------------------------------------------
MicroStrategy document by which Licensee orders Product licenses and Technical
Support. To be effective, the MicroStrategy Product License Sales Order Form
must reference this Agreement and its Effective Date and be signed and dated by
both parties.
1.7 "MicroStrategy Sales Order Form" shall mean both the MicroStrategy Product
------------------------------
License Sales Order Form and the MicroStrategy Professional Services Sales Order
Form.
1.8 "Named User License" shall mean a license to use a Product under which only
------------------
one (1) identified User may access the Product.
1.9 "Product" shall mean any of the computer software programs identified in a
-------
duly executed MicroStrategy Product License Sales Order Form for which Licensee
is granted a license pursuant to this Agreement ("Software"); the user guides
and manuals for use of the Software ("Documentation"); and any and all Updates
to, or patches and fixes for, the Software and Documentation. The term
"Product" shall not include any code that has been modified or developed by or
for Licensee.
1.10 "Server" shall mean a uniquely identified logical computer with one or
-----
more CPUs on which the Product resided and which can be accessed by other
computers. For example, the term "Server" may refer to web servers, batch
servers and application servers.
1.11 "Server License" shall mean a license to use a server-based Product on one
---------
(1) Server under which only MicroStrategy Products may act as the user
interface.
1.12 "Technical Support Services" shall mean the maintenance and support
--------------------------
provided by MicroStrategy in accordance with MicroStrategy's then-current
technical support policies and procedures for the applicable Product(s).
Notwithstanding the foregoing, MicroStrategy shall provide mainten4ence and
support for the current Product release and any prior Product release that is
not more than twelve (12) months old.
1.13 "Update" shall mean any subsequent release of Software and /or
------
Documentation that is made generally available to licensees subscribing to
Technical Support Services at no additional charge other than media and handling
charges. Updates shall not include any release, option or future product that
MicroStrategy licenses separately.
<PAGE>
1.14 "User" shall mean an individual (employee or Agent) to whom License has
----
assigned an identification number for purposes of tracking use of a Product and
who is under an obligation to licensee to protect MicroStrategy's Confidential
Information. If and when a User no longer has access to the Product, Licensee
may allow an alternate User to assume the initial User'' identification number
and use the Product in place of the initial User.
1.15 "Territory" shall mean North America.
---------
2. PRODUCT LICENSE
2.1 Rights Granted.
A. License Grant. MicroStrategy grants to Licensee a non-exclusive and non-
transferable license to use the Software in object code form solely for
Licensee's own internal data processing operations, and to use the Documentation
in support of such use of the Software in the Territory. Use of the Products
must be consistent with the type of license grant specified in the MicroStrategy
Product License Sales Order Form. The Products may be used only by the number
of Users for whom, and on the number of Servers for which, license fees have
been paid and only in the Territory. Licensee shall not use the Products except
as specified in this Agreement and the applicable MicroStrategy Product License
Sales Order Form. Licensee shall assign each User and/or Server a unique
identification number. Notwithstanding any other restriction in this Agreement
or the license grant specified in any Product Sales Order Form. Licensee shall
have the right and license to use the Products to operate and provide services
on a time-sharing, service bureau or application service provider basis.
B. Right to Copy. MicroStrategy shall supply one copy of each Product licensed
under this Agreement to Licensee. Licensee may make object code copies of the
Software licensed under this Agreement for production purposes so long as the
total number of copies, including any copies supplied by MicroStrategy, does not
exceed the total number of Users for whom, and Servers for which, license fees
have been paid. Licensee may also make object code copies of the software
obtained under this Agreement for archival or backup purposes as is reasonably
necessary. Licensee may copy the Documentation so long as the total number of
copies, including any copies supplied by MicroStrategy, does not exceed the
total number of Users for whom, and Servers for which, license fees have been
paid. All titles, trademarks, copyright and restricted rights notices shall be
reproduced in all Product copies. All copies of the Products are subject to the
terms of this Agreement. Licensee shall not copy the Products except as
specified in this Agreement. Licensee shall not copy the Products except as
specified in this Agreement or a MicroStrategy Product License Sales Order Form.
C. Retention of Rights. MicroStrategy shall retain all title, copyright and
other proprietary rights in the Products. Licensee shall not acquire any
rights, express or implied, in the Products, other than those specified in this
Agreement.
D. Reverse Engineering. Licensee shall not reverse engineer, disassemble or
decompile the Software or cause or permit the reverse engineering, disassembly
or decompilation of the Software.
E. Unauthorized Use. Licensee shall not use the Products for third-party
training, except as may be authorized herein.
F. Other Products. Licensee acknowledges that MicroStrategy may deliver the
Products licensed under this Agreement to Licensee on media that contains all of
MicroStrategy's generally available Products. Licensee shall have no right to
use any software that may be delivered with the ordered Products for which
Licensee has not paid the applicable license fees.
G. Pre-Release Products. The terms and conditions of this Agreement shall not
apply to pre-release versions of the Products. Such Products shall be governed
by a separate pre-release agreement.
2.2 Audit.
A. Certification. At MicroStrategy's written request, not more frequently than
once per year, Licensee shall furnish MicroStrategy with a signed certification
verifying that the Products are being used pursuant to the provisions of this
Agreement and applicable MicroStrategy Product License Sales Order Form.
B. Audit. MicroStrategy may, at its expense, audit Licensee's use of the
Products upon reasonable prior written notice. Any such audit shall be
conducted during regular business hours at Licensee's facilities and shall not
unreasonably interfere with Licensee's business activities and shall be limited
to inspection of Licensee's applicable records. If an audit reveals that
Licensee has distributed or allowed use of the Products in excess of the use
permitted by this Agreement, Licensee shall pay MicroStrategy for such
unauthorized use based on the MicroStrategy price list in effect at the time the
audit is completed, together with interest thereon at the rate of 1.5% per month
or, if lesser, the maximum amount permitted by law. If the underpaid license
fees (but not including interest) exceed five percent (5%)
<PAGE>
of the license fees paid, the Licensee shall pay MicroStrategy's reasonable
costs of conducting the audit. MicroStrategy shall conduct audits more than
once per year.
2.3 Additional Terms for DSS Broadcaster Server. If Products include DDS
Broadcaster Server, you should be aware that this product requires Microsoft's
SQL Server product to operate. MicroStrategy is not providing any license to
SQL Server pursuant to this Agreement.
3. Technical Services
3.1 Technical Support Services. Subject to the payment by Licensee of the
applicable fees, Technical Support Services ordered by Licensee shall be
provided in accordance with the terms of this Agreement. If Licensee orders
Technical Support Services for a product, Licensee must order Technical Support
Services for all licensed copies of that product. Technical Support Services
shall be provided on an annual basis, beginning on the Effective Date of the
relevant MicroStrategy Product License Sales Order Form. Reinstatement of
lapsed Technical Support Services is subject to a reinstatement fee equal to the
Technical Support fees Licensee would have paid during the period of lapse.
3.2 Consulting and Training Services. Unless the parties to this Agreement
enter into a separate professional services agreement, MicroStrategy shall
provide consulting and training services agreed to by the parties under the
terms of this Agreement, including a Professional Services Schedule. All
consulting services shall be billed on a time and materials basis unless the
parties expressly agree otherwise in writing. Any consulting services acquired
from MicroStrategy shall be bid separately from the Product licenses, and
Licensee may acquire either Product licenses or consulting services without
acquiring the other.
3.3 Incidental Expenses. For any on-site services requested by Licensee,
Licensee shall reimburse MicroStrategy for all reasonable, actual travel and
out-of-pocket expenses incurred by MicroStrategy, its employees and consultants
in connection with such services. Upon request, MicroStrategy shall provide
reasonable supporting documentation for such expenses.
3.4 Remote Access. MicroStrategy shall be entitled to access Licensee's
computer network remotely in connection with the provision of Technical Support
Services and consulting services when establishing such access is reasonable
necessary and when an employee of Licensee authorizes such access, either orally
or in writing.
4. Term and Termination
4.1 Term. This Agreement shall remain in effect until it is terminated in
accordance with the provisions of this Section 4. Any and all licenses granted
hereunder shall terminate upon termination of the Agreement.
4.2 Termination by Licensee. Licensee may terminate any Product license or
this Agreement at any time, termination shall not, however, relieve Licensee of
the obligations specified in Section 4.4.
4.3 Termination for Material Breach. Either party may terminate this Agreement
or any license upon written notice if the other party breaches this Agreement
and fails to correct the breach within thirty (30) days following written notice
specifying the breach.
4.4 Effect of Termination. Termination of this Agreement or any license shall
not prevent either party from pursuing other remedies available to it, including
injunctive relief, nor shall such termination relieve Licensee's obligations to
pay all fees that have accrued prior to the termination date or are otherwise
owed by Licensee under any MicroStrategy Sales Order Form or other similar
ordering document under this Agreement. The parties' rights and obligations
under Sections 2.1 C and 2.1 D, and Articles 4, 5 and 7 shall survive
termination of this Agreement.
4.5 Handling of Products Upon Termination. If a license granted under this
Agreement expires or otherwise terminates, Licensee shall: (a) cease using the
applicable Products, and (b) certify to MicroStrategy within thirty (30) days
after expiration or termination that Licensee has destroyed or has returned to
MicroStrategy the Products and all copies thereof and any MicroStrategy
Confidential Information in Licensee's possession or control; provided, however,
that in the event that only certain licenses granted under this Agreement expire
or are terminated. Licensee may retain any Confidential Information and
Products that relate to the licenses it continues to hold. This requirement
applies to copies in all forms, partial and complete, in all types of media and
computer memory, and whether or not modified or merged into other materials. In
the event of any termination of this Agreement, MicroStrategy shall certify to
Licensee within thirty (30) days after expiration or termination that
MicroStrategy has destroyed or has returned to Licensee all of Licensee's
Confidential Information in MicroStrategy's possession or control.
5. Indemnity, Warranties, Remedies and Limitations of Liabilities
<PAGE>
5.1 Infringement Indemnity. MicroStrategy will defend and indemnify Licensee
against all damages, fines, penalties, assessments, liabilities, costs and
expenses, including reasonable attorneys' fees and court costs, (collectively,
"Damages") arising out of a claim that the Products infringe a third party
copyright, trade secret or U.S. patent, provided that: (a) Licensee promptly
notifies MicroStrategy of the claim in writing; (b) MicroStrategy has sole
control of the defease and all related settlement negotiations; and (c) Licensee
provides MicroStrategy with the assistance, information and authority necessary
to perform MicroStrategy's obligations under this Section. MicroStrategy shall
have no liability for any claim of infringement based on (1) use of a superseded
or altered release of Products if the infringement would have been avoided by
the use of a current, unaltered (unless altered by or on behalf of
MicroStrategy, or otherwise at MicroStrategy's direction) release of the
Products made available to Licensee; or (2) the combination of the Product with
other software, if such a claim would not have arisen except for such a
combination.
In the event the Products are held or believed by MicroStrategy to infringe,
MicroStrategy shall have the option, at its expense, to: (a) modify the Products
to be non-infringing (provided such modification does not materially degrade the
quality or performance of the Product); (b) obtain for Licensee a license to
continue using the Products; or if (a) and (b) are not reasonably available, (c)
terminate the license for the infringing Products and refund the license fees
paid for those Products, prorated over a three and one-half (3 1/2) year term
from the Effective Date of the applicable MicroStrategy Product License Sales
Order Form. This Section 5.1 states MicroStrategy's entire liability and
Licensee's exclusive remedy for infringement.
5.2 Warranties and Disclaimers.
A. Software Warranty. MicroStrategy warrants for a period of ninety (90) days
from the initial delivery of the Software (excluding Updates, patches and fixes)
that the unmodified Software obtained thereunder will perform in substantial
conformance with the technical specifications set forth in the Documentation.
MicroStrategy also warrants that until December 31, 2001, the unmodified
Software obtained thereunder (a) will not fail or produce incorrect results when
processing with four (4) digit dates for any year and (b) will function without
material interruption and without changes in operation (in either case
associated with the advent of the new century), before, during and after January
1, 2000 when processing with four (4) digit dates, assuming correct
configuration; provided, however, that MicroStrategy makes no warranty with
respect to any such failure or incorrect result that may arise due to: (i) the
quality of the data sought to be processed with the Software; (ii) the effect of
other software not licensed by MicroStrategy to Licensee or developed by
MicroStrategy for Licensee; or (iii) the use of the Software in an operating
environment or on a platform not specified by MicroStrategy.
B. Media Warranty. MicroStrategy warrants the CD-ROMs, diskettes or other
media on which the Software is provided to Licensee to be free of defects in
materials and workmanship under normal use for thirty (30) days from the
Effective Date of the applicable MicroStrategy Product Sales Order Form.
C. Disclaimers. THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
MicroStrategy does not warrant that the Products will meet Licensee's
requirements, that the Products will operate in the combination which Licensee
may select for use, that the operation of the Products will be uninterrupted or
error-free or that all Product errors will be corrected. To the extent Licensee
obtains any pre-production releases of Products, such Products are distributed
"as is" with no warranty of any kind.
5.3 Exclusive Remedies. For any breach of the warranties contained in Section
5.2, Licensee's exclusive remedy, and MicroStrategy's entire liability, shall
be:
<PAGE>
A. For Software. At MicroStrategy's sole discretion, the correction of
Software errors that cause breach of the warranty, replacement of such Software
or return of the license fees paid to MicroStrategy for the license of such
Software.
B. For Media. The replacement of defective media returned within thirty (30)
days of the Effective Date of the applicable MicroStrategy Product License Sales
Order Form.
5.4 Limitation of Liability.
A. Limitation of Liability. Except for (a) either party's breach of its
obligations under Section 7.1 (Confidentiality) and (b) MicroStrategy's
indemnity obligation in respect of third party Damages pursuant to Section 5.1
(Infringement Indemnity), IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR
LOSS OF PROFITS, REVENUE, DATA OR USE, INCURRED BY EITHER PARTY OR ANY THIRD
PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Except for (a) either party's
breach of its obligations under Section 7.1 (Confidentiality) and (b)
MicroStrategy's indemnity obligation in respect to third party Damages pursuant
to Section 5.1 (Infringement Indemnity), IN NO EVENT SHALL EITHER PARTY'S
LIABILITY FOR DAMAGES HEREUNDER EXCEED THE AMOUNT OF FEES PAID BY LICENSEE FOR
THE RELEVANT PRODUCT OR SERVICES GIVING RISE TO THE LIABILITY.
B. Allocation of Risk. The provisions of this Agreement allocate the risks
between MicroStrategy and Licensee, MicroStrategy's pricing reflects this
allocation of risk and the limitation of liability specified herein.
6. Payment Provisions
6.1 Invoicing and Payment. All fees shall be calculated based upon
MicroStrategy's prices in effect at the time of any quote or order, as
applicable. All fees shall be payable thirty (30) days from the date of
invoice, and shall be deemed overdue if they remain unpaid thereafter. Licensee
agrees to pay applicable shipping and handling charges. If Licensee's
procedures require it to issue a purchase order, Licensee shall issue a purchase
order, or alternative document acceptable to MicroStrategy, on or before the
Effective Date of the applicable MicroStrategy Sales Order Form. All Licensee
purchase orders or ordering documents shall be governed by the terms of this
Agreement. In no event shall the terms of any Licensee-issued purchase order be
given any force or effect.
6.2 Taxes. The fees listed in this Agreement or the applicable Sales Order
Form do not include taxes. If MicroStrategy is required to pay sales, use,
property, value-added or other taxes based on the licenses or services granted
in this Agreement or on Licensee's use of Products or services, then such taxes
shall be billed to and paid by Licensee. This Section shall not apply to taxes
based on MicroStrategy's income.
6.3 General Terms
7.1 Confidentiality
A. During the term of this Agreement, each party may have access to the other
party's Confidential Information. A party's Confidential Information shall not
include information that; (a) is or becomes a part of the public domain through
no breach of this Agreement; (b) was in the other party's possession prior to
the disclosure hereunder without an obligation of confidentiality to the
disclosing party; (c) is lawfully disclosed to the other party by a third party
without breach of any separate obligation of confidentiality to the disclosing
party; or (d) is independently developed by the other party without reliance on
the Confidential Information. Licensee shall not disclose the results of any
benchmark tests of the Products to any third party without MicroStrategy's prior
written approval.
B. The parties agree to hold each other's Confidential Information in
confidence during the term of this Agreement and for a period of four (4) years
after termination of this Agreement. The parties agree that, unless required by
the law, they shall not make each other's Confidential Information available in
any form to any third party (other than its employees and Agents) or to use each
other's Confidential Information for any purpose other than the implementation
of this Agreement. Each party agrees to take all reasonable steps to ensure
that Confidential Information is not disclosed or distributed by its employees
or agents in violation of the terms of this Agreement. Furthermore, Licensee
agrees not to use any Confidential Information of MicroStrategy to create any
computer software program or user documentation that is substantially similar to
any MicroStrategy product.
C. Each party shall retain all right, tittle and interest in and to its
Confidential Information, and the other party shall no acquire any right in
respect thereof except
<PAGE>
for the use contemplated by and in accordance with this Agreement.
7.2 Governing Law. This Agreement, and all matters arising out of or relating
to this Agreement, shall be governed by the laws of the State of New York,
excluding it conflicts laws.
7.3 Intentionally Omitted.
7.4 Notice. All notices, including notices of address change, required to be
sent under this Agreement, shall be in writing and shall be deemed to have been
given when mailed by first class mail to the relevant address listed in the
signature blocks of this Agreement or the address stated in any applicable
notice of change of address. To expedite order processing, Licensee agrees that
MicroStrategy may treat documents faxed by Licensee to MicroStrategy as original
documents; nevertheless, either party may require the other to exchange original
signed documents.
7.5 Severability. In the event any provision of this Agreement is held to be
invalid or unenforceable, the remaining provisions of this Agreement shall
remain in full force.
7.6 Waiver. The waiver by either party of any default or breach of this
Agreement shall not constitute a waiver of any other or subsequent default or
breach.
7.7 U.S. Government Restricted Rights. Products acquired with United States
Federal Government funds or intended for use within or for any United Stated
federal agency are provided with "LIMITED RIGHTS" and "RESTRICTED RIGHTS" as
defined in DFARS 252.227-7013 and/or FAR 52.227-19.
7.8 Export Administration. Licensee agrees to comply fully with all relevant
export laws and regulations of the United States ("Export Laws") to assure that
neither the Products nor any direct product thereof is exported, directly or
indirectly, in violation of Export Laws; or is intended to be used for any
purposes prohibited by the Export Laws, including, without limitation, nuclear,
chemical or biological weapons proliferation.
7.11 Force Majeure. Neither party will be responsible for failure of
performance, other than for an obligation to pay money, due to causes beyond its
control, including, without limitation, acts of God or nature; labor disputes;
sovereign acts of any federal, state or foreign governments; or shortage of
materials.
7.12 Relationship between the Parties. MicroStrategy is an independent
contractor. Nothing in this Agreement shall be construed to create a
partnership, joint venture or agency relationship between the parties.
7.13 Press Release. The parties agree that each party may issue an initial
press release announcing that Licensee is now a customer of MicroStrategy and
MicroStrategy may use Licensee's name in its customer lists. Neither party may
announce the terms of this Agreement.
7.14 Entire Agreement and Construction
A. Entire Agreement. This Agreement constitutes the complete agreement between
the parties and supersedes all prior agreements and representations, written or
oral, concerning the subject matter of this Agreement. This Agreement may not
be modified or amended except in a writing signed by a duly authorized
representative of each party; no other act, document, usage or custom shall be
deemed to amend or modify this Agreement.
B. Construction. It is expressly agreed that the terms of this Agreement and
any MicroStrategy Product License Sales Order Form shall supersede the terms in
any Licensee purchase order or other ordering document. This Agreement shall
also supersede all terms of any unsigned or "shrink-wrap" license included in
any package, media or electronic version of MicroStrategy furnished software and
any such software shall be licensed under the terms of this Agreement. When
executed and dated by both parties, any MicroStrategy Sales Order Forms that
reference this Agreement and its Effective Date shall be incorporated herein.
<PAGE>
Licensee (company name and address)
[MicroStrategy logo] [Exchange Applications logo]
8000 Towers Crescent Drive
Vienna, VA 22182 One Lincoln Plaza
Phone: (703) 848-8600 Boston, MA 02111
Fax: (703) 848-8748 Phone: (617) 737.2244
Fax: (617) 443.9143
Name /s/ Sanju Bansal Name: [Illegible]
----------------
Title: Sanju Bansal Title: ________________________
--------------------------
Signature: COO Signature:______________________
----------------------
<PAGE>
MicroStrategy
Escrow Addendum
This Escrow Addendum (the "Escrow Addendum") made and entered into as of
the latest date below the signatures of the parties, by and between
MicroStrategy and Licensee, amends the Software License and Services Agreement
between MicroStrategy and Licensee dated December 28, 1999 (the "Agreement").
All references are to the Agreement. Unless otherwise defined in this Escrow
Addendum, capitalized terms shall have the same meaning as in the Agreement.
MicroStrategy agrees to keep, an maintain current, a copy of the source
code for the Products licensed by Licensee in escrow with a third party (the
"Escrow Agent"), pursuant to an escrow agreement by and between MicroStrategy
and the Escrow Agent (the "Escrow Agreement"). MicroStrategy further agrees to
name Licensee as a third-party beneficiary to the Escrow Agreement within ten
(10) business days after execution of this Escrow Addendum.
MicroStrategy shall pay all costs of providing and maintaining the source
code in escrow, except the annual license registration fee, which shall be paid
by Licensee. Changes made to the source code from time to time by MicroStrategy
shall be delivered to the Escrow Agent in a timely fashion following the general
release of that version of the licensed Product.
Licensee agrees to seek release of the source code for any Product only in
accordance with the procedures set forth in the Escrow Agreement.
Notwithstanding anything to the contrary in the Escrow Agreement, Licensee shall
be entitled to seek release of the source code for a Product only in the event
that: (a) MicroStrategy ceases to offer Technical Support Services for the
Product; (b) MicroStrategy files or is the subject of the filing of a petition
for relief under the United States Bankruptcy Code except when such filing is
for purposes or reorganization or is dismissed within sixty (60) days of the
filing; or (c) MicroStrategy ceases business operations generally.
If the source code is released to Licensee, Licensee shall have a limited,
non-exclusive, non-transferrable license to use such source code only to support
Licensee's use of the Products as authorized under the Agreement and for no
other purposes whatsoever. Licensee shall have no right to reproduce the source
code, except for one (1) archival copy, or grant access to the source code to
any third party, except that Licensee's Agents may access the source code so
long as Licensee assumes full responsibility for any failure of such Agents to
comply with the terms of the Agreement or this Addendum. Licensee acknowledges
and agrees that all title and proprietary rights in and to the source code shall
remain at all times with MicroStrategy, and nothing contained herein shall
operate or be deemed to transfer to Licensee any ownership interest or
proprietary rights in or to the source code. The source code shall be
considered Confidential Information of MicroStrategy and be treated as such.
The license to use the source code shall commence as of the date of
delivery of the source code to Licensee and shall expire upon expiration or
termination of the licenses for the Products to which the source code relates.
Notwithstanding the foregoing, Licensee shall return the source code and all
copies thereof to MicroStrategy in the event that MicroStrategy resumes offering
Technical Support Services for the Products and continues to do so for a period
of sixty (60) days, or resumes and maintains normal business operations for a
period of sixty (60) days, depending upon the circumstances entitling Licensee
to seek release of the source code.
EXCEPT AS AMENDED AND MODIFIED by this Escrow Addendum, the Agreement shall
otherwise remain in full force and effect, the parties hereto hereby ratifying
and confirming the same.
IN WITNESS WHEREOF, MicroStrategy and Licensee have caused this Escrow
Addendum to be duly executed.
EXCHANGE APPLICATIONS MICROSTRATEGY INCORPORATED
______________________________ ______________________________________
Signature Signature
_______________________________ ______________________________________
Name and Title (Please Print) Name and Title (Please Print)
_______________________________ _______________________________________
Date Date
<PAGE>
Exhibit J
This Exhibit details the delivery schedule for the MicroStrategy Software.
I. Delivery Stages
MicroStrategy will deliver the software set forth below on or before the dates
indicated below. For example, MicroStrategy will deliver all of the
MicroStrategy Software for Stage 1 on or before January 15, 2000. Each stage
may contain several Phases, as outline in Section II below.
<TABLE>
<CAPTION>
Stage 1 Stage 2 Stage 3 Stage 4
------- ------- ------- -------
Delivery on Delivery on Delivery on Delivery on
Or before or before or before or before
1/15/00 4/15/00 7/15/00 9/30/00
-------- -------- -------- -------
MicroStrategy Software Deliverable Deliverable Deliverable Deliverable
- ---------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
MicroStrategy Intelligence Server (4 proc) 310 225 225 Unlimited
MicroStrategy Web Server (4 proc) 310 225 225 Unlimited
MicroStrategy Broadcast Server 310 225 225 Unlimited
MicroStrategy InfoCenter Server 325 138 138 Unlimited
MicroStrategy Development Bundle 310 225 225 Unlimited
MicroStrategy Architect 310 225 225 Unlimited
MicroStrategy Administrator 310 225 225 Unlimited
MicroStrategy Executive 310 225 225 Unlimited
MicroStrategy Enterprise Reporting Module 325 138 138 Unlimited
MicroStrategy Agent 106,000 362,000 362,000 Unlimited
MicroStrategy Web PE 1,700,000 950,000 950,000 Unlimited
MicroStrategy Web SE 1,700,000 950,000 950,000 Unlimited
MicroStrategy Broadcaster 3,500,000 2,250,000 2,250,000 Unlimited
</TABLE>
<PAGE>
II. Delivery Phases.
Each Stage set forth above, will have the following phases:
<TABLE>
<CAPTION>
Phase I Phase II Phase III Phase IV Phase V Phase VI Phase VII Phase VIII Total
------- -------- --------- -------- ------- -------- --------- ---------- -----
<S> <C>
MicroStrategy
Intelligence
Server (4 proc) 62 62 62 62 62 225 225 Unlimited 760
MicroStrategy
Web Server(4 proc) 62 62 62 62 62 225 225 Unlimited 760
MicroStrategy
Broadcast
Server 62 62 62 62 62 225 225 Unlimited 760
MicroStrategy
InfoCenter
Server 65 65 65 65 65 138 138 Unlimited 600
MicroStrategy
Development
Bundle 62 62 62 62 62 225 225 Unlimited 760
MicroStrategy
Architect 62 62 62 62 62 225 225 Unlimited 760
MicroStrategy
Executive 62 62 62 62 62 225 225 Unlimited 760
MicroStrategy
Enterprise
Reporting
Module 65 65 65 65 65 138 138 Unlimited 600
MicroStrategy
Agent 21,200 21,200 21,200 21,200 21,200 362,000 362,000 Unlimited 830,000
MicroStrategy
Web PE 340,000 340,000 340,000 340,000 340,000 950,000 950,000 Unlimited 3,600,000
MicroStrategy
Web SE 340,000 340,000 340,000 340,000 340,000 950,000 950,000 Unlimited 3,600,000
MicroStrategy
Broadcaster 700,000 700,000 700,000 700,000 700,000 2,250,000 2,250,000 Unlimited 8,000,000
Delivery on or Delivery Delivery Delivery
behalf On or before on or on or on or
1/15/00 before before before
4/15/00 7/15/00 9/30/00
</TABLE>
<PAGE>
EXHIBIT K
---------
"Competitor" means any third party or entity that offers for sale to the
general public a competing software product in relation to the disclosing
party's generally available software products.
<PAGE>
EXHIBIT L
---------
<PAGE>
STRATEGY.COM
------------
AFFILIATE AGREEMENT
-------------------
This Strategy.com Affiliate Agreement is made on this 28th day of December, 1999
(the "Effective Date"), by and between MicroStrategy Incorporated
("MicroStrategy"), a Delaware Corporation and Exchange Applications, Inc., a
Delaware corporation ("Affiliate").
RECITALS
A. MicroStrategy has developed Strategy.com, the Personal Intelligence Network,
a new network that distributes to its customers personalized, real-time
information in various subject categories (e.g., news, weather, sports) via
numerous receiving devices (e.g., email, pager, telephone).
B. Affiliate desires to acquire a license from MicroStrategy to market these
personalized programming services to Affiliate's customers.
C. MicroStrategy desires to grant Affiliate a license to market these
personalized programming services to Affiliate's customers.
AGREEMENT
In consideration of the mutual promises contained herein, the Parties agree
as follows:
1. DEFINITIONS.
------------
1.1 "Advertising Inventory" means the space available in the Services
distributed over the Local Network for the placement of advertisements.
Advertising Inventory can refer to a single space, for example, a banner ad
at the top of an email alert, or it can refer to the cumulative amount of
such spaces in the Services delivered over the Local Network.
1.2 "Affiliate Subscriber" means an individual who has completed the Co-branded
Subscription Web Page and agrees to adhere to the terms and conditions of
the Strategy.com subscription agreement.
1.3 "Agreement" means the terms and conditions contained in this Agreement, any
Attachments to this Agreement and any other documents made a part of this
Agreement or incorporated into this Agreement by reference, including any
written amendments to this Agreement that have been signed by an authorized
representative for each Party.
1.4 "Basic Services" means the part of the Services determined by MicroStrategy
to be the Basic Services and may include the types of information set forth
in the Scope of Services section set forth in subparagraph 2.1. Basic
Services specifically exclude Premium Services.
1.5 "Co-branded" means an email message, web page, text pager message, or any
other medium in which the trademarks, service marks and trade dress of
Affiliate and the Network appear in approximately equal weight.
<PAGE>
1.6 "Co-Branded Subscription Web Page" means the subscription interface that
Affiliate Subscribers access via Affiliate's website and use to give
identifying and billing information, as well as indicate their preferences
for the types of information about which they want to be alerted (e.g.,
news about one's employer, updates on a favorite sports team, a forecast
for snow for Aspen). The Co-branded Subscription Web Page is the only
Co-branded space on the Web.
1.7 "Channel" means a personalized information service in which Content is
aggregated, formatted and grouped into a unique subject category (e.g.,
finance, weather, sports) and delivered to individuals using various
delivery mechanisms (e.g., email, pager, fax) through the Network. The
initial Channels are expected to be: (1) Strategy.com Finance;
(2) Strategy.com Weather; (3) Strategy.com News;(4) Strategy.com Sports and
(5) Strategy.com Traffic.
1.8 "Confidential Information" means the Content, the trade secrets and
technical information of either Party disclosed in relation to this
Agreement; the terms and pricing under this Agreement; and all information
clearly identified in writing as confidential.
1.9 "Content" means both MicroStrategy and Procured Content.
1.10 "Electronic Commerce Service" means a service that offers Subscribers, via
the Network, the opportunity to purchase or sell any good or service
through an electronic medium such as the Internet or a two-way pager.
For example, if through the Strategy.com Finance Channel, a Subscriber is
offered an opportunity to purchase or sell a stock via a two-way pager or
e-mail, then that offer would be an Electronic Commerce Service.
1.11 "Local Network" means the limited part of the Network that delivers the
Services to only Affiliate Subscribers (i.e., the parts of the Services
that are Co-branded with Affiliate and Network Logos, or are intended to be
Co-branded pursuant to Paragraph 2.)
1.12 "MicroStrategy Content" includes any design elements, graphics,
formatting, facts, narratives, information, other textual materials, SQL
code, data models and other software, code or technology developed by
MicroStrategy for use with the Services.
1.13 "Network" means Strategy.com, the network formed by MicroStrategy to
deliver the Services and provide related customer support.
1.14 "Party" refers to MicroStrategy or Affiliate individually; "Parties"
refers to MicroStrategy and Affiliate collectively.
1.15 "Premium Services" means the part of the Services determined by
MicroStrategy to be the Premium Services, which are likely to contain
specialized information that is highly valued by a limited number of
Subscribers. Premium Services specifically exclude Basic Services.
<PAGE>
1.17 "Procured Content" means any and all design elements, graphics,
formatting, facts, narratives, information, stories, photographs, maps,
illustrations and other materials relating to the Services created by a
third party and licensed by MicroStrategy for use with the Services. The
providers of Procured Content are referred to herein as "Content
Providers".
1.18 "Services" means the Content, including the Basic and Premium
Services, that MicroStrategy makes available to Affiliate Subscribers over
the Local Network.
1.19 "Web" means the World Wide Web. The meaning of Web does not include
electronic mail messages ("email") distributed through the Network.
2. LICENSES.
--------
2.1 Scope of Services: MicroStrategy will make available to Affiliate
Subscribers the Basic and Premium Services as set forth below on the
Strategy.com Finance Channel and will make available other Strategy.com
channels when they become generally available.
(a) The Basic and Premium Services: MicroStrategy has a commitment to
provide a set of Basic Services in order to offer "one stop shopping"
for personal intelligence. MicroStrategy may make available to
Affiliate Subscribers the Basic Services distributed through the
Channels listed above and also may make available Premium Services
distributed through these Channels. MicroStrategy may also make
available to Affiliate new Channels, when they become generally
available, under the same terms and conditions set forth in this
Agreement.
(b) Affiliate's Right to Opt Out of Certain Services: Affiliate is under no
obligation to offer any particular Channel or Service, and may decide,
for any reason, that any Channel or Service is inappropriate for
delivery under the brands of both Affiliate and the Network. These
reasons may include: (a) the Service is dilutive to the Affiliate brand
or inconsistent with Affiliate's image; (b) Affiliate would like to see
how other markets are reacting to new programming before offering it to
Affiliate customers, or (c) Affiliate believes the subscription fee too
high or the royalty share too low.
2.2. Marketing the Services: MicroStrategy grants to Affiliate a non-
transferable, nonexclusive, worldwide license to market to Affiliate customers
the Channels and Services made available to Affiliate Subscribers pursuant to
subparagraph 2.1, subject to the terms of this Agreement.
2.3 Co-branding of Services: The Co-branded Subscription Web Page and email
messages sent to Affiliate Subscribers as part of the Services will be Co-
branded with both an Affiliate and Network Logo, and will contain the trade
dress of both the Affiliate and the Network. In addition, it is understood
between the Parties that the Services delivered via wireless and telephonic
receivers will also be Co-branded when such Co-branding is technologically
<PAGE>
and commercially feasible. MicroStrategy also retains the right to
Co-brand any other parts of the Services that are delivered to Affiliate
Subscribers. The parts of the Services that are Co-branded, or are
intended to be Co-branded under this subparagraph, make up the Local
Network. Use of Network logos shall be subject to the guidelines issued by
MicroStrategy from time to time.
2.4. Use of Service Marks: MicroStrategy grants to Affiliate a limited, non-
transferable and revocable license to use the Network service marks hosted on
the MicroStrategy server and made available to Affiliate via an absolute link
for the limited purpose of advertising, promoting and marketing the Services and
Network to Affiliate customers, including without limitation, for the marketing
commitments set forth in this Agreement. Affiliate shall not use said marks for
any other purpose. Affiliate grants to MicroStrategy a limited, non-
transferable and revocable license to use the Affiliate service marks provided
by Affiliate or hosted on Affiliate's server and made available to MicroStrategy
via an absolute link, to Co-brand the Services as set forth in this Agreement
and to advertise, promote and sell the Services and Network, including, without
limitation, to Affiliate customers. MicroStrategy shall not use said marks for
any other purpose.
2.5 Subscription Data: MicroStrategy grants to Affiliate a royalty-free
license to access and use the Subscription Data collected by MicroStrategy and
associated with Affiliate Subscribers in conformance with Affiliate's Privacy
Policy, attached hereto as Attachment A, so long as the Affiliate's Privacy
Policy does not violate any applicable laws or MicroStrategy's ethical mores.
2.6 Seat on Programming Council: Affiliate shall be entitled to a
membership seat on the Network's Programming Council, through which seat it may
offer input regarding the Network's programming.
2.7 Reservation of Rights: Affiliate shall not acquire any rights, express
or implied, in the Network, Services, or Content other than those specified in
this Agreement. MicroStrategy and/or its Content Providers shall retain all
title, copyright and other proprietary rights in the Network, Services and
Content. All rights not expressly granted herein are reserved by MicroStrategy.
3. MICROSTRATEGY RIGHTS AND RESPONSIBILITIES.
-----------------------------------------
3.1 The Network: MicroStrategy shall form the Network and provide maintenance
and support for the Services, including customer service and engineering
support. The Network shall provide the operational infrastructure necessary for
the delivery of the Services, including all required hardware, information
feeds, Procured Content and MicroStrategy Content.
3.2 Subscriptions, Fees, Packages and Pricing: MicroStrategy will be the sole
entity to enter into subscription agreements with Affiliate Subscribers and
collect subscription fees. MicroStrategy will have complete pricing authority
with respect to the Services, including the Basic and Premium Services.
<PAGE>
3.3 Creation of Co-branded Subscription Web Page: MicroStrategy will, at no
cost to Affiliate, create a Co-branded, custom web subscription interface for
use by Affiliate's Subscribers. The Co-branded Subscription Web Page will be
co-branded with both an Affiliate and Network logo and contain the trade dress
of both the Affiliate and the Network.
3.4 Advertising Inventory/Electronic Commerce Services: MicroStrategy will be
responsible to price and sell the Advertising Inventory and Electronic Commerce
Services (the "ECS") and to collect all fees associated with the sale of such
Advertising Inventory and ECS. MicroStrategy's failure to establish advertising
on the Service or to create the ECS, for any reason, shall not be a breach of
this Agreement.
3.5 Customization of the Service: MicroStrategy will make available to
Affiliate, on a time and materials basis, specialized engineering and consulting
services to: (a) create additional custom features, such as development and
support for new devices offered by Affiliate or customization of styles and
formats of existing Network services, and (b) provide custom integration
services, such as determining appropriate protocols, custom data loads,
optimizing service schedules, and working within current infrastructure
requirements such as bandwidth constraints. The charges for the time spent by
MicroStrategy engineers and consultants on such services will be at
MicroStrategy then current rates for engineers and consultants.
3.6 Editorial Control/Right to Reject Advertisements: MicroStrategy reserves
complete editorial control and freedom in the form and content of the Services
and may alter the same from time to time. In addition, MicroStrategy reserves
the right to reject any advertisement for any reasonable commercial purpose,
including, without limitation, because MicroStrategy believes the advertisement
to be: (a) indecent, (b) discriminatory on the basis of race, gender or
ethnicity, (c) in violation of any federal, state or local law or regulation,
(d) for a direct competitor of MicroStrategy or the Network or (e) requires a
technology for distribution that the Network cannot support.
3.7 Subscription Data: MicroStrategy will use the subscription data collected
by MicroStrategy and associated with Affiliate Subscribers in accordance with
the MicroStrategy Privacy Policy, such policy attached as Attachment B.
3.8 Modification or Cancellation of a Channel or Service: MicroStrategy may
modify without notice any Channel or Service, including any Basic or Premium
Service, for any reason whatsoever, including, if the provision of all or part
of such Channel or Service: (a) becomes the subject of a claim of infringement
of third-party ownership rights; (b) becomes illegal or contrary to any
applicable law or (c) depends on an agreement between MicroStrategy and a third
party, and that agreement is re-interpreted, modified or terminated for any
reason or breached by the third party and as a result MicroStrategy is unable to
continue to provide all or part of the Channel or Service upon terms reasonably
acceptable to MicroStrategy. If any of the foregoing events occurs,
MicroStrategy's sole obligation will be to use commercially reasonable efforts
to procure substitute content.
4. AFFILIATE RIGHTS AND RESPONSIBILITIES.
--------------------------------------
<PAGE>
4.1 Marketing Commitments: Affiliate will make at least the following marketing
commitments to promote the Services as delivered over the Local Network:
(a) Affiliate and MicroStrategy may issue a joint press release announcing
this relationship, but not its financial terms, within ten days of the
execution of the Agreement and Affiliate agrees to support secondary
press releases (e.g., announcement of new upgrades to the services).
(b) Affiliate will give prominent placement of the Strategy.com logo on
Affiliate's homepage (e.g., the logo should, at the least, be "above
the fold") and ensure that "clicking" on the logo will transport the
customer to a Co-branded part of the Strategy.com wesbite.
4.2 No Right to Modify the Services:Other than the Affiliate's right to opt out
of certain services, the Parties do not expect that Affiliate will ever be in a
position to alter the Services or the Content prior to their delivery to
Affiliate Subscribers. To the extent that Affiliate is ever in such a position,
Affiliate shall display the Services in the exact form in which they are
received by Affiliate, and shall not modify or edit any Service without
MicroStrategy's prior, written consent. In addition, Affiliate shall comply
with any and all limitations or restrictions placed by MicroStrategy or any
third party provider of Procured Content on the use, display or distribution of
any of the Content or Services.
4.3 Compliance with Applicable laws: Affiliate shall comply with all applicable
international, national, state, regional and local laws and regulations in
performing its duties hereunder and in any of its dealings with respect to the
Services.
4.4 Protection of MicroStrategy's Intellectual Property: Affiliate shall use
commercially reasonable efforts to protect the rights of MicroStrategy and its
Content Providers in all applicable trademarks, patents, logos, service marks,
copyrights and trade secrets including that:
(a) Personal, Noncommercial Use of Subscribers: Affiliate acknowledges that
the Services are provided to the Subscriber for the Subscriber's
personal, noncommercial use and that the Subscriber shall be prohibited
from distributing or otherwise giving access to the Services or Content
to any third party. Accordingly, Affiliate agrees not to cause or
permit any Subscriber to use the Services or Content for any purpose
other than for Subscriber's personal, noncommercial use or from
distributing or otherwise giving access to the Services or the Content
to any third party, unless otherwise permitted in writing by
MicroStrategy.
(b) Derivative Works/Reverse Engineering: Affiliate agrees not to cause or
permit anyone to modify or create any derivative work of the Services
or Content or to adapt the Services or Content for use on any computer
system, or to reverse assemble, decompile or reverse engineer, or
otherwise attempt to derive the source
<PAGE>
code for the Services, or to otherwise take any action in derogation of
the intellectual property rights of MicroStrategy or its Content
Providers.
(c) What to do if unauthorized use: If Affiliate learns of any misuse or
unauthorized distribution of the Services, including, without
limitation, any Subscriber misuse or distribution, Affiliate shall
immediately notify MicroStrategy, Director of Contracts, and cooperate
fully with MicroStrategy to limit any damages to MicroStrategy or its
Content Providers. Affiliate further agrees not to use MicroStrategy
and Network trademarks and service marks other than as provided for in
this Agreement.
4.5 Costs of Affiliate Obligations: Except as expressly provided herein or
agreed to in writing by MicroStrategy and Affiliate, Affiliate shall pay all
costs and expenses incurred in the performance of Affiliate's obligations under
this Agreement.
4.6 Cooperation in Delivery of Services: Affiliate shall provide MicroStrategy
with all reasonable cooperation necessary to enable MicroStrategy to deliver the
Services.
4.7 Misleading Practices: Affiliate shall: (a) refrain from deceptive,
misleading or unethical practices in connection with providing the Services to
Affiliate Subscribers; (b) make no false or misleading representations with
regard to MicroStrategy, the Network or the Services; and (c) refrain from
publishing or employing, or cooperating in the publication or employment of, any
misleading or deceptive advertising material with regard to MicroStrategy, the
Network or the Services.
5. ROYALTIES AND PAYMENTS
----------------------
5.1 This Section is intentionally omitted.
-------------------------------------
5.2 Basic Services Royalty: MicroStrategy shall pay Affiliate a royalty equal
to forty percent (40%) of the Net Revenue associated with the Basic Services as
delivered over the Local Network, such revenue to be derived from subscription
fees, the sale of advertising inventory and commissions on e-commerce services.
For the purposes of this subparagraph, "Net Revenue" means the total dollar
amount actually collected by MicroStrategy minus taxes and third party costs,
including, without limitation, credit card fees, transaction fees, and fees paid
to, or for, advertising agencies, fulfillment houses, cost of collection and
carrier charges. For example, if MicroStrategy collects $100,000 in revenue
associated with the Local Network, and pays $15,000 in advertising agency fees,
$5000 to fulfillment houses, $2500 in credit card fees, and $200 in collection
fees, Net Revenue will equal $77,300. Accordingly, Affiliate will be paid 40%
of $77,300 or $30,920.
5.3 Premium Services Royalty: The royalty share for each Premium Service will
be determined on a case-by-case basis.
<PAGE>
5.4 Quarterly Reports: MicroStrategy will provide Affiliate with quarterly
reports regarding the matters with respect to the royalty obligations. The
reports due in any given quarter shall be provided within twenty (20) days of
the end of such quarter. The royalty payments due for any given quarter shall
be paid within thirty (30) days of the submission of the report; however, in no
event will payment be later than fifty (50) days of the end of the applicable
quarter.
5.5 Payment of Taxes: Affiliate shall be solely responsible for any and all
sales or use taxes of whatever nature, including without limitation federal,
state and local taxes and surcharges, applicable to Affiliate's marketing of the
Services.
6. WARRANTIES AND DISCLAIMERS.
6.1 Disclaimer of Completeness, Accuracy or Timeliness: The Content for the
Services are obtained from sources believed by MicroStrategy to be reliable.
MicroStrategy warrants that it will endeavor to ensure that the Content is
complete, accurate and timely and that there will be no interruption in the
Services. MicroStrategy does not, however, represent, warrant or guarantee such
completeness, accuracy or timeliness, nor that there will be no interruption in
the Services. In addition, MicroStrategy does not make any warranty as to the
results that may or may not be obtained by Affiliate or its Subscribers in
connection with this Agreement or the Services. MICROSTRATEGY EXPRESSLY
DISCLAIMS ALL WARRANTIES OF FITNESS OF THE SERVICES OR ITS CONTENT FOR A
PARTICULAR PURPOSE OR USE. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY WARRANTIES AND EACH PARTY HERETO SPECIFICALLY DISCLAIMS
ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NON-INFRINGEMENT.
6.2 EXPRESS DISCLAIMERS: THE EXPRESS WARRANTY SET FORTH ABOVE CONSTITUTES THE
ONLY WARRANTY WITH RESPECT TO THE SERVICES OR CONTENT. MICROSTRATEGY MAKES NO
OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND WHETHER EXPRESS OR IMPLIED
(EITHER IN FACT OR BY OPERATION OF LAW) WITH RESPECT TO THE SERVICES OR THE
CONTENT.
6.3 If Non-conformity: MicroStrategy shall have no obligation under the
warranty provisions set forth in this Paragraph for any nonconformity if caused
by: (a) Affiliate's or Affiliate Subscriber's incorporation, attachment or
engagement of any attachment, feature, program, or device to the Services, or
any part thereof, (b) accident; transportation; neglect or misuse; alteration,
modification, combination with materials not supplied by MicroStrategy, or
enhancement of the Services by Affiliate or Affiliate Subscriber or (c) use of
the Services by Affiliate or Affiliate Subscriber for other than the specific
purpose for which the Services were designed.
6.4 Remedy for Breach: For any breach of the warranties contained in this
Paragraph, Affiliate's exclusive remedy, and MicroStrategy's entire liability,
shall be, at MicroStrategy's sole discretion, the correction of errors that
cause breach of the warranty or replacement of such Services with substitute
Services.
<PAGE>
7. LIMITATION OF LIABILITY. IN NO EVENT WILL MICROSTRATEGY'S LIABILITY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE USE OR PERFORMANCE OF THE
CONTENT OR SERVICES EXCEED $1,000,000. MICROSTRATEGY WILL NOT BE LIABLE, UNDER
ANY THEORY OF LIABILITY INCLUDING BREACH OF CONTRACT, WARRANTY, TORT, OR
OTHERWISE, FOR ANY COSTS OF PROCUREMENT OF SUBSTITUTE PRODUCTS OR SERVICES OR
FOR ANY LOSS OF USE, INTERRUPTION OF BUSINESS, OR INDIRECT, SPECIAL, INCIDENTAL,
RELIANCE OR CONSEQUENTIAL DAMAGES OF ANY KIND. THESE LIMITATIONS SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY AND
REGARDLESS OF WHETHER MICROSTRATEGY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. The provisions of this Agreement allocate the risks between
MicroStrategy and Affiliate. MicroStrategy's pricing reflects this allocation
of risk and the limitation of liability.
8. INDEMNITY.
---------
8.1 Affiliate Indemnification: Affiliate shall indemnify and hold
MicroStrategy, and its affiliates and their respective officers, directors and
employees harmless from all settlements agreed to by Affiliate and all damages
and costs (including reasonable attorneys' fees) arising out of or relating to:
(a) any activities of Affiliate, including, without limitation, any activities
that constitute an infringement of any third-party copyright, patent or
trademark; (b) any misrepresentation or breach of representation or warranty of
Affiliate contained herein; or (c) any breach of any covenant or agreement to be
performed by Affiliate hereunder.
8.2 MicroStrategy Indemnification: MicroStrategy shall indemnify and hold
Affiliate and its respective officers, directors and employees harmless from all
settlements agreed to by MicroStrategy and all damages and costs (including
reasonable attorneys' fees) arising out of or relating to: (a) any
misrepresentation or breach of any representation or warranty of MicroStrategy
contained herein; (b) any breach of any covenant or agreement to be performed by
MicroStrategy hereunder; or (c) claims that the Services infringe any third
person copyright, patent or trademark; provided, that (i) the relevant claim
does not arise from any modification to the Services made by Affiliate or any
subscriber, or (ii) the relevant claim is not based on any Procured Content. In
the event that any such claim of infringement is asserted against Affiliate
based on any Procured Content, MicroStrategy's sole liability will be to assert
against the provider of such Procured Content any rights of indemnity it may
have with respect to such claim and Affiliate will be entitled to the benefits
of such indemnity. MicroStrategy commits to use reasonable commercial efforts
to seek indemnification clauses protecting MicroStrategy and its licensees
(including Affiliate) in its agreements for Procured Content.
8.3 Conditions for Indemnification: The obligations under this paragraph are
subject to the following conditions: (a) a Party seeking indemnification
pursuant to this paragraph (an "Indemnified Party") will give prompt notice to
the Party from whom indemnification is sought (the "Indemnifying Party"); (b)
the Indemnifying Party has sole control of the settlement, compromise,
negotiation and defense of any such action and (c) the Indemnified Party gives
all reasonably available cooperation, information, assistance and authority, at
the Indemnified
<PAGE>
Party's reasonable expense, to enable the Indemnifying Party to do so. To the
extent that a conflict of interest precludes counsel of the Indemnifying Party
from representing both Parties, the Indemnified Party may assume its own defense
but the cost of such defense shall be borne by the Indemnified Party.
9. PROTECTION OF PROPRIETARY MATERIAL AND INTELLECTUAL PROPERTY
------------------------------------------------------------
9.1 Proprietary Material: "Proprietary Material" shall mean any information or
data, in written, graphic or machine readable form which by its nature or type
should reasonably be considered proprietary or confidential or which the
disclosing party labels as being proprietary or confidential, provided, however,
that "Proprietary Material" does not include:
(i) Information which is or becomes available in the public domain other than
through disclosure by the receiving party (the "Recipient") in breach of
this Agreement;
(ii) Information disclosed or made available at any time to the Recipient by a
third party without restriction and without breach of any relationship of
confidentiality to the party having rights to such information (the
"Discloser");
(iii)Information independently developed by the Recipient where the Recipient
establishes that such development was accomplished without use of the
confidential information of the Discloser;
(iv) Information which was already known to the Recipient, without an obligation
of confidentiality to the Discloser, at the time of disclosure hereunder.
9.2 Use of Proprietary Material. Each party acknowledges and agrees that
Proprietary Material of the Discloser is confidential and constitutes a valuable
asset of the Discloser or (as applicable) of the Discloser's third-party
licensor. The Recipient shall not use any of the other party's Proprietary
Material for any purpose not specifically authorized in this Agreement, shall
hold such Proprietary Material in strict confidence, and shall not disclose such
Proprietary Material to any third party.
9.3 Access to Proprietary Material. Each party will limit access to the other
party's Proprietary Material to those employees and Authorized Contractors (as
defined below) whose use of or access thereto is necessary to the Recipient's
authorized use of such Proprietary Material. Each party has entered or will
enter into appropriate written agreements with its Authorized Contractors to
prevent the unauthorized use, disclosure or copying of the other party's
Proprietary Material and shall take all reasonable precautions to protect and
maintain the confidentiality of such Proprietary Material, including at a
minimum, those precautions which the Recipient employs to protect its own
confidential information, but not less than a reasonable degree of care. Each
party shall bear the responsibility for any breach of confidentiality by its
employees, contractors and consultants.
9.4 Authorized Contractor. "Authorized Contractor" shall mean each of a party's
contractors and consultants whose access to the Proprietary Material is required
for Recipient's authorized use of such Proprietary Material and with whom a
<PAGE>
party has executed a written agreement which prevents the unauthorized use,
disclosure or copying of the Proprietary Materials; provided, however, that in
no event shall any Competitor be permitted to be an Authorized Contractor
hereunder even if such person or entity is a consultant to or contractor of a
party. For Affiliate, "Competitor" means any person or entity that develops,
markets or licenses campaign management software.
9.5 Reverse Engineering and Third Party Access. Each party agrees not to cause
or permit the reverse engineering, reverse assembly or reverse compilation of
the other's Proprietary Material for any purpose, or to otherwise attempt to
derive source code from the other's Proprietary Material. Each party agrees not
to use, or allow any third party to use, any Proprietary Material of the other
party to aid in the development and/or marketing of any product similar to or
competitive with the other party's Proprietary Material. The Recipient shall not
disclose, publish, display or otherwise make available to any person any of the
other party's Proprietary Material or copies thereof without the express prior
written consent of the Discloser.
9.6 Copying and Proprietary Rights. The Recipient shall not duplicate, copy or
reproduce any of the other party's Proprietary Material, except with the prior
written consent of such party or as otherwise permitted under this Agreement.
All title, copyright and other proprietary rights to all of a Discloser's
Proprietary Material, including all furnished by to the Recipient and in all
copies made by the Recipient, shall be retained by such Discloser or (as
applicable) by its third party licensor. Neither party shall use any of the
other's Proprietary Material to create works that are based on the other party's
Proprietary Material.
9.7 Injunctive Relief. Each party recognizes and acknowledges that irreparable
damage might result to the other if Proprietary Material is improperly used or
disclosed by the Recipient. Accordingly, each party agrees that legal
proceedings at law or in equity, including injunctive relief, shall be
appropriate in the event of a breach of this Section of the Agreement.
9.8 Disclosure Required by Law. Nothing herein shall prevent the Recipient from
disclosing all or part of the other party's Proprietary Material as necessary
pursuant to the lawful requirement of a governmental agency or when disclosure
is required by operation of law; provided that prior requirement to disclose,
and (ii) cooperate reasonably with the Discloser in protecting against any such
disclosure or obtaining a protective order.
9.9 Survival. Each party's rights and obligations under this Section shall
survive any termination of this Agreement.
<PAGE>
9.10 Intellectual Property: Affiliate has paid no consideration for the use of
MicroStrategy's trademarks or copyrights, and nothing contained in this
Agreement will give Affiliate any right, title or interest in any of them except
as provided for herein. Affiliate acknowledges that MicroStrategy owns and
retains all trademarks, copyrights and other proprietary rights in the Services,
and agrees that it will not at any time during or after this Agreement assert
any interest in or do anything that may adversely affect the validity of any
trademark or copyright owned by or licensed to MicroStrategy. Affiliate
acknowledges that the Services consist of factual information gathered, selected
and arranged by MicroStrategy and its content providers by special methods and
at considerable expense; that all titles, formats and other descriptive headings
associated with the Services are the sole property of MicroStrategy and its
content providers; that MicroStrategy owns all rights in the data relating to
Affiliate Subscribers collected by MicroStrategy, and that Affiliate shall not
sell or otherwise dispose of or distribute the Services to any third party.
Upon notice thereof, Affiliate will act promptly to prevent any breach or
continuation of a breach by a subscriber of the provisions of this Agreement, or
its subscriber agreements, such action to include termination of services, if
required by MicroStrategy.
9.11 Termination and Proprietary Material: Upon expiration or termination of
this Agreement, Affiliate will immediately cease all display, advertising and
use of the Services, all MicroStrategy trademarks, trade names, logos or
designations and will not thereafter use, advertise or display an trademark,
trade name, logo or designation which is, or any part of which is, similar to or
confusable with any trademark, trade name, logo or designation associated with
any MicroStrategy product or service. In addition, Affiliate will cease all use
of the subscription data associated with Affiliate Subscribers and return all
such data to MicroStrategy within ten (10) days of termination.
9.4
10. TERM & TERMINATION.
-------------------
10.1 Term: This Agreement shall become effective on the Effective Date and
shall continue in effect for a period of twenty four (24) months (the "Initial
Term"). This Agreement shall thereafter renew for subsequent twelve (12) month
terms unless it is terminated by either party with ninety (90) days written
notice prior to the end of any term. This Agreement may also be terminated in
any of the following ways:
10.2 MicroStrategy Termination with Cure Period: This Agreement may be
terminated by MicroStrategy at any time in the event Affiliate fails to pay any
fee due hereunder within sixty (60) days following the date of notice of
nonpayment or in the event that Affiliate commits any other material default
hereunder, including, without limitation, a breach of confidentiality or a
violation of MicroStrategy's intellectual property rights, which Affiliate fails
to remedy within ten (10) days after having been notified in writing of the
default.
10.3 Affiliate Termination with Cure Period: This Agreement may be terminated by
Affiliate at any time in the event MicroStrategy fails to pay any royalty due
hereunder within sixty (60) days following the date of notice of nonpayment or
in the event that MicroStrategy commits a material default hereunder (such as
<PAGE>
a breach of confidentiality) which MicroStrategy fails to remedy within ten (10)
days after having been notified in writing of the default.
10.4 Immediate Termination for Cause: Either Party may terminate this Agreement
at any time without prior notice if. (a) a receiver is appointed for the other
Party or any of its property, the other Party makes an assignment for the
benefit of its creditors; any proceedings are commenced by, for or against the
other Party under any bankruptcy, insolvency or debtor's relief law; or the
other Party is liquidated or dissolved or (b) the other Party is in material
breach of any other written agreement between the Parties.
10.5 Survival: Paragraphs and subparagraphs 5.5, 6, 7, 8, 9, 10.5, 11, 12, 13,
16, and 17 of this Agreement shall survive the termination or expiration of this
Agreement for any reason.
11. CONTACTS OR NOTICES.
--------------------
11.1 Notice Requirements: All notices, demands or communications required or
permitted hereunder shall be in writing, delivered personally or by facsimile,
certified, registered or express mail (postage prepaid) at the respective
addresses set forth below (or at such other addresses as shall be given in
writing by either Party to the other). All notices, requests, demands or
communications shall be deemed effective upon personal delivery or on the
calendar day following the date of the telex, telegram, or electronic mail or
when received if sent by registered, certified or express mail.
11.2 Contacts: Contacts with MicroStrategy regarding this Agreement shall be
made with: Director of Contracts, MicroStrategy Incorporated, 8000 Towers
Crescent Drive, Vienna, Virginia 22182, Phone: 703-848-8657, Fax: 703-848-8748
Contact with Affiliate regarding this Agreement shall be made with the Affiliate
representative named below:
Affiliate:
12. INDEPENDENT CONTRACTOR. MicroStrategy's relationship to Affiliate in the
performance of this Agreement shall be that of an independent contractor, as
that term is understood generally at common law. Affiliate's relationship to
MicroStrategy in the performance of this Agreement shall be that of sales agent.
13. APPLICABLE LAW. This Agreement shall be interpreted, construed and governed
by the laws of the Commonwealth of Virginia, without regard to its conflict of
laws provisions.
<PAGE>
14. FORCE MAJEURE. MicroStrategy shall not be liable for any delay or failure
under this Agreement if such delay or failure is due to any cause beyond the
control of MicroStrategy, including, without limitation, restrictions of law or
regulations, labor disputes, acts of God or mechanical or electronic breakdowns.
MicroStrategy's obligations hereunder are subject to MicroStrategy's ability to
obtain and maintain any and all governmental licenses, permits or other
authorizations, and MicroStrategy's ability to comply with any and all laws,
regulations, orders and other governmental directives which may be imposed on
the Services or on MicroStrategy with respect to the Services.
15. ARBITRATION. Any dispute arising out of or related to this Agreement, which
cannot be resolved by negotiation, shall be settled by binding arbitration in
accordance with the American Arbitration Association as amended by this
Agreement. The costs of arbitration, including the fees and expenses of the
Arbitrator, shall be shared equally by the Parties unless the arbitration award
provides otherwise. Each Party shall bear the cost of preparing and presenting
its case. The Parties agree that this provision and the Arbitrator's authority
to grant relief shall be subject to the United States Arbitration Act, 9 U.S.C.
1-16 et seq. ("USAA"), the provisions of this Agreement, and the ABA-AAA code of
Ethics for Arbitrators in Commercial Disputes. In no event shall the Arbitrator
have the authority to make any award that provides for punitive or exemplary
damages. The Arbitrator's decision shall follow the plain meaning of the
relevant documents, and shall be final and binding. The award may be confirmed
and enforced in any court of competent jurisdiction. All post-award proceedings
shall be governed by the USAA.
16. ASSIGNMENT. Either Party may assign this agreement to any entity who
acquires all or substantially all of the assets or stock of the Party.
MicroStrategy shall also have the right to assign this Agreement, or assign any
of its rights and/or delegate any of its duties under this Agreement to the
Network or any subsidiary. In the event of any such assignment or delegation,
such an assignee, the Network or the subsidiary shall be afforded the same
protections as this Agreement affords the assigning Party.
17. MISCELLANEOUS. Nothing in this Agreement shall be construed to make either
Party an agent, joint venturer or partner of or with the other, and neither
Party shall have the right or authority to legally bind the other in any manner.
This Agreement may be amended only in a writing executed by both Parties. This
Agreement contains the entire agreement of the Parties with respect to the
subject matter herein, and supersedes all prior and contemporaneous proposals,
discussions, agreements, understandings and communications, whether written or
oral. The headings and sub-headings in this Agreement are intended only for the
convenience of the reader and should not be used in construing the meaning of
this document. This Agreement may be signed in counterparts, and each
counterpart shall be a part of the same whole.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective on the
Effective Date.
Exchange Applications, Inc. MicroStrategy Incorporated
<PAGE>
By: /s/ Sanju Bansal By: [Illegible]
-------------------- -------------------
Name: Sanju Bansal Name: _________________
--------------------
Title: COO Title: __________________
--------------------
Date: ____________________ Date: __________________
<PAGE>
EXHIBIT L (continued)
---------
<PAGE>
RIDER TO STRATEGY.COM
AFFILIATE AGREEMENT BETWEEN
EXCHANGE APPLICATIONS AND
MICROSTRATEGY INCORPORATED
The Strategy.com Affiliate Agreement between Exchange Applications, Inc.
("Master Affiliate") and MicroStrategy Incorporated ("MicroStrategy"), including
any Exhibits thereto, and dated December 28, 1999 (the "Agreement") is hereby
amended with regard to the following provisions. All defined terms and
references are to the Agreement.
Master Affiliation: MicroStrategy grants to Exchange Applications the right to
become a Master Affiliate. Master Affiliate will receive the royalties set forth
below by referring and actively assisting in signing up other entities as
Strategy.com affiliates (each a "Referred Affiliate"). MicroStrategy retains the
right to control the terms of affiliation for all new affiliates.
(a) Referral Process: Master Affiliate will receive Master Affiliate
Royalties (as defined below) when the following conditions are met:
(i) Master Affiliate registers the account by submitting a completed
form to MicroStrategy's Director of Contracts. The form will
list the account name, account contacts, description of the
opportunity and the Master Affiliate contact.
(ii) MicroStrategy does not reject the referral within ten (10)
business days of its receipt of the referral. MicroStrategy
retains the right to reject a referral because MicroStrategy is
already engaging the referral or MicroStrategy is in a position
where it does not want to, or cannot, do business with the
referred company.
(iii) Master Affiliate undertakes the sales activity.
(iv) MicroStrategy is not required to conduct more than three
executive sales calls or two product demonstrations.
(v) an agreement is executed between the Referred Affiliate and
MicroStrategy within one hundred twenty (120) days of the
referral registration.
(b) Master Affiliate Royalties. For the term of the Agreement and pursuant
to subsection (a) of this Rider, for every credited Referred Affiliate,
MicroStrategy will pay Master Affiliate a royalty of forty percent (40%) of the
Licensing Fee actually collected by MicroStrategy from any Referred Affiliate
and fifteen percent (15%) of the Net Royalty Income from the Local Network of
the Referred Affiliate ("Master Affiliate Royalties"). To determine the "Net
Royalty Income" MicroStrategy will determine (i) the Net Revenue associated with
the Local Network of the Referred Affiliate, (ii) subtract the royalty paid the
Referred Affiliate and (iii) multiply the remainder by fifteen percent (15%).
<PAGE>
(c) Quarterly Reports: MicroStrategy will report and pay its royalty
obligations under this Rider, pursuant to the Quarterly Reports mandated by
the Agreement.
(d) Term of Master Affiliate Royalty Provisions For Any One Referred
Affiliate. Master Affiliate will receive Master Affiliate Royalties for any
particular Referred Affiliate for a period of two years, commencing from the
date when the Referred Affiliate first becomes an affiliate.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective on
the Effective Date.
Exchange Applications, Inc. MicroStrategy Incorporated
By: [Illegible] By: /s/ Sanju Bansal
----------------- -------------------
Name: ________________ Name: Sanju Bansal
----------------
Title: _________________ Title: COO
---------------
Date: _________________ Date: ___________________
<PAGE>
Exhibit 10.11
[Exchange Applications Logo]
SOFTWARE LICENSE AGREEMENT
Effective this 28th day of December, 1999 (the "Effective Date"), Exchange
Applications, Inc. ("Exchange"), with a principal place of business at One
Lincoln Plaza, 89 South Street, Boston, MA 02111, and MICROSTRATEGY INCORPORATED
("Licensee"), with a principal place of business at 8000 Towers Crescent Drive,
Vienna, Virginia 22182, agree that the following terms and conditions will
govern each Product Schedule submitted by Licensee and accepted by Exchange for
Exchange's Licensed Software.
- -------------------------------------------------------------------------------
1. Definitions
1.1 "Authorized Contractor" means each of Licensee's contractors and
consultants whose access to the Licensed Software is required for Licensee's
authorized use of the Licensed Software, and with whom Licensee has executed a
written agreement which prevents the unauthorized use, disclosure or copying of
the Proprietary Materials; provided, however, that in no event shall any
Competitor be permitted to be an Authorized Contractor hereunder, even if such
person or entity is a consultant to or contractor of Licensee. "Competitor"
means any person or entity which develops, markets or licenses campaign
management software.
1.2 "Client Computer" means each single-user computer on which the client
component of the Licensed Software (the "Client Software") is installed or used.
1.3 "Derivative Work" means any revision, modification, translation,
abridgment, condensation, expansion, or any other form of work that is based on
the Licensed Software or any Proprietary Material of Exchange. Derivative Work
shall also mean any compilation that incorporates any portion of any Licensed
Software or Exchange Proprietary Material.
1.4 "Designated Computer Server" means the computer(s) on which the server
components of the Licensed Software (the "Server Software") will be installed
and run.
1.5 "Designated Site" means the site location identified in a Product Schedule
for the Designated Computer Server.
1.6 "Documentation" means the user guide, administration guide, release notes
and any other manuals furnished to Licensee by Exchange as documentation for use
with the Licensed Software.
1.7 "Licensed Software" means the computer programs and routines listed in a
Product Schedule (including the Server Software, Client Software and eXstatic
Software), the Documentation, and any New Releases.
1.8 "MCIF" is the aggregate number of individual customers of Licensee that are
contained in Licensee's database(s) which is resident on, connected to or
otherwise accessible by the Designated Computer Server, which aggregate number
is set forth in the Product Schedule.
1.9 "New Releases" means error corrections, modifications, enhancements or
updates to the Licensed Software furnished by Exchange to Licensee pursuant to
Section 8.
1.10 "Product Schedule" means the order form which specifies the Licensed
Software to be licensed, the Designated Site, the licensed number of copies of
Client and Server Software, MCIF and applicable license and service fees
payable. In order to be effective, Product Schedules must be signed by both
parties.
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[Exchange Applications Logo]
1.11 "Territory" means the country location of the Designated Site.
1.12 "Third Party Licensors" means all third parties (as licensors) that provide
software to Exchange (as licensee), which software is included in the Licensed
Software hereunder. The parties acknowledge that, unless otherwise expressly
set forth herein, it is the intent of this Agreement that there will be no
privity of contract between such third parties and Licensee.
1.13 "eXstatic Software" means the computer software program identified in
the Product Schedule.
2. Grant of License
2.1 Upon Exchange's written acceptance of Licensee's order, Exchange grants to
Licensee a nonexclusive, and, except as expressly set forth otherwise herein,
nontransferable and perpetual, license to use the Licensed Software in object
code format upon the terms and conditions of this Agreement. Exchange reserves
all rights not expressly granted to Licensee under this Agreement.
2.2 The Server Software shall be installed at the Designated Site, in
connection with one or more databases having an aggregate size less than or
equal to the licensed MCIF. A separate license is required for any additional
computer server on which Licensee installs or uses the Licensed Software, except
that, in the event of a malfunction causing the Designated Computer Server to
become inoperable, Licensee may install and use the Licensed Software on a back-
up computer server on a temporary basis during such malfunction. Upon prior
written notice to Exchange and payment of any applicable transfer, license or
maintenance fees, Licensee may re-designate the Designated Site (but only within
the Territory) or use the Licensed Software in connection with one or more
databases with an aggregate size in excess of the licensed MCIF.
2.3 Exchange grants Licensee a nonexclusive, nontransferable right (provided
Licensee does not receive any payment therefor, and provided further that all
use of the Client Software is in strict conformance with Section 2.5), to make
and distribute, and to install and use on Client Computers within Licensee's
organization, at any one time, no more than that number of copies of the Client
Software than is licensed and specified in the applicable Product Schedule.
Upon prior written notice to Exchange and payment of any additional license and
maintenance fees, Licensee may install and use the Client Software on additional
Client Computers.
2.4 Exchange grants Licensee a nonexclusive, nontransferable right (provided
Licensee does not receive any payment therefor, and provided further that all
use of the eXstatic Software is in strict conformance with Section 2.5), to make
and distribute, and to install and use on computers within Licensee's
organization, at any one time, no more than that number of copies of the
eXstatic Software than is licensed and specified in the applicable Product
Schedule. Upon prior written notice to Exchange and payment of any additional
license and maintenance fees, Licensee may install and use the eXstatic Software
on additional computers.
2.5 Licensee may use Licensed Software only in connection with the operation
and management of Licensee's own internal business. Without limiting the
generality of the foregoing, Licensee shall not, and shall not permit any third
party to process or permit to be processed the data of any third party, nor
deliver or permit to bge delivered any email sent on behalf of any third party
through use of the eXstatic Software.
2.6 Licensee is not authorized to grant sublicenses for use of Licensed
Software, to use the Licensed Software on behalf of any third party, to permit
any third party (other than an Authorized Contractor) to use Licensed Software,
or to encumber, transfer, rent, lease, time-share or use the Licensed Software
in any service bureau arrangement.
3. Payment; Expenses; Taxes
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[Exchange Applications Logo]
3.1 Licensee shall pay Exchange the license fee and all other amounts specified
in a Product Schedule. The license fee shall be due and payable upon receipt
of the Licensed Software by Licensee. All other payments are due within thirty
(30) days after the date Licensee receives Exchange's invoice.
3.2 Licensee shall reimburse Exchange for all actual, reasonable and necessary
out-of-pocket expenses incurred, including travel to and from Licensee's site,
lodging, meals, telephone and shipping, as may be necessary in connection with
Licensed Software, installation, training, maintenance, and consulting services.
Upon request, Exchange shall provide reasonable documentation for all expenses
for which it expects reimbursement.
3.3 Licensee will pay all federal, state, municipal and other government excise,
sales, use, customs, occupational, or other taxes, fees or duties now in force
or enacted in the future that are levied or based upon Licensee's payments to
Exchange or upon this Agreement, but excluding taxes measured by Exchange's net
income. In the event Exchange is required at any time to pay any such tax, fee,
duty or charge, Licensee will promptly reimburse Exchange.
4. Delivery, Installation, and Training
4.1 Exchange will provide to Licensee electronically (a) one copy of the Client
Software in object code format and one initial set of Documentation. Exchange
will provide to Licensee electronically the number of copies of the Server
Software in object code format as specified in a Product Schedule, and the same
number of initial sets of Documentation. If specified in a Product Schedule,
Exchange will assist Licensee in the installation of Licensed Software.
4.2 Exchange shall make training in the use of the Licensed Software available
to Licensee at its standard training rates less any discount agreed to by the
parties and at a location to be determined by Exchange and Licensee.
4.3 Licensee shall make available for installation of the Licensed Software, at
the Designated Site, computer equipment and software configurations in
accordance with Exchange's published resource prerequisites. Licensee's failure
to install and use the Licensed Software in conformance with such requirements
shall void all warranties with respect to the Licensed Software.
5. Protection of Proprietary Material
5.1 "Proprietary Material" shall mean, with respect to Exchange, (i) Licensed
Software and any New Releases and any portions thereof in any embodiment and
(ii) the statistical performance results of any evaluation or benchmark tests
run on the Licensed Software and with respect to Licensee. Licensee's data
output from Licensee's use of the Licensed Software excluding any portion of the
Licensed Software; and with respect to both parties, any other information or
data, in written, graphic or machine readable form which by its nature or type
should reasonably be considered proprietary or confidential or which the
disclosing party labels as being proprietary or confidential, provided, however,
that "Proprietary Material" does not include:
(i) Information which is or becomes available in the public domain other
than through disclosure by the receiving party (the "Recipient") in
breach of this Agreement);
(ii) Information disclosed or made available at any time to the Recipient
by a third party without restriction and without breach of any
relationship of confidentiality to the party having rights to such
information (the "Discloser");
(iii) Information independently developed by the Recipient where the
Recipient establishes that such development was accomplished without
use of the confidential information of the Discloser;
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[Exchange Applications Logo]
(iv) Information which was already known to the Recipient, without an
obligation of confidentiality to the Discloser, at the time of
disclosure hereunder.
5.2 Each party acknowledges and agrees that Proprietary Material of the
Discloser is confidential and constitutes a valuable asset of the Discloser or
(as applicable) of the Discloser's third party licensor. The Recipient shall not
use any of the other party's Proprietary Material for any purpose not
specifically authorized in this Agreement, shall hold such Proprietary Material
in strict confidence, and shall not disclose such Proprietary Material to any
third party.
5.3 Each party will limit access to the other party's Proprietary Material to
those employees and Authorized Contractors whose use of or access thereto is
necessary to the Recipient's authorized use of such Proprietary Material. Each
party has entered or will enter into appropriate written agreements with its
Authorized Contractors to prevent the unauthorized use, disclosure or copying of
the other party's Proprietary Material and shall take all reasonable precautions
to protect and maintain the confidentiality of such Proprietary Material,
including at a minimum, those precautions which the Recipient employs to protect
its own confidential information, but not less than a reasonable degree of care.
Each party shall bear the responsibility for any breach of confidentiality by
its employees, contractors and consultants. Each party agrees not to cause or
permit the reverse engineering, reverse assembly or reverse compilation of the
other's Proprietary Material for any purpose, or to otherwise attempt to derive
source code from the other's Proprietary Material. Each party agrees not to use,
or allow any third party to use, any Proprietary Material of the other party to
aid in the development and/or marketing of any product similar to or competitive
with the other party's Proprietary Material. The Recipient shall not disclose,
publish, display or otherwise make available to any person any of the other
party's Proprietary Material or copies thereof without the express prior written
consent of the Discloser. The Recipient shall not duplicate, copy or reproduce
any of the other party's Proprietary Material, except with the prior written
consent of such party or as otherwise permitted under this Agreement.
5.4 Licensee may make copies of Licensed Software in accordance with Sections
2.2 and 2.3, including for back-up or archival purposes or for Year 2000 and
certification testing. Licensee will keep records of the number and location of
such copies and make such records available to Exchange. Licensee may make a
reasonable number of copies of the Documentation as may be required for its
internal use of the Licensed Software. Recipient shall not remove any copyright
or proprietary rights notice included in any Proprietary Material and shall
reproduce all such notices on any Proprietary Material which Recipient may make.
5.5 All title, copyright and other proprietary rights to all of a Discloser's
Proprietary Material, including all furnished by to the Recipient and in all
copies made by the Recipient, shall be retained by such Discloser or (as
applicable) by its third party licensor.
5.6 Licensee shall not use the Licensed Software or any of Exchange's
Proprietary Material to create Derivative Works.
5.7 Each party recognizes and acknowledges that irreparable damage might result
to the other if Proprietary Material is improperly used or disclosed by the
Recipient. Accordingly, each party agrees that legal proceedings at law or in
equity, including injunctive relief, shall be appropriate in the event of a
breach of this Section 5 of the Agreement.
5.8 Nothing herein shall prevent the Recipient from disclosing all or part of
the other party's Proprietary Material as necessary pursuant to the lawful
requirement of a governmental agency or when disclosure is required by operation
of law; provided that prior to any such disclosure, the Recipient shall (i)
promptly notify the Discloser in writing of such requirement to disclose, and
(ii) cooperate reasonably with the Discloser in protecting against any such
disclosure or obtaining a protective order.
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<PAGE>
[Exchange Applications Logo]
5.9 Each party's rights and obligations under this Section 5 shall survive any
termination of this Agreement.
6. Warranties; Disclaimers; Limitations of Liability
6.1 Exchange warrants that, during the first ninety (90) days following the
initial delivery hereunder of the Licensed Software, the Licensed Software will
conform in all material respects to the specifications contained in the
Documentation furnished to Licensee by Exchange for use with the Licensed
Software. Exchange's sole responsibility under this warranty shall be as
follows: Exchange will correct or replace that portion of the Licensed Software
which fails to conform to said warranty, with conforming Licensed Software,
provided, however, that Licensee has reported in writing to Exchange any defect
or error claimed to be a breach of this warranty within the 90-day warranty
period. If Exchange is unable to so correct or replace the nonconforming
Licensed Software within thirty (30) days of written notification to Exchange
during the 90-day warranty period, Exchange shall reimburse Licensee for the
amount of license fees paid for the nonconforming Licensed Software; and, the
license for that nonconforming Licensed Software shall be terminated. Exchange
will have no liability under the foregoing warranty if (i) Licensee modifies the
Licensed Software without Exchange's prior written consent, (ii) Licensee fails
to give Exchange written notice of the claimed breach of warranty within the 90-
day warranty period, or (iii) the failure to conform is caused in whole or part
by persons other than Exchange, or by products, equipment or computer programs
not furnished by Exchange.
6.2 Exchange warrants, until December 31, 2001, that the Licensed Software will
be Millennium Compliant. "Millennium Compliant" means that the Licensed
Software will: (a) handle date information before, during and after January 1,
2000 (accept date input, provide date output and perform calculations on dates,
as applicable), without material errors introduced by or related to the change
in century; (b) function without material interruption and without changes in
operation (in either case associated with the advent of the new century) before,
during and after January 1, 2000, assuming correct configuration; and (c) store
and provide output of date information in ways that are unambiguous as to
century. Exchange's sole responsibility under this warranty shall be to correct
or replace that portion of the Licensed Software which fails to be Millennium
Compliant, provided, however, that Licensee has reported in writing to Exchange
any defect or error claimed to be a breach of warranty no later than December
31, 2001. Exchange will have no liability under the foregoing warranty if (i)
Licensee modifies the Licensed Software without Exchange's prior written
consent, (ii) Licensee fails to give Exchange written notice of the claimed
breach of warranty, or (iii) the failure to conform is caused in whole or in
part by persons other than Exchange, or by products, equipment, data or computer
programs not furnished by Exchange, including, but not limited to, any operating
system on which the Licensed Software may be used or information in Licensee's
data warehouse or data mart.
6.3 Exchange warrants that it shall make commercially reasonable efforts, using
current tools and methods, to detect viruses, worms, Trojan horses, time bombs,
injurious or disabling algorithms and other like built-in or use-driven
destructive mechanisms, contemporaneously with each delivery to Licensee of any
Licensed Software.
6.4 THE EXPRESS WARRANTIES SET FORTH IN THIS SECTION 6 ARE THE ONLY WARRANTIES
GIVEN BY EXCHANGE WITH RESPECT TO LICENSED SOFTWARE; EXCHANGE MAKES NO OTHER
WARRANTIES, EXPRESS, IMPLIED OR ARISING BY CUSTOM OR TRADE USAGE, AND
SPECIFICALLY MAKES NO WARRANTY OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY OR OF
FITNESS FOR ANY PARTICULAR PURPOSE. EXCHANGE'S EXPRESS WARRANTIES SHALL NOT BE
ENLARGED, DIMINISHED OR AFFECTED BY EXCHANGE'S RENDERING OF TECHNICAL OR OTHER
ADVICE OR SERVICE IN CONNECTION WITH LICENSED SOFTWARE. ALL THIRD PARTY
LICENSORS DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED WITH RESPECT TO THE USE OF
ANY SUCH THIRD PARTY'S MATERIALS IN CONNECTION WITH THE LICENSED SOFTWARE,
INCLUDING (WITHOUT LIMITATION) ANY WARRANTIES OF TITLE, NON-INFRINGEMENT,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
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[Exchange Applications Logo]
6.5 Except for (a) either party's breach of its obligations under Section 5
(Protection of Proprietary Material) and (b) Exchange's indemnity obligation in
respect of third party Damages pursuant to Section 7 (Patent and Copyright
Infringement) of this Agreement, IN NO EVENT (INCLUDING UNENFORCEABILITY OF THE
ABOVE LIMITATIONS OF LIABILITY AND INDEPENDENT OF ANY FAILURE OF ESSENTIAL
PURPOSE OF THE LIMITED WARRANTY AND REMEDIES PROVIDED HEREUNDER), WILL EITHER
PARTY'S TOTAL LIABILITY TO THE OTHER PARTY OR ANY THIRD PARTY IN CONTRACT, TORT
OR OTHERWISE ARISING OUT OF OR IN CONNECTION WITH THE LICENSED SOFTWARE OR THIS
AGREEMENT EXCEED THE LICENSE FEES PAID TO EXCHANGE BY LICENSEE WITH RESPECT TO
THE PARTICULAR LICENSED SOFTWARE OUT OF WHICH SUCH CLAIM ARISES. IN THE CASE OF
EXCHANGE, THE LIMITATION OF LIABILITIES STATED IN THIS SECTION 6.5 SHALL BE A
SINGLE LIMIT, WHETHER LICENSEE'S CLAIM(S) IN RESPECT OF THE LICENSED SOFTWARE
RELATES TO SOFTWARE DEVELOPED BY EXCHANGE OR LICENSED TO EXCHANGE BY A THIRD
PARTY LICENSOR. SUCH THIRD PARTY LICENSORS ARE INTENDED BENEFICIARIES OF THIS
SECTION 6.5.
6.6 Except for (a) either party's breach of its obligations under Section 5
(Protection of Proprietary Materials) and (b) Exchange's indemnity obligation in
respect of third party Damages pursuant to Section 7 (Patent and Copyright
Infringement), IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INCIDENTAL,
PUNITIVE, CONSEQUENTIAL OR TORT DAMAGES, INCLUDING ANY DAMAGES RESULTING FROM
LOSS OF USE, LOSS OF DATA, LOSS OF PROFITS OR LOSS OF BUSINESS ARISING OUT OF OR
IN CONNECTION WITH THE PERFORMANCE OF LICENSED SOFTWARE OR EXCHANGE'S
PERFORMANCE OF SERVICES OR OF ANY OTHER OBLIGATIONS RELATING TO LICENSED
SOFTWARE OR THIS AGREEMENT, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
6.7 Certain elements of the Licensed Software are derived from software
licensed from Third Party Licensors and no Third Party Licensor warrants the
Licensed Software, assumes any liability with respect to the Licensed Software,
or undertakes to provide any support or information regarding the Licensed
Software. Each of Exchange's and Licensee's obligations with respect to the
Licensed Software extend to all elements of the Licensed Software, whether or
not derived from software licensed from Third Party Licensors. Third Party
Licensors may enforce any of the provisions of this Agreement to the extent that
their materials are affected.
7. Patent and Copyright Indemnification
7.1 Exchange shall defend Licensee or, at Exchange's option, settle any claim
that a Licensed Software infringes any United States patent, copyright or any
trade secret, and shall indemnify Licensee against any damages, fines,
penalties, assessments, liabilities, costs and expenses (including reasonable
attorneys' fees and court costs) arising out of any such claim (collectively,
"Damages"), provided that Licensee (i) notifies Exchange promptly in writing of
any such claim or proceeding, (ii) gives Exchange full and complete authority,
information, and assistance to defend such claim or proceeding, and (iii) gives
Exchange sole control of the defense of any such claim or proceeding and all
negotiations for its compromise or settlement. Should the Licensed Software or
any part thereof become, or in Exchange's opinion be likely to become, the
subject of a claim of infringement or the like, Exchange shall have the right,
at Exchange's option and expense, either to procure for Licensee the right to
continue using it, or to replace or modify it so that it becomes non-infringing
(provided that such modification or replacement does not materially degrade the
quality or performance of the Licensed Software) or, after all reasonable
attempts have been made with respect to the foregoing alternatives, to terminate
Licensee's license to the allegedly infringing Licensed Software and pay to
Licensee an amount not to exceed the depreciated value of the Licensed Software
for which Licensee has paid a license fee, depreciated on a straight-line basis
over a three and one-half (3 1/2) year period.
7.2 Exchange shall have no liability or obligation with respect to any such
claim based upon the combination of Licensed Software with products not
furnished by Exchange, or any addition to or
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[Exchange Applications Logo]
modification of Licensed Software made by any person other than Exchange, or any
use of a superseded release of the Licensed Software if the infringement would
have been avoided by the use of a current release of the Licensed Software.
Exchange will have no obligation for any costs incurred without Exchange's prior
written authorization.
7.3 This Section 7 states Exchange's entire obligation and liability, and
Licensee's sole remedy for infringement by Licensed Software or the use thereof.
8. Maintenance Service
8.1 Maintenance Service: Upon payment of the applicable Maintenance fees, the
Licensee shall receive service (the "Maintenance Service") as follows:
(i) one (1) complete electronic copy of all New Releases including
Documentation updates for Client Software, and a number of electronic
copies of all New Releases including Documentation updates for Server
Software equal to the number of copies of the Server Software provided
for in the applicable Product Schedule.
Following shipment of the New Release, the previous release shall
remain "Current," for purposes hereof, for a period of twelve (12)
months; thereafter, only the New Release will be current. Exchange's
obligations under this Section 8 shall only apply in respect of the
Licensed Software, and not in respect of any separately licensed
software or other materials.
(ii) hot line support services during the local Exchange normal business
hours pursuant to Exchange's normal business practice.
Upon receipt of telephone, email or written notice from the Licensee
specifying failures or errors found in the Licensed Software and/or
Documentation, and upon receipt of such additional information as
Exchange may reasonably request, Exchange will exercise commercially
reasonable efforts to provide workarounds and/or correct defects in
the Current, unaltered release of the Licensed Software and/or
Documentation.
8.2 Licensee agrees to promptly pay Exchange, at Exchange's then current rates,
for any services made necessary by (a) Licensee's modification of the Licensed
Software, (b) Licensee's failure to utilize the then Current release of the
Licensed Software, (c) Licensee's negligence, (d) Licensee's failure to maintain
Maintenance Services throughout the term of the Agreement or (e) problems,
errors or inquiries relating to computer hardware, system changes or software
other than the Licensed Software.
8.3 Licensee shall install and maintain for the duration of this Agreement, a
28.8K baud or higher modem and associated dialup telephone line. Licensee shall
pay for installation, maintenance and use of such equipment and associated
telephone line use charges. Exchange, at its option, shall use this modem and
telephone line in connection with error diagnosis and correction. Such access by
Exchange shall be subject to prior approval by Licensee in each instance.
Exchange shall be subject to all applicable federal and state communications
privacy and confidentiality laws. Exchange shall maintain a customer service
phone line and electronic mail address staffed by trained personnel during
normal business hours to facilitate problem identification and resolution.
8.4 Maintenance Service shall be automatically renewed on an annual basis, and
Licensee shall pay an amount according to the then current maintenance rate.
Licensee may elect at the execution of this Agreement, or upon any anniversary
date hereof, to purchase a Multi-Year Maintenance Service Plan by paying in
advance to Exchange the maintenance fees for two or more years.
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[Exchange Applications Logo]
8.5 If Licensee does not elect to purchase Maintenance Service, or if such
Maintenance Service is terminated pursuant to Section 9.2, Licensee may continue
to use the Licensed Software pursuant to the license granted under this
Agreement, but Licensee will not be entitled to receive Maintenance Service for
the Licensed Software. To reinstate Maintenance Service, Licensee shall be
required to pay all maintenance fees for period during which Licensee did not
purchase Maintenance Services, on a cumulative basis, commencing with the
expiration or termination of the last maintenance period.
8.6 Promptly after the Effective Date, Exchange shall cooperate with Licensee
in order that Licensee shall become a preferred beneficiary (at Licensee's sole
expense) under that certain Master Preferred Escrow Agreement, effective as of 4
February 1997, by and between Exchange and Data Securities International, Inc.,
upon and after which Licensee shall have the rights and obligations of a
beneficiary in accordance with and subject to such escrow agreement.
8.7 This Section 8 states Exchange's entire obligation with respect to the
provision of Maintenance Services for the Licensed Software.
9. Term; Termination
9.1 This Agreement shall become effective on the date on which it is accepted
by Exchange at Exchange's principal place of business, and shall remain in
effect unless terminated as provided in this Agreement. The grant of license
for the Licensed Software shall take effect on the date on which the applicable
Product Schedule is accepted by Exchange, and shall remain in effect unless
terminated as provided in this Agreement.
9.2 If either party shall fail to perform or shall be in breach of any of its
obligations under this Agreement, and shall have failed or been unable to remedy
said failure or breach within thirty (30) days after receipt of written notice
from the other party with respect to said failure or breach, such party may
terminate this Agreement including the licenses granted hereunder and any
maintenance obligations. Notwithstanding the foregoing, each party reserves the
right to seek injunctive relief pursuant to Section 5.7.
9.3 Either party may terminate Maintenance Services effective at the end of any
annual maintenance period by providing thirty (30) days written notice to the
other party. If Licensee terminates Maintenance Services pursuant to Section
9.2, Exchange shall provide a pro-rata refund of prepaid maintenance fees.
9.4 Upon termination of this Agreement for any reason, all rights, obligations
and licenses of the parties hereunder shall cease, except that (a) if the
Agreement is terminated by Exchange pursuant to Section 9.2, Licensee shall
continue to be obligated to pay Exchange all fees, charges or expenses that
accrued prior to the termination date, including all maintenance fees and
other charges hereunder, which shall become immediately due and payable and (b)
Licensee shall have no further right to copy or use the Licensed Software and
within five (5) days after any termination or expiration, each party (i) shall
deliver to the other all Proprietary Material received from such party,
including any copies, and (ii) shall destroy or render unusable all other such
Proprietary Material and any copies, including information and data relating to
the Licensed Software stored in any storage facility, which for any reason
cannot be delivered to the Discloser. In addition, an authorized officer of the
party required to return Proprietary Material shall certify in writing to the
other party that all Proprietary Material required to be returned has been
delivered to such party, destroyed or rendered unusable and that use of the
terminated Licensed Software and any portion of Licensed Software has been
discontinued.
10. Solicitation of Employees
For the term of this Agreement and for a period of twelve (12) months after any
expiration or termination of this Agreement, the parties agree to refrain from
soliciting or recruiting the employees of the other without the prior written
approval of the party whose employee is being considered for employment. This
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[Exchange Applications Logo]
shall in no way, however, be construed to restrict, limit or encumber the rights
of any employee granted by law.
11. Exports
Licensee is only being granted the rights to use the Licensed Software at the
Designated Site and shall not export or re-export, directly or indirectly
(including via remote access), Licensed Software, Documentation or other
information or materials provided by Exchange under this Agreement, to any
country for which the United States or any other relevant jurisdiction requires
any export license or other governmental approval at the time of export without
first obtaining such license or approval. It shall be Licensee's responsibility
to comply with the latest United States export regulations, and Licensee shall
defend and indemnify Exchange from and against any damages, fines, penalties,
assessments, liabilities, costs and expenses (including reasonable attorneys'
fees and court costs) arising out of any claim that Licensed Software,
Documentation, or other information or materials provided by Exchange under this
Agreement were exported or otherwise accessed by Licensee, shipped by Licensee
or transported by Licensee in violation of applicable laws and regulations
provided that Exchange (i) notifies Licensee promptly in writing of any such
claim or proceeding, (ii) gives Licensee full and complete authority,
information, and assistance to defend such claim or proceeding, and (iii) gives
Licensee sole control of the defense of any such claim or proceeding and all
negotiations for its compromise or settlement.
12. Audit
Exchange shall have the right upon reasonable advance written notice, to have an
independent auditor verify Licensee's compliance with this Agreement and the
notices and reports provided by Licensee to Exchange. Licensee shall make its
processors and all reasonably applicable books and records available for such
inspection during normal business hours at the Designated Site. Audits shall be
at the expense of Exchange, unless any such audit discloses an underpayment by
Licensee for the audited period in excess of five percent (5%), in which case
Licensee shall reimburse Exchange for all such expenses. If the audit discloses
any underpayment by Licensee, Licensee shall promptly make payment to Exchange
of such underpayment in respect of the Unlicensed Processors, together with
interest thereon at the rate of 1.5% per month or, if lesser, the maximum amount
permitted by law. "Unlicensed Processor" means any processor with which any
part of the Licensed Software is used or installed, other than the Designated
Computer Server or Client Computers for which license fees have been fully paid
in accordance with this Agreement. Audits shall be conducted no more than once
annually, and shall not unreasonably interfere with Licensee's business.
13. Compliance with Laws
Each party shall comply with all laws, legislation, rules, regulations, and
governmental requirements with respect to the Licensed Software, and the
performance of its obligations hereunder, of any jurisdiction in or from which
Licensee directly or indirectly causes the Licensed Software to be used or
accessed.
14. U.S. Government Restricted Rights
If Licensed Software is being licensed by the U.S. Government, the Licensed
Software is commercial computer software and documentation developed exclusively
at private expense, and (i) if acquired by or on behalf of a civilian agency,
shall be subject to the terms of this computer software license as specified in
48 C.F.R. 12.212 of the Federal Acquisition Regulations and its successors; and
(ii) if acquired by or on behalf of units of the Department of Defense ("DOD")
shall be subject to the terms of this commercial computer software license as
specified in 48 C.F.R. 227.7202-2, DOD FAR Supplement and its successors.
15. Waiver
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[Exchange Applications Logo]
No waiver, alteration, modification, or cancellation of any of the provisions
of this Agreement shall be binding unless made in writing and signed by the
parties. The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect the right at a
later time to enforce such provision.
16. Cumulative Remedies
None of either party's remedies referred to in this Agreement is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to herein or otherwise available at law or in equity, except as
explicitly set forth herein.
17. Force Majeure.
Neither party shall be liable for any delays in the performance of any of its
obligations due to cause beyond its reasonable control, including, but not
limited to, fire, strike, war, riots, acts of any civil or military authority,
acts of God, judicial action, unavailability or shortages of materials or
equipment, failures or delays in delivery of vendors and suppliers or delays in
transportation.
18. Notices.
All written notices to be given in connection with this Agreement shall be sent
by certified or registered mail, postage prepaid, addressed to the party
entitled or required to receive such notice at the addresses specified on the
face hereof.
19. Severability.
In the event that one or more of the provisions contained in this Agreement
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions contained in this Agreement.
20. Governing Law.
This Agreement shall be subject to and interpreted in accordance with the
substantive laws of the State of New York without regard to conflicts of laws.
In the event of any conflict between foreign laws, rules and regulations and
those of the United States, the laws, rules and regulations of the United
States shall govern. The United Nations Convention on Contracts for the
International Sale of Goods shall not apply to this Agreement.
21. Assignment.
This Agreement shall be binding upon and inure to the benefit of the parties
and their respective successors, assigns and legal representatives, provided,
however, that the rights, duties and privileges of Licensee may not be
assigned, sublicensed or otherwise transferred by it, in whole or in part,
without the prior written consent of Exchange; which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, Licensee shall be
entitled to assign this Agreement in whole to Aventine Incorporated,
MicroStrategy Services or Strategy.com; provided, that at the time of such
--------
assignment, such assignee is a wholly owned subsidiary of Licensee or Licensee
is a wholly owned subsidiary of such assignee.
22. Cause of Action.
No action, regardless of form, arising out of this Agreement may be brought by
either party more than two (2) years after the cause of action arises.
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[Exchange Applications Logo]
23. Headings.
Headings included in this Agreement are for convenience only, and are not to be
used to interpret the agreement between the parties.
24. Survival.
The following provisions shall survive any expiration or termination of this
Agreement: Section 5 (Protection of Proprietary Material); Section 6
(Warranties; Disclaimers; Limitations of Liability); Section 7 (Patent and
Copyright Indemnification); Section 9 (Term and Termination); Section 10
(Solicitation of Employees); Section 11 (Exports); Section 12, Audit; Section 13
(Compliance with Laws); Section 15 (Waiver); Section 18 (Notices); Section 19
(Severability); Section 20 (Governing Law); Section 22 (Cause of Action);
Section 24 (Survival), and Section 25 (Entire Agreement).
25. Entire Agreement
This Agreement sets forth the entire agreement of the parties with respect to
the subject matter of this Agreement, and supersedes all prior oral and written
agreements and understandings relating to it. No representation, condition,
understanding, statement of intention or agreement of any kind, oral or written,
shall be binding upon the parties unless set forth or specifically incorporated
in this Agreement. Any provision of Licensee's purchase order which is in any
way inconsistent with or in addition to the terms and conditions of this
Agreement shall not be binding upon Exchange unless Exchange specifically
accepts any such provision in writing.
26. Email Privacy Policy
Customer hereby agrees to comply with the Email Privacy Policy attached hereto
as Exhibit A.
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[Exchange Applications Logo]
LICENSEE ACKNOWLEDGES THAT IT HAS READ THIS AGREEMENT AND AGREES TO ALL TERMS
AND CONDITIONS STATED IN THIS AGREEMENT.
Accepted by: Accepted by:
LICENSEE:
EXCHANGE APPLICATIONS, INC. MICROSTRATEGY INCORPORATED
Name: [ILLEGIBLE] Name: /s/ Sanju Bansal
----------------------------- ------------------------------
(Authorized Signature) (Authorized Signature)
Name: Name: Sanju Bansal
----------------------------- ------------------------------
Title: Title: COO
----------------------------- ------------------------------
Date: Date:
----------------------------- ------------------------------
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<PAGE>
[Exchange Applications Logo]
One Lincoln Plaza
Boston, Massachusetts
02111
617-737-2244
VALEX[TM] SOFTWARE PRODUCT SCHEDULE
TO THE
SOFTWARE LICENSE AGREEMENT
Licensee Name and Address Offer is valid through ___________________
MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, Virginia 22182
Exchange Applications, Inc. ("Exchange") hereby grants to the subject Licensee a
license to use the Licensed Software listed on this Product Schedule, subject to
the terms and conditions of the Software License Agreement (the "Agreement") in
effect between Exchange and Licensee and dated _____________ December 1999.
LICENSED SOFTWARE:
A. VALEX[TM] Software
<TABLE>
<S><C>
VALEX[TM] Server Software*: two (2) Copies
(one for MicroStrategy and one for Strategy.com)
(For each Server Software license,
the Licensed MCIF size (= or less than) 250,000 customers
and (less than) 1 million prospects** ) $550,000
VALEX Client Software: (20 Client Named Users)
(Total of both Server Software licenses)
Maintenance for the first year*** Not Separately Priced
---------------------
SUBTOTAL VALEX[TM] LICENSE AND MAINTENANCE FEES: $550,000
B. EXSTATIC[TM] Software
eXstatic[TM] eMessagingSoftware****: one (1) copy $400,000
Maintenance for the first year*** Not Separately Priced
---------------------
SUBTOTAL EXSTATIC[TM] LICENSE AND MAINTENANCE FEES: $400,000
TOTAL - LICENSED SOFTWARE: $950,000
</TABLE>
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<PAGE>
[Exchange Applications Logo]
One Lincoln Plaza
Boston, Massachusetts
02111
617-737-2244
VALEX[TM] SOFTWARE PRODUCT SCHEDULE
TO THE
SOFTWARE LICENSE AGREFMENT
* Server Software is licensed for use on the Designated Computer
Server, at the Designated Site identified in this Product Schedule.
** Licensee is required to confirm in writing to Exchange the
number of customers and prospects in each MCIF on each anniversary date of
this Product Schedule. This MCIF/database is for customers and prospects
for Licensee's products and services (including current and prospective
"Affiliates" of Licensee's Strategy.com service).
*** Maintenance services are provided for one (1) year from date of
delivery. After the first year, the Maintenance fee will be calculated at
a rate of 20% of the then-current license fee for the Licensed Software,
less any discount to which the parties agree.
**** Inserted at the bottom of each email sent by eXstatic Software
shall be: "Powered by eXstatic software, http://www.exapps.com" in 12-
point font (or other such company reference as Exchange may prescribe).
For HTML email and for client facing web interfaces, a "Powered by"
logo/link will be placed on the bottom of the email or web application.
PAYMENT TERMS:
--------------
Unless otherwise set forth in the Software License Agreement, payment for
License and Maintenance fees are due upon Licensee's receipt of Exchange's
invoice. All reasonable, actual travel and living expenses will be added
to the fees stated in this Product Schedule, and will be billed monthly as
incurred.
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[Exchange Applications Logo]
One Lincoln Plaza
Boston, Massachusetts
02111
617-737-2244
VALEX[TM] SOFTWARE PRODUCT SCHEDULE
TO THE
SOFTWARE LICENSE AGREEMENT
DESIGNATED SITE:
- ----------------
The Server Software included in the Licensed Software shall be provided for and
only used on the Designated Computer Server at the Designated Site:
Designated Site Name: _________________________________
Designated Site Address: _________________________________
_________________________________
_________________________________
Contact Name and Phone: _________________________________
Subject to Section 2.2 of the Agreement, Licensee may change the Designated Site
and Address by providing written notice to Exchange Applications.
LICENSEE ACKNOWLEDGES THAT IT HAS READ THE AGREEMENT INCLUDING THIS PRODUCT
SCHEDULE AND AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS. In the event of
conflict between this Product Schedule and the other terms and conditions of the
Agreement, the terms and conditions of this Product Schedule will govern.
EXCHANGE APPLICATIONS, INC. LICENSEE: MicroStrategy Incorporated
Signature: [illegible] Signature: /s/ Sanju Bansal
------------------------ ---------------------------
Name: Name: Sanju Bansal
------------------------ -------------------------------
Title: Title: COO
------------------------ -------------------------------
Date: Date:
------------------------ ------------------------------
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[Exchange Applications Logo]
EXHIBIT A
---------
EMAIL PRIVACY POLICY
--------------------
The eXstatic Software may not be used to deliver email to recipients who have
not requested information from the sender.
All email sent using eXstatic Software must include a clear 'Opt-out' clause,
which instructs recipients on how to remove themselves from the sender's
database.
No party hereto may use a recipient's personal information for any purpose not
authorized by the recipient.
A summary of a recipient's personal information must be provided to that
recipient upon request.
The sender will establish procedures to insure careful and ethical use of the
eXstatic Software within its own organization.
Exchange supports groups that are opposed to Unsolicited Commercial Email (UCE)
and requests the report of abusers of the eXstatic Software. Exchange maintains
an in-house watchdog department and a hotline to report abusers. Please report
abusers to Exchange's Private Policy Consultant in the United States at
206.634.0192.
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Exhibit 10.12
[EXCHANGE LOGO]
VALUE-ADDED RESELLER AGREEMENT
Exchange Applications, Inc. CONFIDENTIAL p. 1 OF 29 BUSDOCS:810525.5 This
Agreement, made as of December 28, 1999 (the "Effective Date"), by and between
Exchange Applications, Inc., a Delaware corporation having a principal place of
business at One Lincoln Plaza, 89 South Street, Boston, Massachusetts 02111
("Exchange"), and MICROSTRATEGY INCORPORATED, a Delaware corporation having a
principal place of business at 8000 Towers Crescent Drive, Vienna, Virginia
22182 ("Value-Added Reseller" or "VAR").
WHEREAS, Exchange has developed ceratin commercial computer software products,
including VALEX(TM) Software and eXstatic(TM) Software;
WHEREAS, VAR has developed or will develop Value-Added Products as described in
Appendix B, including Strategy.com, which VAR markets or plans to market to end
users in the industry; and
WHEREAS, VAR desires to obtain a license to market the Licensed Software and
otherwise to act as a Value Added Reseller thereof, but only in conjunction with
its Value-Added Products.
NOW, THEREFORE, in consideration of the mutual promises and covenants of the
parties as hereinafter set forth, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the respective
meanings set forth below:
"Designated Computer Server" means the computer hardware and operating
system designated on the relevant Order Form for use in conjunction with a
Sublicense of VALEX Software or the V Developer License.
"Developer Licenses" means the licenses granted to VAR pursuant to the
terms of Section 2.1 of this Agreement.
"End User" means any third party to whom VAR sublicenses the Licensed
Software (a "Sublicense") pursuant to the terms of this Agreement, including,
but not limited to, the specification of the minimum provisions of the
Sublicense Agreements set forth in Section 2.3.
"Fees" means any and all fees payable by VAR to Exchange hereunder in
respect of the Developer Licenses, Reseller Licenses and Service Bureau License,
including, but not limited to, all license fees, maintenance fees, and
royalties.
"Licensed Software" means the VALEX Software and eXstatic Software
(each as more specifically described in Appendix A), in object code form, which
is owned or licensed by Exchange and for which VAR is granted a license pursuant
to this Agreement; the End User guides and manuals for use of that Software
("Documentation"); and any updates, modifications or enhancements thereto
furnished to VAR by Exchange ("Updates").
"Licenses" means the Demo License, VALEX Developer License, eXstatic
Developer License, Reseller Licenses and ASP License, collectively.
<PAGE>
"MCIF" means the aggregate number of individual customer records, and
the aggregate number of prospect records, of an End User in the database
accessed by the VALEX Software, at the time of execution of a Sublicense for
VALEX Software.
"Order Form" shall mean a written document, consistent with the
provisions of Section 4.1 of this Agreement, by which VAR orders Licensed
Software for an End User.
"Proprietary Material" shall mean Licensed Software, including, but not
limited to, all related data and Documentation (and all know-how and technology
employed or utilized in such manuals and software), and any portion thereof in
any embodiment and any other information or data received by VAR from Exchange
and identified by Exchange as proprietary or confidential, in written, graphic
or machine-readable form, including, but not limited to, designs, concepts,
ideas, improvements, know-how and technology, provided that "Proprietary
Material" shall not include information and data which:
(i) is or becomes generally available in the public domain without
the fault of VAR;
(ii) is already known to VAR prior to disclosure hereunder without
an obligation of confidentiality to Exchange;
(iii) is independently developed by VAR where VAR establishes that
such development was accomplished without access to the
ProprietarY Material; or
(iv) is disclosed to VAR by a third party without restriction and
without breach of any separate confidentiality obligation owed
to Exchange.
"Reporting Quarter" means a three (3) consecutive calendar month
period: (i) December, January and February, (ii) March, April and May, (iii)
June, July and August or (iv) September, October, November.
"Strategy Affiliate" means any contractual affiliate of VAR's
Strategy.com network, and "Affiliate Subscribers" are a Strategy Affiliate's
customers who have subscribed to receive Strategy.com network services from VAR.
"Update" means any subsequent release of the Licensed Software which is
made generally available at no additional charge (other than shipping) to other
licensees of the Licensed Software who have contracted to receive maintenance
support. Updates shall not include any releases, options or future products
which Exchange licenses separately from the Licensed Software.
"Value-Added Product" means VAR's software product or service which
provides value-added capabilities in connection with Licensed Software, and
which VAR develops and/or sublicenses with the Licensed Software as part of a
VAR System.
"VAR System" means an integrated software bundle comprised of both a
Value-Added Product and VALEX Software or eXstatic Software.
2. GRANT OF LICENSES.
2.1 Demonstration License. Exchange hereby grants to VAR, during the term
of the Agreement, a non-exclusive, non-transferable and royalty-free right and
license (the "Demo License") to operate the Licensed Software, but only in
conjunction with Value-Added Products, for the sole purpose of demonstrating the
VAR System in a non-production environment. VAR shall take all reasonable and
prudent precautions against unauthorized disclosure or copying of any Licensed
Software while demonstrating the VAR System (including, without limitation,
making the Licensed Software reasonably inaccessible during inactive
<PAGE>
demonstration times, and deleting copies of the Licensed Software from the
potential customer's computers after completing the demonstrations at the
customer site).
2.2 Development Licenses.
a. Authorized Uses. Exchange hereby grants to VAR, for the term
of the Agreement, a non-exclusive and non-transferable right and license to use
one (1) copy of the (a) VALEX Software on a single Designated Computer Server
(the "VALEX Developer License") and (b) eXstatic Software (the "eXstatic
Developer License"), in each case, with the applicable Documentation, in a
non-production environment and solely for the purposes of:
(i) Developing, testing and integrating Value-Added Products with
Licensed Software in a VAR System.
(ii) Providing maintenance and technical support services to VAR's
employees and End Users in respect of the Licensed Software in
a VAR System.
b. Restrictions. VAR shall not be authorized under either
Developer License to, and VAR shall not, directly or indirectly: (i) encumber,
transfer, sublicense, rent, lease, time-share or use the Licensed Software in
any service bureau arrangement; or (ii) copy (except for archival purposes),
distribute, manufacture, adapt, create derivative works of, translate, localize,
port or otherwise modify any Licensed Software; or (iii) permit any third party
to engage in any of the acts proscribed in clauses (i) through (ii).
2.3 Reseller Licenses.
a. Sublicensing. Exchange hereby grants to VAR, for the term of
this Agreement, a non-exclusive, non-transferable right and license to market,
distribute and sublicense the (i) VALEX Software (the "V Reseller License") and
(ii) the eXstatic Software (the "X Reseller License"), in each case, together
with the applicable Documentation, only in combination with Value-Added Products
as part of a VAR System, on a non-exclusive and non-transferable basis.
b. Sublicense Agreements. Every Sublicense of the Licensed
Software by VAR to an End User shall be accomplished using a written Sublicense
agreement (the "Sublicense Agreement"), executed by and between VAR and the End
User, which agreement shall specify, at a minimum, that:
(i) In the case of a VALEX Software Sublicense, the server
component of the Licensed Software will be used only on a
single Designated Computer Server.
(ii) Licensed Software shall only be used: (A) in object code form;
(B) for the End User's own internal data processing purposes;
and (C) only in combination with Value-Added Products as part
of a VAR System.
(iii) End User will not (A) use the Licensed Software or
Documentation to create any software or documentation that is
similar to any of the Licensed Software or Documentation, (B)
decompile, disassemble, reverse compile, reverse assemble,
reverse translate or otherwise reverse engineer any Licensed
Software, or use any similar means to discover the source code
of the Licensed Software or to discover the trade secrets
therein, or otherwise circumvent any technological measure
that controls access to the Licensed Software; (C) encumber,
transfer, sublicense, rent, lease, time-share or use the
Licensed Software in any service bureau arrangement; or (D)
copy (except for archival purposes), distribute, manufacture,
<PAGE>
adapt, create derivative works of, translate, localize, port
or otherwise modify any Licensed Software; or (E) permit any
third party to engage in any of the acts proscribed in clauses
(A) through (D).
(iv) End User shall not obtain any right, title and interest in or
to the Licensed Software, except as specifically authorized by
this Agreement.
(v) Exchange (and its third party licensors) shall have no
liability for any damages to End Users arising out of or in
connection with use or performance of the Licensed Software,
regardless of the form of any claim or action, or whether the
damages are direct, indirect, incidental, special, punitive or
consequential.
(vi) The warranty in respect of the Licensed Software, and VAR's
obligations to correct or replace any materially non-compliant
Licensed Software, are not in excess of the warranty and
disclaimers of warranty provided in this Agreement.
(vii) Upon any termination of the Sublicense, the End User will: (A)
discontinue use of the Licensed Software; (B) return the
Licensed Software, Documentation and all archival or other
copies thereof to VAR (or, at Exchange's sole option, destroy
all of the same); and (C) have an officer of End User certify
in writing that all such copies have been returned or
destroyed, as the case may be, and that all use thereof has
been discontinued.
(viii) End User shall not publish or otherwise disclose any results
of evaluations or benchmark tests of the Licensed Software,
except to Exchange.
(ix) End User shall comply in all material respects with all
relevant export control laws and regulations of the United
States and any applicable foreign jurisdictions to assure that
neither the Licensed Software and any direct, indirect or
derivative product thereof, are not exported, directly or
indirectly, in violation of United States law;
(x) Exchange is a third party beneficiary of the Sublicense
Agreement.
(xi) The Licensed Software shall be provided with "Restricted
Rights" to the U.S. Government or to any federal contractor.
Each Sublicense Agreement shall specifically state that the
Licensed Software was developed at private expense and is
licensed with Restricted Rights in accordance with DFARS
52.227.7013. (VAR will place an effective restricted rights
legend, in addition to applicable copyright notices, on any
media containing the Licensed Software or Documentation.)
(xii) The Sublicense Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, or of the United States of
America.
(xiii) Prohibit the use and disclosure of the Exchange's Proprietary
Materials in a manner consistent with the provisons of this
Agreement.
2.4 Service Bureau License.
a. Authorized Use. Exchange hereby grants to VAR, for the term of
this Agreement, a non-exclusive, non-transferable right and license (the
"Service Bureau License") to host on VAR's computer server and use one (1) copy
of the eXstatic Software for the purpose of operating an electronic mail,
marketing and messaging service bureau (also commonaly known as being an
application service provider, the "Service Bureau"), but such service shall only
be provided to and for the benefit of Strategy Affiliates and solely for the
purpose of marketing Strategy.com services to Affiliate Subscribers. In
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connection with operation of this Service Bureau, VAR shall not provide,
disclose or sublicense the Licensed Software to any Strategy Affiliate.
b. Restrictions. VAR shall not be authorized under the Service
Bureau License to, and VAR shall not, directly or indirectly: (i) encumber,
transfer, sublicense, rent, lease, time-share or use the Licensed Software in
any service bureau arrangement (except as expressly provided for in Section
2.4(a)); or (ii) copy (except for archival purposes), distribute, manufacture,
adapt, create derivative works of, translate, localize, port or otherwise modify
any Licensed Software; or (iii) permit any third party to engage in any of the
acts proscribed in clauses (i) through (ii).
c. Service Agreements. Provision of the service bureau services
by VAR to every Strategy Affiliate shall be accomplished using a written service
agreement (the "Service Bureau Agreement"), executed by and between VAR and the
Strategy Affiliate, which agreement shall specify, at a minimum, that:
(i) Strategy Affiliate shall not use or disclose the Licensed
Software, except in connection with receipt of services from
VAR.
(ii) Strategy Affiliate shall not, directly or indirectly: (A)
access the Licensed Software; (B) decompile, disassemble,
reverse compile, reverse assemble, reverse translate or
otherwise reverse engineer any Licensed Software, or use any
similar means to discover the source code of the Licensed
Software or to discover the trade secrets therein, or
otherwise circumvent any technological measure that controls
access to the Licensed Software; or (C) copy, distribute,
manufacture, adapt, create derivative works of, translate,
localize, port or otherwise modify any Licensed Software.
(iii) Strategy Affiliate shall not obtain any right, title and
interest in or to the Licensed Software.
(iv) Exchange (and its third party licensors) shall have no
liability for any damages to Strategy Affiliate arising out of
or in connection with use or performance of the Licensed
Software or VAR's services, regardless of the form of any
claim or action, or whether the damages are direct, indirect,
incidental, special, punitive or consequential.
(v) VAR's services shall not be warranted in any respect with
reference to the Licensed Software.
(vi) Upon any termination of the Service Bureau License, the
Strategy Affiliate shall no longer have any right to the
provision of services by VAR that depend or rely on, in any
mannter VAR's use of Licensed Software.
3. SERVICES.
3.1 Maintenance and Support Services.
a. Developer Licenses. In connection with the Developer Licenses,
Exchange shall provide maintenance and support services for the Licensed
Software in accordance with Appendix C. Such services will be provided to VAR on
an annual basis, commencing on the Effective Date, provided that maintenance and
support services for years after the first year will only be provided (and fees
will only be payable hereunder) if such services are requested by VAR. VAR shall
pay to Exchange the applicable maintenance Fees specified in Exhibit A, for each
<PAGE>
of the VALEX Developer License and eXstatic Developer License, within thirty
(30) days of the first anniversary of the Effective Date and every anniversary
thereafter during the term of this Agreement for which maintenance and support
services are requested by VAR. VAR shall designate no more than one (1) System
Manager, and one (1) designated alternate in the event the System Manager is not
available, for receipt of maintenance and support services from Exchange.
b. Reseller Licenses. In connection with each Sublicense granted
pursuant to the Reseller Licenses, Exchange shall provide maintenance and
support services for the Licensed Software in accordance with Appendix D. Such
services will be provided directly to VAR (not to any End User) on an annual
basis, commencing on the effective date of each Sublicense. VAR shall pay to
Exchange the applicable Fees specified in Exhibit A within thirty (30) days of
the Sublicense effective date and within thirty (30) days of each anniversary
thereafter. VAR shall designate no more than one (1) System Manager, and one (1)
designated alternate in the event the System Manager is not available, for
receipt of maintenance and support services from Exchange.
c. Service Bureau License. In connection with the Service Bureau
License, Exchange shall provide maintenance and support services for the
Licensed Software in accordance with Appendix E. Such services will be provided
only to VAR (not to any Strategy Affiliate) on an annual basis, commencing on
the Effective Date, provided that maintenance and support services for years
after the first year will only be provided (and fees will only be payable
hereunder) if such services are requested by VAR. VAR shall pay to Exchange the
applicable Fees specified in Exhibit A within thirty (30) days of the Effective
Date and within thirty (30) days of each anniversary thereafter. VAR shall
designate no more than one (1) system manager, and one (1) designated alternate
in the event the System Manager is not available, for receipt of maintenance and
support services from Exchange.
d. Support for End Users and Strategy Affiliates. VAR is
responsible for providing complete support to End Users and Strategy Affiliates,
as the case may be, for its Value-Added Products, each VAR System and the
Service Bureau. VAR shall be responsible for providing first line support,
skilled instructors and technical assistance to End Users and Strategy
Affiliates. First line support shall include, but not be limited to, answering
questions about using the Licensed Software or service, ensuring that the
Licensed Software or service is used by End Users or Strategy Affiliates in
accordance with the Documentation, and determining the origin of problems.
Exchange shall provide to VAR one (1) copy of each Update, error correction, or
modification to the Licensed Software (in object code format), and to the
corresponding Documentation, if any. VAR shall be responsible for copying and
distributing Updates and other maintenance to End Users; provided, that (A) such
recipient End User has a valid Sublicense and maintenance agreement with VAR;
and (B) VAR has paid to Exchange all Sublicense and maintenance Fees due with
respect to the End User. In the event that Exchange performs maintenance
services with respect to the VAR System or Service Bureau that, pursuant to
Appendix D or Appendix E, as the case may be, should have been performed by VAR,
then VAR will reimburse Exchange for such services at Exchange's then current
rates. VAR will also reimburse Exchange for all actual and reasonable expenses
incurred in the performance of such services.
e. Remote Access. VAR shall install and maintain for the duration
of this Agreement, a 28.8K baud or higher modem and associated dial-up telephone
line. VAR shall pay for installation, maintenance and use of such equipment and
associated telephone line use charges. Exchange, with VAR's consent, may use
this modem and telephone line in connection with error diagnosis and correction.
f. Source Code Escrow. Promptly after the Effective Date,
Exchange shall cooperate with VAR in order that VAR shall become a preferred
beneficiary (at VAR's sole expense) and upon terms with respect to trigger
events to be mutually agreed under that certain Master Preferred Escrow
Agreement, effective as of 4 February 1997, by and between Exchange and Data
Securities International, Inc., upon and after which VAR shall have the rights
<PAGE>
and obligations of a beneficiary in accordance with and subject to such escrow
agreement.
3.2 Training. Exchange will provide training services under the
Developer License, in accordance with the terms, if any, of this Agreement. For
any on site services requested by VAR, VAR shall reimburse Exchange for actual,
reasonable travel and out-of-pocket expenses incurred. VAR may participate in
additional training relative to the Licensed Software subject to Exchange's then
current policies and prices.
3.3 Professional Services. VAR may contract with Exchange for other
professional services which Exchange makes available. All such services will be
provided in accordance with the Master Agreement for Professional Services,
attached hereto as Exhibit C.
4. ORDERS; SHIPMENTS.
4.1 Orders. Upon the initial execution of each Sublicense Agreement (and any
later amendment for additional copies of the Licensed Software or to upgrade or
transfer the Licensed Software), VAR shall provide to Exchange an Order Form
consistent with the terms of this Agreement. Each Order Form shall contain at
least the following information:
a. End User's legal name, address, contact name and phone number.
b. Sublicense effective date.
c. Identification of Licensed Software components.
d. For VALEX Sublicenses, the MCIF, Designated Computer Server
and number of named users.
e. Sublicense royalty
f. Maintenance royalty
g. Installation date
4.2 Shipments. No order shall be binding upon Exchange until accepted by an
authorized representative or agent of Exchange at its principal place of
business, which acceptance shall not be unreasonably withheld. Within five (5)
business days after acceptance, Exchange will ship the ordered Licensed Software
to VAR, for VAR's subsequent distribution to the End User.
5. FEES; REPORTS; PAYMENTS.
5.1 Developer Licenses. Upon execution of this Agreement, VAR shall pay to
Exchange the license fees set forth for each of the VALEX Developer License and
eXstatic Developer License set forth in Exhibit A. VAR shall pay to Exchange the
annual maintenance fees specified in Exhibit A, for each of the VALEX Developer
License and eXstatic Developer License, within thirty (30) days of each
anniversary of the Effective Date during the term of this Agreement.
5.2 Reseller Licenses. Within thirty (30) days after execution of each
Sublicense Agreement, VAR shall pay to Exchange the applicable Sublicense
royalty and the first year's annual maintenance royalty set forth in Exhibit B.
Within thirty (30) days of every anniversary of the Sublicense effective date
during the term of this Agreement, VAR shall pay to Exchange the annual
maintenance royalty specified in Exhibit B. In the case of any eXstatic
Sublicense, VAR shall pay to Exchange monthly in arrears, the recurring
Sublicense royalty within thirty (30) days after the end of each calendar month,
based on the End User's actual email volume as set forth in Exhibit B. In the
event that an End User desires to upgrade VALEX Sublicense to a larger MCIF
capacity, or transfer the Licensed Software to another operating system, VAR
will pay transfer fee royalties to Exchange based on Exchange's transfer
<PAGE>
policies and rates in effect at the time of reference thereto. All such transfer
fee royalties shall be due and payable within thirty (30) days of the effective
date of such transfer. Exchange reserves the right, from time to time and at any
time, to revise the published list price for any Licensed Software, which new
price shall become effective for the purposes of VAR's royalty payments
hereunder upon ninety (90) days prior written notice to VAR.
5.3 Service Bureau License. Within fifteen (15) days after the end of each
Reporting Quarter during the term of this Agreement, VAR shall report the number
of Strategy Affiliates designated by VAR for purposes of the Service Bureau
during such quarter, and pay to Exchange the applicable license fee and first
year's annual maintenance fee set forth in Exhibit B in respect of such new
Strategy Affiliates; provided, however, during the initial term of this
Agreement, VAR shall not be obligated to pay any license fees under this Section
5.3 in excess of eight million dollars ($8,000,000). At the time of such
quarterly payments, VAR shall pay the annual maintenance fee set forth in
Exhibit B in respect of each Strategy Affiliate, the anniversary of whose
designation by VAR occurred during such quarter.
5.4 Payments. All Fees are due and payable in US Dollars at Exchange's
address. All shipments by Exchange shall be FOB origin.
5.5 Taxes. All payments required by this Agreement are exclusive of
federal, state, local and foreign taxes, duties, tariffs, levies and similar
assessments and VAR agrees to bear and be responsible for the payment of all
such charges imposed upon the Licensed Software and Documentation used, copied
or distributed by VAR hereunder, excluding taxes based upon Exchange's net
income, corporate franchise, personal property or employee-related taxes.
5.6 Records and Audits. VAR shall maintain compete and accurate records
concerning all shipments of Licensed Software, Sublicense Agreements, Service
Bureau Agreements, and Fees payable to Exchange, including the number of
Strategy Affiliates. During the term of this Agreement and for five (5) years
after the year in which any payments are made to VAR hereunder, Exchange shall
have the right upon reasonable advance written notice, to have an independent
auditor verify VAR's marketing efforts, compliance with this Agreement and the
notices, reports and payments provided by VAR to Exchange. VAR shall make its
processors and all applicable books and records available for such inspection
during normal business hours at VAR's principal place of business, and Exchange
shall make all reasonable efforts not to disrupt VAR's business during the
audit. Any such audit shall be at the expense of Exchange, unless such audit
discloses an underpayment by the VAR for the audited period in excess of five
percent (5%), in which case VAR shall reimburse Exchange for such expenses. If
the audit discloses any underpayment by VAR, VAR shall promptly make payment to
Exchange of such underpayment, together with interest thereon at the rate of
1.5% per month or, if lesser, the maximum amount permitted by law. Exchange's
rights under this Section 5.6 shall survive any expiration or termination of
this Agreement.
6. RESPONSIBILITIES OF VAR. VAR represents that within two (2) months
after the Effective Date, it will have the personnel, knowledge and skill
necessary to market (a) the Licensed Software as part of VAR Systems, (b) the
Service Bureau. VAR agrees that it shall, at its sole expense:
a. Provide installation support as well as reasonable training of
End Users and Strategy Affiliates in the day to day use and
application of the VAR System and Service Bureau,
respectively.
b. Operate a maintenance and support service to provide End Users
and Strategy Affiliates with answers to questions and other
assistance in using the VAR System or Service Bureau.
<PAGE>
c. Serve as the sole point of contact with End Users and Strategy
Affiliates to respond to requests for maintenance services,
and to process claims for correction or replacement of any
portions of the Licensed Software incorporated in the VAR
System to the extent that such claim may involve Exchange's
warranty obligations under this Agreement.
d. Keep complete and accurate records of warranty claims and
requests for maintenance services or other assistance and of
actions taken in response thereto, and promptly make available
all such records to Exchange upon request.
e. Use commercially reasonable efforts to promote, advertise and
market the VAR Systems and Service Bureau.
f. Refrain from deceptive, misleading, illegal, or unethical
practices that may be detrimental to Exchange or Licensed
Software.
g. Not make any representations, warranties or guarantees to End
Users or Strategy Affiliates concerning the Licensed Software
that are inconsistent with or in addition to those made in
this Agreement.
h. Comply with all applicable federal, state, and local laws and
regulations in performing its duties with respect to the
Licensed Software and the Service Bureau.
i. Ensure that Value-Added Products comprise a significant
portion of every VAR System.
j. Establish its own pricing for the VAR System and Service
Bureau services, and acknowledge that Exchange is free to
establish its own prices for the Licensed Software.
k. Indemnify Exchange and hold it harmless from any loss, claim
or damage to any person arising out of VAR's unauthorized use
of the Licensed Software; provided, that (i) Exchange shall
have promptly provided VAR written notice thereof and
reasonable cooperation, information, and assistance (at VAR's
expense) in connection therewith, and (ii) VAR shall have sole
control and authority with respect to the defense, settlement,
or compromise thereof. Any failure by Exchange to promptly
notify VAR of a claim for which indemnification is sought
under this Section 6(k), or to cooperate in such claim, shall
only relieve VAR of its indemnity obligations hereunder to the
extent that it is prejudiced by such delay or failure to
cooperate.
7. TRADEMARKS
7.1 Use of Marks. VAR shall use the Exchange's trademarks (including, but
not limited to, "VALEX(TM)" and "eXstatic(TM)"), service marks, the Exchange
design and logo, and the trade name "Exchange" (collectively, the "Marks") in
connection with the marketing of the Licensed Software, VAR Systems and Service
Bureau in accordance with the terms of this Agreement. Any use of the Marks by
VAR shall remain the sole property of Exchange and shall inure to the benefit of
Exchange. All right, titel and interest in and to the Marks adopted by Exchange
to identify the Licensed Software and other Exchange products and services
remain with Exchange, and VAR will have no rights in such Marks except as
expressly set forth herein. VAR's use of the Marks shall be under Exchange's
trademark policies and procedures then in effect.
7.2 No Confusion. VAR agrees not to use the trademark "Exchange", "VALEX"
or "eXstatic" or any mark beginning with the letters "EXC", B+"Val", or "Exc" or
<PAGE>
any other mark likely to cause confusion with the trademark "Exchange", as any
part of VAR's trade name, trademark for any Value-Added Product or other product
of VAR. VAR shall have the right to use the Marks solely to refer to Exchange's
products and services. VAR shall not market the Licensed Software in any way
which could reasonably be deemed to imply that the Licensed Software is the
proprietary product of VAR or of any party other than Exchange.
7.3 Notices. With respect to Exchange's registered trademarks, VAR shall
include in each advertisement, brochure, or other such use, the trademark symbol
"(R)" and the following statement:
__________(R) is a registered trademark of Exchange Applications Inc.,
Boston, Massachusetts 02111
Unless notified otherwise in writing by Exchange, with respect to Exchange's
other trademarks, VAR shall include in each advertisement, brochure, or other
such use, the symbol "TM" and the applicable statement:
VALEX(TM)is a trademark of Exchange Applications, Inc., Boston,
Massachusetts 02111 eXstatic(TM)is a trademark of Exchange
Applications, Inc., Boston, Massachusetts 02111 __________(TM)is a
trademark of Exchange Applications, Inc., Boston, Massachusetts 02111
8. WARRANTY; WARRANTY DISCLAIMERS; LIMITAITON OF LIABILITY.
8.1 Licensed Software Warranty. Exchange warrants to VAR (and not to any
End User or Strategy Affiliate) that, during the first ninety (90) days
following the delivery (in respect of the Developer Licenses, the Service Bureau
License, and each Sublicense granted under the Reseller Licenses) of the
Licensed Software (the "Warranty Period"), the Licensed Software will conform in
all material respects to the specifications contained in the Documentation.
Exchange's sole responsibility under this warranty shall be to correct or
replace that portion of the Licensed Software which fails to conform to said
warranty; provided, that VAR has reported in writing to Exchange any defect or
error claimed to be a breach of warranty within the Warranty Period. If Exchange
is unable to correct or replace the nonconforming Licensed Software within
thirty (30) days of written notification to Exchange during the 90-day warranty
period, Exchange shall reimburse VAR for the amount of license fees paid for the
nonconforming Licensed Software, and the license for that nonconforming Licensed
Software shall be immediately terminated.
8.2 Exclusions. Exchange will have no liability under the foregoing
warranty if (i) the Licensed Software is modified by any party other than
Exchange or without Exchange's prior written consent, (ii) VAR fails to give
Exchange written notice of the claimed breach of warranty within the Warranty
Period, (iii) the failure to conform is caused in whole or part by persons other
than Exchange, or by products, equipment, databases, inputs or computer programs
not furnished by Exchange (including, but not limited to, any Value-Added
Products or any other VAR System or Service Bureau component); (iv) the Licensed
Software is used other than in accordance with the terms of this Agreement or
exposed to environmental or operating conditions beyond those specified in
writing by Exchange; or (v) the Licensed Software is damaged, altered or
affected in any material respect by accident, neglect, misuse or other abuse
other than by Exchange's employees or agents. All Documentation and Updates are
provided without warranty, on an "AS IS" basis. Exchange does not represent or
warrant that all errors can, or will be, corrected.
8.3 No Warranty for Services. EXCHANGE MAKES NO WARRANTY OF ANY KIND,
WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, WITH RESPECT TO ANY MAINTENANCE,
SUPPORT OR OTHER SERVICE PROVIDED HEREUNDER (INCLUDING THE FIXING OF ERRORS THAT
MAY BE CONTAINED IN THE LICENSED SOFTWARE).
<PAGE>
8.4 Warranty Disclaimers. EXCEPT AS SPECIFICALLY PROVIDED IN THIS SECTION
8, THE LICENSED SOFTWARE IS NOT ERROR-FREE AND IS BEING PROVIDED "AS IS" WITHOUT
WARRANTY OF ANY KIND. EXCHANGE HEREBY DISCLAIMS ALL OTHER WARRANTIES, WHETHER
EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE LICENSED SOFTWARE
INCLUDING, WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF TITLE,
NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE AND ALL
WARRANTIES IMPLIED FROM ANY COURSE OF DEALING OR USAGE OF TRADE. EXCHANGE'S
EXPRESS WARRANTIES SHALL NOT BE ENLARGED, DIMINISHED OR AFFECTED BY, AND NO
OBLIGATION OR LIABILITY SHALL ARISE OUT OF, EXCHANGE'S RENDERING OF TECHNICAL OR
OTHER ADVICE OR SERVICE IN CONNECTION WITH LICENSED SOFTWARE. ALL THIRD PARTY
LICENSORS DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED WITH RESPECT TO THE USE OF
THEIR MATERIALS IN CONNECTION WITH THE LICENSED SOFTWARE, INCLUDING (WITHOUT
LIMITATION) ANY WARRANTIES OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
8.5 VAR Responsibilities. VAR shall make no representation or warranty
concerning the quality, performance or other characteristics of the Licensed
Software, or Exchange's obligations with respect thereto, other than those which
are consistent in all respects with, and do not expand the scope of, the
warranties set forth herein.
8.6 Limitation of Liability. EXCEPT FOR (i) EITHER PARTY'S OBLIGATIONS IN
RESPECT OF THIRD PARTY CLAIMS UNDER SECTION 9 (INFRINGEMENT INDEMNITIES) AND
(ii) EITHER PARTY'S BREACH OF ITS OBLIGATIONS UNDER SECTION 10 (PROTECTION OF
PROPRIETARY RIGHTS), IN NO EVENT SHALL EITHER PARTY'S AGGREGATE LIABILITY FOR
ALL DAMAGES TO THE OTHER PARTY FOR ANY CAUSE WHATSOEVER, REGARDLESS OF THE FORM
OF ANY CLAIM OR ACTION, EXCEED THE License FEES OR SUBLICENSE ROYALTIES (A) IN
THE CASE OF EXCHANGE, PAID BY VAR OR (B) IN THE CASE OF VAR, THAT SHOULD HAVE
BEEN PAID BY VAR, FOR THE COPY OF THE LICENSED SOFTWARE THAT GAVE RISE TO THE
CLAIM. EXCEPT FOR (III) EITHER PARTY'S OBLIGATIONS IN RESPECT OF THIRD PARTY
CLAIMS UNDER SECTION 9 (INFRINGEMENT INDEMNITIES) AND (iV) EITHER PARTY'S BREACH
OF ITS OBLIGATIONS UNDER SECTION 10 (PROTECTION OF PROPRIETARY RIGHTS), IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOSS OF DATA,
BUSINESS, PROFITS OR USE OF THE LICENSED SOFTWARE, OR FOR ANY SPECIAL,
INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN
CONNECTION WITH THE USE OR PERFORMANCE OF THE LICENSED SOFTWARE OR OTHERWISE
UNDER THIS AGREEMENT, WITHOUT REGARD TO WHETHER SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS ARE INDEPENDENT FROM ALL
OTHER PROVISIONS OF THIS AGREEMENT AND SHALL APPLY NOTWITHSTANDING THE FAILURE
OF ANY REMEDY PROVIDED HEREIN.
9. INFRINGEMENT INDEMNITIES.
9.1 Exchange's Indemnity.
a. Indemnity. Except as provided below, Exchange shall defend
and indemnify VAR from and against any damages, liabilities, costs and expenses
(including reasonable attorneys' fees) finally awarded against VAR and arising
out of any claim that the Licensed Software infringes a valid United States
patent or copyright or misappropriates a trade secret of a third party;
provided, that (i) VAR shall have promptly provided Exchange written notice
thereof and reasonable cooperation, information, and assistance (at Exchange's
expense) in connection therewith, and (ii) Exchange shall have sole control and
authority with respect to the defense, settlement, or compromise thereof. If any
Licensed Software becomes or, in Exchange's opinion, is likely to become the
<PAGE>
subject of any injunction preventing its use as contemplated herein, Exchange
may, at its option, (1) procure for the VAR (and End Users and Strategy
Affiliates) the right to continue using such Licensed Software, (2) replace or
modify such Licensed Software so that it becomes non-infringing without
substantially compromising its functionality, or, if (1) and (2) are not
reasonably available to Exchange, then (3) terminate VAR's Licenses and the
Sublicenses in respect of the allegedly infringing Licensed Software and pay to
VAR an amount not to exceed the depreciated value of the Licensed Software equal
to the license Fee paid by VAR for such Licensed Software depreciated on a
straight line basis over a three and one-half (3 1/2) year period. Exchange
shall have no obligation for any costs incurred by Licensee without Exchanges's
prior written authorization.
b. Exclusions. Exchange shall have no liability or obligation to
VAR hereunder with respect to any patent, copyright or trade secret infringement
claim based upon (i) use of the Licensed Software in an application or
environment or on a platform or with devices for which the Licensed Software was
not designed or contemplated, (ii) modifications, alterations, combinations or
enhancements of the Licensed Software not created or authorized by Exchange or
its authorized contractors or agents, (iii) use of a superseded version of the
Licensed Software if the infringement would have been avoided by using an Update
that Exchange provided to VAR; or (iv) any patent, copyright or trade secret in
which VAR (or any of its affiliates), or any End User or Strategy Affiliate, has
an interest. In accordance with Section 9.2, VAR shall indemnify and hold
Exchange harmless from all costs, damages and expenses (including reasonable
attorneys' fees) arising from any claim enumerated in clauses (i) through (iv)
above.
c. Entire Liability. The foregoing states the entire liability of
Exchange, and the sole and exclusive remedy of VAR, with respect to any claim of
infringement of patents, copyrights and trade secrets by the Licensed Software,
or any part thereof, or by its operation.
9.2 VAR's Indemnity.
a. Indemnity. VAR shall defend and indemnify Exchange from and
against any damages, liabilities, costs and expenses (including reasonable
attorneys' fees) arising out of any claim that any software, product or service
(including, but not limited to, any Value-Added Product) provided in connection
with any VAR System or the Service Bureau infringes a valid United States patent
or copyright or misappropriates a trade secret of a third party; provided, that
(i) Exchange shall have promptly provided VAR written notice thereof and
reasonable cooperation, information, and assistance (at VAR's expense) in
connection therewith, and (ii) VAR shall have sole control and authority with
respect to the defense, settlement, or compromise thereof.
b. Entire Liability. The foregoing states the entire liability of
VAR, and the sole and exclusive remedy of Exchange, with respect to any claim of
infringement of patents, copyrights and trade secrets by VAR's software,
products and services, or any part thereof, or by their operation.
9.3 Prompt Notice. The party seeking indemnification under this Section 9
will immediately inform the indemnifying party as soon as it becomes aware of
any threatened or actual liability claim by a third party. Any failure by the
party seeking indemnification under this Section 9 to promptly notify the
indemnifying party of a claim for which indemnification is sought, or to
cooperate in such claim, shall only relieve the indemnifying party of its
indemnity obligations hereunder to the extent that it is prejudiced by such
delay or failure to cooperate.
10. PROTECTION OF PROPRIETARY RIGHTS.
10. Definition. "Proprietary Materials" shall mean, with respect to
Exchange, all Licensed Software, Updates and enhancements, modifications and
translations thereof , with respect to VAR, all Value-Added Products, and with
<PAGE>
repsect to both parties, any other information or data disclosed by either party
to the other, in written, graphic or machine readable form which by its nature
or type should reasonably be considered proprietary or confidential or which the
disclosing party labels as being proprietary or confidential. Each party
acknowledges that the other's Proprietary Materials are confidential and
constitute valuable assets of the discolosing party (or its third party
licensors). Proprietary Material does not include:
(i) Information which is or becomes available in the public domain
other than through disclosure by the receiving party (the
"Recipient") in breach of this Agreement);
(ii) Information disclosed or made available at any time to the
Recipient by a third party without breach of any relationship
of confidentiality to the disclosing party (the "Discloser");
(iii) Information independently developed by the Recipient without
use of the Proprietary Material of the Discloser;
(iv) Information which was already known to the Recipient, without
an obligation of confidentiality to the Discloser, at the time
of disclosure hereunder.
10.2 Confidentiality. Except for the specific rights granted by this
Agreement, Recipient shall not use, copy or disclose any Proprietary Material
without the written consent of the Discloser. Recipient shall hold all
Proprietary Materials in confidence, and use the highest commercially reasonable
degree of care to protect the Proprietary Materials, including at a minimum,
those precautions Recipient employs to protect its own confidential information,
but not less than a reasonable degree of care. Recipient shall not disclose the
Proprietary Materials except to its employees that have a need to know in
connection with Recipient's authorized uses under this Agreement and who have
agreed in writing not to disclose the Proprietary Materials. Recipient shall
bear the responsibility for any breaches of confidentiality by its employees.
Within ten (10) days after Discloser's request, and in its sole discretion,
Recipient shall either return to Discloser all originals and copies of any
Proprietary Materials and all information, records and materials developed
therefrom by Recipient, or destroy the same, other than such Proprietary
Materials as to which this Agreement expressly provides a continuing right to
Recipient to retain at the time of the request.
10.3 Proprietary Rights. Discloser (or its third party licensors) shall
retain all rights, title and interest in the Proprietary Materials, and
Recipient shall not take any action inconsistent with such title and ownership.
VAR, End Users and Strategy Affiliates shall not acquire any rights in
Exchange's Proprietary Materials, and Exchange shall not acquire any rights in
VAR's Proprietary Materials, except as express in this Agreement. VAR will keep
records of the number and location of all copies of Proprietary Materials and
make such records available to Exchange. Recipient shall not remove any
copyright or legal notices or proprietary rights notice included in any
Proprietary Material and shall reproduce all such notices on any copies of
Proprietary Material.
10.4 No Reverse Engineering. VAR shall not: (i) use any Licensed Software or
Documentation to create any software or documentation that is similar to or
competitive with any of the Licensed Software or Documentation; (ii) decompile,
disassemble, reverse compile, reverse assemble, reverse translate or otherwise
reverse engineer any Licensed Software, or use any similar means to discover the
source code of the Licensed Software or to discover the trade secrets therein,
or otherwise circumvent any technological measure that controls access to the
Licensed Software; or (iii) permit any third party to engage in any of the acts
proscribed in clauses (i) through (ii).
<PAGE>
10.5 Notice. Recipient shall notify Discloser promptly of any unauthorized
possession, disclosure, or use of Proprietary Material or, in the case of VAR,
any violation of the confidentiality provisions included in any Sublicense
Agreement or Service Bureau Agreement of which VAR is aware. Recipient will take
such actions as Discloser may reasonably request (including instituting
appropriate legal proceedings) to enforce the confidentiality provisions of such
agreements and to prevent or remedy any further unauthorized possession,
disclosure or use of Proprietary Materials.
10.6 Remedies. Money damages will not be an adequate remedy if this Section
10 is breached and, therefore, Discloser shall, in addition to any other legal
or equitable remedies, be entitled to seek an injunction or similar equitable
relief against such breach or threatened breach without the necessity of posting
any bond.
11. TERM; TERMINATION
11.1 Term. This Agreement shall commence on the Effective Date and continue
for a period of three and one-half (3 1/2) years thereafter. This Agreement may
be renewed for an additional term of equal duration, upon the mutual written
consent of the parties.
11.2 Termination. Notwithstanding the foregoing, this Agreement may be
terminated:
a. Material Breach. By either party, in the event the other party
materially breaches a provision of this Agreement and the breaching party fails
to cure such breach within thirty (30) days of the receipt of notice of such
breach from the non-breaching party.
b. Bankruptcy. By either party, immediately in the event any assignment
is made by the other party for the benefit of creditors, the party admits in
writing its inability to pay debts as they come due, or if a receiver, trustee
in bankruptcy or similar officer shall be appointed to take charge of any or all
of the other party's property, or if the other party files a voluntary petition
under federal bankruptcy laws or similar state statutes or such a petition is
filed against the other party and is not dismissed within sixty (60) days.
11.3 Effects of Termination. Upon termination of this Agreement for any
reason, all rights, obligations and licenses of the parties hereunder shall
cease, except for the following obligations:
a. Payments. VAR's liability for any Fee, charges, payments or expenses
due to Exchange that accrued prior to the termination date shall not be
extinguished by termination, and such amounts (if not otherwise due on an
earlier date) shall be immediately due and payable on the termination date.
b. Termination of Licenses. VAR shall have no further right to copy or
use any Licensed Software (except to fulfill Sublicense orders outstanding as of
the termination date) and immediately after the termination or expiration date
hereof, VAR shall deliver to Exchange, at VAR's expense, all originals and
copies of the (i) Licensed Software, (ii) Documentation, (iii) other Proprietary
Materials in the possession or under the control of VAR and (iv) render unusable
all intangible data and information. VAR shall certify in writing to Exchange
within ten (10) days following termination that it has complied with this
Section 11.3.b.
c. Survival. The provisions of Sections 5.5 (Taxes), 5.6 (Records and
Audits), 8 (Warranty; Warranty Disclaimers; Limitation of Liability), 9
(Infringement Indemnities), 10 (Protection of Proprietary Materials), 12
(Nondisclosure), 13 (Compliance with Laws), 14 (General) and this Section 11
shall survive any termination or expiration of this Agreement.
<PAGE>
11.4 Sublicenses. Notwithstanding any of the foregoing, any expiration
or termination of this Agreement shall not have an impact on those Sublicense
Agreements issued under this Agreement, and all terms and conditions of such
Sublicense Agreements shall continue in full force and effect.
12. NONDISCLOSURE. Without first obtaining the written consent of the other
party, neither party shall disclose the terms and conditions of this Agreement,
except as may be required to implement and enforce the terms of this Agreement,
or as may be required by legal procedures or by law. No other information
exchanged between the parties shall be deemed confidential unless the parties
otherwise agree in writing. VAR shall not disclose the results of benchmark
tests or the statistical performance results of any other evaluation of the
Licensed Software to any third party without Exchange's prior written approval.
13. Compliance with Laws.
13.1 Export. VAR shall not export or re-export, directly or indirectly
(including via remote access), Licensed Software, Documentation or other
information or materials provided by Exchange hereunder, to any country for
which the United States or any other relevant jurisdiction requires any export
license or other governmental approval at the time of export without first
obtaining such license or approval. It shall be VAR's responsibility to comply
with the latest United States export regulations, and VAR shall defend and
indemnify Exchange from and against any damages, fines, penalties, assessments,
liabilities, costs and expenses (including reasonable attorneys' fees and court
costs) arising out of any claim that Licensed Software, Documentation, or other
information or materials provided by Exchange hereunder were exported or
otherwise accessed, shipped or transported in violation of applicable laws and
regulations.
13.2 Compliance with Laws of Other Jurisdictions. VAR shall comply in all
material respects with all laws, legislation, rules, regulations, and
governmental requirements with respect to the Licensed Software, and the
performance by VAR of its obligations hereunder, of any jurisdiction in or from
which VAR directly or indirectly causes the Licensed Software to be used or
accessed. In the event that this Agreement is required to be registered with any
governmental authority, VAR shall cause such registration to be made and shall
bear any expense or tax payable in respect thereof.
14. GENERAL
14.1 Force Majeure. In the event that either party is prevented from
performing, or is unable to perform, any of its obligations under this Agreement
due to any cause beyond the reasonable control of the party invoking this
provision, the affected party's performance shall be extended for the period of
delay or inability to perform due to such occurrence.
14.2 Waiver. The waiver by either party of a breach or a default of any
provision of this Agreement by the other party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or omission on the part of either party to exercise or avail itself of
any right, power or privilege that it has, or may have hereunder, operate as a
waiver of any right, power or privilege by such party. No remedy referred to in
this Agreement is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to herein or otherwise available at law or
in equity.
14.3 No Agency; Independent Contractors. Nothing contained in this Agreement
shall be deemed to constitute either party as the agent or representative of the
other party, or both parties as joint venturers or partners for any purpose. VAR
shall have no authority to vary, alter or enlarge any of Exchange's obligations
<PAGE>
hereunder or to make representations, warranties or guarantees on behalf of
Exchange. VAR shall make all agreements with End Users and Strategy Affiliates
in its own name and for its own account and risk, and shall establish its own
prices.
14.4 Governing Law; Jurisdiction & Venue. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, USA,
without regard to its choice of law provisions. In the event of any conflict
between foreign laws, rules and regulations and those of the United States, the
laws, rules and regulations of the United States shall govern. The United
Nations Convention on Contracts for the International Sale of Goods shall not
apply to this Agreement.
14.5 Entire Agreement; Amendment. This Agreement and the Appendices and
Exhibits attached hereto constitute the entire agreement between the parties
with regard to the subject matter hereof. No representation, promise, inducement
or statement of intention has been made by either party which is not set forth
in this Agreement and neither shall be bound by or liable for any alleged
representation, promise, inducement or statement of intention not so set forth.
No waiver, consent, modification or change of terms of this Agreement shall bind
either party unless in writing signed by both parties, and then such waiver,
consent, modification or change shall be effective only in the specific instance
and for the specific purpose given. Terms set forth in any purchase order of VAR
(or other similar document) that are in addition to or at variance with the
terms of this Agreement are specifically waived by VAR. All such terms are
considered by Exchange to be proposed material alterations of this Agreement and
are rejected. VAR's purchase order is only effective as VAR's unqualified
commitment to pay for a license to the Licensed Software upon the terms (and
only the terms) set forth herein.
14.6 Costs, Expenses and Attorneys' Fees. VAR shall reimburse Exchange for
all reasonable costs (including attorneys' fees) incurred by Exchange in
collecting late payments from VAR. If either party commences any action or
proceeding against the other party to enforce or interpret this Agreement, the
prevailing party in such action or proceeding shall be entitled to recover from
the other party the actual costs, expenses and attorneys' fees (including all
related costs and expenses), incurred by such prevailing party in connection
with such action or proceeding and in connection with obtaining and enforcing
any judgment or order thereby obtained.
14.7 Assignment. This Agreement, the Licenses and all of the other rights
and obligations hereunder, may not be assigned, in whole or in part by VAR,
without the prior written consent of Exchange. Any attempt by VAR to do so
without such consent shall be null and void ab initio. In the case of any
permitted assignment or transfer of or under this Agreement, this Agreement or
the relevant provisions shall be binding upon, and inure to the benefit of, the
successors, executors, heirs, representatives, administrators and assigns of the
parties hereto.
14.8 Notices. Any notice or communication from one party to the other shall
be in writing and either personally delivered or sent certified mail, postage
prepaid, return receipt requested, addressed to such other party at the address
specified in the first paragraph of this Agreement, or at such other address as
such party may from time to time designate in a notice to the other party. All
notices shall be in English and shall be effective upon receipt.
14.9 Non Solicitation. For the term of this Agreement and for a period of
twelve months after any expiration or termination of this Agreement, the parties
hereto do agree and affirm to refrain from any and all attempts to solicit or
recruit the employees of the other without the prior written approval of the
party whose employee is being considered for employment. This shall in no way,
however, be construed to restrict, limit or encumber the rights of any employee
granted by law.
14.10 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which together shall
<PAGE>
constitute one and the same instrument. In making proof of this Agreement, it
shall not be necessary to produce or account for more than one such counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers or representatives as of the date
first written above.
Exchange Applications, Inc. MicroStrategy Incorporated
By: [illegible] By: /s/ Sanju Bansal
------------------------- --------------------------------
Name:______________________________ Name: Sanju Bansal
-----------------------------
Title:_____________________________ Title: COO
-----------------------------
Date:______________________________ Date:_______________________________
<PAGE>
APPENDIX A-1
VALEX(TM) Software Product Description
VALEX software transforms raw customer data into usable marketing information.
It integrates with other decision support software to leverage the customer
information in a customer's data warehouse.
VALEX Delivers:
o A full-function suite of database marketing tools for segmentation,
campaign planning, campaign management, campaign data extraction, and
back-end reporting and analysis.
o Integrated capabilities to define, refine, and reuse segmentation schemes,
profile segments, and reuse campaign criteria over time and across.
o An Open systems architecture which maximizes data access throughout the
organization, minimizes investment costs, and supports flexible, extendible
capabilities.
o A multi-tier End User interfaces which supports direct access to data by
staff with differing technical skills levels and database knowledge.
VALEX Modules
VALEX Segment
Segment is a powerful data access tool which allows the customer to define and
count sets of customers using a point-and-click End User interface or with the
full capabilities of native SQL.
VALEX Profile
Profile creates three-dimensional profiles or cross-tabulations of the database.
A wide variety of mathematical functions are available as well as advanced tools
for grouping and manipulating the dimensions of the profile. Results can be
displayed, stored, and integrated with client tools such as Excel.
VALEX Campaign
Campaign completely automates the definition and management of targeted
marketing campaigns. Mutually exclusive and collectively exhaustive customer
sets are created automatically through Campaign's de-duplication utility.
Facilities are provided to manage audience splits and quantity limits. Campaign
performs the data manipulation necessary to format the data for direct mail,
telemarketing, and other targeted customer communication programs and generates
the files to execute these processes.
VALEX Extract
Extract performs the actual data extraction for the customer sets identified by
Segment and Campaign. Extract generates flat files or RDBMS database tables in
flexible formats defined by the system manager or end-End User. Extract has the
ability to create computed fields and summary tables. These files or tables can
provide the direct input to the systems which manage customer touch points,
including direct mail, telemarketing, sales management, and customer service, or
as input for modeling tools. Extract specifications can be stored and re-used
throughout the VALEX environment.
Optional Software
VALEX Eval
<PAGE>
VALEX Eval provides the ability to establish a set of consistent performance
metrics to monitor the performance of marketing investment plans and campaigns
over time. It supports the evaluation of behavior change related to segments of
customers, investment plans, campaigns, and specific value propositions.
VALEX Designer
VALEX Designer is a powerful analysis environment that allows VALEX customers to
build their own customized, multidimensional analysis views of their database.
VALEX Designer includes a visual development environment that allows the End
User to quickly create sophisticated multi-dimensional analysis applications.
Designer supports development of reports, charts, graphs, drill downs, pivot
tables, exception reports and other sophisticated analysis techniques. The VALEX
Designer also includes a powerful multi-dimensional database allowing for rapid
retrieval and analysis of key dimensions of the database.
<PAGE>
Appendix A-2
eXstatic(TM) Software Product Description
Exchange's e-mail marketing tool that enables personalized communications
with customers of the end users.
<PAGE>
APPENDIX B
DESCRIPTIONS OF VALUE-ADDED PRODUCTS
1. VAR's Strategy.com with eXstatic(TM) Software (Service Bureau), to provide
Strategy Affiliates with email marketing services (in respect of the
Strategy.com network services) to Affiliate Subscribers.
2. VAR's other products with eXstatic(TM) Software
<PAGE>
[EXCHANGE LOGO]
APPENDIX C
DEVELOPER LICENSES
MAINTENANCE AND SUPPORT DELIVERY MODEL
<TABLE>
<CAPTION>
Support Description Responsible Party
<S> <C>
1. Isolates problem to Licensed Software code. VAR
2. Checks known fixes, updates, error corrections and,
if known, applies such fix, update or error correction
to the VAR System. VAR
3. If problem is isolated to the Licensed Software code,
and 2 above does not fix the problem, System
Manager calls Exchange to report the problem. VAR
4. Exchange is provided with problem description, and
any necessary code, reports, supporting technical data,
dumps, etc., as may be required for Exchange to reproduce
the problem. VAR
5. Provide error correction or workaround for problem. Exchange
</TABLE>
<PAGE>
[EXCHANGE LOGO]
APPENDIX D
END USER SUBLICENSES
MAINTENANCE AND SUPPORT DELIVERY MODEL
<TABLE>
<CAPTION>
Support Description Responsible Party
<S> <C>
1. Takes call from End User reporting the problem. VAR
2. Isolates problem to Licensed Software code. VAR
3. Checks known fixes, updates, error corrections and,
if known, applies such fix, update or error correction
to the System. Provides such fix, Update, or error correction,
to End User. VAR
4. If problem is isolated to the Licensed Software code,
and 3 above does not fix the problem, VAR System
Manager calls Exchange to report the problem. VAR
5. Collects all necessary technical data (i.e., code,
reports, supporting technical data, dumps, etc., from
End User. VAR
6. Exchange is provided with problem description, and
any necessary code, reports, supporting technical data,
dumps, etc., as may be required for Exchange to reproduce
the problem. VAR
7. Provide error correction or workaround for problem
to VAR. Exchange
8. Provides error correction or workaround to End User. VAR
</TABLE>
<PAGE>
[EXCHANGE LOGO]
APPENDIX E
SERVICE BUREAU LICENSE
MAINTENANCE AND SUPPORT DELIVERY MODEL
<TABLE>
<CAPTION>
Support Description Responsible Party
<S> <C>
1. Takes call from Strategy Affiliate reporting the problem. VAR
2. Isolates problem to Licensed Software code. VAR
3. If problem is isolated to the Licensed Software code,
System Manager calls Exchange to report the problem. VAR
4. Collects all necessary technical data (i.e., code,
reports, supporting technical data, dumps, etc.) VAR
5. Exchange is provided with problem description, and
any necessary code, reports, supporting technical data,
dumps, etc., as may be required for Exchange to reproduce
the problem. VAR
6. Provide error correction or workaround for problem
to VAR. Exchange
7. Introduces error correction or workaround into
Service Bureau operations and services. VAR
</TABLE>
<PAGE>
[EXCHANGE LOGO]
EXHIBIT A
SCHEDULE OF DEVELOPER FEES
<TABLE>
<CAPTION>
Description Fees Payable*
- ----------- -------------
<S> <C>
1. VALEX Developer License
A. License Fees
$500,000
Object Code Format
1 copy Server Software Module
10 copies Client Software Module
B. Annual Maintenance Fees
First Year Not separately priced
Subsequent years (optional) $100,000
2. eXstatic Developer License
A. License Fees
Object Code Format $500,000
B. Annual Maintenance Fees
First Year Not separately priced
subsequent years (optional) $100,000
</TABLE>
Payment Terms: The fees described on this Exhibit A are payable to Exchange upon
execution of this Agreement.
* VAR shall reimburse Exchange for actual, reasonable travel and out-of -pocket
expenses incurred.
<PAGE>
[EXCHANGE LOGO]
Exhibit B
Sublicense and Service Bureau Fees
1. Sublicense - VALEX(TM)software bundled with the Value-Added Product:
A. Sublicense Royalty 50% of Exchange's then-current
list price for the Licensed
Software, based on VAR's End
User's customer database
configuration or MCIF
For each Sublicense issued by VAR to an End User, VAR shall pay to
Exchange a Sublicense Royalty equal to 50% of Exchange's then current
list license fee for the Licensed Software configuration. A copy of
Exchange's current price list is attached, and Exchange reserves the
right to change its price list at upon ninety (90) days' prior written
notice to VAR. All Sublicense Royalties are due and payable within
thirty (30) days from the execution date of the particular Sublicense
Agreement out of which such payment arises.
B. Annual Maintenance Royalty 10% of the Sublicense Royalty
For each Sublicense issued by VAR to a End User, VAR shall pay to
Exchange a Maintenance Royalty equal to 10% of the Sublicense Royalty.
All Maintenance Royalty fees are due and payable within thirty (30)
days from the execution date of the particular Sublicense Agreement out
of which such payment arises. Subsequent annual Maintenance Royalty
fees are due and payable on or before the beginning of the annual
period to which such payment applies.
2. Sublicense - eXstatic(TM) Software bundled with the Value-Added
Product:
A. Sublicense Royalty Currently, $97,500 (that is,
50% of Exchange's then-current
list price for the Licensed
Software) plus 50% of the per
email fee based on the
following list price schedule
(monthly flat fee + incremental
monthly usage fee)
Monthly Flat Fee, based on number of email messages sent during the
month:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------- ---------------------- ----------------------- ---------------------- --------------------------- ---------------
1-200K messages greater than 200-400K greater than 400-600K greater than 600-800K greater than 800K-1 million 1-10 million
- ----------------- ---------------------- ----------------------- ---------------------- --------------------------- ---------------
$5,000 $5,000 $9,000 $12,000 $14,000 $15,000
- ----------------- ---------------------- ----------------------- ---------------------- --------------------------- ---------------
Incremental Monthly Usage Fee, based on number of email messages sent
during the month:
- ---------------- ---------------------- ----------------------- ---------------------- --------------------------- -----------------
1-200K messages greater than 200-400K greater than 400-600K greater than 600-800K greater than 800K-1 million 1-10 million
- ---------------- ---------------------- ----------------------- ---------------------- --------------------------- -----------------
0 $.02 per email $.015 per email $.01 per email $.005 per email $.0025 per email
- ---------------- ---------------------- ------------------------ --------------------- --------------------------- -----------------
</TABLE>
For each Sublicense issued by VAR to an End User, VAR shall pay to
Exchange a Sublicense Royalty equal to 50% of Exchange's then current
list license and usage fees for the Licensed Software. Exchange
reserves the right to change its price list upon ninety (90) days'
prior written notice to VAR. All Sublicense Royalties for the Licensed
Software are due and payable within thirty (30) days from the execution
date of the particular Sublicense Agreement out of which such payment
<PAGE>
[EXCHANGE LOGO]
arises. All Sublicense Royalties for the per email usage are due and
payable within thirty (30) days of the end of the month.
B. Annual Maintenance Royalty 10% of the Sublicense Royalty
for the Licensed Software
For each Sublicense issued by VAR to a End User, VAR shall pay to
Exchange a Maintenance Royalty equal to 10% of the Sublicense Royalty
for the Licensed Software. All Maintenance Royalty fees are due and
payable within thirty (30) days from the execution date of the
particular Sublicense Agreement out of which such payment arises.
Subsequent annual Maintenance Royalty fees are due and payable on or
before the beginning of the annual period to which such payment
applies.
All royalty fees are payable in US Dollars, and are exclusive of taxes.
VAR will reimburse Exchange for all taxes levied against the Agreement
and the licenses and/or services rendered hereunder, excluding any
taxes based on Exchange's net income, corporate franchise or personal
property ownership or employee related tax.
3. Service Bureau - eXstatic Software on a hosted basis with VAR acting as
an Application Service Provider for Strategy Affiliates
A. License fee: $100,000 per Strategy Affiliate registered
with Strategy.com and designated by VAR
B. Annual Maintenance Fee $10,000
The fees described for this Item 3 are due and payable (a) on the Effective
Date, in respect of all then current Strategy Affiliates registered with
Strategy.com and designated by VAR, and (b) quarterly thereafter, beginning
March 15, 2000, in respect of new Strategy Affiliates added during the
applicable Reporting Quarter. With each payment, VAR shall provide Exchange a
report of the total number of Strategy Affiliates registered with Strategy.com
and designated by VAR for purposes of the Service Bureau, and the number of new
Strategy Affiliates.
<PAGE>
[EXCHANGE LOGO]
EXHIBIT C
MASTER AGREEMENT FOR PROFESSIONAL SERVICES
(already provided by Exchange)
<PAGE>
[MicroStrategy Letterhead] 8000 Towers Crescent Drive
Vienna, Virginia 22182
703.848.8600
703.848.8610 Fax
[email protected]
www.microstrategy.com
December 30, 1999
Mr. Andrew J. Frawley
Chief Executive Officer
Exchange Applications, Inc.
89 South Street
Boston, MA 02111
Re: Designation of Strategy Affiliates in accordance with the Value-Added
Reseller Agreement between MicroStrategy Incorporated (MSI) and
Exchange Applications, Inc. dated December 30, 1999 (the "Agreement")
Dear Andy:
We would like to designate the following Strategy Affiliates as being registered
with the MSI Service Bureau for eXstatic Software.
<TABLE>
<CAPTION>
<S> <C>
WSJ Interactive BeatingWallStreet.com
Riggs Bank ICOA, Inc.
American Mobile Satellite Corp. Sundial Marketplace Corporation
Belo Interactive Stocksystem.com, Inc.
NCR Aquis IP Communications
Ameritrade Wealthcast.com
Nasdaq Blue Stone Capital Partners, L.P. (Trade.com)
fbr.com CSG Media, LLC (ForSalesPeople.com)
Cendex Corporation Protavolori
USAToday.com Green Mountain Asset Management
EarthLink Network, Inc. twcresearch.com
Community of Science, Inc. All As One
Washingtonpost.com Open Designer Ltd.
Metrocall Inc. Wireless Enabled, LLC
MobileClick.com, Inc. Aquis Communications
SMAC Data Systems, Inc. 1010WallStreet.com
Telestreet.com, Inc. Canstock.com
The Market Radar Avid Trading Company
Marble Management (The Daytrader Toad) Phone Center
Investor Educ Svcs, Inc. (VPA Forum) RightLine.net
BigPlayStocks.com, Inc. Buy Sell or Hold Company
DayTrade Alerts, Inc. iExpect.com, LLC
GayWired.com
</TABLE>
In accordance with the terms of the Agreement, please invoice MSI $4,500,000 for
the designation of the above list of Strategy Affiliates and $450,000 for the
first year of maintenance for the Strategy Affiliates.
Regards,
/s/ Sanju Bansal
Sanju Bansal
Chief Executive Officer
<PAGE>
Exhibit 10.13
PAYMENT AND REGISTRATION RIGHTS AGREEMENT dated as of December
28, 1999 (this "Agreement"), between EXCHANGE APPLICATIONS, INC., a
Delaware corporation ("Exchange"), and MICROSTRATEGY INCORPORATED, a
Delaware corporation ("MicroStrategy").
The parties hereby agree as follows:
ARTICLE I.
Definitions and Construction
----------------------------
Section 1.01. Certain Definitions. As used in this Agreement, the following
---------------------
terms shall have the meanings specified below:
"Business Day" shall mean any day other than a day which is a Saturday or
---------------
Sunday or any other day on which commercial banks in New York, New York are
authorized or required to remain closed.
"Business Unit" shall have the meaning set forth in the Development
---------------
Agreement.
"Closing" shall mean the Payment of the Closing Payment on the Closing
----------
Date.
"Closing Date" shall mean December 28, 1999.
--------------
"Closing Share Amount" shall mean the number of shares of Common Stock
-----------------------
(rounded to the nearest whole number) equal to the result obtained by dividing
(a) $20,000,000 by (b) the Fair Market Value of the Common Stock as of the
---
Closing Date.
"Common Stock" shall mean the Common Stock, par value $0.001 per share, of
--------------
Exchange.
"control" (including, with its correlative meanings, "controlled by" and
--------- ---------------
"under common control with") shall mean possession, directly or indirectly, of
- --------------------------
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).
"Designee" shall mean any wholly-owned subsidiary of MicroStrategy
----------
designated in writing by MicroStrategy as the recipient and registered holder of
any or all of the Payment Shares to be issued under Article II.
"Development Agreement" shall mean the Software Development and OEM
------------------------
Agreement, dated as of the Closing Date, by and between MicroStrategy and
Exchange. The final form of the Development Agreement is attached hereto as
Exhibit A.
- ---------
"dollars" or "$" shall mean lawful money of the United States of America.
-------
<PAGE>
-2-
"Exchange Act" shall mean the Securities Exchange Act of 1934.
-------------
"Fair Market Value" means, as of any date of determination, the lowest
------------------
closing sale price (if listed on a stock exchange or quoted on the Nasdaq
National Market System or any successor thereto), or the lowest of the mean
between the closing bid and asked prices (if quoted on NASDAQ or otherwise
publicly traded), of the Common Stock during the period commencing on the third
trading day prior to (and including) such date and ending on the third trading
day after such date.
"Governmental Authority" shall mean any court, administrative agency or
-------------------------
commission or other governmental agency or instrumentality, domestic or foreign,
or any arbitrator, of competent jurisdiction.
"Group" shall mean a "Group" within the meaning of Section 13(d)(3) of the
-------
Exchange Act.
"Installment Share Amount" shall mean, with respect to any Installment for
-------------------------
which Exchange has elected in accordance with Section 2.02(b) to pay all or any
portion of the Payment Amount in Common Stock, the number of shares of Common
Stock (rounded to the nearest whole number) equal to the result obtained by
dividing (a) the Payment Amount to be paid on the applicable Installment Date
minus the Cash Component set forth in the applicable Stock Election Notice by
- ----- --
(b) the Fair Market Value of the Common Stock as of the originally scheduled
Installment Date set forth in the table contained in Section 2.01(c); provided,
---------
however, that for purposes of this definition, in no event shall the "Fair
- ---------
Market Value" as at any date be less than 75% of the Fair Market Value
determined as of the Closing Date or exceed 125% of the Fair Market Value
determined as of the Closing Date.
"Marketing Agreement" shall mean the Joint Marketing Agreement, dated as of
---------------------
the Closing Date, by and between MicroStrategy and Exchange. The final form of
the Marketing Agreement is attached hereto as Exhibit B.
---------
"MicroStrategy License Agreement" shall mean the License Agreement, dated
----------------------------------
as of the Closing Date, by and between MicroStrategy and Exchange. The final
form of the MicroStrategy License Agreement is attached hereto as Exhibit C.
---------
"Milestones" shall mean, at any time of determination, the milestones for
------------
the Business Unit in effect at such time. On the Closing Date, the Milestones
shall be set forth on Exhibit A to the Development Agreement, and thereafter,
may be established or modified from time to time by the Steering Committee.
"Operative Agreements" shall mean this Agreement, the Development
----------------------
Agreement, the Marketing Agreement, the MicroStrategy License Agreement and the
Strategy.com Agreement.
"Payment Shares" shall mean all shares of Common Stock issued to
---------------
MicroStrategy under Article II.
<PAGE>
-3-
"Person" shall mean any individual, firm, corporation, partnership, Group,
------
trust, joint venture, Governmental Authority or other entity, and shall include
any successor (by merger or otherwise) of such entity.
"Registration Shares" shall mean (i) all Payment Shares issued to
--------------------
MicroStrategy or a Designee and (ii) all securities issued or issuable to
MicroStrategy or a Designee in respect thereof by way of stock dividend, stock
split or reclassification, or in connection with a combination of shares,
recapitalization, merger or, consolidation or other reorganization or otherwise.
"Registration Statement" shall mean, as applicable, the Shelf Registration
------------------------
Statement or a registration statement filed with the SEC in connection with a
Piggyback Registration.
"Registration Termination Date" means, with respect to any Registration
------------------------------
Statement, the earlier of (i) the date when all of the Registration Shares
registered thereunder shall have been sold or (ii) the third anniversary of the
Closing Date; provided however, that in the event that the right of
------------------
MicroStrategy or any Designee to use such Registration Statement (and the
prospectus relating thereto) is delayed or suspended pursuant to Section 5.07 or
5.09, Exchange shall be required to extend the Registration Termination Date
beyond the third anniversary of the Closing Date by the same number of days as
such delay or Suspension Period.
"SEC" shall mean the Securities and Exchange Commission or any successor
---
commission or agency having similar powers.
"Securities Act" shall mean the Securities Act of 1933.
---------------
"Shelf Registration" shall mean the registration of Registration Shares
--------------------
pursuant to the Shelf Registration Statement.
"Steering Committee" shall have the meaning set forth in the Development
--------------------
Agreement.
"Strategy.com Agreement" shall mean the Strategy.com Affiliate Agreement,
-------------------------
dated as of the Closing Date, by and between MicroStrategy and Exchange. The
final form of the Strategy.com Agreement is attached hereto as Exhibit D.
---------
"Transactions" shall mean the transactions contemplated the Operative
--------------
Agreements.
"Transfer" shall mean to sell, transfer or assign.
----------
<PAGE>
-4-
Section 1.02. Additional Definitions.
Defined Term Section Defined in
------------ ------------------
Accelerated Installment Date 2.03(c)
Closing Payment 2.01(a)
Cash Component 2.02(b)
Election Date 2.02(b)
Extension Date 2.03(b)
Installment Dates 2.01(c)
Installments 2.01(c)
Payment Amounts 2.01(c)
Piggyback Registration 5.02(a)
Preferred Stock 3.01(c)
Registered Sale 4.01
Sale 4.01
SEC Documents 3.01(e)
Securities 3.01(c)
Shelf Registration Statement 5.01(a)
Stock Election Notice 2.02(b)
Suspension Period 5.09
Unachieved Milestones 2.03(b)
Section 1.03. Terms Generally. The definitions in Sections 1.01 and 1.02
----------------
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. The headings of the
Articles and Sections are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement. Unless the context shall otherwise require, any reference to any
agreement or other instrument or statute or regulation are to it as amended and
supplemented from time to time (and, in the case of a statute or regulation, to
any successor provision). Any reference in this Agreement to a "day" or a
number of "days" (without the explicit qualification of "Business") shall be
interpreted as a reference to a calendar day or number of calendar days. If any
action or notice is to be taken or given on or by a particular calendar day, and
such calendar day is not a Business Day, then such action or notice shall be
deferred until, or may be taken or given on, the next Business Day.
<PAGE>
-5-
ARTICLE II.
Payments and Issuance of Shares
-------------------------------
Section 2.01. Payments and Issuance of Shares. In reliance upon the
-------------------------------
representations, warranties and agreements of MicroStrategy set forth in the
Operative Agreements, and upon the terms and conditions set forth herein, in
consideration for the rights, services, interests and benefits received or to be
received by Exchange under the Development Agreement, the Marketing Agreement,
the MicroStrategy License Agreement and the Strategy.com Agreement during the
initial terms thereof:
(a) At the Closing, Exchange shall pay MicroStrategy the sum of
$10,000,000 (the "Closing Payment").
------------------
(b) On or before January 20, 2000, Exchange shall issue to
MicroStrategy or a Designee the number of shares of Common Stock equal to the
Closing Share Amount. Exchange shall prepare and deliver to MicroStrategy on or
prior to January 14, 2000 a certificate setting forth its calculation of the
Closing Share Amount, which certificate shall be conclusive absent manifest
error.
(c) Subject to Section 2.03, Exchange shall pay to MicroStrategy on
the dates set forth below (the "Installment Dates") the amounts (the "Payment
-------------------- --------
Amounts") set forth opposite such dates (the "Installments"):
- --------- ---------------------
<TABLE>
<CAPTION>
Installment Dates Payment Amounts
----------------- ---------------
<S> <C>
June 30, 2000 $ 5,833,333
September 1, 2000 $ 5,833,333
December 1, 2000 $ 5,833,333
March 1, 2001 $ 5,833,333
June 1, 2001 $ 5,833,333
September 1, 2001 $ 5,833,335;
</TABLE>
provided, however, that if Exchange has elected in accordance with Section
- -------- -------
2.02(b) to pay all or any portion of the Payment Amount due on any Installment
Date in Common Stock, the relevant Installment Date shall be extended until the
tenth Business Day immediately following the date set forth above. If Exchange
has elected to pay all or any portion of any Payment Amount in Common Stock,
Exchange shall prepare and deliver to MicroStrategy on the third Business Day
prior to the Installment Date (as so extended) a certificate setting forth its
calculation of the Installment Share Amount, which certificate shall be
conclusive absent manifest error.
(d) Payments under Section 2.01(a) or (b) are non-cancelable and, once
made, are non-refundable. Payments made under Section 2.01(c) are non-
refundable.
Section 2.02. Payment in Common Stock; Stock Election Notice. (a) If
----------------------------------------------
Exchange elects in accordance with Section 2.02(b) to pay all or any portion of
the Payment Amount for any Installment Date in Common Stock, the number of
shares of Common Stock to be issued to MicroStrategy or a Designee on such
Installment Date shall be the Installment Share Amount determined as of the
Installment Date.
<PAGE>
-6-
(b) On or before the fifteenth day prior to Installment Date set forth in
the table contained in Section 2.01(c) (such fifteenth day being the "Election
Date"), Exchange may by written notice to MicroStrategy (each, a "Stock Election
---------------
Notice") elect to pay all or any portion of the Payment Amount payable in
- ---------
respect of the Installment in Common Stock. Each Stock Election Notice shall
indicate the portion of the Payment Amount in respect of such Installment to be
paid in cash (the "Cash Component"), and shall be irrevocable. If Exchange does
----------------
not deliver a Stock Election Notice to MicroStrategy on or before the Election
Date for any Installment, then the entire Payment Amount shall be paid in cash
on the applicable Installment Date set forth in the table contained in Section
2.01(c).
Section 2.03. Termination of Installment Obligations; Extension of
----------------------------------------------------
Installment Dates. Anything to the contrary notwithstanding:
- -----------------
(a) If either Exchange or MicroStrategy delivers a notice of termination in
accordance with Section 10.3 of the Development Agreement or Exchange delivers a
notice of termination in accordance with Section 10.1 of the Development
Agreement, the obligations of Exchange to pay any and all Installments not yet
due and payable at the time of such notice of termination shall automatically
terminate. If either Exchange or MicroStrategy terminates the Development
Agreement in accordance with Section 11.4 of the Development Agreement, the
obligations of Exchange to pay any and all Installments not yet due and payable
at the time of delivery of the written notice of default giving rise to such
termination shall automatically terminate.
(b) If any of the Milestones for a particular Installment Date have not
been achieved by the Business Unit (the "Unachieved Milestones") on or prior to
------------------------
that Installment Date with respect to any Installment payable after June 30,
2000, Exchange may elect by written notice to MicroStrategy on or before the
Installment Date to extend the applicable Installment Date until the earlier (i)
the 45th day immediately following the scheduled Installment Date contained in
the table set forth in Section 2.01(c) and (ii) the third Business Day following
the achievement of the Unachieved Milestones. If at the end of the 45 day
period described in this Section 2.03(b) (the "Extension Date"), the Business
---------------
Unit has not achieved the Milestone, then Exchange shall either (a) pay the
Payment Amount by the third Business Day following the Extension Date or (b)
terminate the Business Unit obligations pursuant to Section 10.1 of the
Development Agreement.
(c) If the Business Unit achieves a Milestone for a particular Installment
Date prior to such Installment Date, then MicroStrategy may elect by written
notice to Exchange to accelerate the applicable Installment Date to the 20th
Business Day following such notice (the "Accelerated Installment Date"). The
-----------------------------
Accelerated Installment Date shall be deemed an Installment Date for the
purposes of Section 2.02 above.
Section 2.04. Payments; Delivery of Shares. (a) On each date on which
----------------------------
Exchange is obligated to make a payment of cash to MicroStrategy under this
Article II, Exchange shall deliver to MicroStrategy the applicable sum by check
or by wire transfer to a bank account designated in writing by MicroStrategy.
<PAGE>
-7-
(b) On each date on which Exchange is obligated to deliver shares of
Common Stock to MicroStrategy or a Designee under this Article II, Exchange
shall deliver to MicroStrategy a certificate representing the applicable number
of shares of Common Stock registered in the name of MicroStrategy or such
Designee.
Section 2.05. Designees. Each reference to MicroStrategy in Section 3.02,
---------
Article IV and Article V shall be deemed a reference to MicroStrategy and, where
applicable, each of its Designees.
ARTICLE III.
Representations and Warranties
------------------------------
Section 3.01. Representations and Warranties of Exchange. Exchange hereby
-------------------------------------------
represents and warrants to MicroStrategy on and as of the Closing Date as
follows:
(a) Organization. Exchange 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 in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification, except
where the failure to so qualify would not have a material adverse effect upon
Exchange.
(b) Authorization. All corporate action on the Part of Exchange, its
---------------
officers, directors and stockholders, necessary for the authorization,
execution, delivery and performance of this Agreement and the other Operative
Agreements and the consummation of the transactions contemplated herein and
therein has been taken. Each of this Agreement and the other Operative
Agreements constitute the legal, valid and binding obligation of Exchange,
enforceable against Exchange in accordance with its terms, except as such may be
limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally and by general equitable principles. Exchange has
all requisite corporate power to enter into this Agreement and the other
Operative Agreements and to carry out and perform its obligations under this
Agreement and the other Operative Agreements.
(c) Capitalization. The authorized capital stock of Exchange consists
---------------
of (i) 30,000,000 shares of Common Stock and (ii) 10,000,000 shares of preferred
stock, par value $.001 per share (the "Preferred Stock"). The number of
----------------
outstanding shares of each class of capital stock are set forth in Schedule
--------
3.01(c) hereto. Except as set forth in Schedule 3.01(c) hereto, there are no
- -------- -----------------
existing options, warrants, calls, preemptive (or similar) rights, subscriptions
or other rights, agreements, arrangements or commitments of any character
obligating Exchange to issue, transfer or sell, or cause to be issued,
transferred or sold, any shares of capital stock of Exchange or other equity
interests in Exchange or any securities convertible into or exchangeable for
such shares of capital stock or other equity interests (collectively,
"Securities"). Schedule 3.01(c) sets forth the number of stock options
- ------------ -----------------
outstanding under Exchange's stock incentive plans, and the number of shares
reserved for issuance under such plans that are not subject to outstanding
<PAGE>
-8-
options. Except as set forth in Schedule 3.01(c), no holder of any capital
----------------
stock or Securities of Exchange has any outstanding registration rights.
(d) Valid Issuance of the Payment Share. The Payment Shares to be
------------------------------------
issued to MicroStrategy or any Designee hereunder, upon issuance pursuant to the
terms hereof, will be duly authorized and validly issued, fully paid,
nonassessable and free of any liens or encumbrances created by Exchange and,
assuming the accuracy of the representations and warranties made by
MicroStrategy to Exchange, will be issued and sold by Exchange to MicroStrategy
or such Designee in compliance with applicable state and federal securities
laws.
(e) SEC Documents. Exchange has furnished to MicroStrategy (or
--------------
otherwise provided access by MicroStrategy to) true and complete copies of the
documents filed by Exchange with the SEC and set forth on Schedule 3.01(e)
----------------
hereto (all such documents, collectively, the "SEC Documents"). As of their
----------------------
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act or the Securities Act, as applicable,
and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading, as of their respective filing dates,
except to the extent corrected by a subsequently filed SEC Document.
(f) No Conflict. The execution and delivery of this Agreement and the
------------
other Operative Agreements by Exchange and the consummation of the transactions
contemplated hereby and thereby will not conflict with or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to a loss of a material benefit or give rise to an event which
results in the creation of any lien, charge or encumbrance upon any of
Exchange's properties or assets under (i) any provision of the Certificate of
Incorporation or By-laws of Exchange or (ii) any agreement or instrument,
permit, franchise, license, judgment, order, statute, law, ordinance, rule or
regulation, applicable to Exchange or its respective properties or assets,
except where any such event under clause (ii) could not reasonably be expected
to have a material adverse effect on the Transactions contemplated by this
Agreement and the other Operative Agreements.
(g) Consents. All consents, approvals, orders, authorizations,
---------
registrations, qualifications, and filings required on the part of Exchange to
be obtained or made prior to the Closing in connection with the execution,
delivery or performance of this Agreement and the other Operative Agreements,
and the consummation of the transactions contemplated herein and therein have
been obtained or made prior to the Closing.
(h) Absence of Certain Changes of Events. Since the last filing date
-------------------------------------
of the SEC Documents, no event has occurred that has had a material adverse
effect on Exchange (excluding for this purpose the execution or announcement of
the transactions contemplated by this Agreement and the other Operative
Agreements and any adverse effect resulting therefrom).
<PAGE>
-9-
Section 3.02. Representations and Warranties of MicroStrategy
-----------------------------------------------
MicroStrategy hereby represents and warrants to Exchange on and as of the
Closing Date as follows:
(a) Organization. MicroStrategy 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 in each jurisdiction in which the character of
its properties or the nature of its business requires such qualification, except
where the failure to so qualify would not have a material adverse effect upon
MicroStrategy.
(b) Authorization. All corporate action on the part of MicroStrategy,
--------------
its officers, directors and stockholders, necessary for the authorization,
execution, delivery and performance of this Agreement and the other Operative
Agreements and the consummation of the transactions contemplated herein and
therein has been taken. Each of this Agreement and the other Operative
Agreements constitute the legal, valid and binding obligation of MicroStrategy,
enforceable against MicroStrategy in accordance with its terms, except as such
may be limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally and by general equitable principles. MicroStrategy
has all requisite corporate power to enter into this Agreement and the other
Operative Agreements and to carry out and perform its obligations under this
Agreement and the other Operative Agreements.
(c) Acquisition Solely for the Purpose of Investment. MicroStrategy is
-------------------------------------------------
acquiring the Payment Shares being acquired by it hereunder, for investment, for
its own account, and not for resale or with or with a view to distribution
thereof in violation of the Securities Act or any other applicable securities
law. MicroStrategy has no intention of participating in, and, so long as
MicroStrategy holds or has any right to acquire any Payment Shares MicroStrategy
will not participate in, the formulation, determination or direction of the
basic business decisions of Exchange within the meaning of 16 C.F.R.
801.1(i)(1).
(d) Investor Status, etc. MicroStrategy certifies and represents to
---------------------
Exchange that, at the time MicroStrategy acquires any of the Payment Shares
MicroStrategy will be an "accredited investor" as defined in Rule 501 of
Regulation D promulgated under the Securities Act. MicroStrategy's financial
condition is such that it is able to bear the risk of holding any and all of the
Payment Shares acquired by it for an indefinite period of time and the risk of
loss of its entire investment. MicroStrategy has been afforded the opportunity
to ask questions of and receive answers from the management of Exchange
concerning Exchange and its business and this investment, and has also been
afforded the opportunity to review any relevant documents and records concerning
the business of Exchange. MicroStrategy has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of an investment in Exchange.
(e) Payment Shares Not Registered. MicroStrategy understands that
------------------------------
because the Payment Shares are issued by Exchange in a transaction exempt from
the registration requirements of the Securities Act, the Payment Shares have not
been registered under the Securities Act, and that the Payment Shares must
continue to be held by MicroStrategy unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration.
MicroStrategy understands that the
<PAGE>
-10-
exemptions from registration afforded by Rule 144 (the provisions of which are
known to it) promulgated under the Securities Act depend on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the basis for
sales only in limited amounts.
(f) No Conflict. The execution and delivery of this Agreement and the
------------
other Operative Agreements by MicroStrategy and the consummation of the
transactions contemplated hereby and thereby will not conflict with or result in
any violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to a loss of a material benefit under (i) any provision of the
Certificate of Incorporation or Bylaws of MicroStrategy or (ii) any agreement or
instrument, permit, franchise license, judgment, order, statute, law, ordinance,
rule or regulation, applicable to MicroStrategy or its respective properties or
assets, except where any such event under clause (ii) could not reasonably be
expected to have a material adverse effect on the Transactions contemplated by
this Agreement and the other Operative Agreements.
(g) Consents. All consents, approvals, orders, authorizations,
---------
registrations qualifications and filings required on the part of MicroStrategy
to be obtained or made prior to the Closing in connection with the execution,
delivery or performance of this Agreement and the other Operative Agreements and
the consummation of the Transactions contemplated herein or therein have been
obtained or made prior to the Closing.
(h) Certain Acknowledgements. MicroStrategy has reviewed and
-------------------------
understands the SEC Documents, including the "Risk Factors" set forth therein,
and acknowledges that Exchange has made no representations or warranties to
MicroStrategy to induce MicroStrategy to enter into the Transactions, except for
those set forth herein (or, in the case of the SEC Documents, incorporated
herein by reference) and in the other Operative Agreements. MicroStrategy
acknowledges that investments in the Common Stock are risky, that the market
Price of the Common Stock is volatile and subject to a variety of factors, many
of which are outside Exchange's control, and that no assurances can be or are
given by Exchange or any of its officers or directors as to the market price at
which MicroStrotegy may be able to sell the Payment Shares.
ARTICLE IV.
-----------
Other Covenants
---------------
Section 4.01. Restrictions on Transfer of the Payment Shares.
----------------------------------------------
MicroStrategy shall not offer, sell, assign, transfer, endorse, pledge,
mortgage, hypothecate or otherwise convey or dispose of (a "Sale") any of the
----
Payment Shares acquired by it, or any interest therein, unless (i) any such sale
shall be effected (A) pursuant to and in conformity with an effective
registration statement under the Securities Act (a "Registered Sale"), or (B)
----------------
pursuant to and in conformity with Rule 144 under the Securities Act, and (ii)
in the case of any Sale under such Rule 144, if requested by Exchange,
MicroStategy shall have obtained and delivered to Exchange a written legal
opinion of counsel (reasonably satisfactory to Exchange as to such counsel and
as to the substance of such opinion) to the effect that any such proposed Sale
<PAGE>
-11-
by MicroStategy does not violate the registration provisions of the Securities
Act and any applicable state securities or blue sky laws.
Section 4.02. Effect of Violation of Transfer Restrictions; Preventive
--------------------------------------------------------
Measures. Any Sale of any Payment Shares, or of any interest therein, in
- --------
violation of this Article IV shall be null and void. Exchange may make a
notation on its records or give instructions to any of its transfer agents in
order to implement the restrictions on transfer set forth in this Article IV.
Exchange shall not incur any liability for any delay in recognizing any transfer
of any Purchased Shares if Exchange reasonably believes that any such transfer
may have been or would be in violation of the provisions of the Securities Act,
applicable blue sky laws or this Article IV.
Section 4.03. Legends. (a) Each certificate evidencing any of the Payment
---------
Shares shall be endorsed with the legend set forth below, and MicroStrategy
covenants that, except to the extent such restrictions are waived by Exchange,
it shall not transfer the Payment Shares represented by any such certificate
without complying with the restrictions on transfer described in this Agreement
and the legends endorsed on such certificate:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED,
ENDORSED, PLEDGED, MORTGAGED, HYPOTHECATED OR OTHERWISE CONVEYED OR
DISPOSED OF, UNLESS SUCH SHARES ARE (1) SO REGISTERED OR (2) AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND, IF REQUESTED BY
EXCHANGE APPLICATIONS, INC. (THE "COMPANY"), A WRITTEN LEGAL OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY IS PROVIDED BY THE
TRANSFEROR. IF THE SHARES REPRESENTED BY THIS CERTIFICATE ARE NOT
TRANSFERRED PURSUANT TO AND IN CONFORMITY WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR IN
ACCORDANCE WITH RULE 144 OF THE SECURITIES ACT OF 1933, SUCH SHARES
ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN
ARTICLE IV OF A PAYMENT AND REGISTRATION RIGHTS AGREEMENT DATED AS OF
DECEMBER 28, 1999, AND NO TRANSFER OF SUCH SHARES SHALL BE VALID OR
EFFECTIVE IF IT IS NOT EFFECTED IN COMPLIANCE WITH ALL OF SUCH
RESTRICTIONS ON TRANSFER. A COPY OF SUCH PAYMENT AND REGISTRATION
RIGHTS AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF SUCH SHARES TO THE SECRETARY OF THE COMPANY."
(b) Each certificate evidencing any of the Payment Shares shall be
endorsed with any legend required under any applicable state securities or blue
sky laws.
<PAGE>
-12-
ARTICLE V.
Registration Rights
-------------------
Section 5.01. Shelf Registration. (a) As soon as possible and, in any
--------------------
event, on or prior to January 31, 2000, Exchange will prepare and file with the
SEC a registration statement on Form S-3 (or Form S-1 if registration on Form S-
3 is not available to Exchange at such time) for the purpose of registering
under the Securities Act all of the Registration Shares for resale by, and for
the account of, MicroStrategy as selling stockholder thereunder (the "Shelf
------
Registration Statement"); Provided, however, that Exchange may extend the period
- ---------------------- --------- ---------
to file the Shelf Registration Statement for not more than an additional 60 days
if (i) such delay would relieve Exchange of the obligation to include any
interim financial statements in the Registration Statement or (ii) Exchange
would be required to disclose in the Registration Statement any material
nonpublic information and Exchange concludes that the disclosure of such
information would be inadvisable at that time. The Shelf Registration Statement
shall permit MicroStrategy to offer and sell, on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act, any or all of the Registration
Shares for the periods set forth herein.
(b) The initial number of Registration Shares to be registered under
the Shelf Registration Statement shall equal 50% of the Closing Share Amount.
Exchange agrees to prepare and file such amendments and supplements to the Shelf
Registration Statement to increase the number of Registration Shares eligible to
be sold thereunder by an amount equal to the balance of the Closing Share Amount
on or before May 1, 2000. Exchange also agrees to prepare and file such
amendments and supplements to the Shelf Registration Statement as may be
necessary so that at any time after May 1, 2000 the Shelf Registration Statement
will cover the Payment Shares already issued to MicroStrategy (unless such
shares have been sold under the Shelf Registration Statement or sold in
connection with a Piggyback Registration) and the Installment Share Amount for
the next Installment (assuming that such Installment will be paid entirely in
Common Stock and that the Fair Market Value on such Installment Date will equal
75% of the Fair Market Value calculated as of the Closing Date).
(c) Sales of the Registrable Shares pursuant to the Shelf Registration
Statement shall not be underwritten.
Section 5.02. Piggyback Registrations. (a) If Exchange proposes to register
------------------------
any Common Stock under the Securities Act for sale for cash in an underwritten
offering, Exchange shall give MicroStrategy notice of such proposed registration
(a "Piggyback Registration") at least 30 days prior to the filing of the
--------------------------
registration statement. At the written request of MicroStrategy delivered to
Exchange within 10 days after the receipt of the notice from Exchange, which
request shall state the number of Registration Shares that MicroStrategy wishes
to sell under the registration statement proposed to be filed by Exchange,
Exchange will use reasonable efforts to include in such underwritten
registration the Registration Shares requested to be included by MicroStrategy.
<PAGE>
-13-
(b) If the managing underwriters of a Piggyback Registration advise
Exchange in writing that in their opinion the number of securities requested to
be included in the registration exceeds the number which can be sold in the
offering, Exchange may exclude from the registration any or all Registration
Shares that MicroStrategy proposes to sell; provided, however, that no
--------- --------
Registration Shares may be excluded if the registration includes Common Stock of
holders other than MicroStrategy unless MicroStrategy is permitted to
participate in such registration with such holders on a pro rata basis.
--- ----
(c) All necessary amendments to the Shelf Registration Statement will be
made to reduce the number of shares to be sold by MicroStrategy thereunder, in
the event that shares are sold by MicroStrategy in a Piggyback Registration.
Section 5.03. Indemnification by Exchange. In the event of any registration
-----------------------------
of any Registration Shares of MicroStrategy under the Securities Act, Exchange
shall, and hereby does, indemnify and hold harmless MicroStrategy, its directors
and officers, each other Person who participates as an underwriter in the
offering or sale of such Registration Shares and each other Person, if any, who
controls such party or any such underwriter within the meaning of Section 15 of
the Securities Act against any losses, claims, damages or liabilities, joint or
several, to which such party or any such director or officer or underwriter or
controlling Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which the
Registration Shares were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made not
misleading, and Exchange shall reimburse such party and each such director,
officer, underwriter and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, however, that
--------- --------
Exchange shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information about such party as a
stockholder of Exchange furnished to Exchange through an instrument duly
executed by such party specifically stating it is for use in the preparation
thereof. Such indemnity shall remain in full force and affect regardless of any
investigation made by or on behalf of such party or any such director, officer,
controlling Person or underwriter and shall survive any transfer of the
Registration Shares.
Section 5.04. Indemnification by MicroStrategy. Exchange may require, as a
--------------------------------
condition to including any Registration Shares of MicroStrategy in any
registration statement filed pursuant to Section 5.01 or 5.02, that Exchange
shall have received an undertaking satisfactory to it from MicroStrategy to
indemnify and hold harmless (in the same manner and to the same extent as
<PAGE>
-14-
set forth in Section 5.03) Exchange, each director of Exchange, each officer of
Exchange signing such Registration Statement, each Person who participates as on
underwriter in the offering or sale of such Registration Shares and each other
Person, if any, who controls Exchange or any such underwriter within the meaning
of Section 15 of the Securities Act with respect to any untrue statement or
alleged untrue statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein or any amendment or supplement thereto, if such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information about
MicroStrategy furnished to Exchange through an instrument duly executed by
MicroStrategy specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided, however, that the liabilities of
--------- --------
MicroStrategy hereunder shall be limited to an amount equal the net proceeds to
MicroStrategy and its permitted assignees from the Registration Shares sold in
connection with any such registration statement. Such indemnity shall remain in
full force and effect, regardless of any investigation made by or an behalf of
Exchange or any such director, officer or controlling Person and shall survive
the Transfer by MicroStrategy of the Registration Shares being registered.
Section 5.05. Notices of Claims, etc. Promptly after receipt by an
-----------------------
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in Section 5.03 or 5.04, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
give notice to the latter of the commencement of such action; provided, however,
-----------------
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under Section 5.03
or 5.04, except to the extent that the indemnifying party is actually prejudiced
by such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
or the indemnified party may have defenses not available to the indemnifying
party in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall be liable for any settlement of any
action or proceeding effected without its written consent. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
Section 5.06. Indemnification Payments. The indemnification required by
--------------------------
this Article shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
<PAGE>
-15-
Section 5.07. Registration Covenants of Exchange. In the event that any
------------------------------------
Registration Shares are to be registered pursuant to Section 5.01 or 5.02,
Exchange covenants and agrees that it shall use its best efforts to effect the
registration and cooperate in the sale of the Registration Shares to be
registered and shall as expeditiously as possible:
(i) notify MicroStrategy, promptly after Exchange shall receive notice
thereof, of the time when the Registration Statement becomes effective or when
any amendment or supplement or any prospectus forming a part of the Registration
Statement has been filed;
(ii) notify MicroStrategy promptly of any request by the SEC for the
amending or supplementing of the Registration Statement or prospectus or for
additional information;
(iii) (A) advise MicroStrategy after Exchange shall receive notice or
otherwise obtain knowledge of the issuance of any order by the SEC suspending
the effectiveness of the Registration Statement or any thereto or of the
initiation or threatening of any proceeding for that purpose and (B) promptly
use reasonable efforts to prevent the issuance of any stop order or to obtain
its withdrawal promptly if a stop order should be issued;
(iv) (A) prepare and file with the SEC such amendments and supplements
to the Registration Statement and the prospectus forming a part thereof as may
be necessary to keep the Registration Statement effective until the Registration
Termination Date and (B) comply with the provisions of the Securities Act with
respect to the disposition of all Registration Shares covered by the
Registration Statement in accordance with the intended methods of disposition by
MicroStrategy set forth in the Registration Statement;
(v) furnish to MicroStrategy such number of copies of the Registration
Statement, each amendment and supplement thereto, the prospectus included in the
Registration Statement (including any preliminary prospectus) and such other
documents as MicroStrategy may reasonably request in order to facilitate the
disposition of the Registration Shares owned by MicroStrategy;
(vi) notify MicroStrategy, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the Registration Statement would contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and, at the request of MicroStrategy, prepare a supplement or amendment to the
Registration Statement so that the Registration Statement shall not, to
Exchange's knowledge, contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that upon such notification by
---------
Exchange, MicroStrategy will not offer or sell Registration Shares until
Exchange has notified MicroStrategy that it has prepared a supplement or
amendment to such prospectus and delivered copies of such supplement or
amendment to MicroStrategy;
<PAGE>
-16-
(vii) if the Registration Shares are securities of a class then
listed on a securities exchange or traded through a self-regulatory
organization, cause the Registration Shares to be so listed or traded;
(viii) provide a transfer agent and registrar, which may be a single
entity, for all the Registration Shares not later than the effective date of the
Registration Statement;
(ix) use its best efforts to cause the Registration Shares covered by
the Registration Statement to be registered with or approved by such other
Governmental Authorities as may be necessary to enable MicroStrategy to
consummate the disposition of such Registration Shares; and
(x) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC and timely file all reports required to be filed by
it under the Exchange Act, and the rules and regulations adopted by the SEC
thereunder, all to the extent required to enable MicroStrategy to sell its
Payment Shares pursuant to Rule 144 and the Registration Statement.
Section 5.08. Expenses. Exchange shall pay, on behalf of MicroStrategy, all
---------
the expenses in connection with the Shelf Registration or any Piggyback
Registration, including all registration, filing and regulatory review fees, all
fees and expenses of complying with securities or blue sky laws, all listing
fees, all word processing, duplicating and printing expenses, all messenger and
delivery expenses, the fees and disbursements of counsel for Exchange and of its
independent public accountants (including the expenses of comfort letters
required by or incident to such performance and compliance), and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding any underwriting discounts and commissions and
transfer taxes, if any, on the Registration Shares. In any registration,
MicroStrategy shall pay for its own underwriting discounts and commissions and
transfer taxes, and its own legal fees.
Section 5.09. Deferral. Notwithstanding anything in this Agreement to the
---------
contrary, if Exchange shall furnish to MicroStrategy a certificate signed by the
President or Chief Financial Officer of Exchange stating that the Board of
Directors of Exchange has made the good faith determination (i) that continued
use by MicroStrategy of a Registration Statement for purposes of effecting
offers or sales of Registration Shares pursuant thereto would require, under the
Securities Act, premature disclosure in the Registration Statement (or the
prospectus relating thereto) of material, nonpublic information concerning
Exchange, its business or prospects or any proposed material transaction
involving Exchange, (ii) that such premature disclosure would be materially
adverse to Exchange, its business or prospects or any such proposed material
transaction significantly less likely and (iii) that it is therefore advisable
to suspend the use by MicroStrategy of such Registration Statement (and the
prospectus relating thereto) for purposes of effecting offers or sales of
Registration Shares pursuant thereto, then the right of MicroStrategy to use the
Registration Statement (and the prospectus relating thereto) for purposes of
effecting offers or sales of Registration Shares pursuant thereto shall be
suspended for a period (the "Suspension Period of not more than 60 days after
-------------------
delivery by Exchange of the certificate referred to above in this Section 5.09.
<PAGE>
-17-
During the Suspension Period, MicroStrategy shall not offer or sell any
Registration Shares pursuant to or in reliance upon the Registration Statement
(or the prospectus relating thereto). Notwithstanding the foregoing, Exchange
shall not be entitled to Suspension Periods totaling more than 90 days in any
consecutive twelve-month period during the term of this Agreement.
Section 5.10. Assignment of Registration Rights. The registration rights
-----------------------------------
set forth in this Article V may not be assigned to any Person, other than an
affiliate of MicroStrategy.
ARTICLE VI.
Miscellaneous
-------------
Section 6.01. Notices. Except as expressly provided herein, notices and
--------
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed or sent by telecopier, as
follows:
(a) if to Exchange,
Exchange Applications, Inc.
89 South Street
Boston, Massachusetts 02111
Telephone: (617) 737-2244
Telecopier: (617) 790-2849
Attention: Andrew J. Frawley and Wayne Townsend
(b) if to MicroStrategy,
MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, Virginia 22182
Telephone: (703) 848-8657
Telecopier: (703) 848-8748
Attention: Adam J. Ruttenberg
or to such other address or attention of Such other person as any party shall
advise the other party in writing. All notices and other communications given
to a party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.
Section 6.02. APPLICABLE LAW; WAIVER OF JURY TRIALS. THE VALIDITY,
-------------------------------------
CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW'S OF THE COMMONWEALTH OF MASSACHUSETTS,
APPLICABLE TO CONTRACTS EXECUTED IN AND PERFORMED ENTIRELY WITHIN SUCH
<PAGE>
-18-
COMMONWEALTH, WITHOUT REFERENCE TO ANY CHOICE OF LAW PRINCIPLES OF SUCH
COMMONWEALTH. WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF THIS
AGREEMENT, ANY OF THE OTHER OPERATIVE AGREEMENTS OR ANY TRANSACTION, THE PARTIES
EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A JURY TRIAL AND AGREE THAT ANY SUCH
LEGAL PROCEEDING SHALL BE TRIED BYA JUDGE WITHOUT A JURY.
Section 6.03. Severability. If any provision of this Agreement shall be
-------------
hold to be illegal, invalid or unenforceable, that provision will be enforced to
the maximum extent permissible so as to effect the intent of the parties, and
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby. If necessary to effect the intent
of the parties, the parties will negotiate in good faith to amend this Agreement
to replace the unenforceable language with enforceable language which as closely
as possible reflects such intent.
Section 6.04. Amendments. This Agreement may be modified or waived only by
-----------
a written a persons authorized to so bind each party.
Section 6.05. Waiver. The waiver by any party of any, instance of the
------
other party's noncompliance with any obligation or responsibility herein shall
not be deemed a waiver of other instances or of any party's remedies for such
noncompliance.
Section 6.06. Counterparts. This Agreement may be executed in one or more
-------------
counterparts (including by telecopier), all of which shall be considered one and
the same agreement, and shall become effective when one or more counterparts
shall have been signed by each party and delivered to each other party.
Section 6.07. Entire Agreement. The provisions of this Agreement, and the
-----------------
other Operative Agreements set forth the entire agreement and understanding
among the parties as to the subject matter hereof and supersede all prior
agreements, oral or written, and all other communications between the parties
relating to the subject matter hereof.
Section 6.08. Assignment. (a) Except as expressly set forth in this
------------
Agreement, no party shall assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other parties,
provided, that no such consent shall be required for a transfer by operation of
- ----------
law in connection with a merger or consolidation of such party (without
prejudice to any other rights the parties may have under any other Operative
Agreement).
(b) Any attempted assignment of this Agreement in violation of this
Section shall be void and of no effect.
(c) This Agreement shall be binding upon, inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
Section 6.09. Survival of Agreement. All covenants, agreements,
-----------------------
representations and warranties made by any part), herein and in the certificates
or other instruments prepared or delivered in connection with or pursuant to
this Agreement
<PAGE>
-19-
shall be considered to have been relied upon by the other parties and shall
survive the Closing, regardless of any investigation made by the other parties
hereto or on their behalf
Section 6.10. No Third-Party Beneficiaries. This Agreement is for the sole
------------------------------
benefit of the parties and their permitted assigns and nothing herein expressed
or implied shall give or be construed to give to any Person, other than the
parties and such assigns, any legal or equitable rights hereunder, except that
Sections 5.03 and 5.04 and are intended to be for the benefit of the Persons
named therein
Section 6.11. Expenses. (a) All costs and expenses incurred in connection
--------
with the Operative Agreements and the Transactions shall be paid by the party
incurring such cost or expense, except as the parties shall otherwise agree.
(b) The provisions of this Section shall remain operative and in full force
and effect regardless of the expiration of this Agreement or the consummation of
the Transactions.
Section 6.12. Remedies. In no event will any party be liable to another
--------
party for incidental damages, lost profits, lost savings, or any other
consequential damages, even if such party has been advised of the possibility of
such damages, resulting from the breach of its obligations under any Operative
Agreement or from the use of any confidential or other information.
Section 6.13. Publicity. No public release, announcement or other form of
----------
publicity concerning the Transactions shall be issued by any party without the
prior consent of the other party, except as such release or announcement may be
required by law or the rules or regulations of any securities exchange, in which
case the party required to make the release or shall, to the extent possible,
allow the other party reasonable time to comment on such release or announcement
in advance of such issuance.
<PAGE>
-20-
Section 6.14. Construction. This Agreement has been negotiated by the
-------------
parties and their respective counsel and will be fairly interpreted in
accordance with its terms and without any strict construction in favor of or
against any party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
EXCHANGE APPLICATIONS, INC.
By: [Illegible]
-------------------------
Name:
Title:
MICROSTRATEGY INCORPORATED
By: /s/ Sanju Bansal
-------------------------
Name: Sanju Bansal
Title: COO
<PAGE>
Exhibit 10.14
DSS PARTNER
MICROSTRATEGY INCORPORATED
OEM AGREEMENT
This Original Equipment Manufacturer Agreement (the "Agreement") is
entered into and effective as of September 30, 1999 by and between MICROSTRATEGY
INCORPORATED, a Delaware corporation, having its principal place of business at
8000 Towers Crescent Drive, Vienna, Virginia 22182 ("MicroStrategy"), and NCR
CORPORATION, a Maryland corporation, having its principal place of business at
1700 South Patterson Boulevard, Dayton, Ohio 45479 ("OEM") (collectively, the
"Parties") and replaces in its entirety the Value Added Reseller Agreement dated
as of August 21, 1998, as amended, entered into by and between the Parties.
OEM and MicroStrategy previously entered into a Global Solutions Partner
Agreement dated February 1, 1996 (hereinafter, the "GSP Agreement"). The GSP
Agreement is separate from this Agreement, remains unchanged by this Agreement,
and is in full force and effect. Under no circumstances will the terms and
conditions of the GSP Agreement apply to or otherwise supplement the terms and
conditions of this Agreement, including the obligations or rights of both
parties, or activities conducted by either party under this Agreement.
1. Definitions. For the purposes of this Agreement, the following terms
are defined as follows:
"Affiliate" means any person, corporation or other entity which,
directly or indirectly, controls or is controlled by or is under common control
with OEM.
"Collateral Price List" means the list, as prepared by MicroStrategy
from time to time, setting forth its then-current fees for each type of
Collateral.
"Collateral" means any marketing, trade press, product sales,
education, consulting and support collateral publicly used by MicroStrategy in
the United States (including presentation slides).
"OEM Discounted Price Schedule" means MicroStrategy's standard
volume discount schedule, a copy of which is set forth in Exhibit B.
"End User of Strategy.com and/or Telecaster Services" means any third
party, individual, business, governmental customer or other customer which OEM
brings to MicroStrategy other than as a direct and immediate result of direct
sales efforts by MicroStrategy and who executes an agreement with MicroStrategy
as a Strategy.com Network Services affiliate or Telecaster Network Services user
within sixty (60) days of NCR bringing that customer to MicroStrategy.
"End User License Agreement" means the agreement between OEM and End
User, referenced in Section 2.1 herein, which specifies the terms and conditions
of the license granted to End User to use Products.
1.
<PAGE>
"End User" means any third-party individual, business, governmental
customer, or other customer of OEM which purchases or may purchase one or more
licenses of Products for personal or business use in accordance with the End
User License Agreement or which purchases access to the Strategy.com or
Telecaster Network Services in accordance with MicroStrategy's then current End
User License Agreement for such services. An End User does not have rights to
resell or sublicense Products to resellers, distributors, other End Users or any
other parties.
"Evaluation" means an installation of the OEM Solution for a period
of sixty (60) days or less, during which an End User may evaluate the OEM
Solution for its internal use.
"NCR Client Affiliate" means a third-party individual, business,
governmental customer, or other customer of OEM to which OEM markets and sells
the Strategy.com and Telecaster Network Services on behalf of MicroStrategy.
"OEM Solution" means the combination of a Product with the Teradata
software product.
"Products" means all current and future generally available software
products in MicroStrategy's product line, including those listed in Section 1.1
of Exhibit A, that are made generally-available to the public by MicroStrategy,
including User Documentation. A description of current Products is set forth in
Exhibit B.
"Strategy.com Network Services" means the Strategy.com business
services division of MicroStrategy that provides personal and customized
information to End Users through the Strategy.com Network.
"Telecaster Network Services" means the proprietary voice-enabled
decision support system of MicroStrategy which provides voice-activated,
personalized information to End Users upon the occurrence of certain specified
trigger events.
"Update" means a subsequent release of a Product that is made
generally available to MicroStrategy customers who are paying for Technical
Support Services at no additional charge other than media and handling charges.
"Update" does not include any release, option or future product that
MicroStrategy licenses separately.
"User Documentation" means the MicroStrategy user manual(s) and other
written materials on proper installation and use of the Products which are
normally distributed with the Products.
2. Rights Granted and Restrictions.
2.1 License Grant. MicroStrategy hereby grants OEM: (a) a non-exclusive,
non-transferable license to install and use the Products and Updates thereto
(subject to payment of applicable fees as outlined herein) in a test environment
for purposes of combining the OEM's software products with such Products, and
MicroStrategy agrees not to unreasonably withhold its consent to allow OEM to
use the Products and Updates thereto in a test environment for purposes of
combining third party software products with such Products; (b) a non-exclusive,
nontransferable license to market, sublicense and distribute, directly or
through its indirect sales
2.
<PAGE>
channels, the Products and Updates (subject to payment of applicable fees as
outlined herein) as a part of the OEM Solution worldwide (the "Territory")
pursuant to the terms of this Agreement; (c), non-transferable license to
market, sublicense and distribute in the Territory, directly or through its
indirect sales channels, the Teradata Version, as defined in Section 6.1(a); and
(d) a non-exclusive, non-transferable license to use the Products in the
Territory for internal business purposes in accordance with the terms of the
applicable Shrink Wrap License Agreement accompanying the products, which terms
are incorporated herein by reference. This is not a license to market,
distribute or sublicense the Products separately. OEM shall establish its own
prices for purposes of sublicensing the Products as part of the OEM Solution to
its End Users. Provided, however, that MicroStrategy will not offer the Teradata
Version to any resellers other than members of NCR's indirect sales channel.
Notwithstanding anything in this Agreement to the contrary, NCR will not license
the Products through any indirect sales channel without first discussing the
appropriate royalty payments with MicroStrategy and obtaining MicroStrategy's
prior written consent, which shall not be unreasonably withheld.
2.2 Appointment as Sales Agent. MicroStrategy hereby appoints OEM as
a nonexclusive sales agent of MicroStrategy for the purposes of marketing, and
selling the Strategy.com Network Services and Telecaster Network Services to NCR
Client Affiliates (subject to the payment of applicable fees as outlined herein)
in the Territory and pursuant to the terms of this Agreement. In connection with
its sales of the Strategy.com and Telecaster Network Services, OEM shall ensure
that all End Users sign a standard Strategy.com Affiliation Agreement and/or a
Telecaster Voice Bureau Agreement, as applicable, in the forms set forth in
Exhibit I hereto.
2.3 OEM shall license, and shall require its members of its indirect
sales channel to license, the OEM Solution solely through a written agreement
that shall, at a minimum, contain provisions that accomplish the following:
(a) License the OEM Solution under Named User Licenses for End
User's own internal uses, and restrict use of the Product portion of the OEM
Solution to object code form for the End User's own internal uses.
(b) Prohibit use of the Products except in connection with the
Teradata software, unless such use is consistent with the provisions of Section
2.4(k).
(c) Prohibit transfer or duplication of the Product portion of
the OEM Solution except for temporary transfer in the event of computer
malfunction and as part of routine back-up procedures.
(d) Prohibit assignment of the Product portion of the OEM
Solution licenses and the Affiliated Licenses without the prior written consent
of MicroStrategy, which consent shall not be unreasonably withheld; provided,
however, that, in the case of the OEM Solution licenses only, the End User
License Agreement may contain a provision that allows the End User to assign
licenses for the OEM Solution to its Affiliates so long as the End User agrees
to be fully responsible for any failure of such Affiliates to act in accordance
with the terms of the End User License Agreement.
3.
<PAGE>
(e) Prohibit the use of the Product portion of the OEM
Solution by any third party other than an Affiliate as outlined in subsection
(c).
(f) Prohibit causing or permitting the reverse engineering,
disassembly or decompilation of the Products.
(g) Prohibit title to the Products from passing to the End
User.
(h) Disclaim MicroStrategy's liability for damages, whether
direct or indirect, incidental or consequential, arising from the use of the OEM
Solution.
(i) Disclaim any warranties beyond the warranties that
MicroStratecy offers to OEM.
(j) Prohibit written and oral disclosures of any results of
benchmark tests of the Products themselves to any third party without the prior
written consent of MicroStrategy (as opposed to benchmark test of the OEM
Solution).
(k) For Products sublicensed for use outside the United
States, require the End User to comply fully with all relevant export laws and
regulations of the United States to ensure that neither the Products, nor any
direct products thereof, are exported, directly or indirectly, in violation of
United States law.
(l) Require the End User to use a commercially reasonable
degree of care to protect the Confidential Information of MicroStrategy and
prohibit the End User from directly or indirectly, (1) using any Confidential
Information of MicroStrategy to create any computer software program or user
documentation which is substantially similar to any Product, or (2) using or
disclosing Confidential Information of MicroStrategy, except as authorized by
this Agreement.
(m) Require the End User to notify OEM promptly of any
unauthorized use or disclosure of MicroStrategy Confidential Information, and
provide reasonable assistance to MicroStrategy (at MicroStrategy's expense) in
the investigation and prosecution of any such unauthorized use or disclosure.
(n) Disclaim MicroStrategy's liability for any taxes or
duties, however designated or levied (including but not limited to sales, use
and personal property).
(o) Allow OEM to audit End Users' records regarding use of the
Products and/or OEM Solution.
MicroStrategy agrees that the agreement attached hereto as Exhibit C
("End User License Agreement"), including the Supplement (entitled "Additional
Terms Related to MicroStrategy Products") adequately addresses the foregoing
requirements. MicroStrategy reserves the right to amend its requirements for the
contractual provisions contained in the agreement used to license the OEM
Solution or sell the Strategy.com and/or Telecaster Network services upon ninety
(90) days' advance written notice, provided, however, that such amended
4.
<PAGE>
requirements shall apply only to agreements executed by OEM subsequent to the
expiration of the ninety (90)-day notice period.
2.4 License Restrictions. The rights granted in Section 2.1 of this
Agreement are expressly limited to and restricted by the following:
(a) No copies may be made of Products except as explicitly
authorized by this Agreement or the applicable End User License Agreements. OEM
shall have no right to manufacture, modify, or copy User Documentation.
(b) MicroStrategy reserves the right to amend, modify, enhance,
add to or delete from the list of Products upon thirty (30) days' written notice
to OEM so long as the list includes at all times any Product then actively
marketed by MicroStrategy in the United States, provided, however, that such
modifications to the list of Products shall not apply to proposals to End Users
outstanding on the notice date of such modifications until the earlier of (i)
the proposal expiration date or (ii) sixty (60) days from the notice date,
provided that OEM provides a list of such End Users to MicroStrategy within
thirty (30) days of the notice date. The list of End Users shall include (i) the
name of the End User, (ii) the date of the proposal, and (iii) the expiration
date of the proposal. This Agreement shall automatically cover all such
amendments, modifications, or enhancements to the list of Products.
(c) OEM agrees that it will not, either directly or through a
third party, use Products, the source code, or a derivative thereof, or any
Confidential Information of MicroStrategy, to create, modify or enhance any
computer software programs or user documentation which is functionally,
visually, or otherwise identical or substantially similar to any MicroStrategy
products. This Section does not restrict the assignment of employees within
either party. Nothing contained in this Section shall be construed as to
prohibit employees of the recipient who have been exposed to the Products,
source code, or a derivative thereof, or any Confidential Information from using
residual knowledge retained as part their general skill, knowledge talent or
experience provided that in doing so they do not a) make direct reference to the
Products, source code, or a derivative thereof, or any Confidential Information
in tangible form, or b) disclose Confidential Information to a third party in
breach of this Section. Both parties acknowledge that either of them may be
engaged in the development and production of products similar to those disclosed
under this Agreement and that nothing herein limits or restricts the Parties
from such development or production.
(d) OEM agrees that it is OEM's responsibility to take all
reasonable precautions against unauthorized disclosure or copying of Products
while Products are being demonstrated or evaluated. OEM shall take all
reasonable steps to ensure that the Products are inaccessible during inactive
demonstration times (lunch, overnight, etc.), delete any demonstration copies of
Products upon completion of any demonstration at a customer site, and shall
further exercise reasonable efforts to ensure the security of Products.
(e) OEM agrees that it will not, either directly or through a
third party, reverse engineer, disassemble or decompile any of the Products, or
make any attempt to obtain or derive the source code from any MicroStrategy
product, whether or not such product is listed in Exhibit A.
5.
<PAGE>
(f) Upon expiration of an Evaluation period, if an End User does
not license the Product, OEM shall require that all copies of the Product be
promptly removed from the End User's facilities and returned to OEM.
(g) Regardless of any disclosure by OEM to MicroStrategy of an
ultimate destination of Products, OEM shall not transfer or re-export Products,
any goods created with Products, related documentation, or other related
proprietary information, to anyone outside the United States as to which export
may be in violation of the United States export laws or regulations, without
first obtaining the appropriate license from the U.S. Department of Commerce
and/or any other agency or department of the U.S. Government, as required.
(h) OEM agrees to use reasonable commercial efforts to market
and demonstrate the Product to End Users provided, however, that OEM reserves
the right to determine at its sole discretion on a case-by-case basis, and
taking into consideration OEM's best interests, the appropriateness of marketing
or demonstrating the Product to a prospective End User.
(i) A list of certified and supported languages for each Product
is attached as Exhibit J.
(j) OEM agrees that its sublicensing to End Users of the OEM
Solution will be solely to (1) installed Teradata customers who have a pre-
existing contractual relationship with OEM and whose products presently run
against the Teradata data warehouse installation (the "Teradata Server"), or (2)
new customers (without current access to the Teradata Server); subject to the
provisions of the next sentence. Notwithstanding the above, OEM may sublicense
the Products solely to: new customers (without current access to the Teradata
Server) only if they agree in writing to implementation of the OEM Solution
and/or the Teradata Server within twelve (12) months after execution of the End
User Agreement; and provided that OEM co-proposes the Products to such new
customers along with the Teradata Server.
(k) OEM agrees that its sales of the Strategy.com Network
Services and Telecaster Network Services will be limited to NCR Client
Affiliates who have a measurable business relationship with OEM.
3. Reservation of Rights and Remedies.
The rights granted hereunder do not transfer to OEM or End Users any
right, title or interest to any Products. MicroStrategy shall retain all right,
title, and interest, and all intellectual property rights, including, without
limitation, all copyrights, trade secrets, and any other intellectual property
and proprietary rights to Products and all copies of Products. This Agreement
does not, except as explicitly provided herein, grant OEM any rights in
Products, or in any improvements, modifications, enhancements or updates to
Products. Use of the terms "sell", "license", "purchase", "license fees" and
"price" will be interpreted in accordance with this Section 3.
6.
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
4. Pricing and Royalty Structure.
4.1 Pricing. OEM shall be solely responsible to set its Product license
fees to End Users. OEM shall, in accordance with Sections 4.1 and 4.2, pay
MicroStrategy [**] of the net revenue received by OEM from licensing the
Products. In the event OEM believes it is necessary to offer a discount to an
End User greater than that provided by the OEM Discounted Price Schedule
attached hereto as Exhibit B, OEM and MicroStrategy shall negotiate in good
faith the percentage of revenue payable by OEM to MicroStrategy for that
opportunity. The OEM Discounted Price Schedule shall be updated by MicroStrategy
semiannually to conform to street pricing practices employed by MicroStrategy
sales staff.
4.2 Product Royalties. OEM shall not be obligated to pay MicroStrategy
royalties on the first [**] of revenue generated from licensing the
Products within a given quarter for the initial three year term of this
Agreement ("Non-Royalty Revenues"). OEM shall pay MicroStrategy royalties
(collectively, "Product Royalties") on all OEM revenue in excess of Non-Royalty
Revenues generated from licensing the Product portion of the OEM Solution within
a given quarter ("Royalty Revenues"). Each calendar quarter, OEM shall retain
[**] of the Non-Royalty revenues and shall remit [**] of the Royalty Revenues to
MicroStrategy ("Incremental Revenue") within thirty days of the close of such
calendar quarter as Product Royalties. In the event that OEM does not generate
revenue equal to the Non-Royalty Revenues in a given calendar quarter, the
difference between the Non-Royalty Revenues and the actual revenues generated by
OEM during such quarter may be added to the next succeeding calendar quarter's
Non-Royalty Revenues during the initial three-year term of this Agreement only.
By way of example only, if OEM generates only [**] in revenue in any given
calendar quarter during the initial three-year term of this Agreement, [**] may
be rolled over to the next succeeding calendar quarter, and Non-Royalty Revenues
for such quarter shall be deemed to be [**]. At the end of the third year, OEM
and MicroStrategy shall compare the total revenues received by OEM under this
Agreement (the "OEM Revenue") with the Non-Royalty Revenues. If, at the end of
the third year, the total OEM Revenue is less than [**], MicroStrategy shall
purchase from OEM software in an amount equal to the difference between the [**]
and the OEM Revenue up to the sum of all Incremental Revenue received by
MicroStrategy during the initial term.
4.3 Service Fee Royalties. MicroStrategy shall pay OEM Service Fee
Royalties to OEM, which royalties will be calculated based upon net revenue
generated by OEM, as sales agent of MicroStrategy, from selling the Strategy.com
and Telecaster Network Services to End Users ("MicroStrategy Net Royalty
Income"). The MicroStrategy Net Royalty Income shall include any net revenue
received by MicroStrategy and relating to customers that come to MicroStrategy
through NCR Client Affiliates. MicroStrategy shall remit to OEM, on a quarterly
basis within thirty days after the close of each calendar quarter, [**] of all
MicroStrategy Net Royalty Income (as defined herein) (collectively, "Service
Fee Royalties") generated by OEM sales to NCR Client Affiliates of the
Strategy.com Network services and/or Telecaster Network Services.
MicroStrategy shall no longer be obligated to pay Service Fee Royalties to
OEM in the event that this Agreement is terminated as a result of a
material breach or with respect to each NCR Client Affiliate, in the event that
such NCR Client Affiliate ceases to have a measurable business relationship with
OEM. For purposes of this Agreement, MicroStrategy "Net Royalty income" shall
mean all revenue actually received by MicroStrategy
7.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
from OEM's sales to End Users of the Strategy.com and Telecaster Network
Services, less direct third party costs, including, without limitation,
affiliate royalties, cost of content, long distance telephone charges, etc.
4.4 Changes and Updates in OEM Discounted Price Schedule. In the event
MicroStrategy changes the OEM Discounted Price Schedule as provided in Section
4.1 above, the license fees in the Discounted Price Schedule for OEM Sales, the
new license fees shall apply to any order received by MicroStrategy after the
effective date of the price change, except for orders resulting from outstanding
proposals until the earlier of (i) the proposal expiration date or (ii) sixty
(60) days from the notice date, provided that OEM provides a list of such End
Users to MicroStrategy within thirty (30) days of the notice date. The list of
End Users shall include (i) the name of the End User, (ii) the date of the
proposal, and (iii) the expiration date of the proposal.
4.5 Initial Order. For the rights granted in this Agreement, OEM agrees
to pay MicroStrategy [**]. This fee shall be noncancelable and non-refundable,
subject to the provisions of this Agreement. OEM will pay MicroStrategy [**]
within thirty (30) days of execution of this Agreement and pay MicroStrategy
[**] within twelve (12) months of executing this Agreement.
4.6 Payment Terms.
(a) All payments of Product Royalties by OEM under this
Agreement shall be made to MicroStrategy in United States dollars and drawn on a
United States bank, at MicroStrategy's headquarters or such other address
designated by MicroStrategy from time to time. All payments made to
MicroStrategy are non-refundable, except as provided herein.
(b) Payment of Product Royalties is due within thirty (30) days
of each calendar quarter. If payment is late, OEM shall pay a late fee on the
unpaid balance of one percent (1%) per month from the date of invoice.
(c) Product Royalties and Service Fee Royalties do not include
any national, state or local sales, use, value-added or other taxes, customs,
duties or similar tariffs and fees MicroStrategy may be required to pay upon
delivery of the Products or upon collection of the Product Royalties, Service
Fee Royalties or otherwise. All sales and other taxes relating to an OEM
Solution order, a Strategy.com Network Service Order and/or a Telecaster Network
Service Order, including those levied by federal, state, municipal or other
governmental authority (but excluding taxes (i) based on MicroStrategy's income,
(ii) for which MicroStrategy receives a credit or (iii) assessed from a
governmental authority with whom OEM has a valid reseller tax exemption
certificate) will be paid by OEM upon receipt of an invoice from MicroStrategy.
5. Delivery of Products and Right to Copy.
5.1 OEM acknowledges that it has received copies from MicroStrategy of
all Products listed in Exhibit B.
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5.2 Downloading of New Products. All new Products and Updates to
existing Products will be provided to OEM by an ftp download implemented by
MicroStrategy. OEM shall have the right to make copies of the Products in order
to exercise its rights under this Agreement.
6. Representations and Obligations.
6.1 MicroStrategy's Obligations and Restrictions. MicroStrategy shall
use reasonable efforts to perform the following:
(a) Asset Development. MicroStrategy will develop a version of
its MicroStrategy OLAP server and engine technology optimized for use with
Teradata ("Teradata Version") in conformance with the requirements set forth in
Exhibit G.
(b) Local Language Requirements. MicroStrategy will support
OEM's local language requirements within jointly agreed timeframes. For existing
Products, MicroStrategy agrees to meet NCR's double byte requirements within
twelve (12) months of the execution of this Agreement and use all commercially
reasonable efforts to meet those requirements within six (6) months of the
execution of this Agreement.
(c) Collateral. MicroStrategy shall provide reasonable
quantities of Collateral to OEM at no cost, other than shipping charges. If
requested, updates to such Collateral shall be made available to OEM via
MicroStrategy's Web server within ten (10) days of public use by MicroStrategy
of such completed updates, and if hard copies are desired, MicroStrategy shall
provide them to OEM at the prices indicated in MicroStrategy's then-current
Collateral Price List. All such materials provided to OEM shall be subject to
the confidentiality provisions of Section 12 of this Agreement. MicroStrategy
shall make reasonable efforts to comply with all applicable international,
national, state, regional and local laws and regulations in performing its
duties hereunder and in any of its dealings with respect to the Products.
6.2 OEM's Obligations. OEM shall use reasonable efforts to perform the
following:
(a) Promotion Efforts. OEM will promote the distribution of the
OEM Solution in the Territory.
(b) Sales and Consulting Staff. OEM will train and maintain a
sufficient number of capable technical and sales personnel having the knowledge
and training necessary to: (i) properly inform End Users of the features and
capabilities of the OEM Solution and the Products; (ii) service and support the
Products in accordance with OEM's obligations under this Agreement; and (iii)
otherwise carry out the obligations and responsibilities of OEM under this
Agreement.
(c) Technical Expertise. OEM's staff will be conversant with
the technical language conventional to MicroStrategy Products (including
specifications, features and benefits) so as to be able to explain in detail the
use of the Products in the OEM Solution to End Users.
9.
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(d) Intellectual Property Rights. OEM will use commercially
reasonable efforts to protect MicroStrategy's rights in its trademarks, patents,
logos, service marks, copyrights and trade secrets.
(e) Compliance with Law. OEM will comply with all applicable
international, national, state, regional and local laws and regulations in
performing its duties hereunder and in any of its dealings with respect to the
Products.
(f) Compliance with U.S. Export Laws. OEM acknowledges that all
MicroStrategy Products and other technical data, are subject to export controls
imposed by the U.S. Export Administration Act of 1979, as amended (the "Act"),
and the regulations promulgated thereunder. OEM will not export or re-export
(directly or indirectly) any MicroStrategy Products or other technical data
therefore (if permitted by this Agreement) without complying with the Act and
the regulations thereunder.
(g) Market Conditions. OEM will confer with MicroStrategy from
time to time, at the request of MicroStrategy, on matters relating to market
conditions, sales forecasting and Product planning.
(h) Costs and Expenses. Except as expressly provided herein or
agreed to in writing by MicroStrategy and OEM, OEM will pay all costs and
expenses incurred in the performance of OEM's obligations under this Agreement.
6.3 OEM Covenants. OEM will (i) refrain from deceptive, misleading or
unethical practices that are or might be detrimental to MicroStrategy, the
Products or the public; (ii) make no false or misleading representations with
regard to MicroStrategy or the Products; (iii) refrain from publishing or
employing, or cooperating in the publication or employment of, any misleading or
deceptive advertising material with regard to MicroStrategy or the Products; and
(iv) make no representations, warranties or guaranties to End Users or to the
trade with respect to the specifications, features or capabilities of the
Products, except those permitted by Section 2.1 herein.
7. Training.
7.1 Partner Certification Program. OEM will use commercially reasonable
efforts to have on staff within two (2) months of the execution of this
Agreement and at all times thereafter at least two (2) employees who have
completed the MicroStrategy Certification Program at MicroStrategy headquarters
(the "Certification Program"). Such persons must maintain their certification by
annually attending MicroStrategy-specified update courses covering new products
and product features. OEM shall be entitled to have three (3) of its US
employees and three (3) of its employees based in other countries complete the
Certification Program free of charge. OEM shall be responsible for all fees
related to update courses taken by its employees. All expenses for OEM's
attendance at the Certification Program and update courses shall be borne by
OEM.
7.2 Training Consultants. Given reasonable advance notice, MicroStrategy
shall make its training consultants available to OEM to provide training on the
Products to OEM's
10.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
employees. OEM shall pay MicroStrategy for such services at MicroStrategy's
then-current standard consulting rates, plus travel and living expenses.
8. Maintenance.
8.1 Support Services to End Users of OEM. Support services for the
Products shall be provided to End Users as outlined in Exhibit E. OEM shall
provide first-line support for all "NCR Branded Offerings" MicroStrategy shall
provide second-line support for all such offerings. OEM will receive a royalty
of [**] for all OEM Solution support sold by OEM. Exhibit E shall be subject to
review and re-negotiation upon the request of either party six (6) months from
the date of execution of this Agreement.
9. Fees and Records.
9.1 Records. OEM and MicroStrategy shall each maintain, for at least two
(2) years after termination of this Agreement, any records and contracts
relating to the sale or license of the OEM Solution, the Strategy.com Network
Services and/or the Telecaster Network Services under this Agreement, and will
permit examination thereof by authorized representatives of MicroStrategy and
OEM at all reasonable times.
9.2 Notification. OEM will: (i) use commercially reasonable efforts to
notify MicroStrategy in writing of any claim or proceeding involving the
Products after OEM learns of such claim or proceeding; and (ii) report promptly
to MicroStrategy all claimed or suspected defects in the Products.
10. Limitation of Warranty and Liability.
10.1 Limited Warranty.
(a) MicroStrategy warrants that the media containing Products is
free from defects in material and workmanship for a period of thirty (30) days
from the date of receipt by the End User. For any breach of this warranty, OEM's
exclusive remedy and MicroStrategy's entire liability shall be replacement of
defective media returned within thirty (30) days of receipt of the media by the
End User.
(b) MicroStrategy warrants for a period of six (6) months from the
date of delivery of the Products to OEM that each unmodified Product will
perform in substantial conformance with the functions described in the User
Documentation. MicroStrategy also warrants from the date of delivery of the
Products to OEM that the unmodified Products will be Year 2000 Qualified, as
such term is defined in the document entitled NCR Year 2000 Qualification
Requirements attached hereto as Exhibit F, provided that all year date data
presented to the Products for processing is in a four (4)-digit format, and
provided that MicroStrategy makes no warranty with respect to any such failure
or incorrect result that may arise due to: (i) the quality of the data processed
with the Software; (ii) the effect of other software including, without
limitation, the Teradata software product, not licensed by MicroStrategy to
Licensee or developed by MicroStrategy for Licensee; or (iii) the use of the
Software in an operating environment or on a platform not specified by
MicroStrategy. MicroStrategy further warrants that on the date of delivery to
OEM. the Products are, to the best
11.
<PAGE>
of MicroStrategy's knowledge, free of any program routine, device or other
undisclosed feature, including without limitation, virus, worm, trojan horse,
trap door or malicious logic, that is designed to delete, disable, deactivate,
interfere with or otherwise harm the Product or the End User or OEM's respective
hardware, data or programs, or that is intended to provide access or produce
modifications not authorized by the End User or OEM; provided, however, that
MicroStrategy reserves the right to insert code in the Product(s) that will
prevent their use by more than the number of authorized users so long as such
code does not interfere with use of the Product(s) by authorized users. In
addition, MicroStrategy warrants that the Products are currently interoperable
with OEM's Teradata V2RX (V2R2) via ODBC interfaces, and that it will make all
commercially reasonable efforts to modify the Products to be compatible with
future versions of Teradata. For any breach of the warranties contained in the
Section 10.1(b), OEM's exclusive remedy and MicroStrategy's entire liability
shall be, at MicroStrategy's sole discretion, the correction of the Product
errors that caused breach of the warranty or replacement of the Product.
(c) THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE
IMPLIED WARRANTIES OF MERCHANTABELITY AND FITNESS FOR A PARTICULAR PURPOSE.
MICROSTRATEGY DOES NOT WARRANT THAT OEM OR END USERS' USE OF PRODUCTS WILL BE
UNINTERRUPTED OR ERROR FREE, OR THAT THE FUNCTIONS CONTAINED IN PRODUCTS WILL
MEET OEM OR END USERS' REQUIREMENTS.
10.2 Limitation of Liability. EXCEPT FOR CLAIMS WITH RESPECT TO EITHER
PARTY'S INDEMNIFICATION OBLIGATIONS UNDER TIES AGREEMENT, EACH PARTY'S LIABILITY
FOR DAMAGES TO THE OTHER OR ANY THIRD PARTY UNDER THIS AGREEMENT SHALL IN NO
EVENT EXCEED ALL AMOUNTS PAID UNDER THIS AGREEMENT. UNDER NO CIRCUMSTANCES SHALL
MICROSTRATEGY BE LIABLE FOR WARRANTIES GRANTED BY OEM IN EXCESS OF THOSE
CONTAINED IN THE APPLICABLE STANDARD MICROSTRATEGY END USER LICENSE AGREEMENT
FOR EACH PRODUCT OR THIS AGREEMENT, NOR SHALL EITHER PARTY BE LIABLE TO THE
OTHER FOR INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, OR DAMAGES
FOR LOSS OF PROFITS, REVENUE, DATA OR USE, WHETHER IN AN ACTION IN CONTRACT OR
TORT, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10.3 Reliance on Disclaimers. OEM agrees that the limitations of
liability and disclaimers of warranty set forth in this Agreement will apply
regardless of whether MicroStrategy has tendered delivery of the Products or OEM
has accepted any such Products. OEM acknowledges that MicroStrategy has set its
prices, established its royalty structure and entered into this Agreement in
reliance on the disclaimers of liability, the disclaimers of warranty and the
limitations of liability set forth in this Agreement and that the same form an
essential basis of the bargain between the parties.
12.
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11. Indemnification.
11.1 Indemnification of OEM. MicroStrategy will defend at its expense
and indemnify OEM against a claim that the Products infringe a patent or
copyright of a third party in the territory indicated in Section 2, provided
that OEM (i) gives MicroStrategy prompt written notice of the claim, (ii) allows
MicroStrategy to have sole control of the defense and all related settlement
negotiations, and (iii) provides MicroStrategy with the information, authority
and assistance necessary to perform MicroStrategy's obligations under this
Section. In the event the Products are held or believed to infringe,
MicroStrategy may, at its sole option, (i) obtain for OEM a license to continue
using the Product, (ii) replace or modify the Product so that it becomes
noninfringing or (iii) if neither (i) nor (ii) can be reasonably effected by
MicroStrategy, refund to OEM the prices paid for the infringing Products,
provided that such Products are returned to MicroStrategy in an undamaged
condition.
11.2 No Combination Claims. Notwithstanding Section 11.1 above,
MicroStrategy shall not be liable to OEM for any claim arising from or based
upon the combination, operation or use of any Product with equipment, data or
programming not supplied by MicroStrategy unless and to the extent that any type
of such claim would have arisen regardless of the combination or arising from
any alteration or modification of the MicroStrategy Products.
11.3 Limitation. THE PROVISIONS OF THIS SECTION SET FORTH THE ENTIRE
LIABILITY OF MICROSTRATEGY AND THE SOLE REMEDIES OF OEM WITH RESPECT TO
INFRINGEMENT AND ALLEGATIONS OF INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OR
OTHER PROPRIETARY RIGHTS OF ANY KIND IN CONNECTION WITH THE INSTALLATION,
OPERATION, DESIGN, DISTRIBUTION OR USE OF THE PRODUCTS AND/OR THE OEM SOLUTION.
11.4 OEM Indemnification. OEM will defend at its expense and indemnify
MicroStrategy against: (1) a claim caused by OEM's misrepresentations about the
Products and/or the OEM Solution, the Telecaster Network Services and/or the
Strategy.com Network Services; or (2) a claim by a third party that the OEM
Solution infringes upon or misappropriates any intellectual property rights of
such third party, including without limitation, copyrights, patents, trademarks
and trade secrets, which claim would not have occurred but for the combination
of a Product with other software not supplied by MicroStrategy in OEM's
development of the OEM Solution, provided that McroStrategy (i) gives OEM prompt
written notice of the claim; (ii) allows OEM to have sole control of the defense
and all related settlement negotiations and (iii) provides OEM with the
information, authority and assistance necessary to perform OEM's obligations
under this Section.
12. Confidential and Proprietary Information.
12.1 MicroStrategy or OEM may from time-to-time disclose to the other
party confidential information relating to its business and affairs under this
Agreement ("Confidential Information"). Confidential Information shall be
clearly designated in writing as confidential, or if verbally disclosed,
identified at the time of disclosure as being confidential and reduced to
writing within ten (10) business days of disclosure. For a period of three (3)
years from the date of disclosure, each party agrees that it will use reasonable
efforts not to disclose Confidential
13.
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Information of the other to any third party without the express written consent
of the disclosing party, unless disclosure is required by law. Notwithstanding
the foregoing, the recipient may disclose Confidential Information to its
Affiliates or contractors with a legitimate need to know who agree in writing to
confidentiality obligations consistent with this Agreement, All materials
containing Confidential Information are and remain the discloser's property, and
upon written request the recipient shall promptly return them, and all copies of
them, except a single archival copy. Confidential Information does not include:
(a) information generally available to or known to the public through no act or
omission of the recipient; (b) information previously lawfully known to the
recipient; (c) information independently developed by the recipient; or (d)
information lawfully disclosed by a third party. This Section does not require
either party to disclose any particular information, nor does it grant the
recipient a license to any of the discloser's patents or copyrights. In the
event that either party becomes aware of an unauthorized use or disclosure of
the other's Confidential Information by a third party, such party shall promptly
inform the other and provide, at the other's expense, commercially reasonable
assistance in the investigation and prosecution of any such unauthorized
disclosure. Notwithstanding the marking requirement above to the contrary, the
Products and related technical specifications, information regarding
MicroStrategy's pricing, MicroStrategy's training material and the results of
any benchmark tests conducted by OEM on the Products alone (as opposed to
benchmark tests of the OEM Solution) shall be considered MicroStrategy's
Confidential Information, whether or not so-labeled, so long as MicroStrategy
has used reasonable efforts to mark such items. Subject to the parties'
compliance with the provisions of Section 12, any disclosure of details on
unreleased products or business strategies for planning purposes, including
without limitation, any such information regarding Castor and MicroStrategy 6.0
products, shall be considered the Confidential Information of the Disclosing
Party.
The parties acknowledge that as a result of exposure to Confidential
Information, increases in the general skill or knowledge of the receiving
party's employees may occur. Nothing in this Agreement shall be construed to
prohibit the receiving party from utilizing such increases in general skill or
knowledge. Nevertheless, under no circumstance shall tangible copies of the
Confidential Information be used for any purposes other than the implementation
of this Agreement.
12.2 Authorized Disclosure. Either party may disclose the existence of
this Agreement, but not its content, without the prior consent of the other
party.
12.3 Branding. OEM shall not remove MicroStrategy's trademark and
copyright notices in and on the Products or the documentation accompanying any
copy of the Product sublicensed as part of the OEM Solution.
12.4 Custom Interfaces. OEM may remove the MicroStrategy trademark
notice from the splash screen and replace it with OEM's trademark notice in any
Customized Interface. A "Customized lnterface" shall mean any interface to the
Products created or modified by OEM using DSS Web or DSS Objects where the
visual appearance (i.e., the "look and feel") of the user interface has been
created in such a way as to be reasonably deemed a unique work of OEM. Any such
removal of the MicroStrategy trademark notice in the Products shall be subject
to MicroStrategy's written approval, which shall not be unreasonably withheld.
OEM acknowledges that it is not acquiring and shall not attempt to acquire, by
usage, filing or
14.
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otherwise, either in the United States or any other country, any right, title or
interest in or to any of MicroStrategy's names, acronyms, logos, trademarks,
service marks, trade names or other identifying description of MicroStrategy's
products (the "Marks"), nor will OEM challenge MicroStrategy's rights therein.
OEM's use of the Marks shall inure to the benefit of MicroStrategy and shall be
subject to such reasonable restrictions and standards as MicroStrategy may adopt
from time to time. The Marks are identified in Exhibit H hereto; provided,
however, that MicroStrategy may amend such Exhibit from time to time.
12.5 No Proprietary Rights. OEM has paid no consideration for the use of
MicroStrategy's trademarks, trade names, logos, designations or copyrights, and
nothing contained in this Agreement will give OEM any right, title or interest
in any of them. OEM acknowledges that MicroStrategy owns and retains all
trademarks, trade names, logos, designations, copyrights and other proprietary
rights in or associated with the Products, and agrees that it will not at any
time during or after this Agreement assert or claim any interest in or do
anything that may adversely affect the validity of any trademark, trade name,
logo, designation or copyright belonging to or licensed to MicroStrategy
(including, without limitation, any act or assistance to any act, which may
infringe or lead to the infringement of any of MicroStrategy's proprietary
rights).
12.6 No Continuing Rights. Upon expiration or termination of this
Agreement, OEM will immediately cease all display, advertising and use of all
MicroStrategy trademarks, trade names, logo or designations and will not
thereafter use, advertise or display any trademark, trade name, logo or
designation which is, or any part of which is, similar to or confusing with any
trademark, trade name, logo or designation associated with any MicroStrategy
product, whether or not such product is set forth in Exhibit A.
12.7 Obligation to Protect. OEM agrees to use commercially reasonable
efforts to protect MicroStrategy's proprietary rights and to cooperate with
MicroStrategy in MicroStrategy's efforts to protect its proprietary rights. OEM
agrees to notify MicroStrategy promptly of any known or suspected breach of
MicroStrategy's proprietary rights that comes to OEM's attention.
13. Term and Termination.
13.1 Term. This Agreement will be effective as of the date first set
forth above, and shall have a term of three (3) years.
13.2 Termination for Breach of Confidentiality Obligations. Either party
may terminate this Agreement prior to the expiration of its stated term in the
event that the other party breaches the confidentiality provisions set forth in
Section 12.1.
13.3 Termination for Cause. Either party may terminate this Agreement at
any time prior to the expiration of its stated term in the event that:
(a) The other party is in default with respect to any material
term or condition undertaken by such party under this Agreement and such failure
or default continues unremedied for a period of ten (10) days following written
notice of such failure or default (a material breach shall include but not be
limited to a breach of Sections 2, 4, 5, 6, 7, 8, 9, 12, and 14.2).
15.
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(b) The other party is merged, consolidated, sells all or
substantially all of its assets or implements or suffers any substantial change
in management or control; provided, however, that a sale of stock as part of an
initial public offering shall not be considered a change in control;
(c) A receiver is appointed for the other party or any of its
property, the other party makes an assignment for the benefit of its creditors;
any proceedings are commenced by, for or against the other party under any
bankruptcy, insolvency or debtor's relief law; or the other party is liquidated
or dissolved; or
(d) The other party is in material breach of any other written
agreement between the parties.
13.4 Effect of Termination or Expiration. Upon termination of this
Agreement:
(a) OEM shall cease using any MicroStrategy trademark, trade
name, logo or designation.
(b) OEM shall return to MicroStrategy or destroy and certify
to MicroStrategy the destruction of all Collateral and other MicroStrategy
Confidential Information in its possession and shall destroy or return, at the
option Of MicroStrategy, all Products and all copies thereof to MicroStrategy
and shall cease all marketing and distribution of the OEM Solution, the
Strategy.com Network Services and the Telecaster Network Services.
13.5 Survival. The obligations of the parties under this Agreement
which by their nature would continue beyond the termination, cancellation or
expiration of this Agreement, shall survive termination, cancellation or
expiration of this Agreement.
14. General.
14.1 Independent Contractors. Both parties to this Agreement are
independent contractors, and shall so represent themselves to all other parties.
There is no relationship of partnership, agency, employment, franchise, or joint
venture between the parties. Neither party has any express or implied right or
authority to bind the other or incur any obligation on behalf of the other, In
particular, nothing herein shall be interpreted as making OEM the commercial
agent of MicroStrategy except in connection with sales of the Strategy.com and
Telecaster Network Services in accordance with the terms of this Agreement.
14.2 Assignment. This Agreement shall not be assigned by either party
without the prior written consent of the other party; provided, however, that
neither party shall unreasonably withhold its consent to the assignment of this
Agreement to the successor in interest of the other party. Notwithstanding
anything in the foregoing to the contrary, OEM reserves the right to assign this
Agreement to an Affiliate without such consent; provided, however, that OEM
shall notify MicroStrategy of any assignment of this Agreement to an Affiliate,
and OEM shall indemnify MicroStrategy for any failure of a subsidiary to whom
this Agreement has been assigned for any failure of such subsidiary to act in
accordance with the terms of this Agreement.
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14.3 Force Majeure. Neither party shall be responsible for failure of
performance due to causes beyond its control, including, but not limited to,
acts of God or nature, labor disputes, actions of any Government agency, and
shortage of materials.
14.4 Notices. Any and all notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given two (2)
business days after deposit in the United States Mail, certified or registered
mail, postage prepaid, or one business day after deposit with an overnight
delivery service of national reputation, and in any case addressed as follows:
To MicroStrategy:
MicroStrategy Incorporated
8000 Towers Crescent Drive
Suite 1400
Vienna, VA 22182
ATT'N: [Contracts Department]
To OEM:
Senior Vice President, National Accounts
Solutions Group
NCR Corporation
1700 S. Patterson Blvd.
Dayton, OH 45479
and
General Counsel/Notices WHQ-5
NCR Corporation
1700 S. Patterson Blvd.
Dayton, Ohio 45479
14.5 Waiver. The waiver by either party of any default by the other
shall not waive subsequent defaults of the same or different kind.
14.6 Severability. In the event that any of the provisions of this
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be invalid, such provision will be enforced to the maximum extent permissible
and the remaining portions of this Agreement shall remain in full force and
effect.
14.7 Equitable Relief. Each party acknowledges that any breach of its
obligations under this Agreement with respect to the proprietary rights or
confidential information of the other party will cause such party irreparable
injury for which there are inadequate remedies at law, and therefore such party
will be entitled to seek equitable relief in addition to all other remedies
provided by this Agreement or available at law.
17.
<PAGE>
14.8 Entire Agreement. This Agreement is the complete and exclusive
statement of the understanding of the parties, and supersedes all other prior
representations between them, whether oral or written, relating to the subject
matter of this Agreement. This Agreement may not be modified except in writing
signed by an officer of MicroStrategy and a duly authorized representative of
OEM.
14.9 Section Headings. Section headings are for purposes of convenience
and shall not be considered part of this Agreement.
14.10 Execution of Agreement, Governing Law, and Arbitration. This
Agreement may be executed simultaneously in any number of counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York, excluding that body of law
known as conflict of laws. The parties will attempt in good faith to resolve any
controversy or claim by negotiation or mediation. If they are unable to do so,
and regardless of the causes of action alleged, the claim will be resolved by
arbitration before a sole arbitrator in the headquarters city of the non-
initiating party pursuant to the then-current Commercial Rules of the American
Arbitration Association. The arbitrator's award will be final and binding, and
may be entered in any court having jurisdiction thereof. The arbitrator will not
have the power to award punitive or exemplary damages, or any damages excluded
by, or in excess of, any damage limitations expressed in this Agreement. Each
party will bear its own attorney's fees and costs related to the arbitration.
Any claim or action must be brought within five years after the cause of action
accrues.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first set forth above.
MICROSTRATEGY INCORPORATED NCR CORPORATION
("OEM")
By: /s/ Michael Saylor By: /s/ Earl C. Shanks
--------------------- ---------------------
Name: Michael Saylor Name: Earl C. Shanks
----------------- -----------------
Title: President & CEO Title: Vice President -
------------------------- Corporate Finance
-------------------------
18.
<PAGE>
EXHIBIT A
PRODUCTS LICENSED
1.1 Products. The following Products are licensed to OEM in accordance with
the terms of the Agreement:
Product
---------
DSS Agent[TM]
DSS Objects[TM]
DSS Architect[TM]
DSS Executive[TM]
DSS Server[TM]
DSS Web Server[TM]
DSS Web (PE)[TM]
DSS Web (SE)[TM]
DSS Administrator[TM]
DSS Broadcaster Server without SQL Server
Info Center without SQL Server
MicroStrategy will, from time to time, add new Products as they become
"generally available ("GA")".
19.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
EXHIBIT B
OEM DISCOUNTED PRICE SCHEDULE
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
MicroStrategy Price List
10/25/99
Infrastructure
<TABLE>
<CAPTION>
Product Price Description
<S> <C> <C>
MicroStrategy Intelligence Server [**] per server with no more than four processors
(4 Processor)
MicroStrategy Intelligence Server [**] per server with no more than two processors
(2 Processor)
MicroStrategy Intelligence Server Upgrade [**] to upgrade MicroStrategy Intelligence Server from
two processor system to a four processor system
MicroStrategy Web Server [**] per server with no more than four processors
(4 Processor)
MicroStrategy Web Server [**] per server with no more than two processors
(2 Processor)
MicroStrategy Web Server Upgrade [**] to upgrade MicroStrategy Web Server from a two
processor system to a four processor system
MicroStrategy Broadcast Server [**] per server with no more than four processors
MicroStrategy Architect [**] per named user
MicroStrategy Executive [**] per named user
MicroStrategy Administrator [**] per two named users
MicroStrategy Development Bundle [**] per two named users
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Interfaces
Product Price Description
- ------- ----- -----------
<S> <C> <C>
MicroStrategy Agent [**] per named user
MicroStrategy Web PE [**] per named user
MicroStrategy Web SE [**] per named user
MicroStrategy Broadcaster [**] per named user
MicroStrategy Objects [**] per named user
MicroStrategy Any Interface Bundle [**] per named user which includes Agent, Web PE,
Web SE, Broadcaster and Objects
Add MicroStrategy Broadcaster [**] per named user when acquired with any interface in
the same quantities
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
MicroStrategy Price List
10/25/99
<TABLE>
<CAPTION>
MicroStrategy InfoCenter
Product Price Description
<S> <C> <C>
MicroStrategy InfoCenter Server [**] per server with no more than two processors
Additional 10 Thread Increments [**] per 10 threads--a thread is the ability of the
software to send data to and receive data from the
Metadata repository
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MicroStrategy Enterprise
Reporting Schedule
Product Price Description
<S> <C> <C>
Enterprise Reporting Module for [**] per server with up to two processors
companies with up to 15,000 employees
Enterprise Reporting Module for [**] per server with up to two processors
companies with up to 35,000 employees
Enterprise Reporting Module for [**] per server with up to two processors
companies with up to 55,000 employees
Enterprise Reporting Module for [**] per server with up to two processors
companies with up to 75,000 employees
Enterprise Reporting Module for [**] per server with up to two processors
companies with more than
75,000 employees
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Educational Products
Product Price Description
----- -----------
<S> <C> <C>
Web Based Training [**] per named user
Multimedia Based Training [**] per named user
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
MicroStrategy Price List
10/25/99
Discount Schedule
<TABLE>
<CAPTION>
Total List Price Non-Broadcaster MicroStrategy Broadcaster only
- ---------------- --------------- ------------------------------
<S> <C> <C>
$100,000 [**] [**]
$200,000 [**] [**]
$300,000 [**] [**]
$400,000 [**] [**]
$500,000 [**] [**]
$750,000 [**] [**]
$1,000,000 [**] [**]
$1,500,000 [**] [**]
$2,000,000 [**] [**]
$2,500,000 [**] [**]
$3,000,000 [**] [**]
$3,500,000 [**] [**]
$4,000,000 [**] [**]
$4,500,000 [**] [**]
$5,000,000 [**] [**]
$5,000,000+ [**] [**]
</TABLE>
- ------------------------------------------------------------------------------
MicroStrategy Development
Software Discount
MicroStrategy Server Software may be discounted [**] for development purposes.
The licenses must be restricted to permit use for testing and development only.
The software may not be used for production purposes.
Up to 25 licenses of the MicroStrategy User Interface Software may be discounted
[**] for development purposes. The licenses must be restricted to permit use
for testing and development only. The software may not be used for production
purposes.
- -------------------------------------------------------------------------------
International Price Uplifts
<TABLE>
<CAPTION>
Tiers Countries Uplift
- ----- --------- ------
<S> <C> <C>
Tier 0 Territories Africa - ASEAN - Eastern Europe - Korea [**]
-- Latin America - Middle East
Tier 1 Territories Iberia - Italy [**]
</TABLE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
<TABLE>
<S> <C> <C>
Tier 2 Territories Benelux - British Isles - Central Europe - [**]
France - Scandinavia
Tier 3 Territories Japan [**]
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20.
<PAGE>
Exhibit C
END USER LICENSE AGREEMENT
NCR CORPORATION
MASTER AGREEMENT
--------------
Customer Number
-------------------------------
Your Business Name ("you")
-------------------------------
Street Address
------------------------------
City State Zip Code
------------------------------
Effective Date
IF YOU HAVE ANY QUESTIONS OR CONCERNS WITH THIS AGREEMENT OR NCR'S CONTRACTING
PROCEDURES, PLEASE CONTACT YOUR NCR ACCOUNT REPRESENTATIVE.
CONTENTS
<TABLE>
<S> <C>
1 - Definitions 9 - Limitations of Liability
2 - Orders, Addenda and Contract Formation 10 - Services
3 - Delivery and Installation
4 - Prices and Taxes Claims 12 - Defense of Infringement
5 - Invoice, Payment and Security Interest 13 - Third Party Products
6 - Rental 14 - Termination
7 - License to Use Software 15 - Mediation and Arbitration
8 - Warranties 16 - General
</TABLE>
21.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
1.0 DEFINITIONS
The terms listed below will have the following meanings:
1.1 "Agreement" means this Master Agreement.
1.2 "Addendum" means a supplementary form designed to identify specific terms
and conditions for certain types of transactions.
1.3 "NCR Product Specifications" means NCR's official published specifications
for Products when you acquire them (which NCR will provide to you upon request),
and the documentation which NCR includes with Products delivered to you.
1.4 "NCR" means NCR Corporation (formerly known as AT&T Global Information
Solutions Company). Certain products, documents, and other items furnished under
this Agreement may continue to contain references to the AT&T name.
1.5 "Contract" means a contract for your acquisition of Products from NCR, as
explained in 2.0. Each Contract includes the terms of this Agreement.
1.6 "Equipment" means hardware and associated peripherals and features that you
acquire from NCR.
1.7 "Products" means Equipment, Software, Supplies and Services.
1.8 "Services" means those Services described in Section 10.0 that you acquire
from NCR.
1.9 "Software" means computer programs in any form that you acquire from NCR.
1.10 "Supplies" means consumable items that you acquire from NCR.
1.11 "Third Party Products" means products that you acquire from parties other
than NCR.
2.0 ORDERS, ADDENDA, AND CONTRACT FORMATION
2.1 Orders -- You may order Products from NCR with a written purchase order,
electronically or orally.
2.1.1 Written - You may submit a written purchase order on your form or
an NCR form. NCR may accept your purchase order by signing it,
delivering the Products which you ordered, or as NCR and you otherwise
agree. NCR's acceptance creates a Contract consisting of this
Agreement, any applicable Addendum, and your written order, except that
any preprinted language on your form will not become part of the
Contract.
2.1.2 Electronic - NCR may provide Electronic Data Interchange ("EDI")
options, including electronic ordering, invoicing and payment. These
options and NCR's acceptance of your electronic order will be governed
by an EDI
22.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
Addendum to this Agreement. If you and NCR communicate
electronically, an identification code contained in an electronic
document will be legally sufficient to verify the sender's identity
and the document's authenticity as a signed writing.
2.1.3 Oral - You may order certain categories of Products from NCR
orally. In such event, the Contract will consist of this Agreement
and the quantities, prices and product identifications as confirmed
on NCR's invoice or acknowledgment.
2.2 Invoiced Services - NCR may offer to provide Equipment maintenance or
Software Services for a fixed term by sending you an invoice in advance of the
term. If you accept the offer by paying the invoice or by accepting the
Services, a Contract is formed consisting of this Agreement and the terms of
NCR's invoice.
2.3 Other Communications - Each Contract supersedes all oral and written
communications between you and NCR concerning the ordered Products.
Correspondence, proposals and recommendations become binding commitments of NCR
only when you attach them to or expressly incorporate them in a Contract.
2.4 Delays, Cancellation and Modifications (Change Control) -- If you wish to
cancel, reschedule or modify a Contract (including changing delivery or
installation dates or locations) or if you cause delays in NCR's performance,
you and NCR will attempt to negotiate in good faith new schedules and sufficient
compensation to NCR for accommodating you. No such change is effective unless
agreed in writing signed by both parties, preferably on NCR's change control
form.
3.0 DELIVERY AND INSTALLATION
3.1 Delivery -- NCR will use reasonable efforts to perform its obligations by
dates included in a Contract. These dates are estimates only. NCR will inform
you of delays as far in advance as reasonably possible. If NCR's performance is
delayed (other than by a force majeure) for an unreasonable time, you may cancel
delivery without penalty.
3.2 Location - NCR will deliver Products to the location that you specify. If
you select the shipping agent, its receipt of the Products constitutes delivery.
Title and risk of loss pass to you upon delivery. You agree to inspect Products
when you receive them and to notify NCR promptly if there is any visible damage.
3.3 Installation - NCR will notify you if Products require a special physical
environment. You agree to provide that environment prior to installation. Upon
request, NCR will provide Installation Services which may be separately
chargeable.
23.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
4.0 PRICES AND TAXES
4.1 Prices -- Your order will generally state the Product price. If it does not,
the price will be NCR's then-current published price in the country and currency
where the Products are installed less any applicable discount. NCR may increase
your price if it increases its published price after it accepts your order, and
your order specifies delivery more than 120 days after the price increase
becomes effective. Also, price increases for Services or Software licensed for a
periodic fee will only apply to subsequent billing periods.
4.2 Taxes and Other Charges -- Unless otherwise stated, Product prices do not
include: delivery and installation charges; charges associated with preparing
your site; and all taxes that relate to your acquisition or use of Products,
including sales, use, VAT and property (ad valorem) taxes, other governmental
charges and taxes, and assessments after audit. You agree to pay those charges
and taxes, except for taxes based on NCR's net income or franchise taxes. If you
qualify for tax exemptions, you must provide NCR with appropriate exemption
documentation.
5.0 INVOICE, PAYMENT AND SECURITY INTEREST
5.1 Invoice and Payment -- NCR will invoice you (1) for Equipment and Software
- -- after shipment; (2) for recurring Services, license fees and rental -- in
advance; and (3) for non-recurring Services -- after NCR provides them to you.
Payment is due on receipt of invoice. NCR reserves the right to charge late fees
stated on the invoice if it does not receive payment within 30 days. If you do
not pay after NCR notifies you of your default, NCR also may repossess the
applicable Products without waiving NCR's right to payment.
5.2 Security Interest -- NCR retains a purchase money security interest in each
Product that you purchase until you pay for it. You appoint NCR as your agent to
sign and file a financing statement to perfect NCR's security interest.
6.0 RENTAL
The Contract will specify the initial term for rented Equipment. After the term
expires, your rental will continue on a month to month basis until you and NCR
agree to extend the term, or until you or NCR terminates the rental by giving 60
days advance written notice. When the rental charge includes maintenance and NCR
increases its maintenance charge for that type of Equipment, NCR may increase
your rental charge by a like amount. Otherwise, NCR may increase your rental
charge only after the end of the specified term. NCR owns rented Equipment and
retains the risk of loss or damage except for loss or damage which you cause.
You may not alter rented Equipment without NCR's prior written consent.
24.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
7.0 LICENSE TO USE SOFTWARE
7.1 Scope -- NCR grants you a non-transferable, non-exclusive license to use
Software in object code form consistent with the terms of this Agreement. Unless
otherwise agreed, you may use the Software at any one time only on a single
processing unit of the class and model for which you originally licensed it.
Your order may specify other or different license terms, concerning matters such
as the number of users or site license rights, or you and NCR may agree
separately in writing to those terms. You may use source code only if we agree
to additional terms for it.
7.2 Fees -- NCR licenses Software for either periodic or one-time license fees.
If your order does not specify the type of fee, it is a monthly license fee.
Your payment of a one-time fee entitles you to a perpetual right to use the
Software subject to the terms of this Section 7.0.
7.3 Termination -- A Software license term begins when NCR delivers the Software
to you and continues for the specified term unless you or NCR terminates the
license as described below or you violate your obligations under this Section
7.0. You may terminate a periodic license at any time by providing 30 days
advance written notice. NCR will refund the unapplied portion of any advance
payment. One-time fees are not refundable. NCR may terminate a periodic license
at the end of a billing period by giving you at least 30 days advance written
notice. When the license ends, you agree to immediately stop using the Software
and either return all copies to NCR or certify to NCR that you have destroyed
them.
7.4 General -- You may not copy Software, or transfer, disclose, sublicense or
distribute it to any party without NCR's written consent. NCR will consent to
your transfer of Software only to parties who sign the then-current form of NCR
Master Agreement and pay any applicable fees. You must retain copyright notices
and proprietary legends on all copies of Software in your possession. Software
remains the property of NCR or its licensors. You will not take any steps, such
as reverse assembly or reverse compilation, to derive a source code equivalent
of the Software.
7.5 Other Companies' Software -- NCR may provide you with Software that bears
the logo or copyright of another company. The license terms of this Agreement
apply to that Software unless the Software is provided with a license agreement
(including a "shrink-wrap" license) from the other company, in which case the
terms of the other company's agreement apply.
8.0 WARRANTIES
8.1 Equipment -- NCR warrants that Equipment will be free from defects in
material and workmanship and will conform to NCR Product Specifications. This
warranty begins on delivery or, if applicable, when NCR installs the Equipment
and continues for 90 days unless the Contract or NCR's policies at the time of
order specify a longer period. If you notify NCR during the warranty period that
Equipment does not comply with this warranty, NCR will repair the Equipment at
no charge under Section 10.1.
8.2 Software -- NCR warrants that Software will conform to NCR Product
Specifications. This warranty begins on delivery or, if applicable, when NCR
installs the
25.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
Software and continues for 30 days unless the Contract or NCR's policies at the
time of order specify a longer period. If you notify NCR during the warranty
period that Software does not conform to NCR Product Specifications, NCR will
correct the Software at no charge under Section 10.2. Except for defects in
media, NCR warrants only the first copy of Software that it provides to you.
8.3 Other Companies' Products -- NCR may provide you with Products that bear
the logo or copyright of another company. Notwithstanding anything within
Section 8.1 or 8.2, if you receive these Products with terms from the other
company addressing warranty or support, the other company's terms apply, and
unless specifically agreed NCR provides no warranty or support.
8.4 Services -- NCR warrants that it will provide Services in a professional
manner consistent with Section 10.0, and any Contract, and NCR's published
policies in effect at the time Services are rendered.
8.5 Right to Refund
8.5.1 NCR will use its best efforts during a warranty period to repair
Equipment under Section 8.1 or correct Software under Section 8.2. If
NCR does not succeed within a reasonable time, you may return the
defective Product and obtain a refund, or you may accept the Product
"as is."
8.5.2 If NCR does not perform Services consistent with Section 8.4 or
any Contract, then if you provide prompt notice NCR will use its best
efforts to reperform them. If NCR cannot successfully reperform
Services, you may terminate the Contract, and obtain a refund of your
payments to NCR for those Services. Your refund for a fixed term
Services Contract will not exceed your payments for 12 months.
8.5.3 In addition to the warranties described above, NCR may make
commitments to you in a Contract such as those relating to Product
performance, capability or the future availability of features. If NCR
does not meet those commitments, you agree to notify NCR promptly in
writing. If NCR is unable to correct the problem within a reasonable
time and the Contract does not separately address your remedies, you
may return the Product and obtain a refund. The refund will be reduced
on the same basis as you depreciate the Product in your financial
statements. If you do not depreciate it, the refund will be reduced on
a 5-year straight-line basis.
8.6 Title -- NCR warrants that title in Equipment will be clear except for NCR's
security interest.
8.7 Warranty Services -- NCR will provide warranty Services under its standard
policies in effect when it delivers the Products. You may separately purchase
expanded warranty Services, when available. If NCR designates that Products are
provided "as is," there is no warranty.
26.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
8.8 YOU ACCEPT RESPONSIBILITY TO VERIFY THAT THE PRODUCTS YOU ACQUIRE WILL MEET
YOUR SPECIFIC REQUIREMENTS AND PERFORM AS WARRANTED. EXCEPT AS SPECIFICALLY SET
FORTH IN THIS AGREEMENT, NCR DISCLAIMS ALL WARRANTIES, EXPRESS AND IMPLIED,
INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE AND THOSE ARISING FROM A COURSE OF DEALING. NCR DOES
NOT WARRANT THAT PRODUCTS WILL OPERATE UNINTERRUPTED OR ERROR FREE, OR THAT ALL
DEFICIENCIES, ERRORS, DEFECTS OR NONCONFORMITIES WILL BE CORRECTED. NCR HAS NO
WARRANTY OBLIGATION FOR THIRD PARTY PRODUCTS.
8.9 Exclusive Remedies - Your rights and remedies set forth in this Agreement or
a Contract are exclusive and in lieu of all other rights and remedies related to
any Contract or Product.
9.0 LIMITATIONS OF LIABILITY
9.1 NCR IS NOT LIABLE FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL OR PUNITIVE
DAMAGES, OR FOR LOSS OF PROFITS, REVENUE OR DATA, WHETHER IN AN ACTION IN
CONTRACT, TORT, PRODUCT LIABILITY, STATUTE OR OTHERWISE, EVEN IF ADVISED OF THE
POSSIBILITY OF THOSE DAMAGES. NCR WILL NOT BE LIABLE FOR DIRECT DAMAGES CAUSED
BY LATE DELIVERY, PRODUCT DEFECT, OR ANY OTHER CAUSE EXCEPT AS EXPRESSLY
PROVIDED IN A CONTRACT. NCR HAS SET PRICES FOR ITS PRODUCTS BASED ON THE
ALLOCATION OF RISKS SET OUT IN THIS AGREEMENT.
9.2 Maximum Liability -- NCR's liability with respect to any Product will not
exceed the amount that you paid NCR for that Product even if any term of this
Agreement fails of its essential purpose.
9.3 Personal Injury and Property Damage -- Notwithstanding any limitations in
this Section 9.0, NCR will be liable for personal injury, including death, and
for direct damages up to $1,000,000 per occurrence for physical damage to
tangible property, to the extent NCR's negligence caused that injury or damage.
10.0 SERVICES
10.1 Equipment Warranty and Maintenance Services
10.1.1 During the term of an Equipment warranty or Contract for
Equipment maintenance Services, NCR will maintain the covered Equipment
in accordance with this Section so that it complies with the warranties
in Section 8.1. Unless otherwise stated, the initial term of a
maintenance Contract is one year and will automatically renew for
additional one year terms unless you or NCR terminate it. You or NCR
may terminate a contract for Equipment maintenance Services at any time
by providing 30 days advance written notice. On termination under this
Section, NCR will refund the unapplied portion of any advance payment.
27.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
10-1.2 NCR's Equipment warranty and maintenance Services include
Parts and labor during covered hours. NCR will charge separately for:
(1) Supplies; (2) service calls outside of the applicable scope of
contracted Service or coverage hours; (3) service calls for Equipment
that was in good operating condition at the time of the call; (4) use
of specified types of Equipment above designated levels which NCR has
communicated to you. NCR will also charge separately to repair
Equipment which has failed due to: (5) an alteration to Equipment or
Software or attachment not provided by NCR, approved by NCR in
writing or compatible with NCR's standard interfaces; (6) your use of
Supplies or Third Party Products that are defective or that do not
meet NCR standards or specifications; (7) your negligence, misuse, or
abuse; (8) any third party's negligent or intentional acts; or (9)
fire, smoke, water, or acts of God. Replaced parts become or remain
NCR's property.
10.1.3 At your expense, you must maintain the site of Equipment
consistent with NCR specifications, and you must provide safe working
conditions and appropriate utility services for maintenance
personnel. When Equipment is under warranty or an NCR maintenance
Contract, or is rented under Section 6.0 or is loaned to you under
Section 11.0, you may not allow anyone other than NCR to maintain it.
Before accepting a maintenance Contract, NCR may inspect and
refurbish at your expense Equipment that is not then under NCR
maintenance or which anyone other than NCR has installed or serviced.
You are responsible for operating your Equipment, for providing
back-up Equipment and Services and for safeguarding all programs,
data and funds.
10.1.4 If NCR provides Services for Third Party Products, NCR will
maintain those products in good operating condition during the term
of the Contract for those Services. NCR will not assume the
manufacturer's warranty obligations or make modifications specified
by the manufacturer unless otherwise agreed in writing.
10.2 Software Services
10.2.1 During the term of a Software warranty or Contract for Software
Services, NCR will: (1) provide telephone access to NCR support
resources to assist in resolving Software problems; (2) notify you of
available Software updates; and (3) distribute updates at your
request. Unless otherwise stated, the initial term of a Contract for
Software Services is one year and will automatically renew for
additional one year terms unless you or NCR terminate it. You or NCR
may terminate a Software Services Contract at any time by providing 30
days advance written notice. On termination under this Section, NCR
will refund the unapplied portion of any advance payment.
10.2.2 NCR will provide Software Services for the most recent release
and the prior release of covered Software. Software Services for the
prior release may not include updates or code level fixes. When you
order Software Services, you must order the same level of service (to
the extent available) for all interdependent Software operating on the
same Equipment. If you have licensed
28.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
multiple copies of the same Software, you must order Software
Services for each copy used at the same location.
10.2.3 To permit NCR to provide Software Services, upon request you
agree to assist in isolating Software problems. You also agree to
provide modems and telephone lines for NCR to access your system
remotely, to install and test all fixes and updates, and to perform
other actions reasonably requested by NCR.
10.3 Other Services -- This Agreement applies to other Services which NCR
offers, including systems integration, installation, custom programming,
training and time-and-materials Equipment and Software Services. Unless
otherwise stated in a Contract, you are responsible for implementing and
operating Products.
10.4 Custom and Modified Software -- A Contract may require NCR to create
custom Software or modify licensed Software for you. On your payment in full,
you will own the copyright in that custom Software or those modifications, but
NCR will retain a perpetual, royalty-free, worldwide, non-exclusive,
transferable license to possess, copy, use, modify, disclose, distribute, and
sublicense that custom Software or those modifications without restriction.
Your ownership of the copyright in modifications to Software does not affect
your obligations for the unmodified portions of Software licensed from NCR.
11.0 PRODUCT EVALUATION
NCR may loan Products to you for your evaluation. You and NCR will agree in
advance on: (1) the length of the evaluation period; (2) prices if you elect
to acquire the Products; (3) the post evaluation warranty periods, if any; and
(4) who will bear related costs of freight, installation/deinstallation and
maintenance. The evaluation period will begin when NCR delivers the Products
to you. At the end of the evaluation period, you will make the Products
available for return to NCR, or NCR will invoice you for the Products at the
agreed prices. You agree not to move the Products to another location during
the evaluation without NCR's consent. DURING YOUR EVALUATION, PRODUCTS ARE
FURNISHED TO YOU "AS IS." IF YOU ARE DISSATISFIED WITH THEM FOR ANY REASON,
YOUR EXCLUSIVE REMEDY WILL BE NCR'S REMOVAL OF THE PRODUCTS FROM YOUR SITE.
12.0 DEFENSE OF INFRINGEMENT CLAIMS
You will notify NCR immediately after you become aware of any claim or
threatened claim of infringement involving Products. NCR will defend at its
expense any claim or suit brought against you alleging that any Product
infringes a United States patent, copyright or trade secret and will pay all
costs and damages finally awarded, if you give NCR (1) prompt written notice
of the claim; (2) all requested information that you possess about the claim;
(3) reasonable cooperation and assistance; and (4) sole authority to defend or
settle the claim. In the defense or settlement of the claim, NCR may obtain
for you the right to continue using the Product or replace or modify the
Product so that it becomes non-infringing. If NCR is unable to reasonably
secure those remedies, as a last resort NCR will refund the purchase price for
infringing Equipment and refund one-time license fees for infringing Software.
NCR will reduce any such
29.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
refund on the same basis as you depreciated the infringing Product in your
financial statements. If you do not depreciate it, the refund will be reduced
on a 5-year straightline basis. NCR is not obligated to indemnify you under
this Section if the alleged infringement is based on the use of the Product
with other products not furnished directly by NCR, or on NCR's compliance with
any designs, specifications or instructions provided by you, or if anyone
other than NCR has modified the Product. This Section states NCR's entire
liability for infringement of patents, copyrights, trade secrets, and other
intellectual property rights.
13.0 THIRD PARTY PRODUCTS
NCR is not responsible for Third Party Products, even if NCR assisted in
evaluating or selecting them. The failure of Third Party Products or their
suppliers will not affect your obligations to NCR.
14.0 TERMINATION
14.1 Voluntary Termination -- This Agreement will remain in effect until you
or NCR terminate it on 30 days advance written notice. Termination of this
Agreement will not terminate any existing Contract.
14.2 Bankruptcy -- You or NCR may terminate any current Contracts if the other
party files for protection under the bankruptcy laws or makes an assignment
for the benefit of creditors, or if a trustee or similar officer is appointed
for the other party or its assets.
15.0 MEDIATION AND ARBITRATION
15.1 "Dispute" means any controversy or claim between you and NCR. It includes
controversies or C1aims that are related directly or indirectly to this
Agreement, any Contract or any Product, whether based on contract, statute,
tort, fraud, fraudulent inducement, misrepresentation, intellectual property
rights, antitrust laws, competition laws, or other legal or equitable theory,
whenever brought, between you and NCR or any of NCR's or your employees or
agents or affiliates.
15.2 Mediation -- NCR and you agree to use good faith efforts to resolve any
Dispute promptly and fairly. If NCR and you are unable to resolve a Dispute by
negotiation, both parties agree to submit it to non-binding mediation
conducted by a mutually selected mediator or, at the option of either party,
by the American Arbitration Association ("AAA").
15.3 Arbitration -- If a Dispute submitted to mediation is not successfully
resolved, it shall be subject to binding arbitration under the then-current
rules and supervision of the AAA. The Federal Arbitration Act, 9 U.S.C.
Sections 1 to 16, not state law, will govern the arbitrability of all claims.
A single arbitrator who is knowledgeable in business information and
electronic data processing systems will conduct the arbitration. The
arbitrator's decision and award will be final and binding, and either party
may enter it in any court with jurisdiction. The arbitrator will not have
authority to award punitive or other non-compensatory damages to either party.
The arbitration will be held in the city where the AAA regional office closest
to your headquarters is located. Each party will
30.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
bear its own attorney's fees and related costs associated with the arbitration.
NCR and you will pay all other costs and expenses of the arbitration as the
rules of the AAA provide.
15.4 Court Proceedings -- Except as permitted in this Section, neither party (or
its employees, agents, officers, directors, and affiliates) may bring a case in
court. If NCR or you disregards this restriction, files a court case and fails
to dismiss it promptly upon being notified of this provision, that party will
pay the other party's costs and expenses, including attorney's fees, incurred
after the notice in defending the court case. NCR retains the right to obtain an
injunction in court to prevent your misuse of its intellectual properties.
15.5 Two Year Limitation -- Neither you nor NCR may bring a claim or action
arising out of or related to this Agreement, including any claim of fraud or
misrepresentation, more than two years after the cause of action accrues.
15.6 Substitute Products -- Your acceptance of refunds or substitute Products
under this Agreement waives all claims relating to the nonperforming Products
involved.
16.0 GENERAL
16.1 Effective Date, Modification, Non-Waiver and Assignment -- This Agreement
applies to all Products that NCR provides to you directly or through a leasing
company. The cover page of this Agreement specifies the effective date. If the
date is left blank, the date NCR signs this Agreement or first provides Products
to you is the effective date. No modification of this Agreement or any Contract
will be effective unless it is in writing and signed by authorized
representatives of both you and NCR. Failure to enforce any Contract term is not
a waiver of future enforcement of that or any other term. Neither you nor NCR
may assign this Agreement, a Contract, or its rights or obligations under them
without the express written consent of the other, except NCR may assign this
Agreement or a Contract to an affiliate and may use Subcontractors to fulfill
its obligations.
16.2 Supplements -- NCR may from time to time communicate to you policies and
procedures that supplement but do not modify the terms of this Agreement, such
as relating to Software or Services.
16.3 Notices -- NCR will send notices to you at the address on the face of this
Agreement, and you will send notices to NCR at its local district office or
other designated address.
16.4 Geographic Scope -- This Agreement applies only to Products in the United
States and does not obligate NCR to provide Products, including warranty or
maintenance Services, outside the United States. If you want to do business with
NCR internationally, please contact your NCR account representative, and NCR
will provide you with supplemental terms to this Agreement. You may not export
Products without appropriate approvals from the U.S. and foreign government.
31.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
16.5 Force Majeure -- Neither party is liable for failing to fulfill its
obligations due to acts of God, civil or military authority, war, riots,
strikes, fire, or other causes beyond its reasonable control, except for your
obligation to make payments.
16.6 Choice of Law -- New York law governs this Agreement, except for its laws
regarding choice of law and as stated in Section 15.3; the United Nations
Convention on Contracts for the International Sales of Goods does not apply.
THIS AGREEMENT TOGETHER WITH ANY CONTRACTS INCLUDING IT SETS FORTH THE ENTIRE
AGREEMENT WITH RESPECT TO YOUR ACQUISITION OF PRODUCTS FROM NCR. YOU ACKNOWLEDGE
THAT YOU HAVE READ AND UNDERSTAND THE TERMS OF THIS AGREEMENT.
Executed on your behalf by: NCR CORPORATION
- ---------------------- -----------------------
Authorized Signature Authorized Signature
- ---------------------- -----------------------
Printed Name Printed Name
32.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
ADDITIONAL TERMS TO COVER LICENSING OF THE MICROSTRATEGY
PRODUCTS ("SUPPLEMENT")
BETWEEN NCR CORPORATION AND
MICROSTRATEGY
These terms made and entered into as of __________1998, by and
between NCR Corporation ("NCR"), a Maryland corporation with its principal
place of business at 1700 S. Patterson Boulevard, and _______________("you"),
a ____ corporation with its principal place of business at____________, I
hereby supplement the NCR Corporation Agreement dated _______________ between
NCR and you ("Agreement"). In the event of a conflict between any provision of
the Agreement and any provision of this Supplement as it relates to the
MicroStrategy Software, the provision of this Supplement shall prevail. Unless
otherwise defined in this Amendment, capitalized terms in this Supplement
shall have the same meaning as in the Agreement.
1. With respect to the MicroStrategy Software, NCR Product Specifications
means the MicroStrategy user documentation.
2. Software includes any software NCR licenses or sublicenses to you.
3. Third Party Products are licensed or sublicensed to you by a party other
than NCR.
4. Notwithstanding anything stated in the Agreement or Supplement,
MicroStrategy does not provide title to the MicroStrategy Software.
5. MicroStrategy Software licensed under the Agreement and this Supplement
may be used only for internal business purposes and only in connection
with the Teradata Server. Any other use of the MicroStrategy Software
licensed under this Supplement and the Agreement is prohibited. Third
parties may not access the MicroStrategy Software, except for contractors
providing services to you under contract with you.
6. You may not copy or internally transfer MicroStrategy Software except for
routine back-up procedures or in the event of a computer malfunction.
7. Even if any MicroStrategy Software is provided with a shrink-wrap license,
the Agreement and this Supplement applies and the MicroStrategy
shrink-wrap license shall be of no force and effect.
8. Notwithstanding anything stated in the Agreement or Supplement,
MicroStrategy makes no warranty to you regarding the MicroStrategy
Software.
9. MICROSTRATEGY SHALL NOT BE LIABLE TO YOU FOR ANY DAMAGES OF ANY KIND,
WHETHER DIRECT OR INDIRECT, ARISING FROM USE OF THE MICROSTRATEGY
SOFTWARE.
10. Notwithstanding anything else in the Agreement or this Supplement to the
contrary, you may not assign licenses for any MicroStrategy Product to any
third parties without MicroStrategy's prior written consent,
33.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
11. You agree to comply with all applicable US export laws and restrictions.
12. You agree to use a commercially reasonable degree of care not to disclose
the Microstrategy Software or associated documentation or any material
marked with MicroStrategy Confidential and Proprietary' or any similar
legend to any third parties other than contractors who are providing
services to you under contract with you. You agree that you will not,
directly or indirectly, use any such information to create any computer
software program or user documentation that is substantially similar to any
MicroStrategy software program or user documentation. You agree that you
will notify MicroStrategy promptly of any unauthorized disclosure of any
such information, and that you will provide reasonable assistance to
MicroStrategy, at MicroStrategy's expense, in the investigation and
prosecution of any unauthorized disclosure. You agree not to disclose the
results of any benchmark tests run on any MicroStrategy Software to any
third party without MicroStrategy's prior written consent.
13. NCR warrants from the date of delivery of the Software to you until June
30, 2001 that the unmodified MicroStrategy Software will be Year 2000
Qualified, as such term is defined in the document entitled NCR Year 2000
Qualification Requirements, provided that all year date data presented to
the MicroStrategy Software for processing is in a four (4) digit format,
and provided that NCR makes no warranty with respect to any such failure or
incorrect result that may arise due to: (i) the quality of the data
processed with the MicroStrategy Software; (ii) the effect of other
software not licensed by NCR to you or developed by NCR for you; or (iii)
the use of the MicroStrategy Software in an operating environment or on a
platform not specified by NCR.
14. The MicroStrategy Software is provided to you on a "Named User License"
basis. "Named User License" means a license to use a MicroStrategy Software
product, or a bundle of MicroStrategy Software products, under which only
one (1) Named User may access the MicroStrategy Software product, or the
MicroStrategy Software products included in the bundle. A "Named User"
shall mean an individual to whom you have assigned an identification number
for purposes of tracking use of a MicroStrategy Software product, or bundle
of MicroStrategy Software products. If and when a Named User no longer has
access to a MicroStrategy Software product, or bundle of MicroStrategy
Software products, an alternate user may assume the initial Named User's
identification number and use the MicroStrategy Software product, or bundle
of MicroStrategy Software products, in place of the initial Named User.
EXCEPT AS AMENDED AND MODIFIED hereby, the Agreement shall otherwise
remain in full force and effect, the parties hereto hereby ratifying and
confirming the same.
IN WITNESS WHEREOF, NCR and __________________ have caused this
Supplement to be duly executed as of the day and year first above stated.
[Signature Page to Follow]
34.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
<TABLE>
<S> <C>
NCR Corporation MicroStrategy Incorporated
1700 South Patterson Boulevard 8000 Towers Crescent Drive
Dayton, Ohio 45479 Vienna, VA 22182
BY:_________________________ BY:_________________________
PRINTED NAME: _____________ PRINTED NAME:_____________
TITLE:_______________________ TITLE:______________________
DATE:_______________________ DATE:______________________
</TABLE>
35.
MICROSTRATEGY INCORPORATED AND NCR CORPORATION CONFIDENTIAL AND PROPRIETARY
Unauthorized use, disclosure or duplication is strictly prohibited.
<PAGE>
Exhibit E
SOFTWARE SUPPORT SERVICES TO END USERS
OEM shall be responsible for providing front-line support to End Users. Front-
line support shall be provided by employees in OEM's Manned Support Centers,
working in consultation with OEM developers who have completed the Certification
Program. Front-line support shall include:
o Acting as the point of contact for End User requiring support in their use
of the OEM Solution
o Assisting End Users with installation of the OEM Solution
o Creating and maintaining problem databases
o Isolating problems
o Identifying whether problems arc caused by OEM components of the OEM
Solution (templates, reports or software) or MicroStrategy components of the
OEM Solution (the Products)
o Resolving problems caused by the MicroStrategy components of the OEM
Solution when such problems are documented in problem databases and when
otherwise possible through the exercise OEM of commercially reasonable
efforts
o Contacting the MicroStrategy, the technical support group regarding problems
caused by the MicroStrategy components of the OEM Solution that are not
documented in the problem databases or otherwise resolvable through the
exercise by OEM of commercially reasonable efforts, and supplying
MicroStrategy with sufficient information to enable MicroStrategy to
duplicate or identify the problem by whatever method the parties deem most
expedient. OEM communication with MicroStrategy's technical support group
shall be through technical support liaisons appointed by OEM. OEM may
appoint up to two (2) technical support liaisons from each of its four (4)
regional Manned Support Centers. Hereinafter, such individuals shall be
referred to as "Liaisons."
o Distributing Updates
MicroStrategy shall be responsible for providing back-end support to the End
Users through the Liaisons. The Liaisons shall be the interface to the End User
throughout the back-end support process. Back-end support shall consist of
answering questions regarding use of the Products, troubleshooting, and
exercising commercially reasonable efforts to resolve those problems not
resolved by OEM in the provision of frontline support that cause a MicroStrategy
product to fail to operate in substantial conformance with the Documentation.
Back-end support shall not include services which, in the usual course of
MicroStrategy's business, are provided to customers as consulting services.
Back-end support shall include the provision to OEM of all Updates to the
products.
MicroStrategy shall make commercially reasonable efforts to comply with the
following guidelines when involved in problem resolution. Time measurement
begins when OEM first contacts MicroStrategy. Time frames are stated in business
days. If OEM is dissatisfied with resolution time, OEM may escalate the
priority, level of an issue by following the procedure set forth in
MicroStrategy's Technical Support Policies and Procedures.
<TABLE>
<CAPTION>
Priority Level 1 Critical 2 Urgent 3 Routine
- -------------- ---------- -------- ---------
<S> <C> <C> <C>
Priority Level Definition A problem that critically A problem that impacts A minor problem that
impacts the customer's the customer's ability to minimally impacts the
ability to do business. A do business, the severity customer's ability to do
significant number of of which is significant. business. Also includes
users of the system The problem may be questions and/or general
and/or network are repetitive in nature. A consultation.
unable to perform their function of the system.
tasks as necessary. The network or products is
system and/or network impacted.
is down or severely
degraded.
Initial Response to OEM 2 hours 4 hours 48 hours
Status Updates to OEM As status changes or As status changes or As status changes or
daily. daily. daily.
</TABLE>
36.
<PAGE>
MicroStrategy shall make back-end support available Monday through Friday on
non-holidays between the hours of 9:00 a.m. and 7:00 p.m. EST (9:00 a.m. through
5:00 p.m. GMT). At such time as MicroStrategy generally offers technical support
on a seven (7) day per week, twenty-four (24) hour per day basis. MicroStrategy
shall offer such support to OEM under the same terms and conditions as it does
to its other partners and customers.
The telephone number for MicroStrategy's technical support group is 703 848 8700
in the United States and 44 181 9562400 in London. MicroStrategy may change the
foregoing telephone numbers upon one (1) week's notice to OEM.
MicroStrategy will provide the support outlined herein for any particular
version of a Product for up to twelve (12) months from the date of general
availability for a new version of such Product.
If either party fails to perform its obligations as set forth in this Exhibit,
it shall be considered to have breached the Agreement, and the other party shall
be entitled to seek the remedies set forth in the Agreement.
MicroStrategy will provide OEM with four (4) copies of Documentation for use in
supporting end users at no additional charge.
37.
<PAGE>
Exhibit F
NCR YEAR 2000 QUALIFICATION REQUIREMENTS DEFINITION
Meaning of "Year 2000 Qualification"
The purpose of this document is to provide our customers, partners, suppliers,
and employees a definition for NCR products that are "Year 2000 Qualified."
Throughout the industry, the term "year 2000 compliance" remains ambiguous and
this document is our attempt to place our stake in the sand. To avoid
confusion with less precise descriptions of the year 2000 issue, NCR uses the
term "Year 2000 Qualified" to identify products which meet our definition. We
anticipate that this document will evolve over time as more information about
the requirements and testing are known.
I. As used by NCR, "Year 2000 Qualification" means that an NCR product has
been reviewed to confirm that it stores, processes (including sorting and
performing mathematical operations), inputs, and outputs data containing date
information correctly regardless of whether the data contains dates before,
on, or after January 1, 2000. NCR products which do not perform date
manipulation, and which do not alter any date information that flows through
them, are also considered Year 2000 Qualified.
II. Specifically:
Dates before, on or after January 1, 2000 may be interpreted and stored using
either "FORMAT" or "CONVENTION" techniques. As used by NCR, "Year 2000
Qualification" means that the FORMAT technique is used. However, Qualification
by CONVENTION may be used in circumstances where compliance by FORMAT is
impractical, or where CONVENTION is required to meet specific external
interface requirements; in that case the convention used must be specifically
documented. "FORMAT" and "CONVENTION" have the following definitions:
FORMAT: All dates are stored, processed, input, and output in formats
that preserve century, decade, and year information.
CONVENTION: Dates are stored, input, or output in a format that
preserves only decade and year information, but are processed through a
"sliding window" calculation. For example, if the year is 00 to 70, add
2000, and if the year is 71 to 99, add 1900. There is no industry
standard for the "cut-off" date used in such calculations, and
therefore interfaces may not work correctly between programs or systems
using different conventions. Any NCR product achieving Qualification
through CONVENTION must clearly document the cut-off date and any other
necessary information relating to the bridging calculation used. This
documentation must be included in the product's entry in the NCR Year
2000 Qualification List.
III. Leap Year
The year 2000 itself must be correctly processed as a leap year. In other
words, the two days following February 28, 2000 must properly be interpreted
as Tuesday, February 29, 2000, and Wednesday, March 1, 2000.
IV. Display
38.
<PAGE>
Any display of a date, whether on screens or in reports, should use a
four-digit year (YYYY). However, if two-digit display of a date is commonly
accepted and does not cause confusion, the year field may be displayed as two
digits.
V. Firmware and Hardware
Any firmware, hardware, or networking component in a Year 2000 Qualified
computer platform must process dates in accordance with this Definition.
VI. System Integration
Year 2000 Qualification extends only to the specific product configuration
tested, and does not include other software, firmware, or hardware products
which may be used in conjunction with the tested configuration. For an NCR
product configuration consisting of multiple components to be considered "Year
2000 Qualified," each constituent component, regardless of vendor, must be
"Year 2000 Qualified" in accordance with this Definition, and the system as a
whole must be tested for Year 2000 Qualification. "Constituent components"
include all software (including operating systems, programs, packages, and
utilities), firmware, hardware, networking components, and peripherals
provided by NCR as part of the configuration.
The Year 2000 status of third party products not provided by NCR is beyond the
scope of this Definition.
VII. Contracts
All contracts with vendors for products to be used in the computer system or
platform MUST state that Year 2000 Qualification is a performance
requirement, with appropriate remedies for non-performance.
VIII. Year 2000 Product Qualification Requirements
All of the following questions must be answered as indicated or "NA" for any
NCR product to be identified as "Year 2000 Qualified." Any deviations from
these responses must be specifically documented, and an exception must be
noted in the product's entry in the NCR Year 2000 Qualification List.
39.
<PAGE>
DATE MANIPULATION QUESTIONS
<TABLE>
<CAPTION>
NA No Yes
<S> <C> <C> <C>
Does the product:
1. Use December 31, 1999 as a regular end of year without special meaning? X
2. Treat September 9, 1999 as a regular day with no special meaning? X
3. Do any of the following date field manipulation? X
4. * 99 indicates last record X
5. * 00 to indicate a null record X
6. * 99 and 00 default values X
7. * Special interpretations of 00 X
8. * Hard coded 19 in 4-digit year field X
9. * Separate manipulations of century digits X
10. Include any license date expiries associated with the end of 1999? X
11. Use dates in name constructions? X
12. Mix date data and control information in commands or flags which are interpreted
as one or the other depending on their values? X
13. Use a date as part of the key of an indexed file? X
YEAR AND CENTURY QUESTIONS
Does the product:
1. Recognize 2000 as a leap year? X
2. Allow itself to be set to any date after 12/31/99 including 02/29/2000? X
3. Indicate the correct day, date and time when the following test is performed:
With the date set to 12/31/99, power the product off and then back on when the
time will be in 1/1/2000. X
4. Indicate the correct day, date and time when the following test is performed:
With the date set to some time after 1/1/2000, power the product off and back on. X
5. Display the date correctly as 2/29/00 when the following test is performed:
With the date set to 2/28/2000, power the product off, and then back on when the
next day has been reached. X
6. Treat January 1, 2000, a Saturday? X
7. Treat February 29,2000, a Tuesday? X
8. Treat March 1, 2000, a Wednesday? X
9. Treat February 28, 2001, a Wednesday? X
10. Treat March 1, 2001, a Thursday? X
DATA BASE ACCESS AND STORAGE
Does the product:
1. Code all years as in a manner that preserves century, decade, and year information? X
2. Correctly perform all of the following manipulations across the century boundary? X
3. * Computations of time spans, due-dates, etc. X
4. * Sorting of data X
5. * Selections based on key fields X
6. * Selections based on non-key fields X
</TABLE>
40.
<PAGE>
<TABLE>
<CAPTION>
OS & APPLICATION QUESTIONS
NA No Yes
<S> <C> <C> <C>
Does the product:
1. Display the year as an unambiguous value with a minimum of two digits? X
2. Correctly handle data before 1/1/2000, on 1/1/2000 and after 1/1/2000 with the
system clock set to today's date? X
3. Correctly handle data before 1/1/2000, on 1/1/2000 and after 1/1/2000 with the
system clock set to 1/1/2000? X
4. Correctly handle data before 1/1/2000, on 1/1/2000 and after 1/1/2000 with the
system clock set to after 1/1/2000? X
5. Correctly handle data before 1/1/2000, on 1/1/2000 and after 1/1/2000 with the
system clock set to 12/31/1999? X
6. Correctly process dates with the system clock set to 12/31/1999 and processing
allowed to continue across the century boundary? X
7. Correctly handle date comparisons where one date is not greater than 12/31/1999
and the other Date is not less than 1/1/2000? X
8. Use a sliding window for year calculations? X
9. Contain a date format that does not preserve century information? X
10. Create and/or store data in files or log files, or generate reports that do not
preserve century Information in date fields? X
11. Use a 32 bit incrementing signed value for date and time? X
12. Correctly set and maintain the century digits in the real time clock, if the product
uses "AT"-class PC's (286 through Pentiums and clones), does the operating system
or your system software correctly set and maintain the century digits in the
real-time-clock? X
13. Correctly handle all time interval calculations based on the century
transition - both looking back into the past, and looking forward into the
future? X
14. Correctly handle future time interval calculations the span the century transition? X
15. If required, correctly handle date and time interval calculations based on the use
of data previously stored by the product or previous versions of the product? X
16. Dependent on other products being Year 2000 Qualified in order to attain Qualification?
(Describe below) X
17. Formally tested for year 2000 Qualification? X
</TABLE>
41.
<PAGE>
Exhibit G
TERADATA VERSION REQUIREMENTS
MicroStrategy intends to implement and Commits to track the evolution of
relevant Microsoft standards and interfaces in the OLAP environment, including
OLE DB for OLAP (ODBO) and MDX.
MicroStrategy agrees to track the evolution of relevant Meta Data standards,
specifically, those defined by the Meta Data Coalition, and those defined by
the Object Management Group.
Maximize the integration of their OLAP offering with the Teradata OLAP
Extensions embedded in the Teradata database.
42.
<PAGE>
Exhibit H
MICROSTRATEGY MARKS
43.
<PAGE>
Exhibit I
STANDARD STPATEGY.COM AND TELECASTER VOICE BUREAU ACREEMEENTS
44.
<PAGE>
Exhibit J
CERTIFIED AND SUPPORTED LANGUAGES
45.
<PAGE>
Exhibit 10.15
Memorandum of Understanding
Purchase
This document, when signed by MicroStrategy Incorporated ("MicroStrategy") and
NCR Corporation ("NCR") will, effective as of September 30, 1999, serve as a
binding memorandum of understanding ("MOU") regarding MicroStrategy's commitment
to purchase data warehouse hardware, software and services from NCR. The
parties intend to enter into one or more agreements ("Definitive Agreement(s)")
to govern the terms of such purchases, which will include the following business
terms as well as other customary terms and conditions.
The following describes the agreement between the parties:
MicroStrategy Obligations
MicroStrategy will purchase at least eleven million dollars ($11,000,000) worth
of NCR data warehouse hardware, software and services within the twelve (12)
months following execution of this binding memorandum of understanding
("Purchases Commitment"), MicroStrategy agrees to place an initial order (under
this $11,000,000 commitment) no later than October 15, 1999 to purchase a
minimum of four million dollars ($4,000,000) of the Purchase Commitment and take
delivery no later than November 25, 1999 ("1999 Purchase Commitment").
MicroStrategy purchases will be governed by the terms and conditions of NCR's
Master Agreement and Data Warehouse Solution Addendum, copies of which are
attached herein as Exhibit A and Incorporated by this reference ("Master
Agreement"), together with transaction specific statements of work as the
parties may agree upon. Section 4.7 of the Data Warehouse Solution Addendum is
hereby modified, but only as it pertains to those orders placed by October 15,
1999, to reflect a 30-day acceptance period.
NCR Obligations
The applicable orders for such hardware, software and services are attached as
Exhibit B. Notwithstanding such pricing, in the event NCR offers more favorable
pricing to another non-governmental end-user consumer engineering in a similar
overall volume of business with NCR, NCR will make that pricing available to
MicroStrategy with respect to those products.
Additional Terms
The parties acknowledge and agree that the parties will enter into a Definitive
Agreement which consists of these substantive terms, the Master Agreement and
Data Warehouse Solution Addendum, a purchase order for not less than the
Purchase Commitment as well as such transaction specific statement of work as
the parties may agree upon. The Definitive Agreement will supercede this MOU.
The parties agree that they will, in good faith, negotiate the terms and
conditions of the Definitive Agreement. The parties further agree that they
will endeavor to complete such a Definitive Agreement by October 15, 1999.
<PAGE>
The party executing this Agreement on behalf of the parties represents and
warrants that he or she has been duly authorized under the party's charter
documents and applicable law to do so.
NCR Corporation MicroStrategy Incorporated
/s/ Earl C. Shanks /s/ Michael J. Saylor
- ------------------ ---------------------
Signature Signature
Earl C. Shanks Michael J. Saylor
- -------------- -----------------
Printed Name Printed Name
Vice President - Corporate Finance President
- ---------------------------------- ---------
Title Title
<PAGE>
Exhibit 10.16
Memorandum of Understanding
Joint Marketing
This document, when signed by MicroStrategy Incorporated ("MicroStrategy") and
NCR ("NCR") will, effective as of September 30, 1999, serve as a binding
memorandum of understanding ("MOU") regarding a Joint Marketing Alliance between
MicroStrategy and NCR with respect to MicroStrategy's products and NCR's
business vision as it relates to the MicroStrategy Products. The parties intend
to enter into one or more agreements ("Definitive Agreement(s)") to govern the
terms of such joint marketing activities, which will include the following
business terms as well as other customary terms and conditions.
The following describes the agreement between the parties.
A. NCR Intent. NCR expects to exploit the relationship between MicroStrategy
and NCR to expound upon its e-business vision and jointly promote
MicroStrategy's products as part of that vision. NCR desires to make sure
that its efforts are coordinated with MicroStrategy.
B. MicroStrategy Intent. MicroStrategy expects to exploit the relationship
between NCR and MicroStrategy to expound upon its e-business product
offerings and vision and jointly promote the NCR relationship as part of
that vision. MicroStrategy desires to ensure that these activities are
coordinated with NCR.
The following describes the agreement between the parties.
MicroStrategy Obligations
1. MicroStrategy will use commercially reasonable efforts to establish an NCR
business unit consisting of sales, consulting, engineering support, and
education staff for the term of the joint-marketing relationship.
MicroStrategy anticipates that it will invest at least five million US
dollars (US$5,000,000) per year for this business unit.
2. MicroStrategy will use commercially reasonable efforts to launch in e-
business joint-marketing campaign. MicroStrategy anticipates that it will
invest at least five million US dollars (US$5,000,000) of its marketing
budget per year for this campaign.
3. MicroStrategy will add a "powered by Teradata logo" to its Strategy.com site
and promotional materials.
NCR Obligations
1. NCR will us commercially reasonable efforts to establish a 25 person sales,
consulting and marketing business unit to market and sell the MicroStrategy
products for the term of the joint-marketing relationship.
2. NCR will use commercially reasonable efforts to launch in e-business joint
marketing campaign. NCR anticipates that it will invest at least five
million US dollars (US$5,000,000) of its marketing budget per year, for
this campaign.
Joint Obligations
1. As part of the joint-marketing relationship, MicroStrategy and NCR will work
together on initiatives such as the following:
a. A full media advertising campaign;
b. Joint product/offering collateral;
c. A full scale launch of the partnership, including analysis and press
briefings;
d. A sales force education program;
MicroStrategy Proprietary and Confidential
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e. Product management programs;
f. Sales and pre-sales support; and
g. Other similar initiatives.
The parties acknowledge and agree that these activities and the timeframe
for implementation will be more specifically articulated in the Definitive
Agreement.
2. All of these initiatives will be coordinated and planned and implemented in
conjunction with NCR.
3. The third party costs of the initiatives will be paid for out of the five
million US dollars (US$5,000,000) joint-marketing funds to be established by
both parties. All such costs will be pre-approved by both parties and would
include activities such as (a) print media advertising, (b) collateral
production and dissemination, (c) television advertising, and (d) special
events (seminars, press, conferences, etc.). The costs would not include
the NCR or MicroStrategy employees, related employee travel and expenses,
etc.
Terms of Agreement
The joint marketing relationship will last for one (1) year and automatically
renew for successive one (1) year terms unless a party notifies the other party
of its intent not to renew at least forty-five (45) days prior to the expiration
of this term.
Additional Terms
The parties acknowledge and agree that the parties will enter into a definitive
Agreement, which contains these substantive terms as well as additional terms
that are standard in the industry. The Definitive Agreement will supersede this
MOU. The parties agree that they will, in good faith, negotiate the terms and
conditions of the Definitive Agreement. The parties further agree that they
will endeavor to complete such a Definitive Agreement by October 30, 1999.
The party executing this Agreement on behalf of the parties represents and
warrants that he or she has been duly authorized under the party's charter
documents and applicable law to do so.
NCR Corporation MicroStrategy Incorporated
By: /s/ Earl C. Shanks By: /s/ Michael J. Saylor
----------------------- --------------------------
Name: Earl C. Shanks Name: Michael J. Saylor
----------------------- --------------------------
Title: Vice President-Corp.
Finance Title: President & CEO
----------------------- --------------------------
1700 South Patterson Blvd. Date:
Dayton, OH 45479-0001 ------------------------
8000 Towers Crescent Drive
Vienna, BA 22182
Telephone: (703) 848-8600
MicroStrategy Proprietary and Confidential
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Exhibit 10.17
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (this "Agreement") is entered into and
effective as of December 23, 1999 (the "Execution Date"), by and between NCR
Corporation, a Maryland corporation with a place of business at 1700 S.
Patterson Boulevard, Dayton, OH 45479-0001 ("NCR"), and MicroStrategy Inc., a
Delaware corporation with a place of business at 8000 Towers Crescent, Vienna,
Virginia ("MSI").
STATEMENT OF PURPOSE
A. NCR desires to sell to MSI, and MSI desires to purchase from NCR, the
Purchased Assets;
B. MSI desires to acquire the Software technology currently owned and being
developed by NCR for further development by MSI to render the Software
technology suitable for sale to NCR and MSI customers, with the purpose of
the acquisition being the transfer of the Software technology, and the
transfer of tangible property (such as Inventory and Physical Assets) being
merely incidental; and
C. Simultaneously with the consummation of the transactions contemplated
hereby, NCR and MSI each desires to enter into the Joint Marketing
Agreement in connection with such sale;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants, agreements and conditions set forth in
this Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, MSI and NCR, intending to be
legally bound, hereby agree as follows:
1. DEFINITIONS
1.1. "Affiliate" means, with respect to any Person, any other Person directly or
indirectly Controlling, Controlled by, or under common Control with such
first Person.
1.2. "Applicable Law" means any applicable constitution, treaty, statute, rule,
regulation, ordinance, order, directive, code, interpretation, judgment,
decree, injunction, writ, determination, award, permit, license,
authorization, directive, requirement or decision of or agreement with or
by Governmental Authorities.
1.3. "Assigned Contracts" means all Customer Agreements, service agreements,
independent contractor agreements and other agreements between NCR and any
third party to the extent pertaining to the Software (other than any such
agreements pertaining to Embedded Software) and which are wither (a)
assignable by NCR to MSI as of the Closing Date or (b) assignable by NCR to
MSI after the Closing Date, all as specifically identified in Schedule 2.3.
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1.4. "Assumed Liabilities" shall mean the obligations arising after the
Closing under the Assigned Contracts.
1.5. "MSI Group" means MSI and its officers, directors, shareholders,
Affiliates and agents.
1.6. "Customer Data" means a copy of NCR's customer lists and other data
relating primarily to customers and potential customers for the Software
and any and all license agreements and maintenance agreements or portions
thereof relating to the Software.
1.7. "Claim" means a written notice asserting a breach of a representation,
warranty or covenant specified in this Agreement, which shall reasonably
set forth, in light of the information then known to the party giving such
notice, a description of and an estimate (if then reasonable to make) of
the amount involved in such breach.
1.8. "Closing" means the closing of the transactions contemplated by this
Agreement.
1.9. "Closing Date" has the meaning set forth in Section 3.
1.10. "Computer Program" means a list of steps or list of statements and/or
instructions which are capable when incorporated in a machine-readable
medium of causing a computer to indicate, perform or achieve particular
functions, tasks or results.
1.11. "Confidential Information" has the meaning set forth in Section 8.1
hereof.
1.12. "Consents" means all of the consents or approvals of Governmental
Authorities and other third parties necessary to sell, transfer and assign
the Purchased Assets and transfer the Assigned Contracts to MSI and to
otherwise consummate the transactions contemplated hereby in compliance
with all Applicable Law.
1.13. "Control" means having the power to direct the affairs of a Person by
reason of either (i) owning or controlling the right to vote a sufficient
number of shares of voting stock or other voting interest of such Person
or (ii) having the right to direct the general management of the affairs
of such Person by contract or otherwise.
1.14. "Customer Agreement" means any and all licenses, leases, distribution and
maintenance agreements whereby NCR has authorized any third party to use
or distribute any of the Software as of the Closing Date; provided,
however, that the term "Customer Agreement" shall not include any
agreement relating to the Embedded Software; all as specifically
identified in Schedule 2.14.
1.15. "Damages" means all claims, liabilities, demands, impositions, causes of
action, losses, investigations, proceedings, damages, penalties, fines,
assessments, deficiencies, interest, expenses and judgments, including
reasonable attorneys' fees and disbursements.
1.16. "Documentation" means all user manuals and technical information
relating to the Software,
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including codes (Object and Source), program notes, drawings and
reproducible copies of each of the foregoing, magnetic tapes and machine
readable codes or other media reasonably necessary to generate the
foregoing; as well as the current status of any known defects in the
Software, types of support calls handled by NCR over the last 6 months,
all requirements stored in any requirements database, test plans, test
suites, programming notes, project plans for future development,
flowcharts, any existing sales and marketing documentation (sales
brochures, sales support material, etc.).
1.17. "Embedded Software" means third party software licensed to NCR that was
to be used by NCR as an embedded part of the Software, and includes
software licensed by Geppetto's Workshop (e.g., Ant Colony), Simba
Technology and BEA (e.g., Top End).
1.18. "Employee Benefit Plan" means any "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), any "employee welfare benefit plan" (as
defined in Section 3(l) of ERISA) and any other written or oral plan,
agreement or understanding involving direct or indirect compensation,
including insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase, phantom
stock, stock appreciation and other forms of incentive compensation or
post-retirement compensation maintained or contributed to by NCR or any of
its Affiliates.
1.19. "Execution Date" means the date of this Agreement.
1.20. "Excluded Assets" means NCR Trademarks, NCR Patents and any Embedded
Software and any assets listed on Schedule 2.20 hereto.
1.21 "Governmental Authority" means any government, any governmental entity,
department, commission, board, agency or instrumentality, and any court,
tribunal or judicial or arbitrational body, whether federal, state or
local.
1.22. "Governmental Order" means any order, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.
1.23. "Indemnified Party" means the party who is entitled to indemnification
for, and to be held harmless with respect to, Damages, as provided under
the terms and subject to the conditions of this Agreement.
1.24. "Indemnifying Party" means the party who is obligated to indemnify, and
to hold harmless, the other party hereto with respect to Damages, as
provided under the terms and subject to the conditions of this Agreement.
1.25. "ISV" means independent software vendor.
1.26. "Joint Marketing Agreement" means the Joint Marketing Agreement by and
between NCR and MSI, to be executed as of the Closing Date, in a form
mutually agreed by and between MSI and NCR.
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1.27. "Material Adverse Change" or "Material Adverse Effect" means any change
or effect that is materially adverse to the Purchased Assets, the
business operations related to the Purchased Assets or the transactions
contemplated by this Agreement.
1.28. "NCR Group means NCR and its officers, directors, shareholders,
Affiliates and agents.
1.29. "NCR Trademarks" means any and all trademarks, trade names, service
marks, logos and similar designations of source of origin owned by NCR.
1.30. "Object Code" means the fully compiled or assembled series of Computer
Programs in machine language in either printed form or as stored in
software media.
1.31. "Office Space Lease Agreement" means the Office Space Lease Agreement,
dated December 23, 1999, by and between NCR and MSI.
1.32. "NCR Patents" means any patents, patent applications, and invention
disclosures including all divisions, reissues, continuations,
continuations-in-part, reexaminations, and extensions thereof and
corresponding foreign patents and patent applications corresponding to
such patents owned or controlled by NCR.
1.33. "Permitted Liens" means (i) liens for Taxes not yet due or payable; and
(ii) inchoate materialmen's, mechanics', carriers', warehousemen's,
landlords', workmen's, repairmen's, employees' or other like liens
arising in the ordinary course of business and for which payment is not
yet due or payable.
1.34. "Person" shall mean a natural person, a corporation, a partnership, a
limited liability company, an association, a trust or any other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof.
1.35. "Physical Assets" means all of the furniture, desks, file cabinets,
copiers, personal computers, computer servers, test equipment, printers
and laptops which are used by or necessary to perform the duties of the
Transferred Employees in connection with the Assets and which are set
forth on Schedule 2.36 attached hereto and made a part hereof, provided,
however, that notwithstanding anything contained herein to the contrary,
Physical Assets shall not include any furniture, fixtures, equipment or
other facilities that are shared across the NCR campus (such as by way of
illustration and not of limitation, network and video conferencing
equipment).
1.36. "Purchased Assets" means the Customer Data, the Documentation, the
Software, the Assigned Contracts and the Physical Assets, other than the
Excluded Assets. The Purchased Assets are listed on Schedule 2.34 hereto.
1.37. "Purchase Price" has the meaning set forth in Section 5. 1.
1.38. "Registration Rights Agreement" means the Registration Rights Agreement,
dated December 23, 1999, by and between NCR and MSI.
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1.39. "Related Agreements" means all agreements, instruments and certificates
contemplated hereby and thereby.
1.40. "Retained Liabilities" shall mean any and all liabilities or obligations
(whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated, whether accrued or unaccrued, whether due or
to become due and whether claims with respect thereto are asserted before
or after the Closing) of NCR which are not Assumed Liabilities. Retained
Liabilities shall include the following: (i) all liabilities and
obligations of NCR relating to the Excluded Assets, (ii) all liabilities
and obligations of NCR to pay salaries, severance, termination pay, pay
in lieu of notice, accrued vacation time, personal time and sick leave
payable, bonuses or other payments or reimbursements to any current or
former employee, including the Transferred Employees, arising on or prior
to December 17, 1999, (iii) all obligations of NCR to any retired,
former or current employee, including the Transferred Employees, under
any Employee Benefit Plan, (iv) all liabilities and obligations of NCR
(including cost of cleanup and remediation) resulting from any violation
of any environmental law by NCR or any predecessor business or company
which arose on or prior to the Closing Date for which NCR is or may be
liable pursuant to any law or regulation, indemnity or otherwise, (v) all
liabilities of NCR arising out of any claim, suit, action, arbitration,
investigation or similar proceeding which relates to the ownership or
operation of the Purchased Assets on or prior to the Closing Date,
including any obligations or liabilities arising our of any matter
disclosed on any Schedule to this Agreement, regardless of whether any
such claim, suit, action, investigation or other similar proceeding was
commenced before, on or after the Closing Date, and any litigation
related thereto or arising out of the subject matter thereof, (vi) all
liabilities of NCR for any Texas resulting from the ownership or
operation of the Purchased Assets on or prior to the Closing Date, (vii)
all obligations under the Assigned Contracts to be performed on or prior
to the Closing Date, and all liabilities for any breach, act or omission
by NCR on or prior to the Closing Date under any Assigned Contract,
(viii) all liabilities and obligations of NCR under any agreements,
contracts, leases or licenses which are not Assigned Contracts and (ix)
all liabilities and obligations arising out of events, conduct or
conditions existing or occurring on or prior to the Closing Date that
constitute or allegedly constitute an infringement, violation or
misappropriation of any patent, patent application, trademark, service
mark, trade dress, copyright or any application for registration thereof,
trade secret and confidential business information any other intellectual
property rights of any other Person.
1.41. "Shares" means 283,186 shares of Class A Common Stock, par value per
share, of MSI
1.42. "Software" means the software product currently known as Teracube, more
fully described in Schedule 2.39 hereto, including all copyrights and
copyright registrations on Teracube, all intangible property solely
related to Teracube software including, but not limited to, processes,
know-how, and logic flow, other than NCR Patents and Excluded Assets and
Embedded Software, and all existing variations, enhancements, updates and
improvements thereto, but not including any Embedded Software. The term
"Software" shall include all present and predecessor versions (regardless
of whether or not actually marketed), as well as all work in progress on
the Software.
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2.44. "Source Code" means the Computer Programs in human readable form.
2.45 "Subsidiary" means a corporation, company or other entity (i) more than
fifty percent (50%) of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are, or (ii) which does not have outstanding shares
or securities, as may be the case in a partnership, joint venture, or
unincorporated association, but more than fifty percent (50%) of whose
ownership interest representing the right to make the decisions for such
corporation, company or other entity is, now or hereafter, owned or
controlled, directly or indirectly, by any other Person, but such
corporation, company or other entity shall be deemed to be a Subsidiary
only so long as such ownership or control exists.
2.46. "Taxes" or individually "Tax," means any federal, state, local or foreign
taxes, assessments, interest, penalties', deficiencies, fees and other
governmental charges or impositions (including without limitation, all
income tax, unemployment compensation, social security, payroll, sales
and use, excise, privilege, property, ad valorem, franchise, license,
school and any other tax or similar governmental charge or imposition).
2.47. "Tax Code" means the Internal Revenue Code of 1986, as amended.
2.48. "Third-Party Claim" means, in respect of the obligations of each
Indemnifying Party hereunder, a claim asserted against the Indemnified
Party by a third party.
2.49. "Threshold Amount" has the meaning set forth in Section 12.4.
2.50. "Transferred Employees" has the meaning set forth in Section 9.1 hereof
2.51. "Waiver and Confidentiality Agreement" has the meaning set forth in
Section 6.9.
3. CLOSING; CONDITIONS TO CLOSING; DELIVERIES
3.1. Closing. The Closing shall occur within five (5) business days following
the satisfaction or waiver of the conditions precedent set forth in
Sections 3.2 and 3.3 (the "Closing Date") and shall be held at such place
and at such time as NCR and MSI may mutually agree.
3.2. Conditions to Obligations of NCR to Close. The obligations of NCR to
consummate the Closing shall be subject to the satisfaction, on or before
the Closing Date, of each and every one of the following conditions, all
or any of which may be waived, in whole or in part, by NCR, provided,
however, that in the event that any or all of such conditions are waived,
such waiver shall be for all purposes and not only for purposes of
closing the transactions contemplated hereby, and the conditions so
waived shall not serve as a basis for indemnification under Section 12
hereof.
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3.2.1 Representations and Warranties; Covenants.
3.2.1.1. The representations and warranties of MSI contained in
this Agreement shall be true and correct in all material respects as
of the Closing, with the same force and effect as if made as of the
Closing; and
3.2.1.2. The covenants and agreements contained in this Agreement
to be complied with by MSI at or prior to the Closing shall have
been complied with in all material respects.
3.3.2 No Order. No action or proceeding shall have been instituted against
NCR or any of its Affiliates or any officer or director of NCR or any of
its Affiliates which seeks to, or would render it unlawful as of the
Closing to effect the transactions contemplated hereby in accordance with
the terms hereof or creates or poses a risk of creating a limitation on NCR
to own the MSI Shares, and no such action shall seek damages in a material
amount by reason of the consummation of the transactions contemplated
hereby.
3.2.3. Opinions of Counsel. NCR shall have received from counsel to MSI, an
opinion dated as of the Closing Date in form and substance reasonably
satisfactory to NCR.
3.2.4. Deliveries. MSI shall have made or stand willing and able to make
all the deliveries to NCR set forth in Section 3.5.
3.3. Conditions to Obligations of MSI. The obligations of MSI to consummate the
Closing shall be subject to the satisfaction, on or before the Closing
Date, of each and every one of the following conditions, all or any of
which may be waived, in whole or in part, by MSI, provided, however, that
in the event that any or all of such conditions are waived, such waiver
shall be for all purposes and not only for purposes of closing the
transactions contemplated hereby, and the conditions so waived shall not
serve as a basis for indemnification under Section 12 hereof.
3.3.1. Representations and Warranties; Covenants.
3.3.1.1. The representations and warranties of NCR contained in
this Agreement shall be true and correct in all material respects as
of the Closing, with the same force and effect as if made as of the
Closing; and
3.3.1.2. The covenants and agreements contained in this Agreement to
be complied with by NCR at or prior to the Closing shall have been
complied with in all material respects.
3.3.2. No Order. No action or proceeding shall have been instituted
against MSI or any of its Affiliates or any officer or director of MSI or
any of its Affiliates which seeks to, or would, render it unlawful as of
the Closing to effect the transactions contemplated hereby in accordance
with the terms hereof or would restrain, prohibit or otherwise
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interfere with the effective operation or enjoyment by MSI of all or any
material portion of the Purchased. Assets or Assigned Contracts, or with
the effective transfer of the Transferred Employees as contemplated hereby,
and no such action shall seek damages in a material amount by reason of the
consummation of the transactions contemplated hereby.
3.3.3. Consents and Approvals. Each of the Consents shall have been duly
obtained and delivered to MSI.
3.3.4. Opinions of Counsel. MSI shall have received from Jon Hoak, Esq.,
Senior Vice President and General Counsel of NCR, an opinion dated as of
the Closing Date in form and substance reasonably satisfactory to MSI.
3.3.5. Deliveries. NCR shall have made or stand willing and able to make
all the deliveries to MSI set forth in Section 3.4.
3.4. Deliveries by NCR. Prior to or on the Closing Date, NCR shall deliver, or
cause to be delivered, to MSI the following, in form and substance
reasonably satisfactory to MSI and its counsel:
3.4.1. Transfer Documents. Duly executed copies of the following:
3.4.1.1. Bill of Sale in the form attached as Schedule 3.4.1.1;
3.4.1.2. Other transfer documents which shall be sufficient to vest
good and marketable title to the Purchased Assets in the name
of MSI or its permitted assignees. NCR agrees to promptly
execute and deliver such further instruments of sale, transfer,
conveyance, assignment and confirmation, as MSI may reasonably
request to transfer, convey and assign to MSI, and to confirm
MSI's title to, all of the Purchased Assets and to effectuate
and consummate the terms of the this Agreement, including but
not limited to any assignment of copyright needed to effectuate
and record the transfer of ownership of the Purchased Assets
with the appropriate government agency.
3.4.2. Purchase Agreement. Duly executed Purchase Agreement.
3.4.3. Joint Marketing Agreement. Duly executed Joint Marketing Agreement.
3.4.4. Lease Agreement. Duly executed Office Space Lease Agreement, in a
form reasonably acceptable to NCR and MSI.
3.4.5. Waiver and Confidentiality Agreements. Duly executed copies of the
Waiver and Confidentiality Agreements contemplated under Section 6.9
hereof.
3.4.6. Secretary's Certificate. Certificate, dated as of the Closing Date,
executed by the Secretary or Assistant Secretary of NCR certifying (i) as
to the Charter of NCR, (ii) as to the Bylaws of NCR, and (iii) as to the
incumbency of the officers of NCR
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duly authorized to execute and deliver this Agreement and the Related
Agreements.
3.4.7. Officer's Certificate. Certificate, dated as of the Closing Date,
executed by the President or Vice President of NCR, certifying that: (i)
the representations and warranties of NCR in this Agreement are true and
complete in all material respects at and as of the Closing Date (except for
representations and warranties that by their terms are made as of a
specified date and except for changes that are contemplated by this
Agreement or occur in the ordinary course of business which do not singly
or in the aggregate have a Material Adverse Effect) and (ii) NCR has
performed all of its obligations and has complied in all material- respects
with all of its covenants set forth in this Agreement to be performed or
complied with on or prior to the Closing Date.
3.4.8. Good Standing Certificate. A certificate as to the good standing
of NCR, issued by the Secretary of State of the State of Maryland, dated no
more than ten (10) days prior to the Closing.
3.4.9. Assignment Agreement. NCR shall provide MSI with an Assignment
Agreement in the form attached hereto as Schedule 3.4.11 pursuant to which
it shall assign all rights under and pursuant to the Assigned Contracts to
MSI and MSI will assume obligations that arise on and after the date of
Closing with respect to those Contracts identified on Schedule 11.5.
3.4.10. Other. Such other evidence of the performance of all covenants
and satisfaction of all conditions required of NCR by this Agreement, at or
prior to the Closing, as MSI or its counsel may reasonably require.
3.5. Deliveries by MSI. Prior to or on the Closing Date, MSI shall deliver,
or cause to be delivered, to NCR the following, in form and substance
reasonably satisfactory to NCR and its counsel:
3.5.1 Bill of Sale. Duly executed Bill of Sale, substantially in the form
of Schedule
3.5.2. Stock Certificates. Certificates representing the Shares.
3.5.3. Joint Marketing Agreement. Duly executed Joint Marketing Agreement.
3.5.4. Registration Rights Agreement. Duly executed Registration Rights
Agreement.
3.5.5. Secretary's Certificate. Certificate, dated as of the Closing Date,
executed by the Secretary or Assistant Secretary of MSI certifying (i) as to
the Certificate of Incorporation of MSI, (ii) as to the Bylaws of MSI, (iii)
that the resolutions, as attached to such certificate, were duly adopted by
the Board of Directors of MSI, authorizing and approving the execution of
this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby and that such resolutions
remain in full force and effect and (iv) as to the incumbency of the
officers
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of MSI duly authorized to execute and deliver this Agreement and the
Related Agreements.
3.5.6. Officer's Certificate. Certificate, dated as of the Closing Date,
executed by the President or Vice President of MSI, certifying that (i) the
representations and warranties of MSI in this Agreement are true and
complete in all material respects at and as of the Closing Date (except for
representations and warranties that by their terms are made as of a
specified date and except for changes that are contemplated this Agreement)
and (ii) MSI has performed all of its obligations and has complied in all
material respects with all of its covenants set forth in this Agreement to
be performed or complied with on or prior to the Closing Date.
3.5.7. Good Standing Certificate. A certificate as to the good standing
of MSI, issued by the Secretary of State of the State of Delaware, dated
not more than ten (10) days prior to the Closing.
3.5.8. Other. Such other evidence of the performance of all covenants and
satisfaction of all conditions required of MSI by this Agreement, at or
prior to the Closing, as NCR or its counsel may reasonably require.
3.5.9. MSI agrees to promptly execute and deliver such further instruments
of sale, transfer, conveyance, assignment and confirmation, as NCR may
reasonably request to transfer, convey and assign to MSI, and to confirm
MSI's title to, all of the Purchased Assets and to effectuate and
consummate the terms of this Agreement, including but not limited to any
assignment of copyright needed to effectuate and record the transfer of
ownership of the Purchased Assets with the appropriate government agency.
4. SALE AND PURCHASE OF PURCHASED ASSETS
4.1 Sale and Transfer
4.1.1. Transfer of Purchased Assets. Pursuant to the terms and subject to
the conditions set forth in this Agreement, NCR hereby agrees to sell,
grant, transfer, convey, assign and deliver exclusively to MSI on the
Closing Date, and MSI agrees to purchase and acquire from NCR on the
Closing Date, all right title and interest of NCR in and to the Purchased
Assets, free and clear of any and all liens and encumbrances.
4.1.2. Subject to the provisions of Section 4.1.1., hereof, the Software
will be transferred by NCR to MSI by electronic means directly into the
permanent storage memory of computer hardware owned by MSI. The transfer of
the Software will occur on the Closing Date but shall occur subsequent to
and shall be separate and apart from the transfer of all other Purchased
Assets, including Documentation, and any printed form of the Software in
Object Code and Source Code, to MSI.
4.2. Assigned Contracts. Pursuant to the terms and subject to the conditions set
forth in this Agreement, Effective upon Closing, NCR shall assign to MSI
all of NCR's rights and
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obligations under the Assigned Contracts, which are assignable by NCR to
MSI as of the Closing Date, and MSI shall accept such assignment and shall
assume all responsibilities and obligations of NCR under such contracts.
Following the Closing Date, and pursuant to the terms and conditions set
forth in this Agreement, NCR shall assign to MSI all of NCR's rights and
obligations under, and MSI shall accept such assignment and shall assume
all responsibilities and obligations of NCR under, the Assigned Contracts
which are assignable by NCR to MSI after the Closing Date. Notwithstanding
the foregoing or anything to the contrary set forth herein, MSI shall not
assume or become responsible for, and NCR shall remain solely liable for,
the Retained Liabilities.
5. CONSIDERATION
5.1. Transfer of Purchased Assets. Pursuant to the terms and subject to the
conditions of this Agreement, in consideration for the sale, transfer,
conveyance, and assignment of the Purchased Assets, MSI agrees to issue to
NCR the Shares, representing $14,000,000 of shares of Class A Common Stock
of MSI, calculated based on the closing price of a Share as quoted on
NASDAQ on September 29, 1999.
5.2. Allocation of Purchase Price. The asset allocation statement (the "Asset
Allocation Statement") containing the allocation of the aggregate
consideration payable pursuant to Section 5.1 among the Purchased Assets is
attached hereto as Schedule 5.2.
5.2.1. The parties hereto agree (i) to use the allocations set forth in
the Asset Allocation Statement above, for accounting, financial reporting
and Tax purposes; (ii) that such allocations shall be in accordance with,
and as provided by, Section 1060 of the Tax Code; and (iii) that any Tax
returns or other Tax information they may file or cause to be filed with
any Governmental Authority or fiscal intermediary shall be prepared and
filed consistently with such allocation. The parties agree that, to the
extent required, they will each properly and timely file Form 8594 in
accordance with Section 1060 of the Tax Code.
5.3. Sales or Use Taxes. All sales, use and other similar Taxes, charges and
fees, if any, arising out of or in connection with the transactions
contemplated by this Agreement (other than any income, capital gains and
other similar Taxes, charges and fees imposed on, or imposed in respect of,
the income or gain of NCR), shall be paid by MSI. Each of the parties shall
cooperate with the other to the extent reasonably required and permitted by
Applicable Law in order to eliminate of minimize any such Tax. Without
limiting the foregoing, to the extent any such Tax is imposed, NCR shall
prepare and file any required Tax returns in connection therewith and MSI
shall pay and promptly discharge when due the entire amount of any such
Tax.
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6. ADDITIONAL OBLIGATIONS; COVENANTS
6.1. Consents
6.1.1. Obtaining Consents. NCR will use all commercially reasonably efforts
to obtain any Consent required to assign all agreements and complete all
other transfers and transactions contemplated by this Agreement at NCR's
sole expense.
6.1.2. Alternative Arrangement. In the event and to the extent that NCR is
unable to obtain any such Consent, or if any attempted assignment or
novation would be ineffective or would restrain, prohibit or otherwise
interfere with the effective operation or enjoyment by MSI of all or any
material portion of the Purchased Assets or with the effective transfer of
the Transferred Employees as contemplated hereby, NCR will: (i) reasonably
cooperate with MSI, to the extent permitted by law, in a reasonable
arrangement under which MSI would, to the fullest extent possible, obtain
the benefits and assume the obligations with respect relating to such
Asset, in accordance with this Agreement, and (ii) use reasonable efforts
to enforce at the request of MSI or allow MSI or its designees to enforce
(and, solely for such purpose, NCR hereby constitutes and appoints MSI or
its designees as its true and lawful attorney-in-fact with respect to such
matters), any rights of NCR under any such Purchased Asset. To the extent
that MSI is providing the benefits of any such Purchased Asset, MSI shall
perform the obligations relating to such Purchased Asset in accordance with
this Agreement. Nothing contained herein or in any Related Agreements
shall be construed to have assigned any such non-assignable contract or
agreement.
6.1.3. Teracube Products. NCR will not, except for the sale of NCR as a
business, for a period of three years after the Closing transfer to any
third party other than any Subsidiary of NCR any product having the name
Teracube.
6.1.4. Existing Teracube Customers, ISVS, and Business Partners. In
addition to carrying out NCR's obligations under the Assigned Contracts as
provided under Section 4, MSI will, to the extent commercially reasonable,
continue to support all current and older versions of the Software product
family in a manner consistent with MSI's standard policies, including end-
of-life policies and practices. To the best of NCR's knowledge, Schedule
6.4 sets forth a substantially complete list of all NCR Software customers,
ISVS, channel partners and business partners.
6.4. Further Assurances. NCR agrees that, at any time after the Closing Date,
upon the request of MSI, it will do, execute, acknowledge and deliver, or
will cause to be done, executed, acknowledged and delivered, all such
further acknowledgments, deeds, assignments, bills of sale, transfers,
conveyances, instruments, consents and assurances as may reasonably be
required for the better assigning, transferring, granting, conveying,
assuring and confirming to MSI, its successors and assigns, the transfers
contemplated by this Agreement.
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6.5. Conduct of Business of NCR Pending the Closing. NCR agrees that, during the
period from the Execution Date to the Closing:
6.5.1. Operation. NCR shall (a) cause the business operations related to
the Purchased Assets to be conducted in the ordinary course consistent with
past practice, (b) use commercially reasonably efforts to preserve intact
the relevant business, properties and organization with respect thereto in
all material respects, (c) maintain the Physical Assets in good operating
condition and repair (ordinary wear and tear excepted), (d) use
commercially reasonable efforts to preserve for the benefit of MSI the
goodwill of customers, vendors and others having business relations with it
related to the Purchased Assets; and
6.5.2. Disposition of Assets. NCR shall: (a) not sell or dispose of any
of the Purchased Assets, (b) use commercially reasonable efforts to prevent
the occurrence of any event or condition which may have a Material Adverse
Effect or would restrain, prohibit or otherwise interfere with the
effective operation or enjoyment by MSI of all or any material portion of
the Purchased Assets or with the effective transfer of the Transferred
Employees as contemplated hereby, (c) not modify, amend or terminate any of
the Assigned Contracts and (d) not enter into any agreement, in writing or
otherwise, that would result in a breach either of the foregoing covenants.
6.6. Updated Schedules. NCR shall promptly disclose in writing to MSI any
information contained in its representations and warranties or any of the
Schedules hereto which, because of an event occurring after the date of
this Agreement, is incomplete or is no longer correct as of all times after
the Execution Date and until the Closing Date. Any such disclosure shall be
in the form of an updated Schedule, marked to reflect the new or amended
information.
6.7 Notice of Certain Matters. NCR shall give prompt written notice to MSI, and
MSI shall give prompt written notice to NCR, of any failure of NCR or MSI,
as the case may be, to comply with or satisfy any covenant condition or
agreement to be complied with or satisfied by it hereunder. No such
disclosure shall be deemed to avoid or cure such breach.
6.8. Waiver and Confidentiality Agreements. NCR shall use its reasonable efforts
to deliver to MSI on or before the Closing Date a copy of a Waiver and
Confidentiality Agreement, in a form reasonably acceptable to the parties
(the "Waiver and Confidentiality Agreement"), executed by each of the NCR
employees, agents or consultants listed in Schedule 6.9 hereto.
6.9. Access to Records. Each party agrees to allow representatives of the other
party after the Closing, upon reasonable written notice, access to any
books and records relating to the Purchased Assets or the Transferred
Employees for the purpose of filing and supporting Tax returns and Tax
audits of such other party or defending any Claim relating thereto or any
Third Party Claim the business relating to Purchased Assets after the
Closing Date and to the extent necessary for the purpose of for conducting
and
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complying with applicable securities, employment and other laws and
regulations. Each party shall preserve such books and records as necessary
to support tax returns of the other party relating to the Purchased Assets
or the Transferred Employees and to notify the other party prior
destruction of any such records relating to periods prior to the Closing if
the destruction thereof is scheduled to occur within five (5) years after
the Closing Date, and the other party shall be permitted, upon reasonable
written notice, to take possession of such records at its sole expense.
Nothing herein shall be deemed to constitute a waiver of any attorney
client, work-product or joint-defense privilege.
7. LICENSE UNDER NCR PATENTS AND EMBEDDED SOFTWARE
.NCR hereby grants to MSI, its Parents and Subsidiaries, a non-exclusive,
worldwide, perpetual, irrevocable, paid-up, royalty-free license, under NCR
patents to make, use, modify, and sell or otherwise distribute the Software, or
any future versions or modifications thereof to the extent such future versions
or modifications embody NCR Patents used in the Software.
8. CONFIDENTLALITY
8.1. Confidential Information. In the course of the performance of this
Agreement, NCR and MSI each recognizes that it will obtain, or has prior to
the Execution Date obtained, access to the confidential, proprietary,
technical, business and operational information of the other, (excluding
the issued NCR Patents) (the "Confidential Information"). Confidential
Information includes all terms of the transactions contemplated by this
Agreement.
8.2. Non-Confidential Information. Information shall not constitute Confidential
Information if:
8.21. Previously Possessed. It is demonstrated to have been in the
possession of the receiving party or available to the receiving party prior
to the disclosure, without any breach of a duty of confidentiality owed by
any party to the disclosing party
8.2.2. Subsequently Obtained The receiving party rightfully obtains the
Confidential
Information without breach of this Agreement, or any Applicable Laws, from
a third party having no duty of confidentiality to the disclosing party;
8.2.3. Developed It is independently developed by the receiving party
without use of the Confidential Information; or
8.2.4. Authorized The disclosing party authorizes in writing the
disclosure of the Confidential Information.
8.3. MSI Confidential Information. As of the Closing Date, all information
disclosed by NCR which becomes or is intended to become the property of MSI
by virtue of the transactions contemplated herein constitutes Confidential
Information of MSI as if MSI were the disclosing party therefor.
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8.4. Standard of Care. All Confidential Information shall remain the exclusive
property of the disclosing party, and the receiving party may not disclose
any Confidential Information of the disclosing party for any reason without
the prior written consent of the disclosing party or make any use of such
Confidential Information other than as expressly permitted by or necessary
to perform its obligations under this Agreement or the Related Agreements.
The receiving party shall use the same care and discretion, but no less
than reasonable care and discretion, to avoid disclosure, publication, or
dissemination of Confidential Information it has received, as the receiving
party employs for similar information of its own which it does not desire
to publish, disclose or disseminate, except to those employees, directors,
agents and/or permitted subcontractors of the receiving party who have a
need to know in order to exercise the rights granted or retained pursuant
to this Agreement and who have agreed in writing to be bound by the
confidentiality terms of the Agreement. The receiving party shall be
responsible and liable for breaches of confidentiality obligations by its
employees, directors, agents and/or permitted subcontractors.
8.5. Required Disclosure. Notwithstanding any other provision of this Section 8,
if the receiving party is required to disclose any Confidential Information
pursuant to legal, accounting or regulatory requirements, the receiving
party shall provide to the disclosing party written notice of such required
disclosure sufficiently in advance thereof to enable the disclosing party
to take reasonable actions to avoid. the requirement of disclosure.
Notwithstanding the foregoing, and subject to the prior consent of the
other party (such consent not to be unreasonably withheld or delayed),
either Party shall have the right to disclose the existence and material
terms of this Agreement to the extent such party reasonably determines is
necessary to comply with stock exchange, securities and other similar
disclosure requirements. The receiving party shall cooperate with all
reasonable requests of the disclosing party in connection therewith.
8.6 Enforcement of Confidentiality Obligations. From and after the Closing
Date, NCR shall, to the extent necessary, enforce for the benefit of MSI
and at MSI's expense and shall otherwise reasonably cooperate with MSI in
the enforcement at MSI's expense of all confidentiality, nondisclosure,
assignment of inventions, and non-competition agreements between NCR and
any Person relating to the Purchased Assets.
8.7 Survival of Covenant. Notwithstanding anything contained herein to the
contrary, the obligations of the parties under this Section 8 shall survive
for a period of five (5) years from the Closing Date.
9. EMPLOYEES; LEASE OF SPACE
9.1. Offer ofEmpl6yment. Between 30 and 33 NCR employees identified on Schedule
9.1 will receive written offers of employment with MSI, to be delivered by
MSI not less than ten (10) business days prior to the Closing Date. All
such offers shall be contingent upon the Closing and shall be subject to
acceptance or rejection by such employees prior to Closing. Those employees
who have accepted such offers from MSI shall be referred to herein as
"Transferred Employees." As of December 17, 1999, each of the Transferred
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Employees ceased their employment with NCR and became employees of MSI. Any
offer of employment will be subject to MSI's standard terms of employment,
including but not limited to MSI's technical Bootcamp course ("Bootcamp").
MSI shall not terminate employment of a Transferred Employee who passes
Bootcamp for a period of six (6) months from date of hire of such
Transferred Employee, except for cause under MSI's employment policies and
practices. If MSI terminates such Transferred Employee's employment within
six (6) months, other than for cause (after meeting MSI's terms for
employment), MSI will pay such employee severance through the end of the
six (6) month period. At the end of this six-month period, the Transferred
Employees that remain employed by MSI will become "at will" employees of
MSI. NCR shall assume sole responsibility for, and agrees to defend,
indemnify and hold harmless MSI from and against all liabilities, including
any Retained Liabilities, and claims relating to or arising from the
employment of the Transferred Employees prior to December 17, 1999.
9.2 Compensation Benefits Package.
9.21. Comparable Compensation. Subject to the terms of this Section 9.2,
MSI shall offer the Transferred Employees Compensation Packages that are
reasonably comparable to those being provided by NCR to the Transferred
Employees immediately prior to the December 17, 1999. The term
"Compensation Package" shall mean base salary plus potential bonus (if
applicable), plus stock options (valued using the Black Scholes option
valuation method).. MSI shall offer to each Transferred Employee a base
salary that is substantially similar to that earned by such employee at NCR
on the Closing Date for a position with MSI which is the same or
substantially equivalent to the employee's position at NCR immediately
prior to the Closing. MSI will offer each Transferred Employee stock
options and bonuses consistent with those received by other similarly
situated MSI employees. Prior to the Execution Date, MSI has provided to
NCR written confidential information regarding the proposed Compensation
Packages for each Transferred Employee for the purpose of enabling NCR to
evaluate independently whether MSI's proposed benefits package is
comparable to that received by each such employee at NCR. Upon Closing, NCR
shall be deemed to have conclusively determined that MSI's proposed
Compensation Package is reasonably comparable to that received by each such
employee at NCR. MSI agrees that it will not relocate more than two
Transferred Employees so that NCR's RIF policy would be triggered for no
more than two such employees. Attached as Schedule 9.3.1 is a true and
correct copy of NCR's RIF policy.
9.3.2. Benefits Coverage. To the extent permitted by law or contract, MSI's
benefit plans and programs offered to the Transferred Employees shall
reflect credit for service with NCR. No preexisting conditions,
limitations, waiting periods, or proof of insurability will be imposed by
MSI or its benefits plans with respect to initial benefits eligibility of
the Transferred Employees. To the extent legally permitted, NCR will
distribute the amount in each Transferred Employee's savings account in
NCR's 401 (k) plan, and MSI will allow each Transferred Employee to
rollover the amount to MSI's 401 (k) plan. NCR acknowledges and agrees that
nothing in this Section 9 shall require MSI to undertake any modification
of MSI's existing compensation and benefits practices or
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to take any action that would tend, in MSI's good faith judgment, to expose
MSI to any material liability under any law, regulation, court order,
ordinance or contract of any kind.
9.3.3. Accrued Benefits. At or before the Closing, NCR shall pay out to
all Transferred Employees all accrued vacation, sabbatical or other similar
accrued liability owed by NCR to the Transferred Employees as of December
17, 1999.
9.4. Transferred Employees' Location; Office Space. MSI shall use commercially
reasonable efforts to provide office space for the Transferred Employees
which is located within a reasonable proximity of the current NCR Rancho
Bernardo, California, location. NCR and MSI agree that the following areas
in California shall be deemed to be within a reasonable proximity to the
current NCR Rancho Bernard location: Rancho Bernard, Poway, and Cannel
Mountain Ranch, and the commercial reasonableness of MSI's efforts shall be
evaluated based upon, among other things, facility availability and costs.
At MSI's election, upon written notice to NCR delivered a reasonable time
prior to the Closing, NCR shall lease to MSI certain office space at NCR's
Rancho Bernardo, California, facility pursuant to an Office Space Lease
Agreement in substantially the form as Schedule 9.4 hereto.
9.5. Non-Solicitation.
9.5.1. NCR Covenant. NCR agrees, for itself and its Affiliates, not to
actively directly solicit or re-hire, for a period of twelve (12) months
from December 17, 1999, any of the Transferred Employees.
9.5.2. MSI Covenant. MSI agrees, for itself and its Affiliates, not to
actively directly solicit for employment or hire, for a period of
twelve (12) months from the December 17, 1999, any employee of NCR who
was in the potential pool of Transferred Employees but refused an
offer of employment from MSI.
9.5.3. Special Projects. In addition, MSI will commit that it will devote
at least fifteen percent (15%) of the Transferred Employees for at
least six (6) months to work on the following projects:
9.5.3.1 Implement and track the evolution of relevant Microsoft
standards and interfaces in the OLAP environment, including OLE DB for
OLAP (ODBO) and MDX.
9.5.3.2 Utilize these standards to implement the integration of
multiple vendors' OLAP clients with MSI's OLAP Server products. NCR
requirements for these clients are Cognos, Business Objects, and
Microsoft Excel at a minimum.
9.5.3.3 Implement and track the evolution of relevant Meta Data
standards, specifically, those defined by the Meta Data Coalition, and
those defined by the Object Management Group.
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9.5.3.4. Maximize the integration of their OLAP offering with the
Teradata OLAP Extensions embedded in the Teradata database.
9.5.3.5 Use all commercially reasonable efforts to meet the
performance scalability goals set forth in the product requirements
and product plan for the Purchased Assets.
Nothing in this section shall guarantee the results of the effort committed to
in this Section. The parties intent is merely to devote reasonable time and
effort towards meeting these goals.
10. REPRESENTATIONS AND WARRANTIES OF NCR
NCR hereby represents and warrants to MSI as of the date hereof and as of
the Closing Date as follows:
10.1 Organization and Standing; Certificate and Bylaws. NCR is a
corporation duly organized and existing under, and by virtue of, the laws
of the state of Maryland and is in good corporate and tax standing under
such laws.
10.2 Corporate Power. NCR has all requisite corporate power to execute
and deliver this Agreement and the Related Agreements and to carry out and
perform its obligations under the terms hereof and thereof.
10.3. Authorization. All corporate action on the part of NCR, its directors
and its stockholders necessary for the authorization, execution, delivery
and performance of this Agreement and the Related Agreements has been
taken. This Agreement and the Related Agreements, has been duly and
validly executed and delivered by NCR, and constitutes valid and binding
obligations of NCR enforceable in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws from time to time in
effect affecting the enforcement of creditors' rights generally and except
as enforcement of remedies may be limited by general equitable principles.
10.4. Compliance with Other Instruments, No Consents, Etc. The execution and
delivery of the Definitive Agreement will not, and the consummation of the
transactions contemplated in those agreements will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) of, (i) the provisions of any material law, rule or
regulation applicable to NCR the violation of which would have a Material
Adverse Effect on the Purchased Assets. Except as set forth in Schedule
10.4, no Consent is required to be obtained on the part of NCR to permit
the consummation of the transactions contemplated by this Agreement.
10.5. Litigation, Etc. NCR has not received notice of, nor has any
knowledge of any basis for, any claim, interference action or other
judicial or adversarial proceeding against NCR to the extent that any of
the operations, activities, products, services or publications of NCR in
connection with the Purchased Assets infringes or will infringe any
patent, trademark, trade name, copyright, trade secret or other property
right of a third party, or that NCR is illegally or otherwise wrongfully
using the trade secrets, formulae or property rights of others.
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10.6. Ownership of purchased Assets. NCR owns all of the Purchased Assets
free and clear of all liens, security interests and other encumbrances,
except for Permitted Liens. Upon execution and delivery by NCR to MSI of
the Assignment and Assumption Agreement, MSI will become the true and
lawful owner of, and will receive good and marketable title to, the
Purchased Assets free and clear of all liens, security interests and other
encumbrances, expect for Permitted Liens. Schedule 10.6 sets forth,
without material exception, a true, correct and complete list and, where
appropriate, a description of, all material licenses and maintenance
agreements, or similar arrangements comprising the Purchased Assets to
which NCR is a party as licensee, with respect to the Purchased Assets and
such agreements are in full force and effect, and, to the knowledge of NCR
constitute the enforceable obligation of the parties thereto.
10.7. Policies Regarding Prohibited Discrimination. NCR has adopted a
written policy which prohibits discrimination on the basis of race, color,
religion, sex, national origin, age, physical and mental disability, and
any other protected category under applicable state or local law. NCR's
written policy also specifically prohibits sexual or other illegal
workplace harassment, including, but not limited to, the use of NCR's
computers and electronic mail for anything other than business purposes.
The policy includes a written procedure for handling and investigating
employee complaints of discrimination, including illegal harassment, and
is distributed to all employees. The policy states that incidents of
sexual or other illegal workplace harassment or discrimination may be
reported without fear of retaliation.
10.8. Supervisory and Employee Training Regarding Employment Practices.
NCR conducts training at least annually for employees and supervisors on
illegal harassment, including sexual and racial harassment, and equal
employment opportunity practices designed to educate employees and
supervisors on compliance with equal opportunity laws, NCR's complaint
procedures and policies. Human Resources personnel are further trained on
investigation and proper handling of complaints under NCR's policies. None
of the Transferred Employees is a member of any union.
10.9. Other Personnel Policies and Procedures. NCR requires all applicants
for employment to complete a standard application form. The application
form contains contract disclaimers and statements that the employment
relationship is at-will and terminable at any time by either the employee
or NCR with or without cause. Furthermore, NCR limits information that it
provides in references for former employees to dates of employment and
title(s).
10.10.Government Contractor. NCR acknowledges that it is a covered government
contractor or subcontractor under Executive Order 11246, the
Rehabilitation Act of 1973, and the Vietnam Era Veterans' Readjustment
Assistance Act of 1974, and warrants that NCR has adopted and implemented
affirmative action programs in full compliance with 41 C.F.R. Part 60, and
that no findings of non-compliance have been made with respect to or by
the Teracube software engineers currently employed by NCR by the Office of
Federal Contract Compliance Programs.
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10.11. Fees. Except as otherwise disclosed in Schedule 10.8.3, NCR has no
royalties, honoraria, fees or other payments due and payable to any third
party in connection with the Purchased Assets, including to any Person by
reason of ownership, use, licensure, sale or disposition of any of the
same, the nonpayment of which has resulted or will result in a Material
Adverse Effect.
10.12. Public Disclosure. Except as otherwise disclosed in Schedule 10.12, NCR
has received no notice that any, and to the best of NCR's knowledge, no
trade secret, know-how, confidential information or other proprietary
right, including without limitation all Source Code for any version of
the Software, has been invalidated or committed to the public domain, nor
have the same been disclosed or authorized to be disclosed to a third
party other than pursuant to written agreements containing appropriate
non-disclosure or confidentiality provisions.
10.12.1 Claims. Except as otherwise disclosed in Schedule 10.12.1, none
of the former or present employees, officers, directors or independent
contractors of NCR holds any contractual right, title or interest,
directly or indirectly, in whole or in part, in the Software, or has
asserted any claim with regard to the Software.
10.12.2. Infringement. (a) Except as otherwise disclosed in Schedule
10.12.2, NCR has received no notice that any (and, to its best knowledge,
none) of the Purchased Assets or the other assets to be transferred by
NCR to MSI in accordance with this Agreement, or the use thereof, (i)
encroaches or infringes upon any intellectual property rights (including
without limitation any copyrights, patents, trade secrets or trademarks)
of any third party, or (ii) contravenes any applicable material law or
ordinance or any other administrative regulation or violates any
restrictive covenant or any provision of material law.
(b) Except as otherwise disclosed in Schedule 10.12.2 and subject to
the Permitted Liens and Outstanding License Agreements, there are no
agreements or arrangements between NCR and any third party which have any
effect upon NCR's title to or other rights respecting the Purchased
Assets, including the right to transfer the same as contemplated by this
Agreement and the Related Agreements.
10.13. Physical Assets. NCR is selling the Physical Assets on an "as is" and
"where is" basis and makes no representations and warranties with respect
thereto, except as expressly set forth herein.
10.14. Securities Laws. NCR is acquiring the Shares for investment purposes only
and not with a view to distribution. NCR acknowledges that the Shares are
"restricted securities" within the meaning of Rule 144 and may not be
sold or otherwise transferred unless they are registered under the
Securities Act of 1933, as amended, and state securities or "blue sky"
laws or an exemption from such registration is available. NCR represents
that it is an "accredited investor" within the meaning of Regulation D
under the Securities Act.
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10.15. Material Obligations. NCR has fulfilled all material obligations required
pursuant to the Assigned Contracts and NCR is not in breach of or in
default under any Assigned Contract which would give the other party
thereto the right to terminate such Assigned Contract. To the best
knowledge of NCR, there is no existing breach or default by any other
party to Assigned Contract.
10.16. Use of Purchased Assets. NCR has taken all steps commercially reasonable
to protect its right, title, and interest in and to and the continued use
of, the Purchased Assets. Except that NCR has not registered its
copyrights in any of the Purchased Assets. NCR is not a party to any
distribution, sales or marketing agreements, oral or written, with any
third party regarding the Purchased Assets which entitles any persons (1)
to act as a distributor or sales or marketing agent on behalf of MSI for
the Purchased Assets or (2) to a fee from MSI with respect to any
license, sales or maintenance agreement entered into by MSI subsequent to
the date of this Agreement.
10.17. NCR has disclosed to MSI all material information in its possession
relating to the Purchased Assets.
10.18. Source Code Access. Except as set forth in Schedule 10.19, NCR is not a
party to any agreement, written or oral, requiring it to provide access
to the source code for the Software to any person and no third party has
any right to such source code and the execution and delivery of this
Agreement will not cause any third party to have any right, or access, to
such source code. There are no copies of the source code of the Software
other than those being delivered to MSI under this Agreement.
10.19 Material Adverse Conditions. No event has occurred after the effective
date of the LOI which may have a Material Adverse Effect on any material
portion of the Purchased Assets or with the effective Transfer of the
Transferred Employees as contemplated by this Agreement, which has not
been disclosed to MSI.
10.20. NO OTHER REPRESENTATIONS OR WARR,4NTIES. AS TO PERFORMANCE, NCR IS
SELLING THE PURCHASED ASSETS "AS IS" AND MAKES NO REPRESENTATIONS AND
WARRANTIES WITH RESPECT THERETO. EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER NCR NOR ANY OTHER PERSON
ACTING FOR NCR MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED
WITH RESPECT TO THE PURCHASED ASSETS, AND NCR AND MSI HEREBY DISCLAIM ANY
SUCH REPRESENTATION OR WARRANTY, WHETHER BY NCR OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES OR ANY OTHER PERSON, WITH
RESPECT TO THE EXECUTION, DELIVERY OR PERFORMANCE BY NCR OF THIS
AGREEMENT OR THE AGREEMENTS SPECIFIED HEREIN OR WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, INCLUDING ANY IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
21
<PAGE>
11. REPRESENTATIONS AND WARRANTIES OF MSI
MSI hereby represents and warrants to NCR as of the date hereof and the
Closing Date as follows:
11.1 Organization and Standing, Certificate and Bylaws. MSI is a corporation
duly organized and existing under, and by virtue of, the laws of the state
of Delaware and is in good standing under such laws.
11.2 Corporate Power. MSI has all requisite corporate power to execute and
deliver this Agreement and the Related Agreements and to carry out and
perform its obligations under the terms of this Agreement and such other
agreements.
11.3. Authorization. All corporate action on the part of MSI, its directors and
its stockholders necessary for the authorization, execution, delivery and
performance of this Agreement and the Related Agreements has been taken.
This Agreement and the Related Agreements, when executed and delivered by
MSI, will constitute valid and binding obligations of MSI enforceable in
accordance with their respective terms.
11.4. Compliance with Other Instruments, No Conflicts, Etc. The execution,
delivery and performance of, and compliance with, this Agreement and the
Related Agreements will not conflict with, or result in any violation of,
or default (with or without notice or lapse of time or both) of (i) the
provisions of any material law, rule or regulation applicable to MSI; or
(ii) the provisions of the Certificate of Incorporation or Bylaws of MSI.
Except as set forth in Schedule 11.4, no Consent is required to be
obtained on the part of MSI to permit the consummation of the transactions
contemplated by this Agreement.
11.5 Litigation, Etc. Except as otherwise disclosed in Schedule 11.5, there are
no actions, suits, proceedings, oppositions, challenges or investigations
pending against MSI or its officers or properties before any Governmental
Authority (or, to the best of MSI's knowledge, is there any threat
thereof), and MSI is not a party to or subject to the provisions of any
Governmental Order that, in any such case, questions or has the potential
to harm the validity of this Agreement and/or any of the Related
Agreements or any action taken or to be taken in connection or herewith or
therewith. There is no action, suit, proceeding or investigation by MSI
currently pending or that MSI currently intends to initiate that questions
or has the potential to harm the validity of this Agreement and/or any of
the Related Agreements or any action taken or to be taken in connection or
herewith or therewith.
11.6. Shares. The Shares have been duly authorized by all necessary corporate
action, and when issued to NCR pursuant to this Agreement will be validly
issued, fully paid and nonassessable and free of preemptive rights. MSI
has engaged in no general solicitation or general advertising with respect
to the sale of the Shares to NCR.
11.7 NO OTHER REPRESENTATIONS OR WARRANTIES. THE REPRESENTATIONS AND WARRANTIES
CONTAINED IN THIS AGREEMENT,
22
<PAGE>
IN THE EXHIBITS AND SCHEDULES HERETO, THE AGREEMENTS SPECIFIED HEREIN AND
IN THE CERTEFICATES REQUIRED TO BE DELIVERED PURSUANT TO OR IN CONNECTION
HEREWITH, NEITHER MSI NOR ANY OTHER PERSON ACTING FOR MSI MAKES ANY
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AND NCR AND MSI HEREBY
DISCLAIM ANY SUCH REPRESENTATION OR WARRANTY, WHETHER BY MSI OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES OR ANY OTHER
PERSON, WITH RESPECT TO THE EXECUTION, DELIVERY OR PERFORMANCE BY MSI OF
THIS AGREEMENT OR THE AGREEMENTS SPECIFIED HEREIN OR WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
12. INDEMNIFICATION
12.1. Survival of Representations and Warranties. The representations and
warranties set forth in this Agreement or any Related Agreement shall
survive for a period of three (3) years following the Closing Date and any
covenant or obligation under this Agreement or any Related Agreement to be
performed after the Closing shall survive the Closing and continue until
the expiration of the applicable statute of limitations. Notwithstanding
the foregoing to the contrary, if a Claim is timely made, it may continue
to be asserted beyond the termination date of the representation, warranty
or covenant to which such Claim relates.
12.2. Indemnification.
12.2.1 Indemnification by NCR. NCR hereby agrees to indemnity, defend and
hold harmless each member of the MSI Group from and against all Damages
asserted against, imposed upon or incurred by any member of the MSI Group,
directly or indirectly, by reason of or resulting from (i) any breach or
inaccuracy of any representation, warranty or covenant of NCR set forth in
this Agreement (ii) the conduct and operation of NCR's business on or
before the Closing Date; (iii) any claim relating to the Retained
Liabilities; (iv) the sale, license, use or operation of the Purchased
Assets on or before the Closing Date; (v) the employment of the
Transferred Employees on or before the Closing Date; (vi) the Assumed
Contracts on or before the Closing Date; and (vii) except as otherwise
provided in Section 5.3, liabilities of NCR for any Taxes, including
without limitation arising as a result of the transactions contemplated by
this Agreement or the conduct or operation of NCR's business on or prior
to the Closing Date.
I2.2.2. Indemnification by MSI MSI hereby agrees to indemnify, defend and
hold harmless each member of the NCR Group from and against all Damages
asserted against, imposed upon or incurred by any member of the NCR Group,
directly or indirectly, by reason of or resulting from (i) any breach or
inaccuracy of any representation, warranty or covenant contained in this
Agreement; (ii) the Assumed Contracts from and after the Closing Date to
the extent assigned on the Closing Date and from and after the effective
date of any such Assumed Contract if assigned to MSI after the Closing
Date (but only if
23
<PAGE>
MSI has received written notice of such post-Closing Date assignments);
(iii) the sale, license, use or operation of the Purchased Assets from
and after the Closing Date; and (iv) the employment or termination of
employment of the Transferred Employees which arise from and after the
Closing Date.
12.3. Third-Party Claims. The obligations and liabilities of each party to this
Agreement under Section 12.2 related to Third-Party Claims shall be
subject to the following terms and conditions.
12.3.1. Participation by Indemnifying and Indemnified Party. Upon receipt
of written notice of any Third-Party Claim asserted against, imposed upon
or incurred by an Indemnified Party, the Indemnified Party shall notify
the Indemnifying Party thereof in writing. The Indemnifying Party shall
be entitled, at its own expense, to participate in and, upon notice to
the Indemnified Party, to undertake the defense thereof in good faith by
counsel of the Indemnifying Party's own choosing, which counsel shall be
reasonably satisfactory to the Indemnified Party, provided that (i) the
Indemnified Party shall at all times have the option, at its own expense,
to participate fully therein (without controlling such action) and (ii)
if in the Indemnified Party's reasonable judgment (as evidenced and
supported by an opinion of its legal counsel who will not be the same
counsel who will represent the Indemnified Party in the underlying case)
a conflict of interest exists between such Indemnified Party and the
Indemnifying Party in respect of such Third-Party Claim, such Indemnified
Party shall be entitled to select counsel of its own choosing, reasonably
satisfactory to the Indemnifying Party, and the Indemnifying Party shall
be obligated to pay the reasonable fees and expenses of such counsel.
12.3.2 Failure by Indemnifying Party to Defend. If within thirty (30)
days after written notice to the Indemnified Party of the Indemnifying
Party's intention to undertake the defense of any Third-Party Claim the
Indemnifying Party shall fail to defend the Indemnified Party against
such Third-Party Claim, the Indemnified Party will have the right (but
not the obligation) to undertake the defense, compromise or settlement of
such Third-Party Claim on behalf of, and for the account and at the risk
of, the Indemnifying Party.
12.3.3. Right of Indemnified Party to Defend and Settle. Anything in this
Section 12.3 to the contrary notwithstanding, if a Third-Party Claim is
asserted against an Indemnified Party and there is a reasonable
probability in the Indemnified Party's reasonable good faith judgment
that a Third-Party Claim may materially and adversely effect the
Indemnified Party, other than as a result of the imposition of money
damages or other money payments, (i) the Indemnified Party shall have the
right, at its sole option, to take over the defense of such Third-Party
Claim (in which case the Indemnifying Party and the Indemnified Party
shall share equally the cost and expense of such defense) or to codefend
such Third-Party Claim (in which case the Indemnified Party shall bear
the cost and expense of the additional counsel) and no compromise or
settlement of such Third-Party Claim shall be permitted without the
consent of both the Indemnified Party and the Indemnifying Party and (ii)
the Indemnifying Party and the Indemnified Party shall not,
24
<PAGE>
without the prior written consent of the other party, settle or compromise
any Third-Party Claim or consent to the entry of any judgment relating to
any such Third-Party Claim, unless such settlement, compromise or judgment
includes as an unconditional release of the Indemnified Party from all
liabilities in respect of such Third-Party Claim.
12.4. Limitation on Indemnification Obligations.
12.4.1 Limitation. Notwithstanding anything contained in this Section 12
to the
contrary, no party shall assert a Claim against the other party for
indemnification hereunder unless and until the amount of all Damages
determined to have been incurred or suffered at the time by the
Indemnified Party exceeds, in the aggregate, $50,000, (the "Threshold
Amount") and then only for the excess of such amount. The parties hereto
further acknowledge and agree that the total indemnification obligations
of each party hereto under this Agreement shall not exceed, in the
aggregate for such party, $14,000,000 (fourteen million). The foregoing
limitations shall not apply to Claims made by a party with respect to
fraud on the part of the other party or a breach by the other party of any
representation or warranty in this Agreement or any Related Agreement, of
which such breaching party had knowledge on or prior to the Closing or to
a breach by MSI of its obligations under Section 11.6..
12.5. Consequential Damages. No party hereto shall have any liability under any
provision of this Agreement for, and in no event shall any party's
Threshold Amount be applied to, any consequential, special or indirect
Damages, including lost profits.
13. [Intentionally Omitted]
14. MISCELLANEOUS
14.1. Future Press Releases. Except as set forth in the Joint Marketing
Agreement [, each of the parties agrees that until six (6) months
following the Closing, no press release or other disclosures by company
representatives shall be made without the prior written consent of the
other party, such consent not to be unreasonably withheld or delayed.
Approval shall be deemed to have been given if there is a written response
to a proposed release or disclosure is not delivered to the requesting
party within two (2) business days after delivery of a request for such
approval.
14.2. Notices. All notices, requests, demands and other communications which are
required or may be given pursuant to the terms of this Agreement shall be
in the English language, in written or electronic form and shall be deemed
delivered (i) on the date of delivery when delivered by hand, (ii) on the
date of transmission when sent by facsimile transmission during normal
business hours with written confirmation of receipt, (iii) one day after
dispatch when sent by overnight courier maintaining records of receipt, or
(iv) three days after dispatch when sent by certified mail, postage
prepaid, return-receipt requested; provided that, in an any such case,
such communication is addressed as follows:
25
<PAGE>
If to NCR:
NCR Corporation
1700 S. Patterson Boulevard
Dayton, OH 45479
Attention: Chief Financial Officer
Telephone: 937-445-2339 Facsimile: 937-445-1329
with a copy to:
Jon Hoak, Esq.
Senior Vice President and General Counsel
NCR Corporation
1700 S. Patterson
Boulevard
Dayton, OH 45479
Telephone: 937-445-2900
Facsimile: 937-445-7214
If to MSI:
MicroStrategy Incorporated
8000 Towers Crescent Drive Towers CrescentTowers Crescent
Vienna, VA 22182
Attention: General Counsel
Telephone: 703-848-8600
Facsimile: 703-905-6637
14.3. Relationship of the Parties. It is understood and agreed that each of the
parties hereto is an independent contractor, and that neither party is,
or shall be considered to be, by virtue of this Agreement, an agent or
representative of the other party for any purpose.
14.4. Assignment. Neither party may assign this Agreement without the prior
written consent of the other party. Notwithstanding the foregoing to the
contrary, either party may assign any of its rights or obligations
hereunder to any one or more of its Subsidiaries. Each party acknowledges
that it shall continue to be obligated if and to the extent that a
permitted assignee under this paragraph 14.4 fails to perform the
obligations that such party has assigned. Any attempted assignment in
violation of this Section 14.4 without consent shall be null and void.
Where required, no party shall unreasonably withhold or delay consent.
14.5. Binding Effect. This Agreement shall be binding on all parties hereto,
and shall be binding upon and inure to the benefit of each party and its
respective permitted successors and assigns.
14.6. Waiver, Modification; Amendment. No term or provision hereof will be
considered waived by either party, and no breach excused by either party,
unless such waiver or consent is in writing signed on behalf of the party
against whom the waiver is asserted. No consent by either party to, or
waiver of, a breach by either party, whether express or implied, will
constitute a consent to, waiver of, or excuse of any other different, or
subsequent, breach by either party. This Agreement, including the
Schedules and Exhibits attached hereto may not be modified or amended
except by an instrument in writing duly signed by or on behalf of the
parties hereto.
14.7 Force Majeure. Each of the parties hereto shall exert diligence in
performing its obligations under this Agreement, but neither shall be
liable in any manner whatsoever for failure to perform or delay in
performing such obligations, if and to the extent and for so long as such
failure or delay in performance or breach is due to natural disasters,
strikes or labor disputes, natural forces, or other acts of God or cause
reasonably beyond the control of such party. Any party desiring to invoke
this Section 14.7 shall notify the other in writing of such desire and
shall use reasonably efforts and due diligence to resume performance of
its obligations.
26
<PAGE>
14.8. United Nations. The parties expressly exclude, if applicable, the
application of the United Nations Convention on Contracts for the
International Sale of Goods.
14.9. Severability. If any part of this Agreement is found invalid or
unenforceable, that part will be amended to achieve as nearly as possible
the same economic and practical effect as the original provision and the
remainder of this Agreement will remain in full force and effect.
14.10. No Interpretation Against Drafter. The terms and provisions of this
Agreement shall not be construed against the drafter or drafters hereof.
All parties hereto agree that the language of this Agreement shall be
construed as a whole according to its fair meaning and not strictly for
or against any of the parties hereto.
14.11. Governing Law; Arbitration. This Agreement shall be governed and enforced
in accordance with the substantive laws of the State of New York, without
regard to any such laws or regulations that may direct the application of
the law of any other jurisdiction. Any controversy, claim or dispute
between the parties arising out of or relating to this Agreement or any
Related Agreement or any breach hereof or thereof shall be referred to
final and binding resolution by the MSI and NCR senior executives who
have authority to reach agreement on any matters in dispute upon written
request by either party specifying in reasonable detail the nature of the
dispute. In the event that such MSI and NCR senior executives are unable
to resolve the dispute within thirty (30) days after the initial request
for dispute resolution, the dispute shall be settled by final and binding
arbitration before a sole arbitrator in New York, New York pursuant to
the then-current Commercial Rules of the American Arbitration Association
and the federal substantive and procedural law of arbitration. Judgment
upon any award rendered by the arbitrator may be entered in any court
having jurisdiction thereof The arbitrator will not have the power to
award punitive or exemplary damages or any damages excluded by, or in
excess of, any damage limitations expressed in this Agreement. Each party
will bear its own attorneys fees and costs related to the arbitration.
Unless otherwise determined by the arbitrator, the costs and expenses of
the arbitration shall be borne equally by the parties.
14.l2 Entire Agreement This Agreement, together with the Schedules and Exhibits
attached hereto and the letter agreement dated December 20, 1999,
constitutes the entire agreement between the parties relating to this
subject matter and supersedes all prior or simultaneous representations,
discussions, negotiations, and agreements with respect thereto, whether
written or oral. Without limiting the foregoing, this Agreement expressly
supersedes the Memorandum of Understanding between MSI and NCR executed
on October 1, 1999.
14.13. Counterparts. This Agreement may be executed simultaneously in any number
of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
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<PAGE>
14.14. Terms Generally. Whenever the context requires, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and. "including" shall be deemed to be followed by
the phrase "without limitation". All references to "party" and "parties"
shall be deemed references to the parties to this Agreement unless the
context shall otherwise require. The terms "this Agreement", "hereof,
"hereunder", and similar expressions refer to this Agreement and not to
any particular Section or other portion hereof and include any agreement
supplemental hereto. All references to Sections, paragraphs, Schedules
and Exhibits shall be deemed references to Sections of, paragraphs of,
and Schedules and Exhibits to, this Agreement unless the context shall
otherwise require. The term "or" is used in its inclusive sense
("and/or").
14.15. Expenses. Except as otherwise expressly provided herein, all costs and
expenses, including fees and disbursements of counsel, financial advisors
and accountants, incurred in connection with this Agreement such costs
and the transactions contemplated hereby shall be paid by the party
incurring expenses, whether or not the Closing shall have occurred.
10.19 Remedies Cumulative, Specific Performance. All remedies, afforded to the
parties under this Agreement or any Related Agreement, Applicable Law or
otherwise, shall be cumulative and not alternative. Each of the parties
agrees that in the event of any breach or threatened breach by a party of
any provision of this Agreement or any Related Agreement, the other party
shall be entitled, in addition to any other rights or remedies it may
have, to a decree or order of specific performance or mandamus to enforce
the observance and performance of such provision and an injunction
restraining such breach or threatened breach.
10.20 Brokers and Finders. Each of NCR and MSI represents that no agent,
broker, investment banker, financial advisor or other firm person is or
will be entitled to any broker's or finder's fee or any other commission
or similar fee in connection with any of the transactions contemplated by
this Agreement and each party agrees to indemnify the other party and
hold the other party harmless from and against any and all claims,
liabilities or obligations with respect to any other fee, commissions or
expenses asserted by any person on the basis of any act or statement
alleged to have been made by such first party.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives, effective as of the date first above
written.
MicroStrategy Incorporated NCR Corporation
By: /s/ Sanju Bansal By: /s/ M. Louise Turilli
--------------------- ----------------------
Date: Date: December 23, 1999
Sanju Bansal M. Louise Turilli
- ----------------------- --------------------------
Print Name Print Name
COO Assistant Secretary
- ----------------------- --------------------------
Title Title
<PAGE>
Exhibit 10.18
Deed of Lease For Office Space
at
1861 International Drive
Between
TYSONS CORNER PROPERTY, LLC,
a Virginia limited liability company
as Landlord
and
MICROSTRATEGY, INC.,
a Delaware corporation
as Tenant
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
BASIC LEASE PROVISIONS AND DEFINITIONS 1
1.1 Building 1
1.2 Premises 1
1.3 Lease Term 1
1.4 Base Rent 2
1.5 Tenant's Share of Operating Costs 2
1.6 Tenant's Share of Real Estate Taxes 2
1.7 Adjustment to Base Rent 2
1.8 Permitted Uses 2
1.9 Security Deposit 2
1.10 Commitment Deposit 7
1.11 Definition of Landlord's Agents and Tenant's Agents 7
ARTICLE II. PREMISES 7
2.1 Additional Rights and Limitations 7
2.2 Condition of the Premises 8
2.3 Signs 9
2.4 Net Rentable Area 12
2.5 Intentionally Omitted 12
2.6 Intentionally Omitted 12
ARTICLE III. COMMENCEMENT DATE 13
3.1 Commencement Date 13
3.2 Holding Over 17
ARTICLE IV. RENT 18
4.1 Payment 18
4.2 Base Rent 19
4.3 Tenant's Share of Operating Costs 19
4.4 Tenant's Share of Real Estate Taxes 24
4.5 Rent Definition 27
4.6 Other Impositions 27
4.7 Tenant's Audit Rights 28
ARTICLE V. LANDLORD'S SERVICES 28
5.1 Services, Utilities and Electricity 28
5.2 Heat and Air-Conditioning 30
5.3 Water 31
5.4 Janitorial Services 32
5.5 Elevator Service 32
<PAGE>
5.6 No Liability 32
5.7 Security/Access 33
5.8 Maintenance and Repair 34
5.9 Communications 35
ARTICLE VI. TENANT'S CARE OF PREMISES 36
6.1 Waste 36
6.2 Compliance with Law 37
6.3 Alterations, Additions or Improvements: Moving 38
6.4 No Overloading or Overcrowding 39
6.5 No Liens 39
6.6 Property and Improvements at Tenant's Risk 40
6.7 Flammable, Explosives or Toxic Substances 40
6.8 Hazardous Materials Defined 40
6.9 Environmental Compliance 41
6.10 ADA Compliance 42
6.11 Termination and Surrender 42
6.12 Indoor Air Quality 43
ARTICLE VII. TRANSFER OF INTEREST: PRIORITY OF LIEN 44
7.1 Assignment and Sublease 44
7.2 Intentionally Omitted 48
7.3 Subordination 48
7.4 Notice to Lender 49
7.5 Tenant's Financing 49
ARTICLE VIII. DAMAGE AND DESTRUCTION: EMINENT DOMAIN 49
8.1 Damage and Destruction 49
8.2 Eminent Domain 51
ARTICLE IX. LIABILITY: INDEMNIFICATION: INSURANCE 51
9.1 Waiver of Claims 51
9.2 Indemnification 51
9.3 Insurance Requirements 52
9.4 General Provisions with Respect to Tenant's Insurance 53
9.5 Waiver of Subrogation 54
9.6 Landlord's Insurance 55
ARTICLE X. ACCESS TO THE PREMISES 55
10.1 Access to the Premises 55
ARTICLE XI. FAILURE TO PERFORM, DEFAULTS, REMEDIES 56
11.1 Defaults 56
11.2 Remedies 57
11.3 Deficiency 59
11.4 Mitigation 59
11.5 Payments 59
<PAGE>
11.6 Landlord's Default 60
ARTICLE XII. QUIET ENJOYMENT: RESERVATIONS BY LANDLORD:
NO CONSTRUCTIVE EVICTION 60
12.1 Quiet Enjoyment 60
12.2 Reservations by Landlord 60
12.3 No Constructive Eviction 61
ARTICLE XIII. RULES AND REGULATIONS 61
13.1 Rules and Regulations 61
ARTICLE XIV. COMMUNICATIONS 62
14.1 Communications 62
14.2. Notice Addresses 63
ARTICLE XV. MISCELLANEOUS PROVISIONS 64
15.1 Tenant Estoppel Certificates 64
15.2 Brokerage Fees 64
15.3 Intentionally Omitted 65
15.4 Liability of Landlord 65
15.5 Authority 65
15.6 Parking 65
15.7 Landlord Approval 65
15.8 Unenforceability/Joint and Several Liability 65
15.9 Headings, Miscellaneous 66
15.10 Force Majeure 66
15.11 Entire Agreement 66
15.12 Governing Law 66
15.13 Waiver of Jury Trial 66
15.14 Recordation of Lease 67
15.15 No Binding Effect Until Execution and Delivery 67
15.16 No Partnership 67
15.17 Intentionally Omitted 67
15.18 Days 67
15.19 Successors and Assigns 67
15.20 Non-Waiver 67
15.21 Counterparts 67
15.22 Survival of Tenant Obligations 67
15.23 Renewal Options 67
15.24 Right of First Offer 70
15.25 Generator, Transformer and Rooftop Mechanical Equipment 73
15.26 Roof Rights 76
<PAGE>
EXHIBIT "A" OUTLINE OF THE PREMISES A-1
EXHIBIT "B" RULES AND REGULATIONS B-1
EXHIBIT "C" WORK LETTER C-1
EXHIBIT "C-1" FINAL THIRD AND FIFTH FLOOR PLANS C-7
EXHIBIT "C-2" LANDLORD'S COMMENTS REGARDING TENANT'S PLANS C-11
EXHIBIT "D" STATEMENT SPECIFYING COMMENCEMENT DATES
AND TERMINATION DATE D-1
EXHIBIT "E" PARKING E-1
EXHIBIT "F" ACCELERATED DEPRECIATION SCHEDULE REGARDING
AFTER HOURS HVAC SERVICE F-1
EXHIBIT "G" CLEANING SPECIFICATIONS G-1
EXHIBIT "H" TENANT'S SIGNAGE H-1
EXHIBIT "I" TENANT'S GENERATOR EQUIPMENT I-1
EXHIBIT "J" TENANT'S TRANSFORMER EQUIPMENT J-1
EXHIBIT "K" TENANT'S ROOFTOP MECHANICAL EQUIPMENT K-1
EXHIBIT "L" GUIDELINES AND LIMITATIONS REGARDING IMPROVEMENTS L-1
EXHIBIT "M" TENANT'S COMMUNICATIONS EQUIPMENT M-1
EXHIBIT "N" PRELIMINARY CONCEPTUAL FOURTH FLOOR PLANS N-1
EXHIBIT "O"" PRELIMINARY CONCEPTUAL ELEVATOR LOBBY PLANS O-1
<PAGE>
DEED OF LEASE
This Deed of Lease (the "Lease") is entered into this 7th day of
January, 2000, between Tysons Corner Property LLC, a Virginia limited liability
company ("Landlord"), and MicroStrategy, Inc. a Delaware corporation ("Tenant").
Landlord hereby leases to Tenant and Tenant hereby rents from Landlord
the Premises (as defined in Section 1.2). Intending to be legally bound under
this Lease and in consideration of the agreements herein made, and other good
and valuable consideration, Landlord and Tenant hereby agree as follows:
ARTICLE I. BASIC LEASE PROVISIONS AND DEFINITIONS
--------------------------------------
1.1 Building. That building, which is currently being constructed by
Landlord, to be known as 1861 International Drive, which building will consist
of approximately one hundred seventy seven thousand four hundred fifty nine
(170,471) square feet of Net Rentable Area (defined in Section 2.4) and be
located at 1861 International Drive, McLean, Virginia 22102 (the "Building").
1.2 Premises. The Premises, designated as Suites #200, 300, 400, 500
and 600 to be located on the entire second, third, fourth, fifth and sixth
floors of the Building, which will consist of a total of approximately one
hundred forty six thousand and four hundred eighty (146,480) square feet of Net
Rentable Area, and is outlined on Exhibit A hereto attached (the "Premises").
The rentable square footage of the Premises consists of the following
approximate rentable square footage ("RSF") by floor:
Floor RSF
2 29,176
3 29,176
4 29,176
5 29,176
6 29,776
1.3 Lease Term. The "Lease Term" or "Term" (herein so called) is
approximately one hundred twenty-seven (127) full calendar months (plus any
partial calendar month at the beginning of the Lease Term), commencing on the
Commencement Date (as defined in Article III), and ending at midnight on the
last day of the one hundred twentieth (120th) full calendar month following the
Final Commencement Date (as defined in Article III) (the "Termination Date") or
at such earlier date as this Lease may be terminated as provided in this Lease.
1.4 Base Rent. The initial "Base Rent" (herein so called) is Four
Million Six Hundred Six Thousand Seven Hundred Ninety Six Dollars
($4,606,796.00) annually, payable monthly in advance in the amount of Three
Hundred Eighty Three Thousand and Eight Hundred Ninety
<PAGE>
Nine and 66/100 Dollars ($383,899.66) per month. The Base Rent shall be
increased during the Lease Term in accordance with Section 1.7 of this Lease.
1.5 Tenant's Share of Operating Costs. "Tenant's Share" of "Operating
Costs" (defined in Section 4.3) is eighty two and 543/1000ths percent (85.93%)
of such costs. [The parties acknowledge that the foregoing Share was determined
by dividing the Net Rentable Area of the Premises by the Net Rentable Area of
the Building].
1.6 Tenant's Share of Real Estate Taxes. "Tenant's Share" of "Real
Estate Taxes" (defined in Section 4.4) is eighty two and 543/1000ths percent
(85.93%) of such costs. [The parties acknowledge that the foregoing Share was
determined by dividing the Net Rentable Area of the Premises by the Net Rentable
Area of the Building].
1.7 Adjustment to Base Rent. Beginning on the first day of the second
Lease Year (as defined below), Base Rent will be increased on the first day of
each Lease Year during the Term in accordance with the terms of the following
schedule:
Lease Year Annual Base Rent Monthly Base Rent
---------- ---------------- -----------------
1 $4,606,796.00* $ 383,899.66
2 $4,721,965.90 $ 393,497.16
3 $4,840,015.05 $ 403,334.59
4 $4,961,015.42 $ 413,417.95
5 $5,085,040.81 $ 423,753.40
6 $5,212,166.83 $ 434,347.24
7 $5,342,471.00 $ 445,205.92
8 $5,476,032.78 $ 456,336.07
9 $5,612,933.60 $ 467,744.47
10 $5,753,256.93 $ 479,438.08
11 $5,897,088.35* $ 491,424.03
[* The parties acknowledge that: (i) the eleventh (11th) Lease Year will not
necessarily be a full twelve (12) month period, and (ii) during the first (1st)
Lease Year, Tenant will not be occupying the entire Premises for the full twelve
(12) months, and as a result, (iii) Tenant's total Base Rent obligations for
such Lease Years will be less than the annualized Base Rent set forth in the
schedule above. The amounts payable by Tenant with respect to such Lease Years
(as determined in accordance with the terms hereof) will be pro-rated portions
of the aforesaid annual amounts. The parties further acknowledge that with
respect to the period beginning on the Commencement Date and ending on December
31, 2000, Tenant's total Base Rent obligations shall be $3,074,342.00 (as such
amount may be increased by virtue of Tenant's accelerated occupancy of the
fourth (4th) floor portion of the Premises in accordance with the terms of
Section 3.1). If, pursuant to the terms of this Lease, Tenant is obligated to
pay Base Rent for any partial calendar month, Tenant's Monthly Base Rent
obligations with respect to such partial calendar month shall be determined by
dividing the applicable Monthly Base Rent in the schedule above by total number
of days in such calendar month and multiplying the result by the number of days
in such month for which Tenant is obligated to pay Base Rent hereunder].
<PAGE>
If, pursuant to the terms of this Lease, Tenant is obligated to pay Base Rent
with respect to only a portion of the Premises, Tenant's Base Rent obligations
with respect to such portion of the Premises shall be determined by multiplying
the applicable Monthly Base Rent in the schedule above by a fraction, the
numerator of which shall be the Net Rentable Area of that portion of the
Premises for which Tenant is obligated to pay Base Rent and the denominator of
which shall be the total Net Rentable Area of the Premises (as set forth in
Section 1.2 above).].
The first "Lease Year," as such term is used herein shall begin on the
Commencement Date and end on the last day of the twelfth (12th) full calendar
month following such Commencement Date. The second Lease Year shall commence on
the date immediately following the expiration of the first Lease Year and extend
for a period of twelve (12) consecutive calendar months. Each subsequent Lease
Year shall commence on the annual anniversary of the first day of the second
Lease Year and extend for a period of twelve (12) consecutive calendar months,
except for the eleventh (11th) Lease Year which shall commence as aforesaid and
end on the Termination Date (as defined in Section 3.1).
1.8 Permitted Uses. Tenant shall have the right to occupy the Premises
solely for general office and professional business use (which shall include
uses incidental and ancillary to Tenant's professional office use provided that
the same are in compliance with applicable zoning and other laws, statutes,
regulations, codes and orders), and for no other purpose. Tenant's use of the
Premises is subject to the terms of this Lease, including the "Rules and
Regulations" (herein so called) set forth on Exhibit B hereto attached, as
modified from time to time in accordance with Section 13.1. Provided that such
uses are in compliance with applicable zoning and other laws, statutes,
regulations, codes and orders, the Permitted Use shall include the right to: (i)
conduct operations in the Premises on a twenty-four (24) hour per day, seven (7)
day per week basis, (ii) host in the Premises receptions and other functions
related to its professions business use and (iii) serve food and beverages to
Tenant's employees and its invitees at such reception or functions. To
Landlord's knowledge as of the date of this Lease the foregoing Permitted Use is
permitted under applicable zoning ordinances and land use regulations and is not
in violation of any exclusive use rights granted by Landlord to other tenants in
the Building.
1.9 Security Deposit. (a) Upon the full execution and delivery of this
Lease by both of the parties hereto, Tenant shall deliver a Security Deposit
(herein so called) to Landlord in one of the two following forms. Tenant shall
either: (i) deposit with Landlord a "Cash Security Deposit" (herein so called)
in the amount of Two Million Three Hundred Three Thousand Three Hundred Ninety
Seven and 90/100 Dollars ($2,303,397.90), or (ii) deliver to Landlord an
unconditional, irrevocable letter of credit in the amount of Two Million Three
Hundred Three Thousand Three Hundred Ninety Eight Dollars ($2,303,398) to be
held by Landlord as a Security Deposit hereunder. The Cash Security Deposit or
the Letter of Credit shall be held by Landlord as security for Tenant's
performance under this Lease, and not as an advance payment of Rent (defined in
Section 4.5) or a measure of Landlord's damages for Default (defined in Section
11.1 and in this Section 1.9). Provided no Default (as defined in Section 11.1,
in this Section 1.8 and elsewhere in this Lease) has occurred prior to such
date, the amount of such Cash Security Deposit or Letter of Credit shall be
subject to subsequent adjustment in accordance with the
<PAGE>
following terms: on the first day of the thirteenth (13th) full calender month
following the Final Commencement Date (as defined in Section 3.1 hereof) and
thereafter on the first day of the twenty-fifth (25th) and thirty-seventh (37th)
full calendar months following the Final Commencement Date, the amount of the
Security Deposit shall be reduced by an amount equal to Three Hundred
Eighty-three Thousand Three Hundred Ninety Dollars ($383,390.00) per year, and
on the first day of the forty-ninth (49th) full calendar month following the
Final Commencement Date the amount of the Security Deposit shall be reduced by
Three Hundred Eighty-five Thousand Four Hundred Twenty-eight Dollars
($385,428.00). Therefore, subject to the conditions set forth above, the amount
of the Security Deposit shall be periodically reduced as follows: on the first
day of the thirteenth (13th) full calendar month following the Final
Commencement Date, to One Million Nine Hundred Twenty Thousand Eight Dollars
($1,920,008.00); on the first day of the twenty-fifth (25th) full calendar month
following the Final Commencement Date, to One Million Five Hundred Thirty Six
Thousand Six Hundred Eighteen Dollars ($1,536,618.00); on the first day of the
thirty-seventh (37th) full calendar month following the Final Commencement Date,
to One Million One Hundred Fifty Three Thousand Two Hundred Twenty Eight Dollars
($1,153,228.00), and, on the first day of the forty-ninth (49th) full calendar
month following the Final Commencement Date to Seven Hundred Sixty Seven
Thousand Eight Hundred Dollars ($767,800.00). The remaining balance of such
Security Deposit shall be held by Landlord throughout the balance of the Lease
Term in accordance with the terms of this Section 1.9.
(b) Any such Cash Security Deposit shall be held in an interest-bearing
account. Ninety-percent (90%) of any interest earned on such Cash Security
Deposit shall be credited to Tenant on an annual basis and increase the amount
of the Cash Security Deposit held hereunder by Landlord. The remaining ten
percent (10%) of such interest earned on the Cash Security Deposit shall be
retained by Landlord in order to compensate Landlord for its administrative
costs associated with maintaining such account. Tenant shall have no claim to
the remaining ten percent (10%) of such interest.
(c) The Letter of Credit described in subparagraph (a) above shall at
all times satisfy all of the requirements set forth in this Section 1.9,
including those set forth below. Such Letter of Credit shall : (i) be in form
and substance satisfactory to Landlord in its reasonable discretion; (ii) at all
times be in the amount set forth in subparagraph (a) above (as adjusted in
accordance with such terms), (iii) permit multiple draws without a corresponding
reduction in the aggregate amount of the Letter of Credit; (iv) be issued by
Bank of America or another federally insured commercial bank reasonably
acceptable to Landlord from time to time; (v) made payable to, and expressly
transferable and assignable at no charge by Landlord (and its successor and
assigns as owners of the Building); (vi) payable at sight upon presentment to a
local branch of the issuer of a simple sight draft accompanied by a notarized
certificate stating that Tenant is in default under this Lease and the amount
that Landlord is owed in connection therewith; (vii) be of a term not less than
one (1) year (or automatically and unconditionally extended) from time to time
through the sixtieth (60th) day after the expiration of the Lease Term ("LC
Return Date"); and (viii) expressly provide that at least thirty (30) days prior
to the then current expiration date of such Letter of Credit,
<PAGE>
the same shall be automatically renew or be extended for at least an additional
one (1) year period unless at least sixty (60) days prior to the expiration of
such Letter of Credit, Landlord is provided with written notice that the same
shall not be renewed or extended. Each Letter of Credit contemplated hereunder
shall be issued by a commercial bank that has a LACE Financial Institution
Credit Rating of "B" or better, and shall be otherwise acceptable to Landlord in
its reasonable discretion. If the issuer's Financial Institution Credit Rating
is reduced below B by LACE, or if the financial condition of such issuer changes
in any other materially adverse way, then Landlord shall have the right to
require that Tenant obtain from a different issuer a substitute Letter of Credit
that complies in all respects with the requirements of this Section 1.9, and
Tenant's failure to obtain such substitute Letter of Credit within twenty (20)
days following Landlord's written demand therefor (with no other notice or cure
or grace period being applicable thereto, notwithstanding anything in this Lease
to the contrary) shall entitle Landlord to immediately draw upon the
then-existing Letter of Credit in whole or in part, without notice to Tenant. In
the event the issuer of any Letter of Credit held by Landlord is placed into
receivership or conservatorship by the Federal Deposit Insurance Corporation, or
any successor or similar entity, then, effective as of the date such
receivership or conservatorship occurs, said Letter of Credit shall be deemed to
not meet the requirements of this Section 1.9, and, within ten (10) days
thereof, Tenant shall replace such Letter of Credit with a Letter of Credit
issued by an institution which satisfies the foregoing requirements (and
Tenant's failure to do so within said ten (10) days shall, notwithstanding
anything in this Lease to the contrary, constitute a Default under the Lease if
the same is not cured within five (5) days following written notice from
Landlord). Any failure or refusal of the issuer to honor the Letter of Credit
shall be at Tenant's sole risk and shall not relieve Tenant of its obligations
hereunder with respect to the Security Deposit.
(d) Tenant shall renew or replace such Letter of Credit as required by
this Section 1.9, and shall deliver to Landlord written proof that the same has
been timely renewed, extended or replaced at least thirty (30) days prior to the
expiration thereof. Tenant will take whatever action is necessary to ensure that
said Letter of Credit (or an appropriate replacement thereof which satisfies the
requirements of this Section 1.9 automatically renews or extends or is timely
replaced (by a new Letter of Credit or a Cash Security Deposit in the amount of
the Security Deposit) with written notice and proof to Landlord thereof at least
thirty (30) days prior to the expiration thereof, and maintain the same in force
in effect through at least the LC Return Date (as defined above).
Notwithstanding anything in this Lease to the contrary (including, without
limitation, any cure or grace periods set forth in this Lease), Any failure by
Tenant to timely renew or replace said Letter of Credit and any failure by
Tenant to timely deliver to Landlord in writing proof of such renewal or
replacement shall be deemed a Default (as such term is defined in Article XI and
used herein) hereunder by Tenant, without the necessity for further notice to
Tenant, entitling Landlord to immediately draw upon such Letter of Credit in the
full amount thereof. At all times during the Term, Landlord shall be entitled to
draw upon the entire amount of such Letter of Credit to cure any outstanding
Default (as defined in Article XI , in this Section 1.9 and elsewhere in this
Lease). In the event that Landlord draws upon the Letter of Credit by reason of
Tenant's failure to timely renew or replace the Letter of Credit, the proceeds
thereof (except for any portion thereof necessary to cure any other default by
Tenant, if any) shall constitute a Cash Security Deposit hereunder, and shall be
held in accordance with the terms of subparagraph (b) above.
<PAGE>
(e) If Landlord transfers the Security Deposit to any transferee of the
Building or Landlord's interest therein, then such transferee shall be liable
for the return of the Security Deposit, and Landlord shall be released from all
liability for the return thereof.
(f) Upon Tenant's Default, Landlord, without prejudice to any other
remedy, may apply any applicable portion of the Cash Security Deposit or draw
upon the Letter of Credit and apply the same to: (i) an arrearage of Rent due
and owing as a result of a Default, and (ii) any other expense, damages, cost or
liabilities incurred or suffered by Landlord or Landlord's Agents due to a
Default by Tenant. In the event that Landlord applies any portion of the Cash
Security Deposit or draws upon said Letter of Credit in accordance with the
foregoing terms, Tenant shall immediately, upon demand from Landlord, pay to
Landlord the amount so applied in order to restore the Cash Security Deposit to
the amount of the Security Deposit (as determined in accordance with the terms
of subparagraph (a)), or, if necessary by virtue of any reduction in the amount
of the Letter of Credit, deliver to Landlord a replacement Letter of Credit in
the amount of the Security Deposit (as determined in accordance with the terms
of subparagraph (a)). If Tenant is not then in Default, on the LC Return Date,
Landlord shall deliver the Letter of Credit (and any portion thereof converted
to the Cash Security Deposit) to Tenant less any amount thereof applied by
Landlord to cure any Default by Tenant.
(g) Notwithstanding anything contained in this Section 1.9 to the
contrary: (1) if at any time during the Term: (i) Tenant is not in Default of
any of its obligations hereunder, and (ii) Tenant has achieved an Investment
Grade Rating (as hereafter defined) with respect to its senior unsecured debt,
the amount of the Security Deposit and delivered written proof thereof to
Landlord, Landlord shall permit Tenant to reduce the amount of the Security
Deposit to Zero Dollars ($0) and Landlord shall, within twenty (20) days
following receipt of written proof from Tenant of such Investment Grade Rating,
return any Cash Security Deposit or Letter of Credit then held by Landlord to
Tenant; and (2) Without limiting the generality of the foregoing clause, it is
specifically agreed that if Tenant achieves an Investment Grade Rating, and
subsequently loses such Rating, then the amount of the Security Deposit shall
again immediately be established pursuant to subparagraph (a) above, and shall
be computed as if an Investment Grade Rating had never been achieved, and Tenant
shall immediately deliver to Landlord a Cash Security Deposit or Letter of
Credit in the amount of the Security Deposit. Tenant's failure to immediately
restore the Security Deposit shall constitute a material Default hereunder
without further notice from Landlord. The term "Investment Grade Rating" shall
mean that Tenant has either:
(1) (i) a Standard & Poor's Corporation rating of "BBB" (or
equivalent) or better, and (ii) a Moody's Investors Service,
Inc. rating of "baa2" (or equivalent) or better;
or (2) (i) a Duff & Phelps rating of "BBB" (or equivalent) or better,
and (ii) either: (a) a Standard & Poor's Corporation rating of
"BBB" (or equivalent) or better, or (b) a Moody's Investor's
Service, Inc. rating of "baa2" (or equivalent) or better.
1.10 Commitment Deposit. In consideration of the execution of this
Lease by Landlord, upon the full execution and delivery of this Lease by both of
the parties hereto, Tenant shall pay
<PAGE>
to Landlord Two Hundred Thirty Thousand Nine Hundred Sixty-eight and 75/100
Dollard ($230,968.75) (the "Commitment Deposit"), which amount will be credited
by Landlord against the first due installments of Base Rent due hereunder
following the Commencement Date.
1.11 Definition of Landlord's Agents and Tenant's Agents. As used in
this Lease: "Landlord's Agents" includes any asset manager, agent, managing
agent, affiliate, contractor, employee, director or officer of Landlord, or any
corporate entity affiliated with Landlord or third party operator and owner of
the Building, and "Tenant's Agents" includes any agent, officer, employee, or
licensee of Tenant.
ARTICLE II. PREMISES
2.1 Additional Rights and Limitations. Landlord leases the Premises to
Tenant, and Tenant leases the Premises from Landlord complete with improvements
(the "Improvements") described in Exhibit C hereto attached (the "Work Letter").
The lease of the Premises includes the right, together with other tenants of the
Building (as defined in Section 1.1) and members of the public and subject to
the Rules and Regulations attached hereto as Exhibit B and such other Rules and
Regulations promulgated by Landlord in its reasonable discretion during the Term
of the Lease, to use the common and public areas of the Building (as described
in further detail below), but includes no other rights not specifically set
forth herein. The lease of the Premises does not include the right to use the
roof of the Building (except as may be expressly provided in Section 15.26), nor
does this Lease grant any right to light or air over or about the Premises or
Building. As used in this Lease, the term "Common Areas" means, without
limitation, the hallways, entryways, stairs, elevators, driveways, walkways,
terraces, docks, loading areas, restrooms, trash facilities, lobbies (but not
the elevator lobbies on floors which are leased in their entirety to Tenant
hereunder) and all other areas and facilities in the Building and on the Land
that are provided from time to time by Landlord for the general nonexclusive use
or convenience of Tenant with Landlord and other tenants of the Building and
their respective employees, invitees, licensees, or other visitors. Landlord
grants Tenant, its employees, invitees, licensees, and other visitors a
nonexclusive license for the Term to use the public portions of the Common Areas
in common with others entitled to use the same, subject to the terms and
conditions of this Lease and the reasonable Rules and Regulations established by
Landlord from time to time pursuant to Section 13.1. Except as may be otherwise
agreed upon in writing from time to time, at all times the Common Areas shall be
under the exclusive control of Landlord. Upon reasonable prior notice to Tenant,
subject to the limitations set forth below in this Section 2.1, Landlord will
have the right to: (i) close off any of the Common Areas to whatever extent
required in the opinion of Landlord and its counsel to prevent a dedication of
any of the same or the accrual of any rights by any person or the public to the
Common Areas; (ii) temporarily close any of the Common Areas for maintenance,
alteration, or improvement purposes; and (iii) change the size, use, shape,
location or nature of any such Common Areas, including erecting additional
improvements on the same, expanding the existing Building or other buildings to
cover a portion of the Common Areas, converting Common Areas to leasable space
or other use or converting any other portion of the Building (excluding the
Premises) or other buildings to Common Areas. In exercising its rights under
this Section 2.1, Landlord will not permanently, materially and adversely impair
or affect Tenant's use and enjoyment of the Premises as
<PAGE>
contemplated herein or Tenant's access to (including ingress and egress to and
from) the Building and the Premises, and Landlord will use commercially
reasonable efforts to not temporarily materially and adversely impair or affect
Tenant's use and enjoyment of the Premises as contemplated herein or Tenant's
access to (including ingress and egress to and from) the Building and the
Premises . If, in exercising its rights under this article: (i) Landlord
violates the terms of the immediately preceding sentence, (ii) Tenant, in the
exercise of its commercially reasonable judgment, is unable to operate in the
Premises or a portion thereof as a result of such violation by Landlord and
ceases operations in the Premises or a portion thereof as a result thereof, and
(iii) Landlord fails to cure such violation within ten (10) days following
written notice of such violation from Tenant, then Tenant should be entitled to
a temporary abatement of Base Rent on an equitable and proportionate basis
(based upon that portion of the Premises which Tenant is unable to use as a
result of Landlord's violation) until Tenant can once again use the Premises.
2.2 Condition of the Premises. (a) As of the Delivery Date, the Common
Areas of the Building shall be in compliance with all applicable governmental
codes, laws and regulations, including the Americans with Disabilities Act of
1990, as amended as of such Delivery Date (the "ADA") and all Building systems
will be in good operating order. The issuance of a valid Certification of
Occupancy for the Building shall be conclusive evidence of Landlord's compliance
with the foregoing requirements, except as to latent defects, and as to the
completion of punchlist items. (However, any delay in the issuance of the same
shall in no way imply that Landlord has not complied with the foregoing
requirements). Tenant's acceptance of possession of the Premises (or any portion
thereof), shall constitute an acknowledgement by Tenant: (a) that it has had
full opportunity to examine the Building, including the applicable portion of
the Premises, and is fully informed, independently of Landlord or Landlord's
Agents, as to the character, construction and structure of the Building and the
Premises, and (b) except for latent defects (which shall be repaired by Landlord
at Landlord's cost only in accordance with the terms of subparagraph (b) below)
and items expressly set forth in a timely punchlist delivered by Tenant to
Landlord in accordance with the terms of subparagraph (b) below, that Tenant
accepts the applicable portion of the Premises in accordance with the terms of
the Lease and the Exhibits thereto.
(b) Upon delivery of possession of any portion of the Premises, Tenant
or its designated representative will inspect the Premises and, within five (5)
business days of such delivery, give Landlord written notice (a "punchlist") of
contended defects in Landlord's Work (as defined in Exhibit C), if any, and of
any contended variances of Landlord's Work from the requirements of this Lease
and Landlord shall endeavor to remedy such defects within thirty (30) days after
notice thereof by Tenant. Landlord will use commercially reasonable efforts to
remedy any such actual defect or variance described in Tenant's timely delivered
punchlist. Tenant's failure to timely give such notice, or specify any defect or
variance in such notice, is a waiver of all rights with respect to such defects
(other than latent defects, which shall be warranted by Landlord for a period of
one year following the date of delivery of possession of the applicable portion
of the Premises) or variance not specified in such notice.
<PAGE>
(c) Landlord represents and warrants that, to Landlord's knowledge, as
of the Delivery Date, the Common Areas of the Building (including Building
entrance doors, lobby areas, stairwells, elevators and common restrooms) are in
compliance with ADA and with all laws, statutes, ordinances, rules, regulations,
requirements and directives of applicable government authorities (including
police, fire, health and environmental authorities or agencies). During the Term
of the Lease, Landlord, at its cost and expense (subject to partial
reimbursement in accordance with the terms of Section 4.3, and except with
respect to compliance costs which are specifically related to Tenant operations
in the Premises, the cost of which shall be borne exclusively by Tenant), will
continue to ensure that the Common Areas of the Building comply with ADA and
with all laws, statutes, ordinances, rules, regulations, requirements and
directives of applicable government authorities (including police, fire, health
and environmental authorities or agencies). Landlord further represents that, to
Landlord's knowledge, as of the Delivery Date, the zoning regulations applicable
to the Building and any covenants, conditions or restrictions appertaining to
the Building permit the use of the Premises for the uses contemplated hereunder.
2.3 Signs. (a) Except as expressly set forth in this Section 2.3,
without the prior written consent of Landlord (which consent may be withheld in
Landlord's sole and absolute discretion), Tenant may not erect or install on the
exterior of the Building, on any exterior window, or in any tenant floor lobby,
hallway or door therein located, any sign or other type display. Notwithstanding
the foregoing: (1) Landlord hereby consents to Tenant's installation of Tenant's
Exterior Signs (as further described in subparagraph (c) below) provided that:
(i) such Exterior Signs are designed and installed in accordance with the
preliminary plans and specifications therefor set forth in Exhibit H attached
hereto and incorporated herein by this reference, and (ii) Landlord approves
specific plans and specifications therefor (which approval will not be
unreasonably withheld, conditioned or delayed so long as the same are consistent
with the preliminary plans and specifications set forth in Exhibit H) prior to
such installation; and (2) Landlord will not unreasonably withhold its consent
to the installation of any sign inside of the Premises which is not visible from
outside of the Premises or any internal lobby signage on floors of the Premises
which are leased in their entirety by Tenant (as further described in
subparagraph (b) below).
(b) On those floors of the Building which are leased hereunder by
Tenant in their entirety, Tenant, at its cost, may install signage or lettering
on the exterior doors to Tenant's space and in the elevator lobbies consistent
with the approved plans and specifications therefor approved by Landlord prior
to the installation of the same. Prior to installing any signage or lettering,
Tenant shall provide plans and specifications therefor to Landlord for
Landlord's review and approval, which approval will not be unreasonably
withheld, conditioned or delayed with respect to signage inside of the Premises
which is not visible from outside of the Premises or with respect to signage in
the lobby of any floor which is leased in its entirety by Tenant hereunder. With
respect to those portions of the Premises which may, from time to time, be
located on portions of floors in the Building (which floors are also occupied or
leased in part by third parties), Landlord will provide and install, at Tenant's
sole cost and expense, in the standard graphics for the Building, letters or
numerals on doors of the Premises, and Tenant may not use any other signage or
lettering on the exterior of the Premises on such multi-tenant floors without
Landlord's prior written consent, which consent may be withheld in Landlord's
sole and absolute discretion.
<PAGE>
Landlord agrees to provide at a convenient location in the lobby of the
Building, a directory of tenant names and locations. Landlord will provide and
install directory strips identifying the Tenant (and its designated practice
groups and senior executives) and signifying, the appropriate suite number or
numbers. The initial directory strips installed at the outset of Tenant's
tenancy hereunder shall be installed at Landlord's cost. Any future new or
replacement strips which contain changes requested by Tenant shall be installed
by Landlord at Tenant's request and at Tenant's cost. During the Term, Tenant
shall be entitled to a proportionate share of the directory strips available
based upon Tenant's Share set forth in Section 1.5 of the Lease (as such Share
may be adjusted from time to time based upon an increase or decrease in the size
of the Premises).
(c) Subject to the terms set forth below, Tenant shall have the
exclusive right to exterior Building signage ("Exterior Signs") except for any
retail tenants who may, at any time, occupy space on the first floor of the
Building, which retail tenants shall have the right to install signs on the
exterior of the Building below the level of the third floor. One such Sign shall
be located on the upper facade of the front of the Building in a location
visible to street traffic on Route 7 ("Leesburg Pike"), and the other such Sign
shall be located on the uppermost part of the facade of the Building in a
location visible from the opposite side of the Building as the Leesburg Pike
sign, as such general locations are set forth in greater detail on pages 5, 6
and 7 of Exhibit H (subject to Tenant's right to relocate the smaller of the two
signs to the alternative location specified in Exhibit H in accordance with the
terms set forth below). Subject to any limitations imposed by applicable codes
and laws, said Exterior Signs shall incorporate Tenant's logo and/or trade name.
The precise size, location, materials and method of installation of such
Exterior Signs are subject to Landlord prior written approval, which approval
shall not be unreasonably withheld, conditioned or delayed provided that the
plans and specifications therefor are consistent with the preliminary plans and
specifications therefor in Exhibit H hereto. The parties acknowledge that the
total square footage of Tenant's two Exterior Signs shall not exceed one hundred
eighty-five (185) square feet (of which approximately one hundred twenty-five
(125) square feet will be utilized for one of the two signs), and no such
Exterior Sign shall be a neon sign. The parties further acknowledge that said
one hundred eighty-five (185) square foot total: (i) includes twenty (20) square
feet of exterior signage space available to the Building pursuant to applicable
code which Landlord was previously reserving for use by an additional first
floor tenant, and (ii) is based upon the method of measurement which Landlord
expects will be applied by Fairfax County to the proposed Exterior Signs set
forth in Tenant's preliminary plans therefor. Tenant, at its sole cost and
expense, with Landlord's approval, which will not be unreasonably withheld,
conditioned or delayed, and Landlord's cooperation (it being understood that any
costs incurred by Landlord shall be borne by Tenant as well), may request that
Fairfax County measure and/or calculate the size of Tenant's proposed Exterior
Signs in an alternative manner which will result in a lower total square footage
being applied to the same (thereby allowing for larger individual letters
forming a part of the Signs). If Tenant is successful in its appeal to Fairfax
County in this regard: (1) Tenant may relocate the smaller of the two Exterior
Signs to the alternative location specified in Exhibit H and, subject to the
terms of clause (2) below, increase the size of the smaller of the two Exterior
Signs subject to Landlord's approval in accordance with the foregoing terms; and
(2) without reducing that portion of the total Building signage square footage
available to Tenant below one hundred eighty-five (185) square feet,
<PAGE>
Tenant shall use only such additional Building signage square footage allocation
which becomes available based upon Tenant's appeal as will also result in
Landlord regaining the option of utilizing up to twenty (20) square feet of the
Building's signage square footage allocation for an additional first floor
Tenant. If at any time during the Term, Tenant leases less than three (3) full
floors in the Building, Tenant, at its cost and expense, shall remove one (1) of
the Exterior Signs from the Building, in accordance with the procedures
described in subparagraph (d) below. Such removal shall be completed by Tenant
within thirty (30) days of the reduction in the size of the Premises below such
three (3) full floor threshold. Landlord shall, in its sole discretion, shall
determine which of the two (2) Exterior Signs is to be removed under such
circumstances. If at any time during the Term, Tenant leases less than two (2)
full floors in the Building, Tenant, at its cost and expense, shall remove any
remaining Exterior Signs from the Building in accordance with the procedures
described in subparagraph (d) below. Such removal shall be completed by Tenant
within thirty (30) days of the reduction in the size of the Premises below such
two (2) full floor threshold.
(d) Tenant shall, at its sole cost and expense, subject to any
limitations imposed by applicable Fairfax County regulations and other laws,
ordinances, regulations, orders or other legal requirements of governmental
authorities, design, fabricate and install said Exterior Signs in accordance
with plans and specifications approved by Landlord in accordance with the
foregoing terms prior to the installation thereof (which Exterior Signs shall be
consistent with the preliminary plans therefor attached hereto in Exhibit H). At
all times during the Term, Tenant shall, at its sole cost and expense: (i)
insure said Exterior Signs in accordance with reasonable insurance requirements
relating to the Building or said Exterior Signs, (ii) maintain said Exterior
Signs in good condition and repair, and (iii) take any action necessary to
ensure that said Exterior Signs comply with all present and future laws,
ordinances (including zoning ordinances and land use requirements), regulations,
orders or other legal requirements of the United States of America, the
Commonwealth of Virginia, Fairfax County and any other public or quasi-public
authority having jurisdiction over the Building or said Exterior Signs and
insurance requirements relating to or affecting the Building or said Exterior
Signs. Other than as set forth in paragraph (c) above, as may be required to
comply with the terms of this Lease, or upon the termination of Tenant's rights
under this Lease (by virtue of the expiration of the Lease Term, the termination
of this Lease by mutual agreement of the parties or the termination of this
Lease or Tenant's right to possession of the Premises by process of law) once
Tenant shall have installed the Exterior Signs, such Exterior Signs may not be
removed except as required by a change in any statute, law or regulation or as
otherwise required by Law. Prior to the expiration or earlier termination of the
Term of the Lease (or prior to a reduction in the size of the Premises as
described in subparagraph (c) above), Tenant shall, at its sole cost and
expense, remove said Exterior Signs from the Building and repair all damage to
the Building and the Land caused by the installation or removal of the same,
provided however that with respect to the removal of said Sign, Tenant's
obligation with respect to any discoloration or "shadow" resulting from the
presence or removal of said Sign, Tenant's obligations shall be fulfilled by the
Tenant's exercise of diligent commercially reasonable efforts to eliminate such
discoloration or shadow. Tenant shall reimburse Landlord, as additional rent,
for any reasonable costs incurred by Landlord with respect to Tenant's failure
to comply with any requirement in this Lease regarding said Exterior Signs,
which failure continues for a period of ten (10) days following written notice
from
<PAGE>
Landlord (which costs shall include but not be limited to any increased
insurance premiums related to the same). Tenant hereby indemnifies and holds
Landlord harmless from and against any claims, liabilities, causes of action,
losses, damages and costs incurred by Landlord as a result of the installation,
maintenance, existence, relocation or removal of said Exterior Signs. Tenant
covenants not to damage the Building or the Land in the course of installing,
maintaining and removing said Exterior Signs. In the event that the
installation, maintenance or removal of said Exterior Signs results in any such
damage, or Landlord incurs any liability relating to the same, Tenant agrees:
(i) to pay Landlord within thirty (30) days after Landlord's written demand
therefor, the reasonable costs incurred by Landlord in repairing any such
damage, and (ii) to indemnify Landlord against any such liability.
(e) Landlord will install a monument sign identifying the Building.
Tenant, at its sole cost and expense, will install an identifying sign in the
uppermost position on such monument, the design of which shall be subject to
Landlord's prior written approval, which will not be unreasonably withheld,
conditioned or delayed. If at any time during the Term, Tenant leases less than
three (3) full floors in the Building, Landlord, at its sole option, may require
Tenant, at its cost and expense, to relocate Tenant's sign on the monument sign
to another location thereon and to repair any damage caused by such relocation.
Such relocation shall be completed by Tenant prior to the reduction in the size
of the Premises below such three (3) full floor threshold. In addition, if at
any time during the Term, Tenant leases less than two (2) full floors in the
Building, Landlord, at its sole option, may require Tenant, at its cost and
expense, to remove its sign from the monument sign and repair any damage caused
by such removal. Such removal shall be completed by Tenant within thirty (30)
days of the reduction in the size of the Premises below such two (2) full floor
threshold.
2.4 Net Rentable Area. The term "Net Rentable Area" is as determined
using the Greater Washington, D.C. Association of Realtors' Standard Method of
Measurement (GWDCAR, June 13, 1995). The parties stipulate that the Net Rentable
Area of the Premises is that stated in Section 1.2.
2.5 Intentionally Omitted.
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2.6 Intentionally Omitted.
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ARTICLE III. COMMENCEMENT DATE
-----------------
3.1 Commencement Date. (a) Landlord, at its cost and expense, will
complete the Landlord's Work (as defined and described in Exhibit C) and obtain
a Certificate of Occupancy for the Building, prior to the commencement of
construction of the Improvements (as defined and described in Exhibit C) in the
Premises [except for that portion of Landlord's Work related to the installation
of certain variable air volume boxes in the Premises ("Landlord VAV Work, " as
defined in Paragraph A.2 of Exhibit C), which the parties acknowledge will be
completed by Landlord after Landlord's delivery of possession of the Premises to
Tenant but prior to: (i) January 31, 2000, with respect to the third and fifth
floor portions of the Premises, and (ii) with respect to the remaining portions
of the Premises, within forty - five (45) days following the
<PAGE>
Tenant's commencement of construction with respect to each portion of the
Premises [which commencement of construction shall be no earlier than the date
by which Tenant has received written approval from Landlord of Final Plans (as
defined in Exhibit C) for the Improvements (as defined in Exhibit C) for such
portion of the Premises (which Final Plans shall contain all necessary details
and specifications regarding such Landlord VAV Work)] (collectively, "VAV
Completion Dates"). Following Landlord's delivery of possession of the Premises
in accordance with the terms hereof, the Improvements will be constructed in the
Premises at Tenant's expense (subject to contribution from Landlord in the form
of the Tenant Allowance, as defined and provided in Exhibit C). Tenant will act
as construction manager with respect to the performance of the Improvements.
Landlord and Tenant will cooperate in order to allow Tenant to timely complete
the Improvements and Landlord to timely complete the Landlord VAV Work following
the delivery of possession of the Premises to Tenant.
(b) Landlord shall substantially complete Landlord's Work (other than
the Landlord VAV Work), obtain a Certificate of Occupancy for the Building and
deliver possession of the Premises to Tenant in order to allow Tenant to
complete the Improvements therein. On the date that Landlord substantially
completes Landlord's Work (except for the Landlord VAV Work) and obtains such
Certificate of Occupancy, Landlord shall deliver possession of the Premises to
Tenant, and such date shall be deemed the "Delivery Date," as such term is used
herein. The parties shall both execute and deliver (which delivery may be made
initially by delivery of executed signature pages via facsimile to the parties'
respective counsel) this Lease on such Delivery Date, which date is targeted to
be January 7, 2000. However, if the Delivery Date is delayed beyond such
targeted Delivery Date or any other date scheduled or targeted as the Delivery
Date by mutual agreement of Landlord and Tenant, Landlord shall not have any
liability whatsoever to Tenant on account of such failure to deliver possession
of the applicable portion of the Premises to Tenant (except as expressly
provided in this subparagraph (b)) and this Lease shall not be rendered void or
voidable as a result of such delay. However, notwithstanding the foregoing, if
Landlord does not deliver possession of the Premises to Tenant in accordance
with the foregoing terms on the targeted Delivery Date, provided that such delay
is not caused solely by an act or omission of Tenant or Tenant's employees,
agents or contractors, Tenant shall receive a credit against its first occurring
Base Rent obligations hereunder beginning on the Commencement Date in an amount
equal to one (1) days' Base Rent (which amount will be determined by pro-rating
one full monthly installment of Base Rent payable with respect to the Initial
Portion of the
<PAGE>
Premises beginning on the Commencement Date on a per diem basis based upon a
thirty-one (31) day month) for each day that Landlord's delivery of the Premises
in accordance with the foregoing terms is delayed beyond such targeted Delivery
Date. In addition, if Landlord fails to complete the Landlord VAV Work by the
targeted VAV Completion Dates set forth in subparagraph (a) above, provided that
such delay is not caused solely by an act or omission of Tenant or Tenant's
employees, agents or contractors, Tenant shall receive a credit against its
first occurring Base Rent obligations hereunder with respect to that portion of
the Premises for which such Landlord VAV Work is not completed beginning on the
Commencement Date applicable to such portion of the Premises (the Commencement
Date, Interim Commencement Date or Final Commencement Date, as set forth in
greater detail below) in an amount equal to one (1) days' Base Rent (which
amount will be determined by pro-rating one full monthly installment of Base
Rent payable with respect to the applicable Portion of the Premises beginning on
the applicable Commencement Date on a per diem basis based upon a thirty-one
(31) day month) for each day that Landlord's completion of such Landlord VAV
Work is delayed beyond such targeted VAV Completion Date. The parties
acknowledge that Tenant shall not be obligated to pay Base Rent during such
period of early occupancy between the Delivery Date and the Commencement Date .
However, Tenant covenants and agrees that such occupancy shall be deemed to be
under all of the other terms, covenants, conditions and provisions of this Lease
(except that Tenant shall not be obligated to pay for temporary electric service
to the Premises prior to the Commencement Date).
(c) Upon the full execution and delivery of this Lease, Tenant shall
take possession of the Premises and shall have the right to enter upon the same
to construct the Improvements therein. The Improvements shall be completed by
Tenant in a safe manner and in conformity and compliance with: (i) the
requirements and specifications set forth in this subparagraph (c), (ii) all
applicable laws, statutes, rules, regulations, orders, ordinances, codes,
approvals, permits, interpretations, directives and requirements, of all
federal, state, county, municipal and city legislatures, executive offices,
courts, departments, bureaus, boards, agencies, offices, commissions and other
sub-divisions thereof, or of any official thereof, or of any other governmental,
judicial, public, quasi-public or quasi-judicial authority (collectively,
"governmental authorities"), and the National Board of Fire Underwriters or any
other body exercising similar functions (collectively, "Requirements")
applicable thereto, and (iii) the Final Plans (as defined in Exhibit C) (and any
additional or modified plans and specifications) approved therefor in writing by
Landlord. All Improvements shall be completed in a first class workmanlike
manner, using only new materials, fixtures and equipment, and shall be performed
by reputable contractors and subcontractors who are licensed to conduct business
in the Commonwealth of Virginia, and such contractors and subcontractors shall
be subject to Landlord's prior written approval (which approval shall not be
unreasonably withheld, conditioned or delayed). At all times during performance
of the Improvements, Landlord and its representatives shall have the right to
enter upon the Premises for the purpose of inspecting construction and progress
of the same and compliance with the foregoing (provided that in exercising such
right, Landlord will not materially interfere with performance of the
Improvements). Prior to commencing any work with respect to the Improvements,
and thereafter until the same are completed, Tenant shall obtain and maintain
and/or cause Tenant's contractor to obtain and maintain insurance against:
claims under workmen's compensation and other employee benefit acts, with limits
not less than $500,000.00; claims for damages because of bodily injury,
including death, to said contractor's employees and all others, with a single
limit of $5,000,000.00 per person and per occurrence; and damages to property
with limits of $5,000,000.00. Throughout the period during which the
Improvements are being performed, Tenant and Tenant's contractors and
subcontractors shall: (1) keep the Building, the Land and all areas adjacent
thereto free to debris, refuse, equipment, materials and personal property, (2)
initiate, maintain and supervise all necessary safety precautions and programs
in connection with the work and take all reasonable precautions for the safety
of, and provide all reasonable protection to prevent damage, injury or loss to
all employees on the work site and other persons who may be affected thereby,
all the work and all the materials and equipment to be incorporated therein, and
other property at the work site or adjacent thereto, such precautions to include
without limitations the furnishings of guard rails and barricades and the
securing of the Premises.
<PAGE>
Immediately upon the completion of the Improvements: (i) Tenant shall remove and
cause Tenant's contractors and any subcontractors to remove any and all debris,
refuse, equipment, materials and personal property left on the Premises, in the
Building, on the Land or any area adjacent thereto, and (ii) Tenant shall
deliver to Landlord full and complete lien releases executed by all of Tenant's
contractors and subcontractors and any other party providing services or
materials with respect to the Improvements or the Premises. During Tenant's
performance of the Improvements and Tenant's initial "move-in" into the
Premises, Tenant will have exclusive use, at no additional cost to Tenant, of
one (1) freight elevator or hoist and one (1) passenger elevator.
(d) (1) The Commencement Date shall be the earlier to occur of (i)
March 1, 2000, and (ii) the date on which Tenant substantially completes the
Improvements in the Initial Portion (as defined below) of the Premises and such
Initial Portion can be occupied for business operations (including the
completion of other work and installations beyond the Improvements necessary for
Tenant's business operations); (2) the Interim Commencement Date shall be the
earlier to occur of: (i) June 1, 2000, and (ii) the date on which Tenant
substantially completes the Improvements with respect to an additional (over and
above the Initial Portion) full floor of the Premises (the "Interim Portion" of
the Premises) and such Interim Portion can be occupied for business operations
(including the completion of other work and installations beyond the
Improvements necessary for Tenant's business operations) (subject to further
adjustment as set forth below in this subparagraph (d)); and (3) the Final
Commencement Date shall be the earlier to occur of: (i) October 1, 2000, and
(ii) the date on which Tenant substantially completes the Improvements in the
remaining Balance (as defined below) of the Premises (the "Final Portion" of the
Premises) and such Final Portion can be occupied for business operations
(including the completion of other work and installations beyond the
Improvements necessary for Tenant's business operations) (subject to adjustment
in accordance with the terms of subparagraph (e) below). The parties acknowledge
that Tenant shall complete the Improvements in the Premises on a phased
construction schedule which will include a first phase consisting of three (3)
full floors (the "Initial Portion" of the Premises), a second phase consisting
of one (1) full floor (the "Interim Portion" of the Premises, which Phase may be
completed in stages as set forth below), and a final phase consisting of the
remaining full floor (the "Final Portion" of the Premises). That portion of the
Premises which is not a part of the Initial Portion consists of the "Interim
Portion" and the "Final Portion," and is sometimes referred to herein
collectively as the "Balance" of the Premises. Tenant, at its option, may
substantially complete the Improvements with respect to distinct portions of the
fourth (4th) floor of the Premises, provided that Tenant shall commence payment
of Base Rent with respect to such portions on the date that the Improvements
with respect to such portion are substantially completed and such portion can be
occupied for business operations (including the completion of other work and
installations beyond the Improvements necessary for Tenant's business
operations) (provided that, notwithstanding the foregoing terms of this
sentence, all of Tenant's Base Rent obligations with respect to the fourth (4th)
floor portion of the Premises shall commence no later than June 1, 2000).
Landlord agrees to cooperate with Tenant in any reasonable manner to allow
Tenant to complete construction of the Improvements in accordance with the
construction schedule, which cooperation will include: (i) providing reasonable
approval of Tenant proposed plans and specifications related to the Improvements
in a timely manner (Landlord will endeavor to provide such approval (or
<PAGE>
disapproval with comments, as applicable) within two (2) business days after
submittal of the same by Tenant provided that engineering review is not required
with respect to the same, in which case Landlord will provide such approval (or
disapproval with comments, as applicable) within five (5) business days after
submittal of the same by Tenant); (ii) allowing Tenant to commence certain work
prior to obtaining a final permit therefor under appropriate circumstances as is
customarily done in the Fairfax County area with respect to tenant improvement
construction (subject to issuance of such final permit and compliance with all
applicable governmental requirements). In order to further ensure that the
Improvements are completed in accordance with the construction schedule, Tenant
agrees that all plans and specifications for the Improvements will be consistent
with the design and finish of a Class A office building and the terms of Exhibit
J hereto, which is incorporated herein by this reference, and Tenant will
reasonable cooperate with Landlord and provide Landlord with progress plans as
they are developed and involve Landlord's construction representatives in the
planning process and in meetings related thereto.
(e) Notwithstanding the terms of subparagraph (d) above with respect to
the dates on which Tenant's Base Rent obligations commence with respect to each
portion of the Premises: (1) Tenant, at its sole option, may elect, by
delivering written notice to Landlord or on before March 1, 2000, to commence
paying Base Rent with respect to the Final Portion of the Premises prior to the
Final Commencement Date on a date selected by Tenant, which date shall be either
July 1, 2000, August 1, 2000 or September 1, 2000; and (2) if Tenant makes such
an election the additional Base Rent to be paid by Tenant with respect to the
Final Portion of the Premises for July, August and/or September, 2000, as
applicable, shall be applied by Landlord as a credit against the first Base Rent
obligations coming due hereunder with respect to the Initial Portion of the
Premises beginning on the Commencement Date (subject to the condition subsequent
that such additional Base Rent amounts with respect to the Final Portion of the
Premises are subsequently timely paid by Tenant in accordance with its written
notice to Landlord regarding the same), provided that in no event shall any
election by Tenant under this subparagraph (e) result in: (i) a reduction or
abatement of any of Tenant's Base Rent obligations with respect to the Final
Portion of the Premises for any period following the Final Commencement Date,
(ii) the payment by Tenant to Landlord of Base Rent with respect to calendar
year 2000 in an amount less than $3,074,342.00 (as such amount may be increased
by virtue of Tenant's accelerated occupancy of the fourth (4th) floor portion of
the Premises), or (iii) any modification of the Final Commencement Date (which
Date shall be determined in accordance with the terms of subparagraph (d)
above).
<PAGE>
(f) Promptly after the Commencement Date, Interim Commencement Date and
Final Commencement Date are ascertained, Landlord and Tenant shall execute a
certificate, in the form of Exhibit D hereto, which certificate shall set forth
the Commencement Date, the Interim Commencement Date, the Final Commencement
Date and the date upon which the initial term of this Lease will expire. The
parties acknowledge that Tenant's failure to accept possession of the Premises
(or any part thereof) when the same is tendered by Landlord in accordance with
the terms hereof shall in no way affect the Delivery Date, the Commencement
Date, the Interim Commencement Date, or the Final Commencement Date, and
Tenant's rental obligations shall in no way be affected by such failure to
accept possession.
3.2 Holding Over. (a) If Tenant shall not immediately surrender the
entire Premises on the date of the expiration or earlier termination of the
Lease Term, the Base Rent payable by Tenant hereunder (which shall be payable
with respect to the entire Premises regardless of what portion thereof remains
occupied by Tenant) shall be increased to equal the greater of: (i) fair market
rent for the Premises, or (ii) (1) during the first sixty (60) days following
the expiration or termination of the Lease Term, one hundred fifty percent
(150%) of the Base Rent payable hereunder during the month immediately preceding
the expiration or termination date (determined without giving effect to any
abatement thereof), and (2) for all periods after the first sixty (60) days
following the expiration or termination of the Lease Term, two hundred percent
(200%) of the Base Rent payable hereunder during the month immediately preceding
the expiration or termination date (determined without giving effect to any
abatement thereof) ("Holdover Rent"). In addition to such Holdover Rent, Tenant
shall also continue to pay to Landlord all additional rent in the amount that
was payable hereunder during the month immediately preceding the expiration or
termination date or as otherwise determined in accordance with the terms of this
Lease. Such Holdover Rent shall be computed by Landlord on a monthly basis and
shall be payable by Tenant on the first day of such holdover period and the
first day of each calendar month thereafter during such holdover period until
the entire Premises shall have been vacated by Tenant and possession thereof
returned to Landlord. Landlord's acceptance of such Holdover Rent from Tenant
shall not in any manner impair or adversely affect Landlord's other rights and
remedies hereunder, including, but not limited to, (i) Landlord's right to evict
Tenant from the Premises, and (ii) Landlord's right to recover damages pursuant
to this Lease and such other damages as are available to Landlord at law or in
equity (which damages shall be limited as provided below).
(b) Except for Tenant's obligation to pay the aforesaid Holdover Rent
and the limitations on such waiver set forth below in this Section 3.2, so long
as Tenant does not holdover in the Premises for more than sixty (60) days
following the expiration or termination of the Lease Term, Landlord hereby
waives its right to collect any damages from Tenant based upon Tenant's failure
to timely vacate the Premises. The foregoing waiver shall in no way affect
Tenant's obligation to pay the aforesaid Holdover Rent with respect to such
sixty (60) day period, nor shall such waiver in any way affect or impair
Landlord's right to pursue and collect (and Tenant's obligation to pay): (1) any
damages (other than consequential or punitive damages
<PAGE>
which Landlord hereby waives), costs, liabilities, costs and expenses suffered
or incurred by Landlord as a result of Tenant's failure to timely vacate the
Premises if Tenant shall fail within sixty (60) days following the expiration or
termination of the Lease Term, to completely vacate the Premises and return
possession thereof to Landlord in accordance with the terms of this Lease, or
(2) any costs or expenses incurred by Landlord related directly to Tenant's
failure, upon vacating the Premises to remove any alterations, improvements or
other personal property from the same in accordance with the terms of this
Lease.
(c) Subject to Landlord's partial damage waiver set forth above, if
Tenant fails to surrender the Premises on the expiration or earlier termination
of this Lease with such removal and repair obligations completed, then, in
addition to its other obligations under this Section 3.2 and Landlord's rights
and remedies under this Section 3.2 and the other provisions of this Lease,
Tenant shall indemnify, defend and hold Landlord harmless from and against any
and all claims, judgments, suits, causes of action, damages, losses, liabilities
and expenses (including reasonable attorneys' fees and court costs) resulting
from such failure to timely surrender. The foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
(d) To the extent that the aforesaid monthly Holdover Rent paid by
Tenant exceeds the greater of: (i) one hundred five percent (105%) of the
monthly Base Rent payable hereunder during the last full calendar month
immediately preceding the expiration or termination of the Term (without giving
effect to any abatement thereof); or (ii) the monthly Fair Market Rent (as
defined in Section 15.23) for the Premises, then any such excess shall be
credited by Landlord against any damages recoverable by Landlord from Tenant as
a result of such holdover.
ARTICLE IV. RENT
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4.1 Payment. Tenant shall pay to Landlord in advance on or before the
first day of each month during the Lease Term, in legal tender of the United
States of America, and, except as may be expressly set forth herein or expressly
required by law, without any demand, set-off or deduction, at the office of
Landlord in _ Institutional Property Managers, Inc., 1961 Chain Bridge Road,
Suite 105, McLean, Virginia 22102-4562, Attn: General Manager, or at such place
or to such of Landlord's Agents from time to time designated in writing, Rent
comprised of a Base Rent and Additional Rent (defined in Section 4.5). If
Landlord shall at any time accept rent after it shall have become due and
payable, such acceptance shall not excuse a delay upon subsequent occasions or
construe or be construed as a waiver of any of Landlord's rights hereunder. No
payment by Tenant or receipt by Landlord of a lesser amount than any installment
or payment of Base Rent or Additional Rent due shall be deemed to be other than
on account of the amount due, and no endorsement or statement on any check or
payment of Rent shall be deemed an accord and satisfaction. Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such installment or payment of Rent, or pursue any other remedies
available to Landlord.
4.2 Base Rent. (a) Beginning on the Commencement Date, subject to
Tenant's rights under Section 3.1(e), Tenant shall pay (with or without receipt
of a written statement from Landlord) the Base Rent (as defined in Sections 1.4
and 1.7 hereof) in advance, promptly upon
<PAGE>
the first day of every month of the Lease Term. If the initial or final month
is less than a full calendar month, the Base Rent for such month will be reduced
proportionately.
(b) Notwithstanding the terms of subsection (a) above to the contrary
Tenant's obligation to pay its monthly Base Rent obligations with respect to the
Interim Portion and Final Portion of the Premises shall not commence on the
Commencement Date provided that the Improvements with respect thereto are not
substantially completed on or before such Commencement Date and such Portions of
the Premises are not ready for occupancy for business operations (as set forth
in greater detail in Section 3.1) . Tenant's obligation to pay monthly Base Rent
with respect to the portions of the Balance of the Premises shall commence on
the Interim Commencement Date and the Final Commencement Date (and such other
dates as may be determined with respect to each portion of the Balance of the
Premises in accordance with the terms of Section 3.1). In the event that the
Commencement Date, Interim Commencement Date or the Final Commencement Date
occur on a date which is not the first day of a calendar month, Tenant's Base
Rent obligations with respect to the applicable portion of the Premises
commencing on such Date shall be pro-rated for the partial calendar month in
which such Date occurs and shall be paid on such Date to Landlord. For the
purposes of determining what portion of Tenant's Base Rent obligations set forth
in Section 1.4 hereof are attributable to the Initial Portion and the Balance of
the Premises, such determination shall be made in accordance with the terms set
forth in Section 1.7.
4.3 Tenant's Share of Operating Costs.
---------------------------------
(a) "Operating Costs" means, for any calendar year, the sum of all
reasonable expenses, costs and disbursements of every kind and nature that
Landlord pays or becomes obligated to pay in connection with the management,
operation and maintenance of the Building, the parking facilities, and the land
upon which the Building is situated (the "Land"), including but not limited to:
all reasonable management office expenses, all applicable sales and use taxes;
expenses incurred for heat, cooling and other utilities; cost of insurance (for
general liability, all risk, rent loss and other commercially reasonable
coverage carried by Landlord with respect to the Building with commercially
reasonable deductibles, excluding increases in insurance premiums directly and
specifically related to other tenants); cost of janitorial and cleaning service,
trash collection and recycling services, pest control; concierge, lobby, or
security service (if any); salaries, wages and other personnel costs of
engineers, superintendents, watch persons, and all other employees of the
Building at and under the level of Senior Property Manager directly involved in
the management and operation of the Building, including any sales tax imposed
upon their service; charges under maintenance and service contracts for
elevators, chillers, boilers and controls; window cleaning; building and grounds
maintenance; parking lot maintenance; management fees; permits and licenses; all
maintenance and repair expenses and supplies including replacement and disposal
of fluorescent light bulbs and ballasts in building standard lighting fixtures;
costs (including finance charges) of improvements to the Building, equipment or
capital items that are designed to increase safety, improve energy efficiency or
expand telecommunications service; the cost of replacing existing equipment or
systems or other costs incurred for the purpose of complying with the directives
of a public or quasi-public entity or authority which directive is issued after
the Delivery Date (which may include a different or new application or
interpretation of a pre-existing directive, law, statute, order or regulation)
and as
<PAGE>
the same may be amortized over their useful life (as determined by industry
standard) on a straight line basis; costs of complying with all governmental
regulations, including, without limitation, the disposal of chlorofluorocarbons
and compliance with Title III of the Americans With Disabilities Act of 1990
("ADA") or any other Virginia statute regarding barriers (subject to the
limitations set forth below) which such regulations are issued after the
Delivery Date (which may include a different or new application or
interpretation of a pre-existing regulation); costs of independent contractors;
any costs incurred in implementing and operating any transportation management
program, ride sharing program or similar program including, but not limited to,
the cost of any transportation program fees, mass transportation fees or similar
fees charged or assessed by any governmental or quasi-governmental entity
(collectively, "Transportation Fees"); any payments made by the Landlord under
any easement or license agreement affecting the Building or the Land,
declaration, restrictive covenant or instrument pertaining to the payment of
sharing of costs among property owners or users affecting the Building or the
Land; reasonable reserves for replacements, repairs and contingencies; and all
other reasonable costs and expenses properly incurred in the operation and
maintenance of this office building. Any such costs and expenses which Landlord
shares with any adjacent landowner and the cost of any item of Operating Costs
which is incurred by Landlord with respect to the Building and any adjacent
property shall be fairly and equitably apportioned by Landlord, in good faith,
between the Building and any adjacent property (or between Landlord and any
adjacent landowner, as applicable). In the event that at any time during the
Term, Operating Costs include any Transportation Fees, so long as Tenant is
leasing at least three (3) full floors in the Building, Tenant, at its sole cost
and expense, may appeal any such Transportation Fees, and Tenant shall receive
Tenant's Share of the benefit of any reduction in the same. Tenant shall
indemnify and hold Landlord harmless from and against any costs, expenses,
liabilities, claims, actions, causes of action or damages in any way associated
with or related to Tenant's appeal of any such Transportation Fees.
"Operating Costs" shall not include: (i) Real Estate Taxes (as defined
in Section 4.4 below); (ii) the initial cost of constructing the Building; (iii)
the cost of alterations to other rentable spaces in the Building (including
renovation, refurbishment and tenant improvements and architectural and
engineering costs associated therewith); (iv) lease commissions; (v) payment of
principal and interest on mortgages and other fees payable to lenders in
connection with any such mortgages; (vi) rents payable under any ground lease
with respect to the Building or the Land; (vii) costs to Landlord of any work or
service performed specifically for any other tenant at the cost of such tenant;
(viii) advertising and marketing costs associated with leasing the Building,
(ix) the cost of maintaining a leasing and marketing office in or for the
Building, including overhead or deemed rent relating thereto; (x) salaries or
other compensation to any employees, partners, trustees, shareholder, directors
or officers of Landlord who are not actively involved in the management of the
Building or the Project; (xi) expenses for which Landlord is reimbursed by
insurance (or for which Landlord would have been reimbursed if Landlord had
carried the insurance coverage required pursuant to Section 9.6 hereof),
condemnation proceeds, warranties or any other source (other than the payment by
tenants of the Building of Operating Costs in a manner similar to the terms of
this Section 4.3); (xii) late charges incurred by Landlord as a result of late
payment of Real Estate Taxes; (xiii) Landlord's income taxes; (xiv) improvements
or replacements to the Building, equipment or other capital items having a
useful
<PAGE>
life (as determined in accordance with industry standards) in excess of three
(3) years from the date of installation (collectively "Capital Costs"), except
those that are reasonably calculated by Landlord to increase safety, improve
energy efficiency, expand telecommunications service, or comply with the
directives of a public or quasi-public entity or authority [in which case such
Capital Costs shall be amortized over the useful life (as determined by industry
standard) of the improvement, replacement, equipment or other capital item and
included in Operating Costs]; (xv) the cost of correcting defects in the initial
design or construction of the Building; (xvi) costs associated with maintaining
the existence of and the operation of the business of the corporate (or
partnership or trust) entity which constitutes the Landlord (such as trustee's
fees, partnership organization or administration expenses, deed recordation
expenses and general overhead expenses and legal and accounting fees related to
the same) apart from the costs of the operation of the Building and the Project;
(xvii) income, excess profits, franchise taxes or other such taxes imposed on or
measured by the net income of Landlord from the operation of the Building
(except for any Fairfax County BPOL taxes or other similar local taxes, which
shall also be included in Real Estate Taxes, as defined below); (xviii)
attorney's fees incurred in connection with any disputes, controversies or
defaults under leases of other tenants; (xix) costs incurred in connection with
the transfer, taking or condemnation of the Building or the Real Property;
(xx)any amounts paid to any person, firm or corporation related to or otherwise
affiliated with Landlord or any general partner, officer, director or
shareholder of Landlord or any of the foregoing, to the extent the same exceeds
arm's length competitive prices paid in the Washington, D.C. metropolitan area
for similar services or goods; (xxi) reserves for repairs, maintenance and
replacements (until utilized for purposes for which such costs may be included
in Operating Costs pursuant to this Lease); (xxii) costs or expenses associated
with leasing space in the Building or the sale of any interest in the Building,
including without limitation, advertising and marketing, legal fees, commitment
fees, commissions or any similar amounts paid for or on behalf of any tenant,
such as space planning, moving costs, improvement allowances, rental and other
tenant concessions; (xxiii) costs of HVAC service outside normal HVAC Business
Hours sold to tenants of the Building by Landlord or the cost to Landlord of
providing any other special services to other tenants; (xxiv) the costs incurred
to remove any hazardous materials or other toxic material or substances from
either the Building or the Land; (xxv) any compensation paid to clerks,
attendants, or other persons in commercial concessions operated by Landlord in
the Building; (xxvi) costs and expenses resulting from the negligence or wilful
misconduct of Landlord or its employees, contractors or agents; (xxvii)fines or
penalties assessed against Landlord by reason of Landlord's violation of laws;
(xxviii) the cost of investment grade art, sculpture and paintings not purchased
in the ordinary course of operating the Building; (xxix) costs of disputes with
Landlord's management agent or any prospective purchaser or mortgagee of the
Building; (xxx) depreciation of the Building or any improvements therein; (xxxi)
with respect to employees shared with buildings outside of the Project, those
portions of the personnel costs attributable to such buildings outside of the
Project; (xxxii) utility costs specifically reimbursed by individual tenants of
the Building and not provided to all tenants of the Building; (xxxiii)
independent contractor and related costs associated with the financing or
leasing of the Building; and (xxxiv) the cost of correcting known violations of
ADA existing as of the Delivery Date; (xxxv) owner's association assessments,
condominium and association dues; or, (xxxvi) costs and expenses Landlord
expends for the benefit of the adjacent Tyson's I Mall to the extent that the
Building does not directly benefit from those costs or expenses.
<PAGE>
(b) The initial Operating Costs (the "Initial Basic Operating Costs")
to be used in calculations regarding Excess Operating Costs (defined below) are
the actual Operating Costs for the calendar year 2000, subject to adjustment as
set forth in Section 4.3(d), Section 4.4(b) and Section 4.4(d) (the "Base
Year").
(c) In addition to Base Rent, beginning on February 1, 2001, for each
calendar year (or partial year) during the Lease Term thereafter, Tenant shall
pay as Additional Rent, Tenant's Share of the amount by which the Operating
Costs for such calendar year exceed the Initial Basic Operating Costs (such
excess hereinafter referred to as "Excess Operating Costs") as follows:
(i) No less than once per calendar year during the Lease Term,
Landlord will provide Tenant with a detailed written statement of estimated
Excess Operating Costs (broken down on a line-item basis with reasonable
supporting documentation) for the upcoming or current calendar year, as
applicable. Said estimate shall be based upon an increase calculated in good
faith over the previous year's Operating Costs, which increase shall not exceed
the sum of: (1) Landlord's reasonable good faith estimate of non-controllable
Operating Costs, and (2) the applicable Controllable Operating Cost Cap (as
defined below)with respect to such calendar year. If Landlord reasonably
determines, pursuant to commercially standard criteria in the Tyson's Corner
submarket, that the Excess Operating Costs are materially or significantly
greater than Landlord's initial estimate thereof, then Landlord may deliver to
Tenant not more than once during any calendar year, a revised estimate of
Tenant's Share of Excess Operating Costs subject to the foregoing limitations.
Tenant shall pay to Landlord within thirty (30) days of notification of the
revised amount, the difference between the previous estimate and the revised
estimate for the expired portion of the current calendar year. Monthly
installments of Tenant's Share of Excess Operating Costs will be increased for
the remainder of the months and year following Tenant's receipt of the revised
estimate to one-twelfth (1/12) of the revised estimate of Tenant's Share of
Excess Operating Costs.
(ii) Not more than one hundred twenty (120) days following the
last day of each calendar year, Landlord will provide Tenant with a written
statement (setting forth separate line items of costs, with reasonable
supporting documentation) of the amount of Tenant's Share of estimated Excess
Operating Costs paid for the preceding calendar year (or partial calendar year)
to Tenant's Share of Excess Operating Costs actually incurred by Landlord for
such calendar year. If the amount of Tenant's Share of estimated Excess
Operating Costs paid by Tenant for such prior calendar year (or partial calendar
year): (A) exceeds the Tenant's Share of actual Excess Operating Costs, within
thirty (30) days of such statement, Landlord will give Tenant an immediate
credit in such amount against current payments of Rent (or if in the last year
of the Lease Term, refund the excess within the aforesaid thirty (30) days), (B)
is less than Tenant's Share of actual Excess Operating Costs, Tenant shall pay
Landlord, as Additional Rent, the difference within thirty (30) days following
Tenant's receipt of such written comparison. Any delay or failure of Landlord in
billing any Excess Operating Cost escalation shall not be construed as a waiver
of and shall not impair the continuing obligation of Tenant to pay such
escalation for any such escalation incurred within the previous three (3)
calendar years.
<PAGE>
(iii) For the purpose of calculating Tenant's Share of Excess
Operating Costs, Landlord's Controllable Operating Costs (as defined below) for
any calendar year following the Base Year shall be limited to the Controllable
Operating Cost Cap (as hereinafter defined). The Controllable Operating Cost Cap
for the first three (3) calendar years following the Base Year shall be an
amount equal to Landlord's actual Controllable Operating Costs for the Base Year
increased by five percent (5%) annually, on a cumulative basis, for each
calendar year following said Base Year through the calendar year in question.
Stated alternatively, the Controllable Operating Expenses for any calendar year
shall not exceed one hundred ten and 25/100th percent (110.25%) of the
Controllable Operating Expenses for the calendar year two (2) years immediately
preceding that calendar year. The Controllable Operating Cost Cap for all other
calendar years during the Term shall be an amount equal to Landlord's actual
Controllable Operating Costs for the calendar year two (2) years prior to the
year in question ("Rolling Base Year") increased by five percent (5%) annually,
on a cumulative basis, for each calendar year following said Rolling Base Year
through the calendar year in question. [By way of illustration only, if the
actual per square foot Controllable Operating Costs are $7.00 during the Base
Year of 2000, the Control Operating Cost Cap for 2001 will be $7.35 ($7.00 x
1.05), the Controllable Operating Cost Cap for 2002 will be $7.72 ($7.35 x 1.05)
and the Controllable Operating Cost Cap for 2003 will be $8.10 ($7.72 x 1.05).
If the actual Controllable Operating Costs for 2002 are $7.25, then the
Controllable Operating Cost Cap for 2004 will be $7.99 ($7.25 x 1.05 x 1.05)].
For the purposes hereof the term "Controllable Operating Costs" shall mean all
Operating Costs except: Real Estate Taxes, sales, use and any other taxes, cost
of insurance, costs of procuring and providing utility services, union labor
costs (to the extent controlled by a collective bargaining agreement), costs
associated with procuring permits and licenses, and costs of complying with all
governmental laws and regulations (to the extent that the same are properly a
part of Operating Costs pursuant to the definition thereof set forth above).
However, notwithstanding the foregoing, for the purpose of calculating Tenant's
Share of Excess Operating Costs, the cost of making changes or improvements to
the Common Areas of the Building for the purpose of complying with governmental
laws and regulations (except those changes or improvements which are
necessitated by Tenant's particular use of the Premises), to the extent that the
same are properly a part of Operating Costs pursuant to the definition thereof
set forth above, shall not exceed ($0.30) per square foot of Net Rentable Area
in the Building during any calendar year.
(d) Operating Costs for the Base Year and for any calendar year during
which the Building is not yet ninety-five percent (95%) leased, shall be
determined by Landlord in its good faith, commercially reasonable discretion,
based upon the amount that such Costs would be if the Building were at least
ninety-five percent (95%) leased. Real Estate Taxes for the Base Year shall be
determined by Landlord in its good faith commercially reasonable discretion,
based upon the amount that such Costs would be if the Building were fully
completed and assessed and stabilized at ninety-five percent (95%) occupancy.
4.4 Tenant's Share of Real Estate Taxes.
-----------------------------------
(a) "Real Estate Taxes" means all general and special real estate taxes
and assessments, ordinary or extraordinary, foreseen or unforeseen, any state or
local business
<PAGE>
personal property tax, and other ad valorem taxes, levies and assessments (net
of any refund) paid upon or in respect of the Building, the parcel or parcels of
Land on which the Building is located (together with the Building, the "Real
Property"), or the rents therefrom, and all taxes or other charges imposed in
lieu of any such taxes, as well as fees of counsel and experts which are
reasonably incurred by, or reimbursable by, Landlord in contesting any such
taxes or in seeking any reduction in the assessed valuation of the Building or
the Land or a judicial review thereof (regardless of whether the same are
reduced), whether incurred under the current or any future taxation or
assessment system or modification of, supplement to, or substitute for such
system. Real Estate Taxes also shall include special assessments which are in
the nature of or in substitution for real estate taxes, including but not
limited to road improvement assessments, special use area assessments, school
district assessment, vault space rentals and any business, professional and
occupational license tax (including any Fairfax County Business, Professional,
and Occupational License Tax ("BPOL")) payable by Landlord in connection with
the Real Property. If at any time the method of taxation prevailing at the Date
of Lease shall be altered so that in lieu of, as a substitute for or in addition
to the whole or any part of the Real Estate Taxes now levied or assessed, there
shall be levied or assessed a tax of whatever nature, then the same shall be
included as Real Estate Taxes hereunder. If any application or review results in
a refund on account of any prior assessment, after payment of reasonable
expenses incurred in connection therewith (whether by Landlord, Tenant or other
tenants of the Building), and after recalculation of Excess Real Estate Taxes
(as hereinafter defined) if the Base Year has been affected, and if Tenant is
not in default hereunder beyond any applicable notice and cure period, Landlord
will reimburse Tenant an amount equal to Tenant's Share (as defined in Section
1.6) of the refund applicable to the Lease Term. Any determination whether or
not to appeal or seek a reduction in Real Estate Taxes shall be in Landlord's
sole and absolute discretion. However, the foregoing shall not affect Tenant's
rights under subparagraph (e) below. Notwithstanding the foregoing, "Real Estate
Taxes" does not include: (i) any interest, penalties or additional tax paid by
or imposed upon Landlord as a result of Landlord's failure to pay Real Estate
Taxes when due and payable, or (ii) any net income, franchise or capital gains
tax, inheritance tax or estate tax imposed or constituting a lien upon Landlord
or all or any part of the Real Property.
(b) The initial Real Estate Taxes ("Initial Basic Real Estate Taxes")
to be used in calculations regarding Excess Real Estate Taxes (defined below)
are the actual (subject to adjustment in accordance with the terms of this
subparagraph (b)) Real Estate Taxes for calendar year 2000 ("Base Year")
(determined consistent with the terms of this subparagraphs (b) and subparagraph
(d) below). For the purpose of determining Tenant's Share of Excess Real Estate
Taxes (as defined below), the Initial Real Estate Taxes and the Real Estate
Taxes applicable to any subsequent calendar year shall be grossed up pursuant to
the following terms. If, during the Base Year, the amount of Real Estate Taxes
payable by Landlord with respect to the Building does not reflect an assessed
value of the Building equal to or greater than the Fully
<PAGE>
Assessed Value (as defined below) of the Building in the first calendar year
subsequent to the Base Year during which the Building is assessed at Fully
Assessed Value (as defined below), then in such event Landlord shall increase
the amount of Real Estate Taxes hereunder for the Base Year to reflect such
Fully Assessed Value. In addition, if, during any calendar year during the Term
following the Base Year, the amount of Real Estate Taxes payable by Landlord
with respect to the Building does not reflect an assessed value of the Building
equal to or greater than the Fully Assessed Value (as defined below) of the
Building in any previous calendar year, then in such event Landlord shall
increase the amount of Real Estate Taxes hereunder for such calendar year to
reflect such Fully Assessed Value. As used herein, the term "Fully Assessed
Value" means the value of the Building, for the purposes of Real Estate Tax
assessment by the appropriate officials of Fairfax County, Virginia, using the
income method of valuation then being employed by Fairfax County, Virginia,
based upon the following assumptions for valuation purposes: (i) that the
Building is substantially completed (including base Building improvements and
tenant improvements in at least ninety five percent (95%) of the tenant space);
(ii) the Building is at least ninety five percent (95%) leased; and, (iii) (A)
with respect to the grossing up of the Base Year, the "average" rental rate for
valuation purposes shall be the expected average rental rate payable with
respect to space in the Building for first calendar year during which the
requirements set forth in (i) and (ii) above are reasonably expected to be
satisfied; and (B) with respect to the grossing up of any calendar year
subsequent to the Base Year, the "average" rental rate for valuation purposes
shall be the average rental rate payable with respect to leased space in the
Building for such calendar year. If Landlord obtains any subsequent reduction in
Real Estate Taxes attributable to the Base Year, the Excess Real Estate Taxes,
as defined in Section 4.4(c), shall be recomputed for the entire Lease Term
using the new Base Year amount, and Tenant shall, within thirty (30) days of
receipt of invoice, pay to Landlord any additional amount due.
(c) Beginning on January 1, 2001, in addition to Base Rent, for each
calendar year (or partial year) subsequent to the Base Year, Tenant shall pay as
Additional Rent, Tenant's Share of the amount by which the Real Estate Taxes
with respect to such calendar year exceed the Initial Basic Real Estate Taxes
(such excess hereinafter referred to as "Excess Real Estate Taxes") for such
calendar year as follows:
(i) Prior to the last day of each calendar year during the
Lease Term, Landlord will provide Tenant with a statement of estimated Excess
Real Estate Taxes for the upcoming calendar year (based upon Landlord's
reasonable good faith estimate of anticipated Real Estate Taxes). Beginning
January 1 of the upcoming calendar year, Tenant shall pay in twelve (12) equal
monthly installments, based on Landlord's estimate, Tenant's Share of the
estimated Excess Real Estate Taxes. If Landlord reasonably determines that the
Excess Real Estate Taxes are greater than Landlord's initial estimate thereof,
then Landlord may deliver to Tenant not more
<PAGE>
than once during any calendar year, a revised estimate of Tenant's Share of
Excess Real Estate Taxes. Tenant shall pay to Landlord within thirty (30) days
of notification of the revised estimate, the difference between the previous
estimate and the revised estimate for the expired portion of the current
calendar year. Monthly installments of Tenant's Share of Excess Real Estate
Taxes will be increased for the remaining months in the year following Tenant's
receipt of the revised estimate to one-twelfth (1/12) of the revised annualized
estimate of Tenant's Share of Excess Real Estate Taxes.
(ii) Not more than one hundred eighty (180) days following the
last day of each calendar year, Landlord will provide Tenant with a written
comparison of the amount of the Tenant's Share of estimated Excess Real Estate
Taxes paid for the immediately preceding calendar year (or partial calendar
year) to Tenant's Share of Excess Real Estate Taxes actually incurred by
Landlord for such calendar year. If the amount of the Tenant's Share of
estimated Excess Real Estate Taxes paid by Tenant for such prior calendar year
(or partial calendar year): (A) exceeds Tenant's Share of actual Excess Real
Estate Taxes, within thirty (30) days of such statement, Landlord will give
Tenant a credit in such amount against current payments of Additional Rent
applicable to Excess Real Estate Taxes (or if in the last year of the Lease
Term, refund the excess with the aforesaid thirty (30) days), (B) is less than
Tenant's Share of actual Excess Real Estate Taxes, Tenant shall pay Landlord, as
Additional Rent, the difference within thirty (30) days following Tenant's
receipt of such written comparison. Any delay or failure by Landlord in billing
any Excess Real Estate Tax escalation shall not be construed as a waiver of and
shall not impair the continuing obligation of Tenant to pay such escalation.
(d) Landlord shall use reasonable good faith efforts to effect an
equitable proration of real estate taxes and assessments on the Building and any
other property owned by Landlord or an Affiliate of Landlord. Landlord shall not
recover from tenants more than one hundred percent (100%) of the real estate
taxes, assessments and insurance premiums actually incurred by Landlord.
(e) If Landlord elects not to contest Real Estate Taxes with respect to
any calendar year during the Term, so long as Tenant leases at least three (3)
full floors in the Building, Tenant may, by written request, ask Landlord to
retain an independent tax consultant reasonably satisfactory to Landlord and
Tenant, at Tenant's sole cost and expense, to assist Landlord in determining
whether or not Real Estate Taxes should be contested. If the consultant
recommends that the Real Estate Taxes be contested and Landlord elects not to
contest the same in spite of such recommendation, Landlord shall deliver a copy
of any written report received from such consultant to Tenant. Thereafter, so
long as Tenant leases at least three (3) full floors in the Building, Tenant, at
its sole cost and expense, may elect within thirty (30) days of the delivery of
such report (or, if no report is available, receipt of notice from Landlord that
Landlord will not contest such Taxes) to contest said Real Estate Taxes by
delivering thirty (30) days' prior written notice of such election to Landlord.
Any contesting of such Real Estate Taxes by Tenant shall be performed using
counsel reasonably acceptable to Landlord and approved by Landlord prior to the
commencement of any action relating to such contest. In the event that any such
contest by Tenant or any other action by Tenant with respect to the Real Estate
Taxes results in an increase in the Real Estate Taxes, Tenant shall pay the
entire amount of
<PAGE>
any such increase, and Tenant shall indemnify and hold Landlord harmless from
and against any and all costs, claims, liabilities, losses or expenses in any
way relating to any such contest by Tenant.
4.5 Rent Definition. The term "Rent" includes, without limitation, (a)
Base Rent; (b) Tenant's Share of Operating Costs, (c) Tenant's Share of Real
Estate Taxes; and (d) all other amounts payable by Tenant to Landlord (whether
or not the same are specifically referred to herein as additional rent pursuant
to the terms of this Lease). Items (b), (c) and (d) above are herein referred to
as "Additional Rent". Notwithstanding anything in this Lease to the contrary,
all amounts payable by Tenant to Landlord as Rent, including but not limited to
any amounts due and payable by Tenant with respect to the Excess over the
Improvement Allowance, shall constitute rent for the purpose of Section
502(b)(7), as it may be amended of the Federal Bankruptcy Code, 11 U.S.C.
ss.ss.101 et seq. (the "Bankruptcy Code").
4.6 Other Impositions. In addition to all other obligations and
liabilities of Tenant to Landlord, Tenant shall: (a) reimburse Landlord for any
increase in ad valorem taxes that Landlord becomes obligated to pay, and (b) pay
all license and permit fees and all taxes levied or assessed by governmental
authorities by virtue of: (i) any specific leasehold improvements to the
Premises which are not in the nature of customary office improvements in the
Fairfax County submarket, (ii) Tenant specifically (as opposed to any tenant)
conducting business or operating the Premises, (iii) the acts, omissions or
practices of Tenant's Agents or Tenant's employees or contractors, (iv) any of
Tenant's personal property located in the Premises or the Building, (v) Tenant's
assets, existence or sales and (vi) any other reason related to Tenant, and (c)
pay Landlord the amount of any interest or penalties in connection with the
foregoing unless caused by the fault of Landlord.
4.7 Tenant's Audit Rights. At any time within one-hundred eighty (180)
days of Landlord's delivery of the aforesaid year-end reconciliation statement
regarding Excess Operating Costs or Excess Real Estate Taxes (but not more than
once per year), Tenant or a nationally recognized public accounting firm
retained by Tenant may, upon at least thirty (30) days' prior written notice,
inspect Landlord's records pertaining to such Operating Costs or Real Estate
Taxes assessed by Landlord as set forth in Landlord's statement. Landlord or its
agents shall produce said records at Landlord's offices in the Washington, D.C.
metropolitan area upon the request of Tenant. Tenant's audit rights shall be
expressly limited to the records relating to most recent year-end statement
delivered by Landlord to Tenant. However, in addition, if Tenant's review of
such Landlord's records reveals, in Tenant's reasonable opinion, an error or a
billing by Landlord which is inconsistent with the definitions of Operating
Costs or Real Estate Taxes set forth in Sections 4.3 and 4.4, Tenant may
request, and Landlord shall produce its records relating to the three (3)
previous years only with respect to the line item with respect to which such
error or incorrect billing was discovered by Tenant. If Tenant's audit shall
conclusively disclose an overbilling by Landlord (and commensurate overpayment
by Tenant) of the amount actually owed for such period, Landlord shall promptly
credit the amount of such overpayment against Tenant's next due installment of
Rent. In addition, if Tenant's audit shall conclusively disclose an overbilling
by Landlord (and commensurate overpayment by Tenant) of more than seven and
one-half percent (7.5%) of the amount actually owed for such period,
<PAGE>
Landlord shall promptly reimburse Tenant for all reasonable accounting and
attorneys fees related to the costs of such audit, provided that: (i) the
maximum reimbursement payable by Landlord with respect to the cost of such audit
shall be Three Thousand Dollars ($5,000.00) and (ii) Landlord shall not be
obligated to reimburse any audit costs payable to the auditor on a contingency
basis based upon a percentage of the amount of the discrepancy discovered in
such audit.
ARTICLE V. LANDLORD'S SERVICES
-------------------
Landlord will provide the following services in a manner comparable to
the manner in which the same are provided in first class office Buildings in the
Tyson's Corner, Virginia submarket.
5.1 Services, Utilities and Electricity.
-----------------------------------
(a) Landlord will furnish or cause to be furnished to the Building and
the Premises electricity for normal first class office usage (at least a total
of eight (8)watts per square foot). Tenant's use of electricity in the Premises
may not at any time exceed the capacity of the electrical conductors and
equipment serving the Premises. Landlord reserves the right to install, at the
Tenant's sole cost, check meters, which will be utilized to determine the amount
Tenant will reimburse Landlord for Tenant's excess usage. If such meter(s) or
prior testing or measurement by Landlord determines that Tenant's total
electrical usage with respect to the Premises is excessive, then Tenant shall
pay for the cost of installing such meter and thereafter Tenant shall pay for
any excess electricity based upon the determination of Tenant's actual usage by
such meter. The determination of whether Tenant's usage is excessive (and the
extent, if any, to which the same is excessive) shall be made by an independent
third party building engineer, which engineer: (i) shall have significant
experience in Class A office buildings in the Tysons Corner submarket, and (ii)
shall not have worked for Landlord, Tenant or either of their respective
affiliates during the five (5) years immediately preceding the hiring of said
engineer by the parties to make the aforesaid determination. Said third party
engineer shall be chosen as follows: If Landlord concludes that Tenant's usage
is excessive, Landlord will notify Tenant of the same. Unless Tenant agrees in
writing to Landlord's conclusions regarding excessive usage within ten (10) days
of Landlord's notification regarding the same (in which case Tenant shall pay
for the excessive usage as determined by Landlord), Landlord will provide to
Tenant a list of at least three (3) qualified engineers who meet the
requirements set forth above. Within five (5) days of Landlord's submission of
said list of qualified engineers, Tenant will select one such engineer, and the
parties shall retain said selected engineer to make the foregoing determination
as to whether Tenant's usage is excessive, and if so, to what extent the same is
excessive. If Tenant fails to choose an engineer from such list within such five
(5) day period, Landlord shall select an engineer from the list to make the
determination. The determination by said engineer shall include consideration
usage of electricity by tenants in similar Class A office buildings in the
Tysons Corner submarket, Tenant's use of the Premises, the plans and
specifications for the Building and the Final Plans for the Improvements.
(However, the parties acknowledge that Landlord's approval of any such Final
Plans shall in no way be construed as consent by Landlord to excessive
electrical use which may be associated with the improvements, alterations,
<PAGE>
equipment or fixtures described in the same). The parties shall split the cost
of such engineer equally and the determination of such engineer selected by
Landlord or Tenant in accordance with the foregoing terms shall be binding upon
the parties for the purposes of this Section 5.1. In addition to the foregoing,
Landlord reserves the right to install, at Tenant's cost and expense, separate
meters to determine Tenant's electrical usage associated with any supplemental
HVAC units or other equipment installed or operated by Tenant. Tenant shall pay
for all electric service measured by any such separate meter. Without Landlord's
prior written consent which consent shall not be unreasonably withheld,
conditioned or delayed, Tenant shall not: (i) connect equipment in the Premises
that consumes more electricity than permitted by, the building standard
specifications or (ii) make any alteration or addition to the electric system of
the Premises. If Landlord grants such consent, Landlord will provide the same at
the cost to Landlord, which cost Tenant shall pay to Landlord within thirty (30)
days of Landlord's demand therefor, additional risers or other required
equipment. In addition, Landlord may require Tenant to pay, as additional rent,
the cost of any excess electrical capacity utilized by Tenant as a result of
such risers or other required equipment. In addition, Landlord may require
Tenant to install separate meters, at Tenant's sole cost, and to pay utilities
directly to the utility company.
(c) Landlord has advised Tenant that Virginia Power (`Electric Service
Provider") is the utility company selected by Landlord to provide electric
service for the Building. Notwithstanding the foregoing, if permitted by law,
Landlord shall have the right at any time and from time to time during the Lease
Term to either contract for service from a different company or companies
providing electric service (each such company is hereafter referred to as an
"Alternate Service Provider") or continue to contract for service from the
Electric Service Provider. So long as Tenant leases at least three (3) full
floors in the Building, Landlord will consult with Tenant prior to making such
change to an Alternate Service Provider. Tenant will cooperate with Landlord,
the Electric Service Provider, and any Alternate Service Provider at all times,
and, as reasonably necessary, shall allow Landlord, Electric Service Provider
and any Alternate Service Provider reasonable access to the electric lines,
feeders, risers, wiring, and any other machinery within the Premises. Landlord
shall in no way be liable or responsible for any loss, damage, or expense that
Tenant may sustain or incur by reason of any change, failure, interference,
disruption, or defect in the supply or character of the electric energy
furnished to the Premises, or if the quantity or character of the electric
energy supplied by the Electric Service Provider or any Alternate Service
Provider is no longer available or suitable for Tenant's requirements, and no
such change, failure, defect, unavailability, or unsuitability will constitute
an actual or constructive eviction, in whole or in part, entitle Tenant to any
abatement or diminution of Rent, or relieve Tenant from any of its obligations
under the Lease.
5.2 Heat and Air-Conditioning.
-------------------------
(a) Landlord will furnish or cause to be furnished to the Premises
Monday through Friday from 8:00 a.m. to 7:00 p.m. and Saturday from 9:00 a.m. to
1:00 p.m. (but, not on Sundays or legal holidays recognized by the federal
government) (collectively, "HVAC Business Hours"), heat or air-conditioning at
reasonable temperatures as determined by Landlord in its reasonable discretion
to provide reasonably comfortable occupancy of the Premises during all HVAC
Business Hours under normal business conditions (as the same are defined in
paragraph A.1 of
<PAGE>
Exhibit C). Such HVAC service to the Premises shall be consistent with service
customarily provided in Class A office buildings in the Tysons Corner submarket.
Without limiting the generality of Section 5.6 below, except to the extent
caused by Landlord's gross negligence or wilful misconduct, Landlord shall not
be responsible if the normal operation of the Building air-conditioning system
shall fail to provide conditioned air within comfortable temperatures levels (i)
in any portions of the Premises which have a connected electrical load for all
purposes (including lighting and power) or which have a human occupancy in
excess of the average electrical load and human occupancy factors for which the
Building air-conditioning system is designed, (ii) because of alterations,
additions, improvements or modifications made by or on behalf of Tenant, or
(iii) because of the failure by Tenant or Tenant's Agents to use the HVAC system
in the manner in which it was designed to be used. Tenant agrees to observe and
comply with all reasonable rules from time to time prescribed by Landlord for
the proper functioning and protection of the HVAC systems in the Building.
(b) If Tenant requests, Landlord will furnish services at times not
specified above in exchange for Tenant's payment therefor at the hourly rate
established in accordance with the following terms. Such service shall be
provided using a direct digital controlled energy management system in the
Premises, which will incorporate dial-up capability. If Tenant does not directly
request the same using the aforesaid dial-up capability, Tenant shall deliver a
written request to Landlord before 12:00 p.m. on the day prior to the date for
which such usage is requested. The hourly rate for HVAC service outside of the
Building standard hours set forth above shall be equal to: (i) the actual costs
incurred by Landlord to provide such service, plus (ii) additional depreciation
costs with respect to the HVAC system and equipment as determined in accordance
with the schedule attached hereto as Exhibit F, and incorporated herein by this
reference.
<PAGE>
5.3 Water. Landlord will furnish or cause to be furnished to the Common
Areas water from the Fairfax County mains for drinking, lavatory (including warm
water at reasonable temperatures as reasonably determined by Landlord) and
toilet purposes. Water will be available in the Building core for purposes of
bringing the same to the Premises. However, any improvements or alterations
necessary to bring water to the Premises shall be at Tenant's cost as part of
the Improvements. Tenant will not install any equipment that uses extraordinary
amounts of water without Landlord's prior written consent. Tenant will not waste
or permit the waste of water. Landlord reserves the right to install, at the
Tenant's sole cost, check meters, which will be utilized to determine the amount
Tenant will reimburse Landlord for Tenant's excess usage. If such meter(s) or
prior testing or measurement by Landlord determines that Tenant's total water
usage with respect to the Premises is excessive, then Tenant shall pay for the
cost of installing such meter and thereafter Tenant shall pay for any excess
water usage based upon the determination of Tenant's actual usage by such meter.
The determination of whether Tenant's usage is excessive shall be made by an
independent third party building engineer mutually chosen by Landlord and
Tenant, which engineer: (i) shall have significant experience in Class A office
buildings in the Tysons Corner submarket, and (ii) shall not have worked for
Landlord, Tenant or either of their respective affiliates during the five (5)
years immediately preceding the hiring of said engineer by the parties to make
the aforesaid determination. Said third party engineer shall be chosen as
follows: If Landlord concludes that Tenant's usage is excessive, Landlord will
notify Tenant of the same. Unless Tenant agrees in writing to Landlord's
conclusions regarding excessive usage within ten (10) days of Landlord's
notification regarding the same (in which case Tenant shall pay for the
excessive usage as determined by Landlord), Landlord will provide to Tenant a
list of at least three (3) qualified engineers who meet the requirements set
forth above. Within five (5) days of Landlord's submission of said list of
qualified engineers, Tenant will select one such engineer, and the parties shall
retain said selected engineer to make the foregoing determination as to whether
Tenant's usage is excessive, and if so, to what extent the same is excessive. If
Tenant fails to choose an engineer from such list within such five (5) day
period, Landlord shall select an engineer from the list to make the
determination. The determination by said engineer shall include consideration
usage of water by tenants in similar Class A office buildings in the Tysons
Corner submarket, Tenant's use of the Premises, the plans and specifications for
the Building and the Final Plans for the Improvements. (However, the parties
acknowledge that Landlord's approval of any such Final Plans shall in no way be
construed as consent by Landlord to excessive water use which may be associated
with the improvements, alterations, equipment or fixtures described in the
same).
5.4 Janitorial Services. Landlord will furnish or cause to be furnished
to the Premises janitorial and cleaning services in accordance with cleaning
specifications attached hereto as Exhibit G, and incorporated herein by this
reference, as the same may be reasonably modified from time to time by Landlord.
At all times during the Term, such janitorial and cleaning service to the
Premises shall be consistent with service customarily provided in similar Class
A office buildings in the Tysons Corner submarket. Tenant shall pay Landlord for
any services not included on Exhibit G requested by Tenant at the amount charged
to Landlord. Tenant shall have the right to contract separately with Landlord's
Janitorial Services vendor for additional Janitorial Services, without such
contract being deemed to be interference with Landlord's
<PAGE>
contract. So long as Tenant leases at least three (3) full floors in the
Building, Landlord will consult with Tenant prior to making change to the
Janitorial Services vendor.
5.5 Elevator Service. Landlord will furnish or cause to be furnished
twenty-four (24) hours per day, (with at least one (1) elevator subject to call
at all times) normal passenger elevator service for Landlord, tenants and
visitors of the Building. Landlord may, from time to time, as Landlord shall
reasonably determine, in the operation of a Class A office building, take
elevators out of service to perform maintenance. The Building elevators shall be
installed so that each elevator can be configured to be restricted from
accessing any particular floor or floors in the Building, except through the use
of a pass key or other similar device. So long as Tenant leases at least three
(3) full floors in the Building Landlord will consult with Tenant regarding
which elevators shall have access to which floors of the Building (except Tenant
shall have no right to consult with Landlord regarding the elevators access to
the first floor of the Building or to the parking garage). Landlord shall
provide to Tenant, at no additional cost, such pass keys or similar devices
which Landlord can provide to Tenant without exceeding the total budget for the
base building security system. Each of these pass keys shall be programmed to
allow the holder access, as directed by Tenant, to particular floors of the
Building, provided that such programming does not cause Landlord to exceed its
security system budget for the Building.
5.6 No Liability.
------------
(a) Subject to the other terms of this Lease, if there is a failure by
Landlord to furnish the utilities or services specified in this Lease, which
failure: (1) interferes substantially with or prevents Tenant's use of the
Premises or any part thereof, and (2) can be remedied in whole or in part by
Landlord, Landlord shall use commercially reasonable efforts to promptly
commence action to restore same and thereafter continue such action with
reasonable diligence until same are restored or Landlord has completed such
commercially reasonable efforts as are possible under the circumstances to aid
in the return of such utilities or services. However, interruption or
malfunction of any utility, telephone or other service shall not constitute a
breach by Landlord, nor shall it cause an eviction or disturbance of Tenant, or
release Tenant from any obligation hereunder, or grant Tenant any right to an
offset against rent or rent abatement (except as expressly provided below), and
neither Landlord nor Landlord's Agents shall be liable for damages
(consequential or otherwise) as a result thereof.
(b) If there is a failure by Landlord to furnish the utilities or
services specified in this Lease to be provided by Landlord, which failure: (i)
interferes substantially with or prevents Tenant's use of the Premises or any
part thereof, (ii) is capable of being remedied by Landlord by the exercise of
commercially reasonable efforts (as opposed to being outside of Landlord's
control), and (iii) continues for five (5) consecutive business days, the
Monthly Base Rent and regularly-recurring Additional Rent charges shall abate
for the period of such interruption and continuing until such interruption is
remedied, based upon the portion or portions of the Premises rendered unusable
by such interruption of utilities or services.
(c) If there is a failure by Landlord to furnish the utilities or
services specified in this Lease to be provided by Landlord , which failure: (i)
interferes substantially with or prevents Tenant's use of the Premises or any
part thereof, (ii) is not capable of being remedied by
<PAGE>
Landlord by the exercise of commercially reasonable efforts (in that such remedy
is outside of Landlord's control), and (iii) continues for seven (7) consecutive
business days, the Monthly Base Rent and regularly-recurring Additional Rent
charges shall abate for the period of such interruption and continuing until
such interruption is remedied, based upon the portion or portions of the
Premises rendered unusable by such interruption of utilities or services. In
addition, if such interruption as described in this subparagraph (c) continues
for a period in excess of forty-five (45) consecutive business days, then Tenant
may terminate this Lease by providing written notice to Landlord on or before
the earlier to occur of (1) thirty (30) days following the expiration of the
aforesaid forty-five (45) business day period, and (2) the restoration of such
interrupted service.
5.7 Security/Access.
---------------
(a) Tenant shall have access to the Premises twenty-four (24) hours per
day, seven (7) days per week. Tenant's access to the Building and the Premises
shall be subject to all security measures as Landlord shall reasonably undertake
with respect to the Building, which security measures may include a Kastle Key
access system for use outside of normal Building operating hours, and a lobby
attendant during normal office hours. It is understood that no security systems
or procedures installed or mandated by Landlord shall (except due to Landlord's
gross negligence or wilful misconduct), in any way increase Landlord's liability
for occurrences and/or consequences which such systems or procedures are
designed to detect or avert and that Tenant shall look solely to all applicable
insurance policies as set forth herein for claims for damages or injury to any
person or property. So long as Tenant leases at least three (3) full floors in
the Building, Landlord will consult with Tenant prior to making change to the
security services vendor with respect to the Building. Tenant shall have the
right to contract separately with Landlord's security services vendor for
additional security services, without such contract being deemed to be
interference with Landlord's contract.
(b) Tenant shall also have the right, at its option, to take additional
security measures by modifying or expanding the Building security systems and
installing additional security systems as Tenant may deem necessary, provided
that Tenant obtains Landlord's prior written consent (which consent shall not be
unreasonably withheld, conditioned or delayed), and further provided that such
additional security measures or systems shall not interfere with: (i) Landlord's
access rights with respect to the Premises (as set forth in Section 10.1), (ii)
Landlord's and other tenant's rights with respect to the Common Areas, and (iii)
other tenant's rights with respect to their respective premises in the Building
. Any such additional security systems or adaptations or modifications of the
base Building system suggested by Tenant: (1) shall be incorporated into the
base Building system, and (2) will be subject to the limitation that any such
systems must accommodate and be usable by the Landlord in a multi-tenanted
Building framework. The cost of any such additional security measures or systems
or changes or adaptations to the base Building system shall be borne by Tenant.
However, to the extent that the total final cost of such additional systems and
measures, along with the other systems and security measures installed or taken
by Landlord (including the costs associated with providing Tenant with key cards
as required hereunder), does not exceed thirty thousand dollars ($30,000.00),
Landlord shall bear a portion of such cost (up to a maximum expenditure by
Landlord for security systems, equipment and security measures in the Building
of $30,000.00). At Landlord's sole option (exercised at the time of Landlord's
approval of any such systems if the same are properly submitted to Landlord for
approval as required hereunder), upon the expiration or earlier termination of
the Term, all such additional security systems, equipment
<PAGE>
and measures shall be removed from the Building by Tenant at Tenant's sole cost
and expense.
(c) In addition to the foregoing, for as long as Tenant leases all of
the leasable office space in the Building above the first floor, Tenant, at its
option and at its sole cost and expense, may: (i) provide up to two (2)
employees or representatives in the first floor lobby of the Building to provide
additional security for Tenant and/or to answer questions or direct Tenant's
visitors, employees, contractors or invitees in the Building, and (ii) subject
to Landlord's prior written approval, which approval shall not be unreasonably
withheld, erect minor non-structural improvements in such first floor lobby
(such as a reception desk) to accommodate the stationing of Tenant's employees
in such lobby, if Landlord has not previously erected the same.
(d) Tenant shall have the right to contract separately with Landlord's
Building management or concierge services vendor for additional Building
management or concierge services, without such contract being deemed to be
interference with Landlord's contract.
5.8 Maintenance and Repair. Landlord, at its expense (subject to
partial reimbursement in accordance with the terms of Section 4.3 hereof) will,
consistent with similar Class A office buildings in the Tyson's Corner markets:
(i) comply with all present and future laws, ordinances (including zoning
ordinances and land use requirements), regulations, orders or other legal
requirements of the United States of America, the Commonwealth of Virginia, and
any other public or quasi-public authority having jurisdiction over the Building
with respect to the Common Areas of the Building [except as otherwise expressly
provided in this Lease and except as to compliance which becomes necessary as a
direct result of Tenant's unique use of the Premises (as opposed to general
office use thereof), which compliance costs shall be borne solely by Tenant],
(ii) maintain in good order and repair the Common Areas of the Building and the
Building's structural portions (exterior walls, load bearing elements and
foundation), as well as the roof and the base Building mechanical, life/safety,
electrical, HVAC and plumbing systems (unless the same are damaged as a result
of the acts or omissions of Tenant or Tenant's Agents, in which case Landlord
shall perform any necessary repairs or replacements arising therefrom at
Tenant's sole cost and expense in accordance with the terms of Section 6.1
below), (iii) provide replacement light bulbs for building standard light
fixtures, (iv) remove trash from the Common Areas of the Building, (v) remove
ice and snow from the Common Areas outside of the Building and (vi) provide
bathroom supplies for the bathroom facilities in the Common Areas of the
Building.
5.9 Communications. (a) Tenant and Tenant's telecommunications
companies, including but not limited to local exchange telecommunications
companies and alternative access vendor services companies approved in writing
by Landlord in its reasonable discretion ("Telecommunications Companies"), shall
have, at all times during the Term and all renewal terms, subject to the terms
of this Section 5.9 and the other provisions of this Lease, a reasonable and
necessary right of access to a proportionate share (as defined below) of the
risers and other portions of the Building (other than the roof, with respect to
which Tenant's rights are governed
<PAGE>
by the terms of Section 15.26 hereof) utilized to provide telecommunications
service to the Premises and the Building at no additional fee, cost or expense
to Tenant for the purpose of installing and operating telecommunications lines
and systems including but not limited to voice, video, data, and any other
telecommunications services provided over wire, fiber optic, microwave, wireless
and any other transmission systems, for part or all of Tenant's
telecommunications within the Building and from the Building to any other
location (hereinafter collectively referred to as "Telecommunications Lines").
All such access, and the identity of all such Telecommunications Companies shall
be subject to Landlord's prior written consent, which shall not be unreasonably
withheld, conditioned or delayed. Notwithstanding the foregoing, Tenant may
perform any installation, repair and/or maintenance to its Telecommunications
Lines without Landlord's consent (provided that Landlord has previously approved
in writing the party performing such work) where the equipment being installed,
repaired or maintained is not located in an area in which the Telecommunications
Lines or any part thereof of any other tenant or of Landlord are located.
Tenant's proportionate share of the risers and other portions of the Building
utilized to provide telecommunications service to the Premises and the Building
shall be determined from time to time as follows: the total square feet of Net
Rentable Area leased in the Building by Tenant pursuant to the terms of this
Lease shall be divided by the total Net Rentable Area of the Building (in a
manner similar to the calculations set forth in Sections 1.5 and 1.6 hereof).
Tenant shall be entitled to use the resulting percentage of that portion of the
risers and other portions of the Building utilized to provide telecommunications
service to the Premises and the Building which are not reserved by Landlord for
its use in connection with the operation and management of the Building.
(b) If at any time, including, at all times during the Term and all
renewal terms, Tenant's Telecommunications Companies or appropriate governmental
authorities relocate the point of demarcation from the location of Tenant's
telecommunications equipment in Tenant's telephone equipment room or other
location, to some other point, or in any other manner transfer any obligations
or liabilities for telecommunications service to Landlord or Tenant, whether by
operation of law or otherwise, then, within ninety (90) days of Landlord's
election, Tenant shall, at Tenant's sole expense and cost: cause to be completed
by an appropriate telecommunications engineering entity approved in advance in
writing by Landlord, all details of the Telecommunications Lines serving Tenant
in the Building which details shall include all appropriate plans, schematics,
and specifications therefor; and (ii) if Landlord so elects in its sole
discretion, after written notice to Tenant of same, immediately undertake the
operation, repair and maintenance of the Telecommunications Lines serving Tenant
in the Building.
(c) Subject to the limitations set forth in this Section 5.9, Tenant
shall have the right to receive telecommunications services, at all times during
the Term and all renewal terms, from the vendor(s) of Tenant's choice and
Landlord shall cooperate in accommodating such service and shall provide
reasonable access to those portions of the Real Property allocated to Tenant in
accordance with the foregoing terms (and such other portions of the Building as
may reasonably be necessary to access those portions of the Building allocated
to Tenant in accordance with the foregoing terms) for said services. At all
times during the Term and all renewal terms, Landlord shall provide free and
unencumbered access to Tenant to all Building risers, conduits, shafts, etc.
allocated to Tenant in accordance with the foregoing terms, as needed by Tenant
to connect such
<PAGE>
service through the Real Property to the Premises. To the degree that any
easement rights are needed for any such service necessary for the conduct of
Tenant's business, Landlord will grant same, provided that: (i) no such easement
rights shall in any way be construed to increase the size of those portions of
the Real Property allocated to Tenant in accordance with the foregoing terms (or
increase any of Tenant's rights with respect to the roof as set forth in Section
15.26), and (ii) no such easements shall in any way interfere with Landlord's or
other tenants operations in the Building (or the operations of any adjacent
landowners or their tenants) or any other easements, rights of way or other
rights or obligations binding upon Landlord with respect to the Building. Tenant
hereby indemnifies and holds Landlord harmless from and against any and all
costs, expenses, liabilities, claims, causes of action, actions or damages
incurred or suffered by Landlord in any way related to any such easements or the
exercise by Tenant or its vendors of Tenant's rights hereunder.
ARTICLE VI. TENANT'S CARE OF PREMISES
-------------------------
6.1 Waste. Neither Tenant nor Tenant's Agents will commit waste or
nuisance and will keep the Premises and the fixtures therein in good repair.
Tenant shall be responsible for maintenance and repair of appliances and shall
pay for unstopping any drains or water closets in the Premises. Except as may be
expressly provided in Section 5.8, Tenant shall, at its own expense, maintain
the Premises and all of Tenant's Property in good, clean and safe condition,
promptly making all necessary repairs and replacements. Tenant shall repair at
its expense, any and all damage, other than ordinary wear and tear, caused by
Tenant or Tenant's Agents to the Building, Common Area, the Premises, and
Tenant's Property, including equipment within and serving the Building, ordinary
wear and tear excepted. Such maintenance and repairs shall be performed with due
diligence, lien-free and in a first-class workmanlike manner, by such
contractor(s) selected by Tenant and approved by Landlord, which approval shall
not be unreasonably withheld, conditioned or delayed. Notwithstanding the
foregoing, Tenant shall bear the cost of, but shall not itself perform any such
repairs which (i) subject to the terms of this Lease, would affect the
Building's structure or mechanical or electrical systems, (ii) would be visible
from the exterior of the Building or from any interior Common Area of the
Building, or (iii) were originally performed by Landlord under the Work
Agreement. Tenant shall not have access to the roof of the Building for any
purpose whatsoever, except for the purposes of accessing any equipment of Tenant
which may be permitted on the roof of the Building in accordance with the terms
of Section 15.26, and any such access shall only be upon prior written notice to
Landlord and accompanied by representatives of Landlord at mutually convenient
times. If: (1) Tenant fails to perform any of the foregoing required repairs or
maintenance to the Premises, and thereafter fails to cure such failure within
thirty (30) days following written notice from Landlord (except in the event of
an emergency in which no such notice shall be required), (2) Landlord, following
written notice to Tenant (except in the event of an emergency) performs any of
the foregoing repairs or maintenance which are to be made at Tenant's cost, (3)
Tenant requests that Landlord perform any other repairs or maintenance (although
Landlord shall not be obligated to make same), or (4) any act or neglect of
Tenant or Tenant's Agents results in damage to the Premises or the Building,
Landlord may make such repairs or undertake such necessary maintenance, and
within thirty (30) days of receipt of Landlord's invoice, Tenant shall reimburse
Landlord for the cost thereof (plus Landlord's overhead cost of ten percent
(10%) of the cost) as
<PAGE>
Additional Rent. Tenant will not deface or injure the Building, and will pay the
cost of repairing any damage or injury done to the Building or any part thereof
by Tenant. Tenant will participate in any reasonable Landlord-required recycling
program applicable to Tenant which is required by law. Tenant shall not smoke
tobacco in any part of the Building except in those areas, if any, that are
clearly designated by Landlord as smoking areas. Tenant shall not use, store or
handle or permit the usage, storing or handling of any materials in levels that
exceed those established for indoor air quality pursuant to applicable law.
6.2 Compliance with Law. Tenant, at its cost and expense, will observe
and comply promptly with all present and future laws, ordinances (including
zoning ordinances and land use requirements), regulations, orders or other legal
requirements of the United States of America, the Commonwealth of Virginia, and
any other public or quasi-public authority having jurisdiction over the Premises
and insurance requirements relating to or affecting the Premises, the condition
thereof, all machinery, equipment and furnishings therein, Tenant's use and
occupancy thereof, any Tenant sign, or incident to Tenant's occupancy of the
Building and its use thereof. It is expressly understood that if any present or
future law, ordinance, regulation or order requires an occupancy or use permit
for the Premises (other than the initial Certificate of Occupancy, which shall
be obtained by Landlord if Landlord performs the Improvements), Tenant shall
obtain such permit at Tenant's own expense and shall promptly deliver a copy
thereof to Landlord. Use of the Premises is subject to all covenants, conditions
and restrictions of record. Breach of this Section 6.2 which continues uncured
beyond the applicable notice and cure periods set forth in Section 11.1 is a
Default under this Lease.
<PAGE>
6.3 Alterations, Additions or Improvements: Moving. Tenant may not make
any alterations, improvements, door lock changes (except as otherwise set forth
herein) or other modifications to the Premises without the prior written consent
of Landlord. Landlord's consent to purely cosmetic alterations, which will not
affect the HVAC, any Building system, or the exterior appearance or structure of
the Building or the Premises, or, in Landlord's reasonable determination,
adversely effect the ability to lease the Premises, shall not be unreasonably
withheld, conditioned or delayed. All other approvals shall be in Landlord's
sole and absolute discretion. Requests must be in writing and detailed to
Landlord's reasonable satisfaction. Notwithstanding the foregoing, Tenant,
without the prior written consent of Landlord, may perform minor non-structural
alterations costing less than two dollars ($2.00) per square foot (of the Net
Rentable Area of that floor of the Premises affected by such alterations)
provided that: (i) such alterations do not affect the HVAC or any Building
system, or the exterior appearance of the Building, (ii) the same are performed
using finishes and materials of at least the same quality and grade as those
used in the Improvements, and (iii) the same are performed in accordance with
the other requirements of this Lease. Such minor structural alterations shall
include: (1) painting and installing wall coverings, (2) installing and removing
office furniture, (3) installing and removing workstations, (4) installing and
removing Tenant's equipment and performing cable pulls in connection therewith,
(5) installing and removing carpeting and other floor coverings (provided that
such alterations include the replacement of the same with other carpeting or
other floor coverings), and (6) other similar alterations. Upon completion of
any alterations which require the issuance of building permits or otherwise
involve the erection of walls, doors or other permanent barriers or means of
ingress or egress, Tenant, at Tenant's cost
<PAGE>
and expense, shall provide Landlord with "as built" drawings of such alterations
and the Premises. Tenant shall give Landlord reasonable advance notice before
beginning work on any Alterations. Except as set forth below, all alterations,
additions or improvements (including, but not limited to carpets, drapes and
anything bolted, nailed or otherwise secured in a manner customarily deemed to
be permanent) are fixtures, not subject to attachment of a mechanic's or
materialman's lien, and will become the property of Landlord and remain in the
Premises at the end of the Lease Term. Notwithstanding the foregoing, Tenant
property, which shall include fixtures in the Premises which may be installed
and removed without material damage to the Premises, and any and all equipment
and/or supplies in the Premises utilized by Tenant in its business operations,
including computers, telephone or telecommunications equipment and other
business equipment and systems ("Tenant's Property") shall remain the sole
property of Tenant and Tenant shall have the right to remove the same at any
time without Landlord's consent All alterations, additions or improvements made
in or upon the Premises, either by Landlord or Tenant in order to comply with
ADA are Landlord's property upon the termination of this Lease and shall remain
on the Premises without compensation to Tenant. Notwithstanding the foregoing:
(i) other than the Improvements (as defined in Exhibit C) (except as expressly
provided below) and any subsequent improvements or alterations installed by
Tenant with Landlord's consent, which improvements or alterations are typical
and customary office improvements in the Tysons Corner submarket, Landlord has
the option to require Tenant to remove any fixtures, equipment and other
improvements installed in the Premises, and (ii) Landlord has the option to
require Tenant to remove any raised flooring and associated cabling, equipment
and improvements (even if the same forms a part of the Improvements), provided
that Landlord may not require Tenant to remove (and restore the floor to the
condition that the same was delivered to Tenant) any raised flooring
improvements on the fourth (4th) floor of the Building to the extent that the
total square footage of such raised flooring on the fourth (4th) floor consists
of no more than 15,000 square feet of Net Rentable Area. With respect to any
alterations or improvements which require Landlord's prior written consent,
provided that Tenant properly and timely seeks such consent, Landlord shall
advise Tenant at the time of granting such consent as to whether the subject
alterations or improvements must be removed at the expiration or termination of
the Term. If Landlord requires removal and Tenant fails to comply within ten
(10) days after written notice from Landlord, Landlord may remove same at
Tenant's cost, and Tenant shall pay Landlord upon demand all costs incurred by
Landlord in removing the alterations, additions and improvements. Tenant's
performance of its obligations to maintain and repair and any moving of Tenant's
furnishings, equipment or other property may be conducted only by contractors
and subcontractors reasonably approved in writing by Landlord. Landlord may, at
Landlord's option, require that alterations be performed or constructed outside
of normal business hours. Tenant must maintain and cause such contractors and
subcontractors to maintain insurance coverage against such risks, in such
amounts and with such companies as Landlord reasonably requires in connection
with any alterations, improvements or other modifications. Such contractors and
subcontractors must provide Landlord with certificates of insurance prior to
commencement of work, and such certificates shall list Landlord and its asset
manager, property manager, managing agent and any other designee of Landlord as
additional insured.
6.4 No Overloading or Overcrowding. Tenant shall not place a load upon
the floor of the Premises exceeding the load per square foot such floor was
designed to carry, as reasonably
<PAGE>
determined by Landlord's structural engineer. (In making such determination,
partitions shall be considered as part of the load). Landlord may reasonably
prescribe the weight and position of all safes, files and heavy equipment that
Tenant desires to place in the Premises, to allow proper distribution of their
weight. Tenant's business machines and mechanical equipment shall be installed
and maintained so as not to transmit noise or vibration to the Building
structure or to any other space in the Building outside of the Premises. Tenant
shall be responsible for the reasonable cost of all structural engineering
required to determine structural load and all acoustical engineering reasonably
required to address any noise or vibration caused by Tenant which affects any
other tenant in the Building, the Building's structure or any of the base
Building systems or equipment. All such engineers and/or consultants shall be
selected by Landlord. Tenant will not employ or maintain at the Premises more
than one (1) employee for each one hundred seventy-five (175) square feet of Net
Rentable Area of the Premises. Tenant shall not walk, nor install any item of
any kind or nature, upon the roof of the Building (except as may be expressly
provided in Section 15.26), nor make any installments or alterations of any kind
upon or through the roof or walls of the Building, without the prior written
consent of Landlord, which may be withheld in Landlord's sole and absolute
discretion.
6.5 No Liens. Landlord's title is and always will be paramount to the
title of Tenant, and Tenant will not do or be empowered to do any act which
encumbers or may encumber Landlord's title or subjects the Premises or the
Building or any part of either to any lien. Tenant must, within ten (10)
business day of the filing thereof, remove (or bond off pursuant to applicable
statutes) any and all liens or encumbrances which are filed against the Premises
or the Building as a result of any act or omission of Tenant or Tenant's Agents.
If Tenant fails to remove any such lien within ten business (10) days of receipt
of notice thereof, then Landlord may, but is not obligated to, remove or
bond-off such lien, and Tenant shall pay all reasonable costs of removal or
bonding the lien, plus interest at the Default Rate to Landlord within thirty
(30) days of Landlord's written demand therefor.
6.6 Property and Improvements at Tenant's Risk. Except as to the gross
negligence or wilful misconduct of Landlord or Landlord's Agents, all personal
property, betterments and improvements in the Premises, the Building, parking
areas or related facilities, whether owned, leased or installed by Landlord,
Tenant or any other person, are at Tenant's sole risk, and except as to the
gross negligence or wilful misconduct of Landlord or Landlord's Agents, neither
Landlord nor Landlord's Agents will be liable for any damage thereto or loss
thereof from any cause, including but not limited to theft, misappropriation,
casualty, overflowing or leaking of the roof, the bursting or leaking of water,
sewer or steam pipes (including sprinklers), or from heating or plumbing
fixtures.
6.7 Flammable, Explosive or Toxic Substances. Tenant will not use or
permit in the Premises or the Building any flammable or explosive material,
toxic substances, environmentally hazardous materials (as defined below) or
other items hazardous to persons or property. Tenant will not use the Premises
in a manner that (a) invalidates or is in conflict with fire, insurance, life
safety or other policies covering the Building or the Premises, or (b) increases
the rate of fire or other insurance on the Building or the Premises. If any
insurance premium is higher than it otherwise would be due to Tenant's failure
to comply with this Section 6.7, Tenant shall
<PAGE>
reimburse Landlord as Additional Rent, that part of Landlord's insurance
premiums that are charged because of Tenant's failure to comply with this
provision. The foregoing terms of this Section 6.7 shall not preclude Tenant
from using materials commonly used in a business office setting, provided that
Tenant properly uses, handles and disposes of the same in accordance with
applicable law and the manufacturers instructions with respect thereto.
6.8 Hazardous Materials Defined. "Hazardous Materials" means: (a) any
"hazardous waste" as defined by the Resource Conservation and Recovery Act of
1976 (42 U.S.C. ss.6901 et. seq.) ("RCRA"), as amended from time to time, and
regulations promulgated thereunder; (b) any "hazardous substance" being
"released" in "reportable quantity" as such terms are defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. ss.9601 et. seq.) ("CERCLA"), as amended from time to time, and
regulations promulgated thereunder; (c) asbestos; (d) polychlorinated biphenyls;
(e) urea formaldehyde insulation; (f) "hazardous chemicals" or "extremely
hazardous substances", in quantities sufficient to require reporting,
registration, notification or special treatment or handling under the Emergency
Planning and Community Right-to-Know Act of 1986 (42 U.S.C. ss.ss.11001, et.
seq.) ("EPCRA"), as amended from time to time and regulations promulgated
thereunder; (g) any "hazardous chemicals" in levels that would result in
exposures greater than those allowed by permissible exposure limits established
pursuant to the Occupational Safety and Health Act of 1970 (29 U.S.C. ss.651 et.
seq.) ("OSHA"), as amended from time to time and regulations promulgated
thereunder; (h) any substance which requires reporting, registration,
notification, removal, abatement or special treatment, storage, handling or
disposal under Section 6, 7 or 8 of the Toxic Substances Control Act (15 U.S.C.
ss.ss.2601 et. seq.) ("TSCA") as amended from time to time and regulations
promulgated thereunder; (i) any toxic or hazardous chemicals described in the
Occupational Safety and Health Standards (29 C.F.R. 1910.1000-1047) in levels
which would result in exposures greater than those allowed by the permissible
exposure limits pursuant to such regulations; (j) the contents of any storage
tanks, whether above or below ground; (k) medical wastes; (l) materials related
to those described in subparagraphs (a) through (k) hereof; and (m) anything
defined as hazardous or toxic under any now existing or hereinafter enacted
statute.
6.9 Environmental Compliance. (a) Tenant will not use or permit the
Premises to be used in violation of any Environmental Regulations (as defined
below). Tenant assumes sole and full responsibility for, and will remedy at its
cost, all such violations, provided that Tenant must first obtain Landlord's
written approval of any remedial actions, which approval Landlord may not
unreasonably withhold. Tenant will not use, generate, release, store, treat,
dispose of, or otherwise deposit, in, on, under or about the Premises, any
Hazardous Materials, nor will Tenant permit or allow any third party to do so,
without Landlord's prior written consent. The foregoing shall not preclude
Tenant from using materials commonly used in a business office setting, provided
that Tenant properly uses, handles and disposes of the same in accordance with
applicable law and the manufacturers instructions with respect thereto.
Landlord's election to conduct inspections of the Premises is not approval of
Tenant's use of the Premises or any activities conducted thereon, and is not an
assumption by Landlord of any responsibility regarding Tenant's use of the
Premises or Hazardous Materials. Tenant's compliance with the terms of this
Section 6.9 and with all Environmental Regulations is at Tenant's sole cost. If
<PAGE>
Tenant violates its covenants or obligations under this Section 6.9, Tenant will
pay or reimburse Landlord for the reasonable costs or expenses incurred by
Landlord, including reasonable attorneys', engineers', consultants' and other
experts' fees and disbursements incurred or payable to determine, review,
approve, consent to or monitor the requirements for compliance with
Environmental Regulations. If Tenant fails to comply with the provisions of this
Section 6.9, or if Landlord receives notice or information asserting the
existence of any Hazardous Materials, Landlord has the right, but not the
obligation, without in any way limiting Landlord's other rights and remedies, to
enter upon the Premises or to take such other actions Landlord deems necessary
or advisable to clean up, remove, resolve, or minimize the impact of any
Hazardous Materials on or affecting the Premises. Tenant shall pay to Landlord
within thirty (30) days of Landlord's demand therefor, as Additional Rent, all
reasonable costs and expenses paid or incurred by Landlord in the exercise of
any such rights. Tenant will notify Landlord in writing, immediately upon the
discovery by Tenant or receipt by Tenant of written notice (from a governmental
authority or other entity), of the presence in the Premises or the Building of
any Hazardous Materials or conditions that result in a violation of or could
reasonably be expected to violate this Section 6.9, together with a full
description thereof to the extent known to Tenant. "Environmental Regulations"
means any law, statute, regulation, order or rule now or hereafter promulgated
by any Governmental Authority, whether local, state or federal, relating to air
pollution, water pollution, noise control or transporting, storing, handling,
discharge, disposal or recovery of on-site or off-site hazardous substances or
materials, as same may be amended from time to time. To the best of Landlord's
knowledge, there are no Hazardous Materials present in the Building or on the
Landlord in violation of any Environmental Regulations. Landlord shall, at
Landlord's expense, indemnify Tenant against any costs and expenses arising
from, and perform any work (removal or encapsulment) necessary to satisfy the
applicable legal requirements with respect to: (i) any Hazardous Materials
brought onto the Premises by Landlord or Landlord's Agents, (ii) any violation
of Environmental Regulations by Landlord or Landlord's Agents, or (iii) any
Hazardous Materials in the Building or on the Land prior to the Delivery Date.
(b) Landlord represents and warrants that, to Landlord's knowledge,
there are no Hazardous Materials on in or under the Premises, the Land or the
Building. Landlord covenants not to violate any Environmental Regulations with
respect to the Building, and Landlord shall indemnify and hold Tenant and
Tenant's Agents harmless from and against any claims, damages, losses or
liabilities (including reasonable attorneys' fees) arising from Landlord's
breach of the foregoing warranty or violation of any Environmental Regulations.
6.10 ADA Compliance. Nothing contained in this Lease is intended to
prevent or prohibit compliance by either party with ADA nor is any provision of
this Lease intended to violate ADA, and any provision that does so is hereby
modified to allow compliance or deleted as necessary. Tenant indemnifies
Landlord, Landlord's Agents, its affiliates, agents, officers, employees and
contractors, for all costs, liabilities and causes of action occurring or
arising as a result of Tenant's failure to comply with ADA or as a result of any
violation of ADA by Tenant or Tenant's Agents, and, at Landlord's option, Tenant
will defend Landlord, Landlord's Agents, its affiliates, agents, officers,
employees and contractors, against all such costs, liabilities and causes of
action. Landlord represents and warrants that as of the Delivery Date, to
Landlord's
<PAGE>
knowledge, the Building and Landlord's Work are not in violation of ADA, and
Landlord shall, at its cost and expense (subject to partial reimbursement in
accordance with the terms of Section 4.3 of the Lease), ensure that the common
areas of the Building are not in violation of ADA during the Term of the Lease.
The existence of a validly issued Certificate of Occupancy for the Building from
the appropriate governmental authorities shall constitute evidence of Landlord's
compliance with the foregoing. Breach of this Section 6.10 which continues
uncured beyond the applicable notice and cure periods set forth in Section 11.1
is a Default under this Lease
6.11 Termination and Surrender. Tenant shall, upon the expiration or
sooner termination of the Term hereof: (i) peaceably and quietly leave,
surrender and yield up to the Landlord the Premises, free of subtenancies, broom
clean and in the same good order and condition as when received except for
reasonable wear and tear, fire or other casualty, (ii) surrender any keys,
electronic ID cards, and other access devices to Landlord at the place then
fixed for the payment of rent, (iii) deliver the Premises to Landlord free of
any and all Hazardous Materials present on the Premises in violation of Tenant's
covenants or obligations under Section 6.9 so that the condition of the Premises
conforms with all applicable Environmental Regulations, (iv) at its expense,
remove from the Premises all movable trade fixtures, furniture, equipment and
other personal property (collectively, "Tenant's Property") as well as any
alterations or improvements which Tenant is required to remove pursuant to the
terms of this Lease, (v) at its expense, remove from the Premises any
alterations or improvements which Landlord designates for removal in accordance
with Landlord's rights to so designate pursuant to the terms of this Lease
(including but not limited to the terms of Sections 6.3, 15.25 and 15.26), and
(vi) at its expense, promptly repair any damage caused by such removal. Any of
Tenant's Property which are not so removed may, at the Landlord's election and
without limiting Landlord's right to compel removal thereof, shall be stored by
Landlord at Tenant's expense, for not less than thirty (30) days, and thereafter
shall be deemed abandoned and may be retained by Landlord as its property or be
disposed of at Tenant's sole cost and expense, without accountability, in such
manner as Landlord may see fit. In the event the Tenant fails to comply with the
provisions of this Section 6.11: (i) Tenant shall, at the option of the
Landlord, be deemed to occupy the Premises after the expiration or earlier
termination of the Term or any renewal thereof, and be subject to the holdover
provisions of this Lease, and (ii) Tenant shall indemnify and hold Landlord
harmless from and against any costs incurred by Landlord in connection with
Tenant's failure to comply with such provisions (including but not limited to
the cost of performing Tenant's obligations hereunder). All installments,
alterations, additions, betterments and improvements to the Premises made by
Tenant, including, without limitation, all wiring, paneling, partitions, floor
coverings, lighting fixtures, and the like (other than Tenant's Property), shall
become the property of Landlord when installed and shall remain upon and be
surrendered with the Leased Premises as a part thereof at the expiration or
sooner termination of the Term, except that: (1) subject to the terms of Section
6.3, Landlord shall have the right, by notice to Tenant (which notice shall be
provided to Tenant at the time of Landlord's approval of any alteration or
improvements as required under the terms hereof, provided that Tenant timely and
properly obtains such consent), to require Tenant, at its expense, to remove any
alterations, additions and improvements (other than the Improvements, except as
provided in Section 6.3) in the Premises, and to repair any damage caused by
such removal, and (2) Tenant shall comply with its
<PAGE>
obligations set forth in Exhibit C hereto with respect to the removal of any
internal staircases. The provisions of this Section 6.11 shall survive any
expiration or termination of this Lease.
6.12 Indoor Air Quality. (a) So long as Tenant leases at least three
(3) full floors in the Building, Landlord, upon Tenant's written request, shall
have the Building and Premises tested for indoor air quality on an annual basis
with the cost of such testing to be included in annual Operating Costs. Landlord
shall promptly provide to Tenant copies of such annual written test reports
relating to the air quality in the Premises, or any other written report,
information, or date prepared as an evaluation of the indoor air quality of the
Building and/or Premises. Landlord shall implement recommendations set forth in
the report as appropriate to cause all air quality in the Premises and the
Common Areas of the Building to conform to then existing local, state or federal
regulations. The cost of implementing any of the foregoing shall be included in
Operating Costs. Notwithstanding the foregoing, Tenant shall be solely
responsible for, at its cost and expense (including reimbursement of Landlord
for the cost of said testing) implementing any recommendation which result from
Tenant's specific and unique use (as opposed to office use generally) or which
result from the negligence or wilful misconduct of Tenant or Tenant's Agents.
(b) In the event that any material problem with indoor air quality
which is not caused by Tenant, Tenant's Agents or by Tenant's use or occupancy
of the Premises: (i) interferes substantially with or prevents Tenant's use of
the Premises or any part thereof due to the hazardous nature of such air quality
problem, (ii) is not cured or remedied by Landlord within seven (7) business
days following written notice thereof from Tenant, and (iii) continues for seven
(7) consecutive business days, the Monthly Base Rent and regularly-recurring
Additional Rent charges shall abate for the period that such hazardous condition
with respect to air quality continues until the same is remedied, based upon the
portion or portions of the Premises rendered unusable by such hazardous
condition.
(c) Tenant shall endeavor in good faith and use its reasonable efforts
not to permit any employee to smoke tobacco in any part of the Building.
Landlord shall designate all of the office space in the Building "smoke-free"
and Landlord shall enact nondiscriminatory Rules and Regulations in the Building
to enforce such designation.
ARTICLE VII. TRANSFER OF INTEREST: PRIORITY OF LIEN
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7.1 Assignment and Sublease.
-----------------------
(a) Except as expressly provided below: (i) Tenant shall not assign,
transfer, mortgage or otherwise encumber this Lease or all or any of Tenant's
rights hereunder or interest herein, or sublet, rent or permit anyone to occupy
the Premises or any part thereof, and (ii) no assignment or transfer of this
Lease or the right of occupancy hereunder may be effectuated by operation of law
or otherwise.
(b) Tenant may assign Tenant's rights hereunder or interest herein or
sublet all or a portion of the Premises, subject to the prior written consent of
Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed provided that such proposed assignment or
<PAGE>
sublease complies with the other requirements of this Section 7.1 and the
following conditions are met:
(1) Tenant is not in Default of any of its obligations under
this Lease;
(2) Landlord receives at least thirty (30) days' prior written
notice of Tenant's intention to assign or sublet accompanied by all of
the information required pursuant to subclause (7) below;
(3) The proposed assignee or sublessee is of good character
and reputation and reasonably consistent in kind and character as good
tenants approved for occupancy in similar Class A office buildings in
the Tysons Corner submarket, and the proposed assignee satisfies
appropriate reasonable credit criteria applied by Landlord to other
tenants or subtenants of comparable size in the Building or other
similar buildings owned or managed by Landlord or its related entities;
(4) (Intentionally Omitted);
(5) The proposed assignee or sublessee is not a governmental
entity or agency or any other entity that may be entitled under any law
to diplomatic or sovereign immunity;
(6) The proposed use of the Premises is consistent with the
Permitted Use under this Lease and the tenancy requirements of a first
class office building, and such proposed use will not violate or be
likely to violate any other agreements affecting the Premises or the
Building, and will not be likely to increase Operating Costs of the
Building or the burden on Building elevators parking facilities or
other Common Areas beyond that imposed by Tenant;
(7) The financial capability of any proposed assignee is
reasonably acceptable to Landlord and Tenant submits to Landlord
sufficient information upon which Landlord can reasonably base a
judgment on the above criteria including, in addition to such other
information as Landlord shall reasonably require, the name, business
experience, financial net worth including, without limitation, its most
recent balance sheet and income statements certified by the chief
financial officer or a certified public accountant, and business
references (including any landlords in other locations) of the proposed
sublessee or assignee, a description of the proposed transaction which
shall include any and all documents relating thereto, the consideration
to be delivered to Tenant for the proposed assignment or sublease, any
proposed alterations or improvements to the Premises associated with
such proposed transaction, and (except as to publicly held companies)
the identity of any controlling partners or principals of the proposed
sublessee or assignee who may be involved in such a transaction,
regardless of whether it is the intention of such parties to actively
participate in the operation of the premises, the identity of any
broker entitled to a commission in respect of such proposed subletting
or
<PAGE>
assignment and the commission, if any, payable to such broker, and
any other information reasonably requested by Landlord; and
(8) Tenant shall deliver a copy of any proposed assignment or
sublease with the notice referred to in subclause two (2) above for
approval by Landlord provided that: (a) any such assignment shall
include an assumption by the assignee, from and after the effective
date of such assignment, of the performance and observance of the
covenants and conditions to be performed and observed on the part of
the Tenant as contained in this Lease, and (b) any such sublease shall
specify that such sublease shall not be further assigned, unless in
accordance with the criteria set forth herein, nor the Premises further
sublet unless in accordance with the criteria set forth herein, and
shall specify that the term of such sublease shall not extend beyond
one day prior to the expiration of the Term of this Lease.
Landlord agrees to review any request for consent complying with the
conditions hereunder and to advise Tenant of its approval or disapproval of such
proposed assignment or sublease not later than ten (10) business days after
receipt by Landlord of all information required under this subsection (b). If
Landlord shall fail to timely approve or disapprove a proposed assignment or
sublease within the aforesaid time period, and such failure continues for an
additional period of five (5) days following written notice from Tenant, then
such proposed assignment or sublease shall be deemed approved. The consent by
Landlord to any assignment, subletting or occupancy shall not be construed as a
waiver or release of Tenant from liability for the performance of any covenant
or obligation to be performed by Tenant under this Lease, nor shall the
collection or acceptance of rent from any assignee, subtenant or occupant
constitute a waiver or release of Tenant from any of its liabilities or
obligations under this Lease. Landlord's consent to any assignment, subletting
or occupancy shall not be construed as relieving Tenant or any assignee,
subtenant or occupant from the obligation of obtaining Landlord's prior written
consent to any subsequent assignment, subletting or occupancy. For any period
following a Default hereunder by Tenant until such Default is cured, Tenant
hereby assigns to Landlord the rent due from any assignee, subtenant or occupant
of Tenant and hereby authorizes each such assignee, subtenant or occupant to pay
said rent directly to Landlord until such Default has been cured.
(c) Subject to the terms set forth below, if Tenant is a partnership,
any dissolution of Tenant or a withdrawal or change, whether voluntary,
involuntary or by operation of law, of partners owning a controlling interest in
Tenant shall be deemed a voluntary assignment of this Lease and subject to the
provisions of this Article VII, and if Tenant is a corporation, any dissolution,
merger, consolidation or other reorganization of Tenant, or the sale or transfer
of a controlling interest of the capital stock of Tenant (except as to sales
made on a nationally recognized stock exchange), shall be deemed a voluntary
assignment of this lease and subject to the provisions of Article VII.
Notwithstanding the foregoing, Tenant shall be permitted to assign or sublease
its interest hereunder without the prior written consent of Landlord provided
that: (i) the assignee or subtenant of such interest is an Affiliate of Tenant
(as defined below), and (ii) Tenant notifies Landlord of the effective date and
terms of such assignment or sublease, and memorializes the same in an
appropriate written amendment to this Lease at least ten (10) days
<PAGE>
prior to the effective date of such assignment or sublease. For the purposes of
this Article VII, an "Affiliate of Tenant" shall mean (i) any person or
corporation that prior to and following the effective date of the proposed
assignment or sublease, directly or indirectly, controls, is controlled by or is
under common control with Tenant, or (ii) any entity which purchases or is
merged with and/or owns substantially all of the assets of Tenant or any entity
into which or with which Tenant is merged or consolidated or which is merged or
consolidated into or with Tenant, provided that the entity purchasing such
assets or resulting from such merger or consolidation has a net worth
(determined based upon market capitalization) of Three Billion, Five Hundred
Million Dollars ($3,500,000,000.00) or, if the resultant entity does not meet
such net worth test, the resultant entity causes another entity meeting such net
worth test to guarantee for the benefit of Landlord the obligations of Tenant
under the Lease. For purposes of this definition, "control" means possessing the
power to direct or cause the direction of the management and policies of the
entity by the ownership of a majority of the voting securities of the entity.
(d) If Landlord consents to an assignment or sublease, pursuant to the
terms of this Lease, Landlord will document its consent in accordance with the
requirements and procedures set forth above. Tenant shall pay reasonable
attorneys' fees and related expenses which Landlord incurs in processing and
documenting any request of Tenant for such consent, up to a maximum of Two
Thousand Dollars ($2,000.00) per proposed transaction. No assignment or
subletting, whether in violation hereof, approved by Landlord or permitted under
this Article VII relieves Tenant from liability or the obligation to comply with
the provisions of this Lease. If any excess rent is payable under a sublease
over the Rent payable hereunder or any payment is made to Tenant specifically on
account of or in consideration of an assignment or sublease of Tenant's interest
hereunder: (i) if the assignee, sublessee or transferee is an Affiliate of
Tenant (as defined above), then Tenant shall retain any such excess rent or
payment; (ii) if the assignee, sublessee or transferee is not an Affiliate of
Tenant, and such assignment, sublease or transfer does not result, in the
aggregate (when considered cumulatively with prior assignments, subleases or
transfers by Tenant), in the total assignment, sublease or other transfer of
Tenant's rights hereunder with respect to more than twenty nine thousand one
hundred seventy six (29,176) square feet in the Building, then Tenant shall
retain any such excess rent or payment; (iii) if the assignee, sublessee or
transferee is not an Affiliate of Tenant, and such assignment, sublease or
transfer results, in the aggregate (when considered cumulatively with prior
assignments, subleases or transfers by Tenant), in the total assignment,
sublease or other transfer of Tenant's rights hereunder with respect to more
than twenty nine thousand one hundred seventy six (29,176) square feet in the
Building, then Tenant shall pay Landlord an amount equal to fifty percent (50%)
of such excess rent or other payment which exceeds the costs of subleasing or
assigning (including attorneys, consultants and brokers fees, and all other
reasonable inducements, concessions and improvements to the space) within thirty
(30) business days of the date on which such amount is paid to Tenant pursuant
to its agreement with the sublessee, assignee or other transferee of Tenant's
interest hereunder.
(e) Except for a proposed assignment or sublease to an Affiliate of
Tenant which does not require Landlord's prior written consent pursuant to the
foregoing terms, in addition to Landlord's right to approve or disapprove a
proposed assignment, sale or other transfer of this Lease or sublease of any
portion of the Premises in accordance with the foregoing terms, upon
<PAGE>
Tenant's submission of request for approval and the necessary additional
information described above, Landlord shall have the right, exercisable within
ten (10) business days of Tenant's request for consent and submission of all
necessary information related thereto, to recapture Tenant's interest in this
Lease or such portion of the Premises which is the subject of such proposed
sublease or assignment by termination of the Lease or Tenant's rights with
respect to that portion of the Premises which is the subject of such proposed
sublease or assignment as of the proposed effective date of such proposed
sublease or assignment. Landlord's failure to exercise the foregoing right shall
not constitute a consent to the proposed assignment or sublease, but it shall
act as a full waiver of Landlord's rights under this paragraph. Notwithstanding
the foregoing terms of this paragraph (e), Landlord shall not have said
recapture right with respect to the first twenty nine thousand one hundred
seventy six (29,176) square feet of Net Rentable Area in the Premises
(determined on a cumulative basis by accumulating the total effect of all
transactions) which are assigned, transferred or sublet by Tenant.
7.2 Intentionally Omitted.
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7.3 Subordination. Subject to Landlord's obligations stated below
regarding providing Tenant with a subordination, non-disturbance and attornment
agreement, this Lease (including all rights of Tenant hereunder) is subject and
subordinate to: (a) any ground lease or underlying lease (each a "Ground Lease")
now or hereafter affecting the Land or the Building, (b) any mortgage, deed of
trust or other indenture (each a "Mortgage") now or hereafter affecting the
Building, any Ground Lease or the Land, and all renewals, replacements and
extensions thereof, and (c) all advances and interest under any Mortgage;
provided, however, that the subordination of this Lease to any Mortgage or
Ground Lease pursuant to this Section 7.3 is expressly conditioned upon the
holder thereof executing and delivering to Tenant a subordination,
non-disturbance and attornment agreement in the holder's commercially reasonable
form reasonably acceptable to Tenant (by which such holder agrees not to disturb
Tenant's possession of the Premises and recognize Tenant's rights hereunder,
including any and all cure and offset rights, provided Tenant is not in Default
of its obligations hereunder, and by which Tenant agrees to attorn to any such
holder or the transferee or assignee of their interest hereunder). Tenant agrees
to execute within twenty (20) business days of Landlord's written request, any
documents reasonably required by any Mortgage holder or ground lessor to
evidence such subordination. If in connection with existing or future financing
of the Building, the holder of any Mortgage requests modifications in this
Lease, Tenant will not unreasonably withhold or delay its consent to such
modifications, provided that they do not increase the financial obligations of
Tenant hereunder or materially or adversely affect the leasehold interest
created by this Lease. Upon termination of this Lease through foreclosure of any
Mortgage (or deed in lieu thereof) or if the Ground Lease is terminated, Tenant
will attorn to and accept the purchaser at the foreclosure sale (or the
transferee under the deed in lieu) or ground lessor as Landlord under this Lease
and, upon demand, enter unto a new lease agreement with such purchaser,
transferee or ground lessor for the unexpired term of this Lease at the same
Rent and under the same provisions of this Lease. This Lease is subject and
subordinate to any other arrangement or right to possession under which Landlord
is in control of the Premises, and to the rights of the owners of the Land and
the Building. The parties acknowledge that no individual or entity currently is
the beneficiary of any mortgage, deed of trust or other indenture (hereinafter
collectively, a "Mortgage") affecting the
<PAGE>
Land or the Building. Landlord shall deliver from the holder of any future
Mortgage or future ground lessor a written subordination, non-disturbance and
attornment agreement for the benefit of Tenant in the holder's commercially
reasonable and recordable form (by which such holder agrees not to disturb
Tenant's possession of the Premises provided Tenant is not in Default of its
obligations hereunder, and by which Tenant agrees to attorn to any such holder
or the transferee or assignee of such holder's interest hereunder). Tenant
agrees to reasonably cooperate with such efforts by Landlord by executing any
such agreement if requested.
7.4 Notice to Lender. At any time the Premises or any portion of the
Building are subject to a mortgage or deed of trust and this Lease or any
portion of the Rent are assigned to a mortgagee, trustee or beneficiary, and
Tenant is given written notice thereof, including the address of such assignee,
Tenant shall not terminate this Lease or exercise any remedy against Landlord
without first giving written notice thereof, by certified or registered mail,
return receipt requested, to such assignee, specifying the default in reasonable
detail, and affording such assignee a reasonable period of time (in no event
less than thirty (30) days) within which, at its election, to perform for and on
behalf of Landlord.
7.5 Tenant's Financing. Landlord hereby waives any lien rights which it
may otherwise have concerning Tenant's Property (as defined herein), and Tenant
shall have the right to remove the same at any time without Landlord's consent.
Landlord acknowledges that Tenant has financed or may finance some or all of its
furniture, fixtures (other than those forming a part of the Improvements),
equipment and supplies utilized in the Premises (collectively, "Tenant's
Property") through financing arrangements (including promissory notes, security
agreement) with third parties. In connection therewith, Landlord (i) consent to
the installation of Tenant's Property (ii) disclaims any interest in Tenant's
Property, and (iii) if requested by any such third parties, agrees to not attach
or levy upon such Tenant's Property to satisfy Tenant's rental obligations
hereunder. Any such Tenant's Property may be removed by Tenant or such third
parties from the Premises at any time during the Term in accordance with the
conditions of limitations of this Lease without the necessity of resorting to
legal proceedings in order to remove the same.
ARTICLE VIII. DAMAGE AND DESTRUCTION: EMINENT DOMAIN
--------------------------------------
8.1 Damage and Destruction. (a) If the Building is totally destroyed by
fire, tornado or other casualty (a "Total Casualty"), which determination shall
be made within sixty (60) days of the date of such casualty by Landlord in good
faith and in a commercially reasonable manner, then either Landlord or Tenant
may elect to terminate the Term of this Lease as hereinafter provided. The term
"Total Casualty" shall mean that the Building cannot be repaired or restored in
a commercially reasonable manner to a physical condition that is structurally
sound or cannot be repaired or restored without first accomplishing the
demolition of the base Building. If a Total Casualty is determined to have
occurred, then either Landlord or Tenant may elect to terminate the Term of this
Lease by giving written notice of such election to the other party within thirty
(30) days after the date of Landlord's determination that a Total Casualty has
occurred. If either Landlord or Tenant timely elects to terminate the Term of
this Lease, then the
<PAGE>
termination shall be effective as of the date of such election or as of a date
specified in the notice, which date may not be later than sixty (60) days
following the date of the election by that party. In addition to the foregoing,
if the Premises or the Building is so damaged that Landlord reasonably
determines in good faith and in a commercially reasonable manner (and provides
written notice of such determination to Tenant within sixty (60) days of such
casualty) that rebuilding or repairs cannot be completed within one hundred and
eighty (180) days after the date of such damage, or prior to the expiration of
the seventh (7th) Lease Year hereunder, Landlord may, at its option, terminate
this Lease. If this Lease is terminated in accordance with the terms of this
subparagraph (a), Rent will abate for the unexpired portion of the Lease Term
effective as of the date of such casualty. If neither Landlord nor Tenant timely
elects to terminate, then the parties' shall perform their respective repair and
restoration obligations as set forth in subparagraph (b) below.
(b) If Landlord or Tenant do not elect to terminate this Lease as
provided above (or the conditions applicable to such termination rights are not
met), then within sixty (60) days after the date of such casualty, Landlord will
commence to rebuild or repair the Building and the Premises and will proceed
with reasonable diligence to restore the Building and Premises to substantially
the same condition that existed immediately prior to the casualty; provided,
however, Landlord will not rebuild, repair or replace Tenant's furniture,
fixtures, equipment or the Improvements, and Tenant, at its sole expense, will
perform "Tenant's Repairs," which shall include the restoration of the foregoing
to substantially the same condition that existed immediately prior to the
casualty. If more than twenty-five percent (25%) of the Premises is rendered
unusable by such casualty and Landlord does not complete its foregoing repair
and restoration obligations within three hundred sixty (360) days of the date of
such casualty, then Tenant may terminate this Lease by delivering written notice
of such termination to Landlord within ten (10) days of the expiration of the
aforesaid three hundred sixty (360) day period. Landlord will allow Tenant a
fair diminution of Base Rent during the time and to the extent that the Premises
are unfit for Tenant's use in the ordinary conduct of Tenant's business, which
abatement will continue only until the earlier of: (a) thirty (30) days
following the completion of Landlord's restoration of the Building and Premises
as herein provided or (b) the completion of Tenant's Repairs. Any insurance
carried by Landlord or Tenant against loss or damage to the Building or to the
Premises is for the sole benefit of the party carrying such insurance and under
its sole control, and Landlord's obligation to rebuild or restore hereunder is
limited to the extent of recoverable insurance proceeds available therefor. If
any mortgagee under a deed of trust, security agreement or mortgage on the
Building requires the insurance proceeds to be used to retire debt, Landlord
will have no obligation to rebuild, and this Lease will terminate upon notice to
Tenant.
8.2 Eminent Domain. If the whole Premises are taken or condemned, or
purchased in lieu thereof, by any government authority for any public or
quasi-public use or purpose, then, this Lease will terminate from the time when
the possession is required for such use or purpose. The Rent will be apportioned
to the date when the possession is required to be given to such government
authority. If more than twenty-five percent (25%) of the Premises are taken, or,
if by virtue of a taking access to the Premises is permanently and materially
impaired, Landlord will notify Tenant in writing, and Tenant will have the
option to cancel this Lease, by giving Landlord written notice within thirty
(30) days after receipt of such notice from Landlord;
<PAGE>
provided Tenant cannot suitably use the balance of the Premises for its
purposes. If Tenant exercises said option, then such cancellation will be
effective and the Rent will be apportioned to the date when the possession is
required to be given to such government authority. If Tenant is not entitled to
cancel the Lease or, if it is entitled to do so, but does not exercise its
option, as of the date when possession is required to be given to such
government authority, the Rent will be reduced in the proportion that the Net
Rentable Area contained in the remaining Premises bears to the Net Rentable Area
contained in the Premises before the taking. Any award of proceeds resulting
from a condemnation or sale in lieu thereof of the whole or part of the Premises
will belong solely to Landlord, and Tenant hereby waives any right to make any
claim therefore as the result of this Lease, provided, however, that Landlord is
not entitled to any award specifically made to Tenant for relocation expenses
and the taking of Tenant's fixtures, furniture or leasehold improvements
(exclusive of that portion paid for by Landlord), less depreciation computed
from the date of said improvements to the expiration of the original term of
this Lease.
ARTICLE IX. LIABILITY: INDEMNIFICATION: INSURANCE
-------------------------------------
9.1 Waiver of Claims. Except as expressly provided herein, to the
extent permitted by law, Landlord and Landlord's Agents shall not be liable to
Tenant or Tenant's Agents, for any damage (including indirect and consequential
damage), injury, loss, obligation, liability, compensation, or claim, including
but not limited to claims for the interruption of or loss to Tenant's business,
based on, arising out of or resulting from any cause whatsoever (collectively,
"claims") (unless such claim is the direct result of Landlord's or Landlord's
Agent's gross negligence or willful misconduct), which claims shall include but
not be limited to those arising from or related to the following: (a) any part
of the Building or Premises or any equipment or appurtenances becoming out of
repair, or (b) any accident in or about the Building, (c) directly or indirectly
any act or neglect of Tenant, Tenant's Agents, any occupant of the Building or
of any other person, including Landlord and Landlord's Agents, or (d) injury,
loss or damage to any person or property on or about the Premises. Tenant will
indemnify and hold Landlord and Landlord's Agents harmless from and against any
such claims.
9.2 Indemnification. (a) Except for any claims (as defined below)
arising from the negligence or willful misconduct of Landlord and Landlord's
Agents or Landlord's default in its obligations hereunder, Tenant hereby
indemnifies and agrees to hold Landlord and Landlord's Agents harmless from and
against any and all costs, penalties, damages (except for punitive or
consequential damages which are expressly waived), claims, causes of action,
obligations, liabilities and expenses (including reasonable attorneys' fees)
(collectively, "claims") suffered by or claimed against Landlord, directly or
indirectly, based on, arising out of or resulting from: (i) Tenant's use and
occupancy of the Premises or the business conducted by Tenant therein, (ii) any
act or omission by Tenant or Tenant's Agents on the Premises, (iii) any breach
or default in the performance or observance of Tenant's covenants or obligations
under this Lease or the Exhibits hereto, including without limitation any
failure to surrender the Premises upon the expiration or earlier termination of
the Lease Term, or (iv) damage to or destruction of the Building structure, or
any part thereof, or of any abutting real property caused by or attributable to
the gross negligence or willful misconduct of Tenant or Tenant's Agents. Tenant
will employ counsel reasonably satisfactory to Landlord, or at Landlord's
option, Landlord may retain its own counsel
<PAGE>
at the expense of Tenant, to prosecute, negotiate and defend any such claim,
action or cause of action. Landlord has the right to compromise or settle any
such claim, action or cause of action without admitting liability, provided
Landlord obtains Tenant's prior consent, which consent shall not be unreasonably
withheld, conditioned or delayed.
(b) Except for any claims (as defined below) arising from the
negligence or willful misconduct of Tenant or Tenant's Agents or Tenant's
default in its obligations hereunder, Landlord hereby indemnifies and agrees to
hold Tenant and Tenant's Agents harmless from and against any and all costs,
penalties, damages (except for punitive or consequential damages which are
expressly waived), claims, causes of action, obligations, liabilities and
expenses (including reasonable attorneys' fees) (collectively, "claims")
suffered by or claimed against Tenant, directly or indirectly, based on, arising
out of or resulting from Landlord's or Landlord's Agents' gross negligence or
willful misconduct. Landlord will employ counsel satisfactory to Tenant, or at
Tenant's option, Tenant may retain its own counsel at Tenant's expense, to
prosecute, negotiate and defend any such claim, action or cause of action.
Tenant has the right to compromise or settle any such claim, action or cause of
action without admitting liability, provided Tenant obtains Landlord's prior
consent, which consent shall not be unreasonably withheld, conditioned or
delayed.
9.3 Insurance Requirements:
----------------------
(a) Tenant will provide and maintain a Broad Form Commercial Liability
Policy of insurance with respect to the Premises with coverage limits of at
least Five Million and No/100 Dollars ($5,000,000.00) per occurrence, combined
single limit, naming Landlord, Landlord's managing agent, and any other party
specifically designated by Landlord's Mortgagee as additional insureds. Such
policy will protect Landlord, Landlord's Agents, its managing agent, and any
such designee against any liability which: (i) arises from any occurrence on or
about the Premises, (ii) arises with respect to Tenant's operations in,
maintenance and use of the Premises, Building and Common Area, and (iii) is
related to Tenant's liability assumed under this Lease, or which results in any
claims related thereto. The coverage of such policy will extend beyond the
Premises to portions of the Common Area, the Building and the Land, if any,
which Tenant or Tenant's Agents use from time to time.
(b) If Landlord reasonably determines that the increase in the level of
liability exposure to Landlord is such that it becomes customary for a
significant number of tenants of office buildings of similar size in the area in
which the Building is located to be required to provide liability insurance
policies with limits higher than the foregoing limits, within sixty (60) days
after Landlord's request therefor Tenant will obtain (and provide a copy thereof
to Landlord) an insurance policy whose limits are not less than the then
customary limits.
(c) Tenant will carry fire and all-risk coverage, vandalism and
malicious mischief insurance covering the Improvements and all other
improvements (whether existing or installed by Tenant or by Landlord for
Tenant's benefit), stock in trade, fixtures, furniture, furnishings, removable
floor coverings, trade equipment, signs and all other decorations and personal
property in the Premises for one hundred percent (100%) of their full
replacement cost. All
<PAGE>
proceeds of such insurance shall be used to repair or replace the foregoing
covered items. If this Lease is terminated as the result of a casualty in
accordance with the terms hereof, the proceeds of said insurance attributable to
the repair and/or replacement of any Improvements or any alterations,
improvements or modifications performed by or on behalf of Tenant or by Landlord
on behalf of Tenant shall be the property of the Landlord and paid to Landlord
upon demand.
(d) Tenant will also carry adequate workers' compensation insurance in
no less than statutorily required amounts, covering its employees in the
Premises containing a waiver of subrogation in favor of Landlord, and Tenant
hereby indemnifies, agrees to hold harmless, and at Landlord's option defend,
Landlord and Landlord's Agents from and against all claims arising out of any
loss suffered by any of Tenant's Agents at the Building which would have been or
is covered by an appropriate workers' compensation insurance policy.
(e) Tenant shall also procure and maintain business interruption
insurance in an amount not less than the Base Rent due hereunder for the first
full calendar year during the Term, which amount shall be revised from time to
time upon the reasonable request of the Landlord or its Mortgagee.
9.4 General Provisions with Respect to Tenant's Insurance:
-----------------------------------------------------
(a) On or before Tenant enters the Premises for any reason, and again
before any insurance policy expires, Tenant will deliver to Landlord an original
certificate of insurance. Any insurance required to be carried under this Lease
may be carried under a blanket policy covering the Premises and other locations
of Tenant.
(b) The insurance policies required to be carried under Sections 9.3(a)
and (c) shall name Landlord and the holder of any mortgage, if required by
Landlord, as an additional insured thereunder.
(c) All insurance policies required to be carried under this Lease by
or on behalf of Tenant will provide (and any certificate evidencing the
existence of any insurance policies, will certify) that unless Landlord is given
ten (10) days' written notice: (i) the insurance will not be canceled, (ii) the
insurer will renew the insurance policies, and (iii) no material change may be
made in the insurance policies.
(d) If Tenant fails to comply with any of the Insurance Requirements
stated in this Lease and fails to immediately cure such failure following
written notice from Landlord and a reasonable opportunity to cure, Landlord may
in addition to, and not in lieu of, all other remedies available to Landlord,
obtain such insurance and keep the same in effect and Tenant shall pay to
Landlord the premium cost thereof upon demand.
(e) All policies of insurance required to be carried by Tenant under
this Lease shall (1) be written by good and solvent insurance companies
reasonably satisfactory to Landlord having a Best's "General Policy Holding
Rating" of A or better and a financial rating class of VIII or better, (2)
contain a Cross Liability endorsement, (3) contain a provision stating "the
<PAGE>
insurance provided Landlord hereunder shall be primary and non-contributing with
any other insurance available to, or carried by, Landlord," and (4) shall
provide that the policy shall not be canceled, failed to be renewed or
materially amended without at least thirty (30) days' prior written notice to
Landlord and, at Landlord's request, any Mortgagee.
(f) Landlord makes no representation to Tenant that the limits or forms
of coverage specified above or approved by Landlord are adequate to insure the
items or obligations required to be insured or the contractual liability under
this Lease, and the limits of any insurance carried by Tenant shall not limit
its duties and obligations under this Lease.
9.5 Waiver of Subrogation. Each party hereby waives every right or
cause of action for the events which occur or accrue during the Lease Term for
any and all loss of, or damage to, any of its property (whether or not such loss
or damage is caused by the gross negligence of the other party or anyone for
whom said other party may be responsible), which loss or damage is covered by
valid and collectible fire, extended coverage, "All Risk" or similar policies
covering real property, personal property or business interruption insurance
policies, to the extent that such loss or damage is recovered under said
insurance policies or would have been recovered had such party maintained the
coverage required of such party hereunder. Said waivers are in addition to, and
not in limitation or derogation of, any other waiver or release contained in
this Lease with respect to any loss or damage to property of the parties hereto.
Each party will give its insurance carrier written notice of the terms of such
mutual waiver, and the insurance policies will be properly endorsed, if
necessary, to prevent the invalidation of coverage by reason of said waiver.
9.6 Landlord's Insurance.
--------------------
(a) Landlord, at its cost (subject to partial reimbursement from Tenant
in accordance with the terms of Section 4.3), shall obtain and continuously
maintain in full force and effect at all times during the Term of this Lease,
policies of insurance covering the Building, which insurance shall be for the
benefit of Landlord and Landlord's designated mortgagees, as the named insureds,
against: (i) loss or damage by fire; and (ii) loss or damage from such other
risks or hazards now or hereafter embraced by an "All Risk" form, but including,
without limitation, windstorm, hail, explosion, vandalism, riot and civil
commotion, damage from vehicles and aircraft, smoke damage, water damage and
debris removal (collectively, "Property Insurance"). At all times, the Property
Insurance coverage shall be in an amount equal to at least one hundred percent
(100%) of the then "Full Replacement Cost" of the Building.
(b) Landlord, at its cost (subject to partial reimbursement from Tenant
in accordance with the terms of Section 4.3), shall obtain and continuously
maintain in full force and effect, Commercial General Liability insurance
covering claims for bodily injury, personal injury or property damage for any
loss, liability or damage on, about or relating to the Premises, or any portion
thereof, having limits of not less than Five Million Dollars ($5,000,000)
combined single limit on an occurrence basis.
(c) At all times, the insurance coverage maintained by Landlord
pursuant to the terms hereof shall be in commercially reasonable form and upon
commercially reasonable terms, and
<PAGE>
shall, as applicable; (i) be written with reputable companies licensed to do
business in the Commonwealth of Virginia, having a Best's "General Policy
Holding Rating" of A or better and a financial rating class of VIII or better;
(ii) cite the interest of Landlord and Landlord's mortgagees in standard
mortgagee clauses effective as of the commencement date of the policy; and (iii)
be maintained continuously throughout the Term.
ARTICLE X. ACCESS TO THE PREMISES
----------------------
10.1 Access to the Premises. Landlord and Landlord's Agents have the
right to enter the Premises at all reasonable times under the circumstances upon
reasonable prior notice (which, the parties acknowledge shall be at least
twenty-four (24) hours in virtually all circumstances) (except in the event of
an emergency in which no notice shall be required) to: (i) examine the same,
(ii) to show them to prospective purchasers, mortgagees or to public officials
lawfully having an interest therein, or, during the last twelve (12) months of
the Lease Term, to prospective lessees or tenants, or (iii) to make such
decorations, repairs, alterations improvements or additions as Landlord may
reasonably deem necessary or desirable, or (iv) to close entrances, doors,
corridors, elevators or other facilities. In exercising its rights under this
Section 10.1, Landlord shall take reasonable steps to minimize interference with
Tenant's use of and access to the Premises. However, the foregoing requirement
shall in no way be construed to require Landlord to access the Premises for the
purposes set forth above during non-business hours unless such access by
Landlord would be materially disruptive to Tenant's use of the Premises.
Landlord, Tenant and all other tenants in the Building have a revocable license
to use all common public areas of the Building, provided that (a) Landlord has
the right to regulate and control such access and the days and hours of access,
subject to the other provisions of this Lease, and (b) if the amount of such
areas is diminished, neither Landlord nor Landlord's Agents shall be subject to
any liability nor shall Tenant be entitled to any compensation or abatement of
Rent, nor will such diminution of such areas constitute a constructive or actual
eviction. The exercise of Landlord's rights under this article should not
materially and adversely affect Tenant's use of the Premises. If, in exercising
its rights under this article, Landlord interferes with Tenant's ability to
operate in the Premises, Landlord fails to cure such interference within ten
(10) days following written notice of the same from Tenant, and Tenant ceases to
operate in the Premises as a result thereof, then Tenant should be entitled to
an abatement of Base Rent on an equitable and proportional basis until Tenant
can once again operate in that portion of the Premises so affected.
ARTICLE XI. FAILURE TO PERFORM, DEFAULTS, REMEDIES
--------------------------------------
11.1 Defaults.
--------
(a) Each of the following is a "Default" (herein so called) by Tenant
under this Lease:
(i) Tenant fails to pay any installment of Rent when the same
is due and payable and such failure continues for a period of ten (10) days
after written notice to Tenant of such failure;
<PAGE>
(ii) Tenant fails to pay any installment of Rent when the same
is due and payable during any calendar year in which two (2) Defaults defined in
clause (i) above have previously occurred, which Defaults were based upon
Tenant's failure to pay Monthly Base Rent or regularly-recurring items of
Additional Rent;
(iii) Tenant fails to comply with any provision of this Lease
(including the Rules and Regulations), other than the payment of Rent, and does
not cure such failure within thirty (30) days after written notice to Tenant
(or, if such failure to comply is of a nature that the same cannot reasonably be
cured within thirty (30) days, Tenant's failure to commence within said thirty
(30) day period and thereafter diligently pursue a cure of such failure); and
(iv) The filing or execution or occurrence of: a petition in
bankruptcy or other insolvency proceeding by or against Tenant or any guarantor
of Tenant's obligations; an assignment for the benefit of creditors; a petition
or other proceeding by or against Tenant or any guarantor of Tenant's
obligations for the appointment of a trustee, receiver or liquidator of Tenant
or any guarantor of Tenant's obligations or any of Tenant's or such guarantor's
property; or a proceeding by any governmental authority for the dissolution or
liquidation of Tenant or any guarantor of Tenant's obligations.
(b) If there shall be any Default by Tenant under this Lease, including
without limitation any default by Tenant prior to the Lease Commencement Date,
then, in addition to its accrued and continuing obligations set forth herein (as
set forth in greater detail in Section 11.3 hereof), and notwithstanding any
re-entry, repossession or dispossession under the terms of this Lease, Tenant
shall be liable to Landlord for any damages suffered by Landlord as a result of
such Default, which damages shall constitute additional rent hereunder, shall be
payable to Landlord within thirty (30) days of Landlord's demand therefor, and
shall include but not be limited to: (i) the reasonable costs and expenses
(including reasonable attorneys' fees) incurred by Landlord in its efforts to
cure Tenant's Default and/or enforce the terms of this Lease, (ii) the costs and
expenses (including brokerage commissions and the cost of any remodeling,
alterations and improvements to the Premises which Landlord deems reasonably
necessary to allow Landlord to relet the Premises) reasonably incurred by
Landlord in its efforts to relet the Premises, and (iii) any consequential
damages resulting from the acts or omissions of Tenant or the termination of the
Lease.
11.2 Remedies. Without further notice or demand except as elsewhere
provided in this Lease, if a Default occurs, Landlord has the option,
immediately, or at any time thereafter, to pursue any one or more of the
following remedies together with any other remedies available to Landlord at law
or in equity:
(a) Landlord shall use diligent efforts to terminate the Lease (which
shall in no way affect Tenant's obligation to pay all Rent accrued under the
Lease through the date of such termination, plus all damages suffered by
Landlord as a result of such Default and termination);
(b) Terminate Tenant's right to possession of the Premises, enter upon
and take possession of the Premises by process of law and expel or remove Tenant
and any other person
<PAGE>
who may be occupying any portion of the Premises; If Landlord exercises either
of its remedies set forth in clause (a) or (b) above; (i) Tenant will not be
entitled to any Notice to Quit (the provisions of this Article XI shall operate
as a notice to quit, any other notice to quit or of Landlord's intention to
re-enter the Premises being hereby expressly waived), and (ii) Tenant will
immediately surrender the Premises to Landlord upon demand, and if Tenant fails
to do so, Landlord may, without prejudice to any other remedy for possession or
arrearages in Rent, enter upon and take possession of the Premises by process of
law and expel or remove Tenant and any other person who may be occupying any
portion of the Premises, without being liable for prosecution or any claim of
damages therefor;
(c) Declare immediately due and payable the amount by which the Rent
reserved hereunder for the unexpired balance of the Lease Term (including any
increase and estimated increase in Operating Expenses and Real Estate Taxes
which would be payable by Tenant hereunder) exceeds the fair market rental value
of the Premises for such balance of the Lease Term, (determined as of the date
of the Default, and both figures discounted at the rate of eight percent (8%)
per annum to the then present value thereof), which amount shall be immediately
payable by Tenant;
<PAGE>
(d) Landlord may relet the Premises and receive the rent therefor under
terms and conditions acceptable to Landlord in its sole but reasonable
discretion and judgment. Under such circumstances, Tenant shall pay to Landlord
within thirty (30) days after written demand by Landlord, sums equivalent to the
monthly Rent reserved hereunder less the rents received by Landlord as a result
of any such reletting, if any;
(e) In the event of an emergency, enter upon the Premises, by force if
necessary, without being liable for prosecution or any claim for damages
therefor, and do whatever Tenant is obligated to do under the terms of this
Lease. [Under such circumstances, Tenant shall reimburse Landlord, within thirty
(30) days of Landlord's demand therefor, as Additional Rent, for any expenses
Landlord incurs in curing such Default and/or performing such obligations of
Tenant. Neither Landlord nor Landlord's Agents will be liable for any damages to
Tenant or Tenant's Agents due to such action, unless such damages are caused by
the gross negligence of Landlord or Landlord's Agents];
(f) Cure the Default at the reasonable expense of Tenant, and Tenant
shall, after receiving written request therefor, reimburse Landlord, within
thirty (30) days of Landlord's demand therefor, for any amount expended by
Landlord in connection with the cure, plus interest at the Default Rate from the
date such cost is incurred by Landlord; and
(g) Enjoin any breach or threatened breach by Tenant of any of the
covenants, agreements, terms of conditions in this Lease. If any property
belonging to Tenant, or otherwise, is found upon the Premises after the
termination of Tenant's right to occupy the Premises, Landlord will store the
same for not less than thirty (30) days at Tenant's (commercially reasonable)
cost and expense, after written notice to Tenant, remove and store the same in
any warehouse, at Tenant's reasonable commercial cost. Thereafter, Landlord may
deem the same abandoned and retain or dispose of the same in a manner determined
by Landlord in its sole discretion. Pursuit of any of the foregoing remedies is
not a forfeiture or waiver of any Rent due to Landlord hereunder or of any
damages accruing to Landlord by reason of the violation of any of the provisions
herein contained. Tenant shall pay all Rent and Additional Rent to Landlord
without any set-off or counterclaim, except as may be otherwise expressly
provided herein. The foregoing rights and remedies are cumulative and in
addition to any other rights granted to Landlord by law, and the exercise of any
of them shall not constitute an election excluding the exercise by Landlord at
any time of another, a different or an inconsistent remedy. The failure of
Landlord at any time to exercise any right or remedy is not a waiver of its
right to exercise such right or remedy at any other future time.
11.3 Deficiency. Notwithstanding any termination of Tenant's right to
possession of the Premises under Section 11.1 or Tenant's vacating or abandoning
the Premises, Tenant will remain liable (in addition to accrued liabilities and
obligations hereunder) for the Rent as defined in Section 4.5 and all other
charges Tenant would have been required to pay until the date this Lease would
have expired had such termination not occurred as such amounts are reduced by
all Rent payments received by any replacement tenant(s) in the Premises or any
portion thereof. Landlord shall have the right, at its option, to recover sums
due hereunder through litigation or otherwise: (i) as such sums come due, (ii)
from time to time on one or more occasions without
<PAGE>
being obligated to wait until the expiration of the Lease Term before filing
suit, or (iii) following the date on which the Term hereof would have naturally
expired (in which case, such amounts shall not be deemed to have accrued until
such date for the limited purpose of determining the limitations period
applicable to Landlord's claim for Rent).
11.4 Mitigation. Upon the return to Landlord of possession of the
Premises following a Default by Tenant, Landlord will use commercially
reasonable efforts to mitigate its damages resulting from such default by
reletting the Premises subject to the limitations set forth in this Article XI.
Any proceeds received by Landlord as a result of such reletting of the Premises
shall be applied to: (i) all costs and expenses incurred by Landlord in
connection with attempting to secure performance by Tenant and Tenant's cure of
Tenant's Default; then to (ii) all costs incurred by Landlord in connection with
its efforts to relet the Premises; then to (iii) any other damages, costs,
expenses or liabilities arising from Tenant's Default; and then to (iv) Tenant's
ongoing rental obligations hereunder.
11.5 Payments. Except as elsewhere provided herein (i.e. with respect
to Base Rent and regularly recurring additional rent charges which are due on
the first day of each calendar month), all amounts Tenant owes to Landlord are
due within thirty (30) days from the date that Landlord renders a statement
therefor. Tenant shall pay Landlord a late fee with respect to any installment
of Base Rent or additional rent, which installment is not paid by the date which
is ten (10) days after the due date thereof, to cover Landlord's administrative
costs incurred in connection with Tenant's failure to timely meet its Base Rent
obligations. The amount of such late fee shall be: (i) three percent (3%) of the
applicable installment with respect to the first two (2) installments which are
not paid when due during any calendar year, and (ii) five percent (5%) of the
applicable installment with respect to any further late payments. In addition,
all Base Rent amounts not paid by the due date and all Additional Rent amounts
not paid by the due date will bear interest from the date originally due, until
the date fully paid at the lesser of fifteen percent (15%) per annum or the
highest rate permitted by law (the "Default Rate"), to cover Landlord's cost for
administrative fees and expenses incurred in conjunction with the collection of
late payments. Notwithstanding the foregoing, on the first two (2) occasions
during any calendar year that any installment of Base Rent is not timely paid
when due hereunder, no late fee will be assessed unless Tenant fails to timely
cure its default following written notice from Landlord in accordance with the
terms of Section 11.1 hereof. Time is of the essence in Tenant's payment of Rent
and Landlord's and Tenant's performance of every provision of this Lease and all
Exhibits hereto.
11.6 Landlord's Default. If Landlord defaults in the performance of any
of its obligations under this Lease, Tenant will notify Landlord, in writing, of
the default and Landlord will have thirty (30) days after receiving such Notice
(or such additional period as may be necessary if the same cannot be cured
within said thirty (30) day period provided that Landlord commences efforts to
cure within said thirty (30) day period and thereafter diligently pursues the
same to completion) to cure the default. If Landlord does not cure the default
within such period, then Tenant may exercise or pursue such rights or remedies
as are available to Tenant under applicable law. In the event that Tenant shall
have performed such obligation on Landlord's account in accordance with the
terms of this Lease and Tenant obtains a final, non-appealable
<PAGE>
judgment or decree as to such matter against Landlord, Tenant shall have the
right to offset the amount of such judgment or decree against the next-accruing
installment of Rent due under the Lease until fully satisfied, provided that
Tenant shall not be permitted to offset in any calendar month an amount in
excess of fifty percent (50%) of the monthly Base Rent payable hereunder by
Tenant with respect to such calendar month. In addition, Tenant shall first seek
recovery from the value of the proceeds of insurance policies Landlord is
obligated to carry pursuant to this Lease in the event of a casualty of the
Premises.
ARTICLE XII. QUIET ENJOYMENT: RESERVATIONS BY LANDLORD:
-----------------------------------------
NO CONSTRUCTIVE EVICTION
------------------------
12.1 Quiet Enjoyment. So long as Tenant is not in Default, Tenant will
have peaceful and quiet possession of the Premises against all parties claiming
adversely thereto by or under or through Landlord.
12.2 Reservations by Landlord. Provided that Landlord's exercise of its
rights reserved hereunder shall not materially impair Tenant's rights under the
Lease, access to or use of the Premises or Tenant's parking rights, in addition
to other rights conferred by this Lease or by law, Landlord reserves the right,
to be exercised in Landlord's sole but reasonable discretion, to: (a) upon
reasonable prior notice to Tenant, change the name of the Building (in which
case, Landlord shall pay any costs incurred by Landlord in connection with
redoing business cards and stationary which contained the prior name of the
building, provided that Landlord shall not be obligated to replace more than the
lesser of the amount of such business cards and stationary which were on hand at
the time of the name change, or a six (6) month supply of the same); (b) upon
reasonable prior notice to Tenant, change entrances and exits to the Building
and to the parking lot adjacent to the Building; (c) subject to the limitations
of Section 2.3, install and maintain a sign or signs on the exterior or interior
of the Building; (d) change the street address of the Building; (e) take all
measures as may be necessary or desirable for the safety and protection of the
Premises or of the Building; (f) sell or mortgage the Building and assign this
Lease in connection therewith; (g) issue pass keys to the Building or the
Premises; (h) repair, alter, add to, improve, build additional stories on, or
build adjacent to the Building, so long as same does not impair the light or air
to the Premises or the view from the Premises; (i) upon reasonable prior notice
to Tenant, run necessary pipes, conduits and ducts through the Premises above
the finished ceiling, below the finished floor, inside of and through walls and
closets; (k) carry on any work, repairs, alterations or improvements in, on or
about the Building or in the vicinity thereof and, during the continuance of any
such work, to temporarily close doors, entryways, public space and corridors in
the Building; (l) upon reasonable prior notice to Tenant, interrupt or
temporarily suspend Building services and facilities; (m) upon reasonable prior
notice to Tenant, change the arrangement and location of entrances or
passageways, doors and doorways, corridors, elevators, stairs, toilets, or other
public parts of the Building (without permanently substantially interfering with
Tenant's access to the Premises); and (n) grant to anyone the exclusive right to
conduct any business or render any service in or to the Building. Tenant hereby
waives any claim or cause of action arising out of or connected with such work
performed in accordance with the terms of this Section 12.2. This paragraph is
not to be construed to diminish the obligations of Tenant provided herein, nor
to create or increase any
<PAGE>
obligation on the part of Landlord with respect to repairs or improvements.
Landlord will use reasonable efforts to minimize any interference with Tenant's
business caused by the exercise by Landlord of its rights set forth in this
Section 12.2. However, the same shall in no way obligate the Landlord to
exercise any such rights during non-business hours, and except as expressly
provided herein, neither Landlord nor Landlord's Agents will be liable to Tenant
or Tenant's Agents for any inconvenience, interference, annoyance, loss or
damage resulting from work done in or upon the Premises or any portion of the
Building or adjacent grounds.
12.3 No Constructive Eviction. No act or failure to act by Landlord or
Landlord's Agents during the Lease Term to enforce the terms of this Lease, or
the Rules and Regulations, will constitute an eviction or acceptance of
surrender of the Premises. No agreement to accept surrender of the Premises is
valid unless in writing signed by Landlord, and no employee of Landlord or
Landlord's Agent has any power to accept such surrender prior to the termination
of the Lease. Tenant's delivery of keys to any employee of Landlord or
Landlord's Agent shall not constitute a termination of the Lease or a surrender
of the Premises. The terms of this Section 12.3 shall in no way be construed to
limit Tenant's rights under Section 5.6..
ARTICLE XIII. RULES AND REGULATIONS
---------------------
13.1 Rules and Regulations. Tenant must observe and abide by the Rules
and Regulations attached as Exhibit B hereto, and by such other and further
reasonable Rules and Regulations as Landlord may prescribe which, in its
judgment, are needed for the reputation, safety, care or cleanliness of the
Building or Premises, or the operations and maintenance thereof and the
equipment therein, or for the comfort of Tenant and the other tenants of the
Building. Landlord has the right to add to, change, or waive (with respect to
any tenant, in Landlord's reasonable discretion without in any way
discriminatorily enforcing the same against Tenant) any of the Rules and
Regulations. Tenant's breach of any of the Rules and Regulations and failure to
cure the same following written notice in accordance with the terms of Section
11.1 may, at Landlord's option, constitute a Default hereunder. Further, in
addition to, and not in lieu of, any other right or remedy available to
Landlord, for each violation of Rules and Regulations, upon the third instance
thereof, Landlord may assess Tenant liquidated damages in the amount of $300.00,
which liquidated damages shall constitute Additional Rent hereunder, and shall
be due and payable within ten (10) days of the date of Landlord's invoice
therefor. Neither Landlord nor Landlord's Agents shall be liable to Tenant or
Tenant's Agents for failure to enforce or for violation of any of the Rules and
Regulations or the breach of any provision in any lease by any other tenant in
the Building. Landlord will not discriminatorily enforce the Rules and
Regulations against Tenant.
ARTICLE XIV. COMMUNICATIONS
--------------
14.1 Communications: No notice, request, consent, approval, waiver or
other communication under this Lease is effective unless the same is in writing
and is hand delivered, sent via nationally recognized overnight courier, mailed
by registered or certified mail, postage prepaid, or sent via facsimile (with
electronic or telephonic verification of receipt and copy by regular mail,
certified mail or overnight courier) addressed as follows:
<PAGE>
(a) If sent to Landlord, a communication shall be effective on the
earlier to occur of: (i) the date of actual receipt by Landlord, (ii) three (3)
days after said communication is mailed or transmitted, as provided above, to
the address designated as Landlord's Notice Address in Section 14.2 or to such
other address as Landlord designates by giving notice to Tenant, or (iii) if
sent via facsimile (which shall be done during business hours only), the date of
actual receipt, if the same is sent with verification to the facsimile number
provided to Tenant by Landlord in writing. Copies of all communications to
Landlord shall be sent to the address designated as Landlord's Notice Copy
Address in Section 14.2 (or sent via facsimile to the additional facsimile
number with verification as provided above), and to such other person or party
as Landlord shall designate by notice to Tenant.
(b) If sent to Tenant, a communication shall be effective on the
earlier to occur of: (i) the date of actual receipt by Tenant, (ii) three (3)
days after said communication is mailed or transmitted, as provided above, to
the address designated as Tenant's Notice Address in Section 14.2 or to such
other address as Tenant designates by notice to Landlord, or (iii) if sent via
facsimile, the date of actual receipt, if the same is sent with verification to
the facsimile number provided to Landlord by Tenant. Copies of all notices to
Tenant shall be sent to the address designated as Tenant's Notice Copy Address
in Section 14.2 (or sent via facsimile to the additional facsimile number with
verification as provided above), and to such other person or party as Tenant
designates by notice to Landlord. Notice may be given to Tenant by Landlord or
Landlord's attorney acting as Landlord's authorized agent.
<PAGE>
14.2. Notice Addresses:
----------------
(a) Landlord's Notice Address:
-------------------------
Institutional Property Managers, Inc.
1961 Chain Bridge Road
Suite 105
McLean, Virginia 22101-4562
(b) Landlord's First Notice Copy Address:
------------------------------------
L & B Realty Advisors, Inc.
Attn: Ed Daley
Director, Office Buildings
8750 N. Central Expressway
Suite 800
Dallas, Texas 75231-6437
Landlord's Second Notice Copy Address:
-------------------------------------
Jeffrey M. Guelcher, Esq.
Bregman, Berbert & Schwartz, L.L.C.
7315 Wisconsin Avenue
Suite 800 West
Bethesda, Maryland 20814
(c) Tenant's Notice Address:
-----------------------
Vice President and Chief Financial Officer
MicroStrategy
8000 Towers Crescent Drive
Vienna, Virginia 22182
facsimile: (703) 848-4837
telephone: (703) 848-8600
<PAGE>
And with a copy to:
------------------
Director, Administration
MicroStrategy
8000 Towers Crescent Drive
Vienna, Virginia 22182
facsimile: (703) 848-8610
telephone: (703) 848-8600
(d) Tenant's Notice Copy Address:
----------------------------
Watt, Tieder, Hoffar & Fitzgerald, L.L.P.
7929 Westpark Drive
Suite 400
McLean, Virginia 22102-4224
Attn: John G. Lavoie, Esquire
facsimile: (703) 748-1343
telephone: (703) 749-1000
ARTICLE XV. MISCELLANEOUS PROVISIONS
------------------------
15.1 Tenant Estoppel Certificates. Tenant agrees, at any time, and from
time to time, upon not less than fifteen (15) business days prior written notice
by Landlord, to execute, acknowledge and deliver to Landlord a written statement
containing all information reasonably requested by Landlord, including but not
limited to: (a) certification that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the Lease is in full force
and effect as modified and stating the modifications), (b) a statement regarding
the dates to which Tenant has paid the Rent hereunder, (c) a statement as to
whether, to the best of Tenant's knowledge, Landlord is in default in the
performance of any covenant, agreement or condition contained in this Lease,
and, if so, a specification of each such default of which Tenant may have
knowledge, (d) a statement of the amount of the then-applicable monthly Rent,
(e) a statement of the amount of the Security Deposit, if any, and (f) a
statement of the address to which notices to Tenant should be sent. Any such
statement delivered pursuant hereto may be relied upon by any owner of the
Building, any prospective purchaser of the Building, and any present or
prospective mortgage, deed of trust holder or trustee for bond holders with
respect to the Building or of Landlord's interest.
15.2 Brokerage Fees. Except as listed below, Tenant and Landlord
represent to each other that the indemnifying party has not incurred any
liability for commissions or similar compensation to third parties in connection
with this Lease, and, except for commissions due Brokers (defined below) (which
shall be paid by Landlord pursuant to a separate agreement with Brokers), Tenant
and Landlord shall indemnify and hold each other harmless against any liability
arising from any claims for such compensation, including costs and reasonable
attorneys' fees. "Brokers" means CB Commercial ("Landlord's Broker") and Cushman
& Wakefield of Virginia, Inc. and Zalco Realty, Inc. (collectively, "Tenant's
Broker").
<PAGE>
15.3 Intentionally Omitted.
---------------------
15.4 Liability of Landlord. Neither Landlord, Landlord's asset advisor,
nor any member of any joint venture, partnership, tenancy-in-common, pension
fund, association or other form of joint ownership that forms Landlord shall
have any personal liability under this Lease. Tenant agrees that in the event
Tenant or any of Tenant's agents, contractors, clients, guests, licensees,
customers or invitees is awarded a money judgment against Landlord, its agents
or partners, the sole recourse for satisfaction of such judgment shall be
limited to execution against the estate and interest of Landlord in the Building
(including any interest in any sale, condemnation or insurance proceeds from the
Building). In no event shall any other assets of Landlord, or of any partner of
Landlord or of any person or entity be held to have any personal liability for
satisfaction of any claims or judgments against Landlord and/or any partner of
Landlord in such partner's capacity as a partner of Landlord (provided that the
foregoing will not reduce or be deemed to reduce any rights Tenant has as an
additional insured under Landlord's liability insurance policies.
15.5 Authority. Tenant and Landlord and the persons signing this Lease
on behalf of Tenant and Landlord agree that with respect to Tenant's and
Landlord's respective corporation (including any form of professional
association or corporation): (i) the individual executing this Lease is duly
authorized to execute and deliver this Lease on behalf of Tenant and Landlord in
accordance with Tenant's and Landlord's organizational documents; (ii) this
Lease is binding upon Tenant and Landlord; (iii) Tenant and Landlord are each
duly organized and legally existing in the state of its organization and is
qualified to do business in the state in which the Building is located; and (iv)
upon the other party's request each party will provide the other with
satisfactory evidence of such authority.
15.6 Parking. Tenant's parking rights are set forth in Exhibit E hereto
attached.
15.7 Landlord Approval. Landlord's approval when required under the
Lease is non-technical and non-legal in nature, and Tenant remains responsible
for all technical and legal aspects of any item requiring Landlord's approval.
15.8 Unenforceability/Joint and Several Liability. The invalidity or
unenforceability of any provision hereof will not affect or impair any other
provision hereof. If Tenant consists of more than one person or entity, the
obligations of each are joint and several.
<PAGE>
15.9 Headings, Miscellaneous. The headings of the several articles,
paragraphs and sections contained herein are for convenience only and do not
define, limit or construe the contents of such articles, paragraphs and
sections. All negotiations, considerations, representations and understandings
between the parties are incorporated herein and are superseded hereby. There are
no terms, obligations, covenants, statements, representations, warranties or
conditions relating to the subject matters hereof other than those specifically
contained herein as of the date of the Lease. This Lease may not be amended or
modified by any act or conduct of the parties or by oral agreements unless
reduced and agreed to in writing signed by both Landlord and Tenant. No waiver
of any of the terms of this Lease is binding upon either party hereto unless
reduced to writing and signed by such party.
15.10 Force Majeure. Each party will be excused from performing any
obligation or undertaking provided for in this Lease (other than Tenant's
obligation to pay all items of Base Rent and additional rent which shall not be
covered by this Section 15.10), and such party's failure to perform shall not
constitute a default hereunder for so long as such performance is prevented or
delayed, retarded or hindered by circumstances beyond such party's control
(including, but not limited to an act of god, fire, earthquake, flood,
explosion, action of the elements, war, invasion, insurrection, riot, mob
violence, sabotage, general shortage of or inability to procure labor,
equipment, facilities, materials or supplies in the open market, failure of
electronic or computer operated equipment, failure of transportation, strike,
lockout, action of labor unions, a taking, requisition, laws, orders of
government or civil or military authorities, or any other similar cause,
including reasonable delays for adjustments of insurance).
15.11 Entire Agreement. This Lease, the exhibits and any addendum
attached hereto set forth the entire agreement between Landlord and Tenant, and
no other oral or written understandings, representations, promises or agreements
have been made or relied upon by either party hereto.. All prior oral or written
agreements are merged herein and superseded by this Lease.
15.12 Governing Law. THIS LEASE IS GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF VIRGINIA (without regard to any choice of law provisions
thereof).
15.13 Waiver of Jury Trial. The parties each hereby waive trial by jury
in any action, proceeding, claim or counterclaim brought by either party or
their Agents in connection with any matter arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant hereunder,
Tenant's use or occupancy of the Premises, Landlord's operation of the Building,
and/or any claim of injury or damage. Tenant hereby waives any right to plead
any counterclaim (other than compulsory counterclaims), offset or affirmative
defense in any action or summary or other proceeding brought by Landlord against
Tenant seeking payment of rent or possession of the Premises. The aforesaid
waiver shall not be construed however as a waiver of Tenant's right to assert
any claim in a separate action brought by Tenant against Landlord.
15.14 Recordation of Lease. Tenant may not record this Lease or any
memorandum hereof without Landlord's prior written consent, which may be
withheld in Landlord's sole discretion.
<PAGE>
15.15 No Binding Effect Until Execution and Delivery. The submission of
this Lease to Tenant is not an offer. This instrument is not effective as a
Lease or otherwise unless and until executed by and distributed to both Landlord
and Tenant.
15.16 No Partnership. Nothing contained in this Lease shall be
construed as creating a partnership or joint venture of or between Landlord an
Tenant, or to create any other relationship between the parties hereto other
than that of Landlord and Tenant.
15.17 Intentionally Omitted.
---------------------
15.18 Days. Whenever there is a reference to "days" in this Lease, it
shall be deemed to mean calendar days, unless expressly stated otherwise.
15.19 Successors and Assigns. This Lease is binding upon and shall
inure to the benefit of the respective parties herein, their heirs, executors,
administrators, successors and permitted assigns.
15.20 Non-Waiver. Neither party's failure to enforce or require strict
performance of any provision of this Lease or any of the Rules and Regulations,
nor Landlord's acceptance of Rent with knowledge of a breach shall constitute a
waiver of such breach or any future breach.
15.21 Counterparts. This Lease may be executed in counterparts, each of
which shall be deemed an original, and all of which taken together shall
constitute one and the same Lease.
15.22 Survival of Rental Obligations. Except as expressly provided
herein, Tenant's obligations to pay Rent accruing hereunder will survive the
expiration or earlier termination of this Lease.
15.23 Renewal Options.
---------------
(a) Tenant shall have the conditional right to extend the term of the
Lease for two (2) additional consecutive terms (the "First" and "Second Option
Terms") of five (5) years each beyond the initial Lease Term set forth in
Section 1.3 upon the same terms and conditions set forth herein (except that
there will be no further privilege of extension beyond the Second Option Term)
and pursuant to the Base Rent terms determined in accordance with subparagraph
(b) below, provided that the following conditions are met:
(i) Tenant notifies Landlord of its election to exercise such
right at least fourteen (14) and no more than twenty (20) months prior to the
expiration of the then current Term (the initial Lease Term or First Option
Term, as applicable as stated in Exhibit D);
(ii) at the time of the exercise of such right and for the
remainder of the Term thereafter prior to the commencement of the applicable
Option Term, there is no existing default which is not remedied within the
applicable cure periods set forth in Article XI hereof;
<PAGE>
(iii) that the Lease has not terminated prior to the
commencement of the Option Term;
(iv) at the time of the exercise of such option and for the
remainder of the Term thereafter, the original named Tenant or its Affiliate as
defined in Article VII hereof is occupying the Premises (or the portion thereof
with respect to which this Lease is being renewed) [it being the intent of the
parties that this option is personal to the Tenant hereunder and its Affiliate
(i.e., it does not inure to the benefit of any other assignee or subtenant of
the Lease) and if such original Tenant or its Affiliate is no longer in
possession of a portion of the Premises, then this option is void with respect
to that portion of the Premises which is no longer occupied by Tenant or its
Affiliate]; and
(v) Tenant exercises the first option with respect to a
portion of the Premises consisting completely of full floors in the Building (it
being the understanding of the parties that the first option may not be
exercised with respect to portions of any floor in the Premises); and Tenant
exercises the second option with respect to the entire Premises (as the same is
constituted at the time of such exercise).
(b) During each Option Term, Landlord shall provide Tenant with a
Refurbishment Allowance of up to fifteen dollars ($15.00) per square foot of Net
Rentable Area in the Premises for such Option Term, which Refurbishment
Allowance shall be utilized solely for the purpose of performing improvements,
alterations and modifications to the Premises. Said Refurbishment Allowance
shall be paid to Tenant in accordance with the procedures set forth in Article
III and Exhibit C depending upon whether Landlord or Tenant manages construction
of such refurbishment work. During each Option Term (which, upon Tenant's
exercise of the option becoming binding in accordance with the terms hereof,
shall be deemed to be a part of the "Term" of this Lease), Tenant shall pay
Landlord Base Rent equal to ninety-five percent (95%) of the Fair Market Rent
(as defined below) for the Premises for the applicable Option Term. The "Fair
Market Rent," as used in this Article XV, shall mean the face market annual
rental value (plus any market-appropriate annual escalations thereof) in renewal
transactions for comparable Class A office space in similar office buildings in
the Tyson's Corner submarket for the applicable Option Term, taking into account
all appropriate factors and transactional components customarily taken into
account with respect to such transactions assuming both Landlord and Tenant are
at arms-length. Within thirty (30) days of Landlord's receipt of Tenant's notice
of its exercise of the option, Landlord shall notify Tenant of the Base Rent
applicable to the Option Term based upon the foregoing parameters. Within
fifteen (15) days following Landlord's notification regarding the Base Rent,
Tenant shall notify Landlord in writing of Tenant's agreement to such Base Rent
set forth in Landlord's notification, or if Tenant disagrees with Landlord's
determination of the Base Rent applicable to said Option Term, of such
disagreement and provide Landlord with an alternative proposed Base Rent
structure based upon the foregoing parameters. Unless Tenant notifies Landlord
in writing of Tenant's agreement with Landlord's determination of the Base Rent,
then the Term shall not be deemed extended. If Tenant notifies Landlord in
writing of Tenant's agreement with Landlord's determination of Base Rent, the
Lease shall be extended for five (5) years beyond the Termination Date (or the
expiration of the
<PAGE>
First Option Term, as applicable) during such Option Term, and Tenant shall pay
Landlord the Base Rent set forth in Landlord's notification. If Tenant timely
notifies Landlord of Tenant's disagreement with Landlord's determination of the
Base Rent applicable to said Option Term, thereafter Landlord and Tenant will
negotiate in good faith for a period of sixty (60) days following Tenant's
initial exercise of the renewal option to determine the appropriate Base Rent
applicable to said Option Term in accordance with the foregoing parameters. In
the event that the parties cannot agree upon the appropriate Base Rent within
sixty (60) days of Tenant's exercise of the option, then Tenant shall deliver a
written notice to Landlord prior to the expiration of the aforesaid sixty (60)
day period setting forth whether or not Tenant desires to exercise the renewal
option or withdraw its exercise of the same. If Tenant fails to timely deliver
such a notice, Tenant shall be deemed to have exercised (and waived its right to
withdraw) such option and the Base Rent shall be determined in accordance with
the following terms. If Tenant chooses not to withdraw its exercise of the
option (or is deemed to have not withdrawn the same as provided in the
immediately preceding sentence) said Base Rent shall be determined in accordance
with the following terms. Within ten (10) days after the expiration of such
sixty (60) day period, each party shall give written notice to the other setting
forth the name and address of a Broker (as hereinafter defined) selected by such
party who has agreed to act in such capacity, to determine the Base Rent
applicable to the Option Term. If either party shall fail to select a Broker as
aforesaid, then the party which has selected a Broker as aforesaid (the
"Appointing Party") shall have the right to issue a written notice to the party
which failed to select a Broker as aforesaid (the "Non-Appointing Party")
advising such Non-Appointing Party that it has failed to appoint its Broker, in
which case, if the Non-Appointing Party does not then designate its Broker
within five (5) business days following receipt of the Appointing Party's
Notice, then the Base Rent shall be determined by the Broker selected by the
other party. Each Broker shall thereupon independently make his determination of
the Base Rent applicable to the Option Term based upon the parameters for
determining Base Rent outlined above within twenty (20) days after the
appointment of the second Broker. If the two Brokers' determinations are not the
same, but the higher of such two determinations (based upon the initial annual
Base Rent and average Base Rent over the course of the applicable Option Term)
is not more than one hundred five percent (105%) of the lower of them, then the
Base Rent shall be deemed to be the average of the two determinations. If the
higher of such two determinations is more than one hundred five percent (105%)
of the lower of them, then the two Brokers shall jointly appoint a third Broker
within ten (10) days after the second of the two determinations described above
has been rendered. The third Broker shall independently make his determination
of the Base Rent within twenty (20) days after his appointment. The highest and
the lowest determinations among the three Brokers shall be disregarded and the
remaining determination shall be deemed to be the Base Rent payable by Tenant
with respect to the applicable Option Term. Within thirty (30) days after the
Base Rent is determined as aforesaid, the parties shall execute an amendment to
this Lease setting forth the new Base Rent to be paid for the Option Term.
Notwithstanding any provision hereof to the contrary, within fifteen (15) days
following the determination of the Base Rent following appointment of the third
Broker in accordance with the foregoing term, Tenant may, by delivering written
notice to Landlord, revoke its exercise of the Option, in which case the Term of
the Lease shall terminate upon the expiration of the then-current Term. If
Tenant fails to timely exercise the foregoing revocation right, such right shall
be deemed waived. For the purposes of this Section 15.23, "Broker" shall mean a
real estate broker licensed in the
<PAGE>
Commonwealth of Virginia, who has been regularly engaged in such capacity in the
business of commercial office leasing in the Tyson's Corner, Virginia submarket
for at least ten (10) years immediately preceding such person's appointment
hereunder. Each party shall pay for the cost of its Broker and one-half of the
cost of the third Broker, if any.
(c) Prior to the commencement of each Option Term, upon the reasonable
request of Landlord, Tenant hereby agrees to execute an amendment to the Lease
memorializing said extension of the Lease Term and the Base Rent payable during
such Option Term as determined in accordance with the terms of subparagraph (b)
above. If Tenant refuses to execute a commercially reasonable document
memorializing the terms of such extension of the Lease Term within thirty (30)
days of Landlord's delivery of the same to Tenant, or if Tenant fails to timely
notify Landlord of Tenant's desire to exercise each renewal option, then Tenant
shall be deemed to have waived the renewal options granted hereby.
15.24 Right of First Offer.
--------------------
(a) Subject to the terms of this Section 15.24 and any renewal rights
of other tenants in the Building and any existing (as of the date of this Lease)
expansion rights of Fidelity Investments or other tenants in the Building,
following the initial lease up of the first floor of the Building, so long as
Tenant or its Affiliate continues to lease at least sixty percent (60%) of the
office space in the Building other than any which may be located on the first
floor of the Building, Tenant shall have an ongoing Right of First Offer with
respect to any leasable spaces which becomes available during the Term after the
first anniversary of the Commencement Date on the first floor of the Building
("Offer Space"). If, at any time during the Term, Tenant or its Affiliate leases
less than sixty percent (60%) of the office space in the Building other than any
which may be located on the first floor of the Building, then notwithstanding
any provision hereof to the contrary, Tenant's rights under this Section 15.24
shall be subject and subordinate to the renewal, expansion or offer rights of
tenants which lease those portions of the Building's office space which no
longer are part of the Premises. The parties acknowledge that portions of the
Offer Space may currently be occupied by other tenants, and Landlord shall not
have any obligation to take action to regain possession of any portion thereof
for the purpose of offering the same to Tenant until the expiration or
termination of such other tenants' rights thereto.
(b) Landlord will notify Tenant of any portion of the Offer Space which
becomes available during the Term after the first anniversary of the
Commencement Date on the first floor of the Building and the terms on which said
Offer Space may be leased by Tenant ("Offer Notice"). Tenant will have thirty
(30) days following delivery of such Offer Notice during which to notify
Landlord in writing of Tenant's intent to lease the available portion of the
Offer Space described in Landlord's Offer Notice or to reject leasing the same.
Tenant's failure to timely exercise its Right of First Offer within said thirty
(30) day period shall be deemed an absolute waiver by Tenant of its right to
lease said portion of the Offer Space specified in Landlord's Offer Notice
(unless and until such Offer Space shall again become available during the Term
following its leasing to a third party). Upon Tenant's rejection (or deemed
rejection) of the portion of the Offer Space specified in Landlord's Offer
Notice, Landlord shall be free to lease said Offer Space to any other person or
entity upon terms substantially consistent (which
<PAGE>
the parties agree shall mean basic economic terms which do not vary by more than
five percent (5%)) with those offered to Tenant hereunder.
(c) Tenant's Right of First Offer shall be subject to the following
conditions:
(i) at the time of the exercise of such right and throughout
the period prior to Landlord's delivery of such Offer Space to Tenant, there is
no existing Default by Tenant;
(ii) throughout the period following Landlord's delivery of
the Premises to Tenant and prior to Landlord's delivery of any such Offer Space
to Tenant, the original named Tenant (or its Affiliate, as defined in Article
VII hereof) is occupying the entire Premises as then configured (as the same is
defined in Section 1.2 hereof, as subsequently expanded or contracted pursuant
to the terms hereof); and
(iii) Tenant must lease the entire portion of the Offer Space
specified in Landlord's Offer Notice.
In addition to the foregoing, notwithstanding any provision hereof to the
contrary, if Tenant's Base Rent obligations with respect to any such Offer Space
will not commence prior to the date on which only sixty (60) full calendar
months remain in the then current Term of this Lease, then Tenant shall lease
such Offer Space pursuant to one of the following sets of terms: (1) on an "as
is" basis for the remainder of the then current Term, with no improvement
allowance of any kind payable by Landlord and upon all of the terms and
conditions of this Lease, including the then-escalated per square foot Base Rent
payable hereunder with respect to the Premises, or (2) upon all of the terms and
conditions of this Lease, as the same may be modified by the terms set forth in
Landlord's Offer Notice (including, but not limited to the "Term" of Tenant's
leasing of such Offer Space).
(d) Except as expressly provided in subparagraph (c) above, if Tenant
timely and properly exercises its Right of First Offer with respect to any Offer
Space and the conditions applicable thereto have been met, Landlord shall
deliver and Tenant shall lease from Landlord such Offer Space upon the terms and
conditions set forth in Landlord's Offer Notice to Tenant for a Term beginning
on the Expansion Commencement Date (as defined below) and extending for a Term
conterminous with the then remaining Term hereunder. The Expansion Commencement
Date, as such term is used herein, shall be the date that Landlord delivers
possession of the applicable portion of the Offer Space to Tenant having
substantially completed any agreed-upon improvements or alterations thereto.
Notwithstanding the foregoing, if Tenant elects (by written notice to Landlord
at the time of its exercise of the Right of First Offer) to manage or perform
the improvements or alterations to the applicable portion of the Offer Space
(which improvements or alterations shall be performed by Tenant in accordance
with the procedures outlined in Article III and Exhibit C hereto), the Expansion
Commencement Date shall be: (i) the sixtieth (60th) day following Landlord's
delivery of the applicable portion of the Offer Space to Tenant if such
applicable portion
<PAGE>
of the Offer Space was previously improved for office use, or (ii) the ninetieth
(90th) day following Landlord's delivery of the applicable portion of the Offer
Space to Tenant if such applicable portion of the Offer Space was not previously
improved for office use.
(e) If Tenant timely and properly exercises the Right of First Offer
granted hereby, prior to Landlord's delivery of the applicable Offer Space to
Tenant, Tenant and Landlord shall execute an amendment to the Lease
memorializing said expansion of the Premises and the terms applicable thereto.
If Tenant refuses to execute a commercially reasonable document memorializing
the terms of such expansion within thirty (30) days of Landlord's tender of the
same to Tenant, then Tenant shall be deemed to have waived its Right of First
Offer granted hereby.
(f) In the event of: (i) a failure of any of the conditions set forth
in subparagraph (c) above prior to Landlord's delivery of the applicable Offer
Space to Tenant, or (ii) Tenant's failure to take possession of the applicable
Offer Space when the same is tendered by Landlord, then notwithstanding the fact
that Tenant shall not occupy the Offer Space, Tenant shall pay Landlord, as and
when the same come due all Base Rent and Additional Rent due with respect to
said Offer Space for the remainder of the Term (less any proceeds received by
Landlord with respect to any reletting of same).
(g) A space shall be deemed to be "available for leasing," as such
phrase is used in this Section 15.24 on the date on which the previous tenant's
rights to lease the space expire or are terminated. The parties understand and
acknowledge that Landlord may notify Tenant that a space is "available for
leasing" on a certain date in the future based upon Landlord's reasonable
expectation of the date on which such space will become available. The parties
also acknowledge that the Offer Space may be occupied by other tenants or
occupants, and that, if such tenants or occupants fail to timely vacate such
Space, the date on which such space may actually be "available for leasing" may
be postponed. No such delay shall in any way constitute a default hereunder by
Landlord or subject to any liability. However, if Landlord is unable to delivery
such Offer Space within one hundred eighty (180) days of the date by which the
parties have mutually agreed the same shall be delivered for reasons other than
force majeure or delays attributable to Tenant, Tenant may terminate its leasing
of such Offer Space by providing written notice to Landlord of such termination
within fifteen (15) days of the expiration of the aforesaid one hundred eighty
(180) day period. If Tenant exercises its rights under this Section 15.24,
Landlord will use commercially reasonable efforts to regain possession of the
applicable Offer Space upon the expiration of such other tenant's or occupant's
rights with respect thereto, but Tenant shall have no obligation to execute an
amendment to the Lease or otherwise pay any rent for the Offer Space until
Landlord can offer Tenant actual possession.
15.25 Generator, Transformer and Rooftop Mechanical Equipment.
-------------------------------------------------------
(a) Provided Tenant is not in Default of any of its obligations
hereunder beyond any applicable notice and cure period provided hereunder,
Tenant shall have the continuing right to: (i) install and maintain up to three
(3) backup generators, related wiring and cabling connecting the same to the
Premises and diesel fuel tanks for each such generator (collectively, "Generator
Equipment') in the location designated in Exhibit I, which is incorporated
herein by this
<PAGE>
reference, and in accordance with the terms of this Section 15.25 the
specifications, if any, contained in Exhibit I, and the final plans and
specifications therefor approved by Landlord in writing prior to the
installation of the same; (ii) install and maintain a transformer and related
wiring and cabling connecting the same to the Premises (collectively,
"Transformer Equipment") in the location designated in Exhibit J, which is
incorporated herein by this reference, and in accordance with the terms of this
Section 15.25, the specifications, if any, contained in Exhibit J, and the final
plans and specifications therefor approved by Landlord in writing prior to the
installation of the same; and (iii) install and maintain rooftop mechanical
equipment and related wiring and cabling connecting the same to the Premises
(collectively, "Rooftop Mechanical Equipment") in the location designated in
Exhibit K, which is incorporated herein by this reference, and in accordance
with the terms of this Section 15.25, the specifications, if any, contained in
Exhibit K, and the final plans and specifications therefor approved by Landlord
in writing prior to the installation of the same. The Generator Equipment,
Transformer Equipment and Rooftop Mechanical Equipment are sometimes
collectively referred to herein as the "Equipment."
(b) Prior to installing any such Generator Equipment, Transformer
Equipment or Rooftop Mechanical Equipment, Tenant shall submit detailed plans
and specifications therefor to Landlord for its review. Said plans and
specifications shall describe in detail the proposed size, weight, number and
configuration of the such Equipment (including cabling or other conduits between
the generator, transformer or rooftop installation themselves and the Premises),
the proposed location of the same on the Building or the Land, the manner in
which the same shall be installed and removed, and the name and license number
of the competent Virginia licensed contractors who will perform such
installation. All such plans shall be subject to Landlord's prior written
approval, which shall not be unreasonably withheld, conditioned or delayed
provided that the same are consistent with the preliminary plans therefor set
forth in Exhibits I, J and K respectively, and further provided that the size,
weight, number, configuration, location and method of installation of such
Equipment may be limited by Landlord in its sole and absolute discretion.
However, while (pursuant to the foregoing terms), Landlord can prescribed the
size, weight, number, configuration, location and method of installation of such
Equipment, Landlord cannot refuse to permit Tenant to install the applicable
Equipment, so long as the same are consistent with the terms set forth in
Exhibits I, J and K, as applicable. In addition, Landlord may request any
reasonable additional changes to the plans and specifications, as Landlord, in
its reasonable discretion, deems necessary to protect the structure and
aesthetic appearance of the Building or the Land and/or Landlord's ability to
properly maintain and operate the Building and the Land. As a result, the design
and installation of said Equipment shall be subject to the design limitations of
the Building and its structural, electrical and mechanical systems. No work may
commence with respect to the installation of said Equipment until: (i) Landlord
has provided Tenant with Landlord's prior written approval of final plans and
specifications therefor in accordance with the terms of this subparagraph (b),
and (ii) Tenant has provided Landlord with written proof that Tenant has
obtained all licenses, permits and approvals from applicable government
authorities necessary for the installation and operation of said Equipment.
(c) The installation, operation and maintenance of the Equipment shall,
at all times, comply with all applicable present and future laws, ordinances
<PAGE>
(including zoning ordinances and land use requirements), regulations, orders or
other legal requirements of the United States of America, the Commonwealth of
Virginia, and any other public or quasi-public authority having jurisdiction
over the Building or the Land, as well as all insurance requirements relating to
or affecting the Premises, the Building, the Land, the condition thereof, or
machinery, equipment and furnishings therein incident to Tenant's occupancy of
the Building and its use thereof. The Equipment shall be modified, removed or
relocated (subject to Landlord's prior written approval which shall be granted
in accordance with the parameters set forth in subparagraph (b) above) from time
to time by Tenant in order to ensure continued compliance with the foregoing
requirements. Landlord's approval of any plans and specifications shall in no
way constitute a representation or warranty by Landlord that the same are in
compliance with any of the foregoing requirements. The installation and
subsequent maintenance of the Equipment shall be subject to such reasonable
regulations and restrictions as are imposed thereon by Landlord. In the event
that the installation, maintenance or use of the Equipment results in damage to
the Building or the Land, or any part thereof, or Landlord incurs any liability
relating to or arising from the same, Tenant agrees: (i) to pay Landlord on
demand the costs incurred by Landlord in repairing any such damage if Tenant has
failed to repair the same within ten (10) days of Landlord's written notice
regarding the same (or such shorter period as Landlord deems necessary to ensure
the proper condition of the Building), and (ii) to indemnify Landlord against
any such liability. Tenant's rights under this Section 15.25 shall not include
any rights on the part of Tenant or Tenant's Agents to directly access the roof
at any time. All such access to the roof shall be obtained by prior request to
Landlord, whose permission for such access shall not be unreasonably withheld,
conditioned or delayed.
(d) At any time during the Term, Tenant may remove the Equipment
(except that if any portion of the Generator Equipment is removed the same shall
be replaced with generators of similar capacity and quality so that two (2) such
generators remain at the expiration or termination of this Lease), provided that
Tenant, at its sole cost and expense, immediately restores the Building and any
damage caused by such removal. Tenant shall pay all costs associated with the
design, installation, maintenance, operation, relocation and removal of the
Equipment. Tenant shall reimburse Landlord, as additional rent, for any costs
incurred by Landlord with respect to the Equipment, including but not limited
to: (i) any increased insurance premiums, and (ii) any reasonable third party
engineering or architectural fees related to reviewing the aforesaid plans and
specifications (excluding those of Landlord's managing agent). Tenant hereby
indemnifies and holds Landlord harmless from and against any claims,
liabilities, causes of action, losses, damages and costs incurred by Landlord as
a result of the installation, operation, maintenance, relocation or removal of
the Equipment. Tenant covenants not to damage the roof or any other part of the
Building or the Land in the course of installing, maintaining, operating and
removing the Equipment. Except as expressly set forth in the approved plans
therefor, no such installation, maintenance, operation or removal of the
Equipment shall involve any penetration of the Building's roof or exterior
walls.
(e) Tenant covenants that the installation, maintenance, operation,
relocation and removal of the Equipment shall in no way interfere with
Landlord's operation of the Building's systems or with other tenants' use of
their premises or operation of their equipment. In the event of any
<PAGE>
such interference, the equipment shall be modified, removed or relocated
(subject to Landlord's prior written approval) from time to time by Tenant.
(f) Tenant shall use any such Equipment for service to the Premises
only. No Equipment which Tenant is permitted to install in accordance with the
terms of this Section 15.25 shall be utilized by anyone other than Tenant or its
Affiliate (as defined in Article VII) or in any manner as a source of revenue to
Tenant.
(g) The maintenance and operation of the Equipment shall be at Tenant's
sole risk, and any damage to the Equipment will in no way operate to affect
Tenant's obligations under this Lease. Similarly, any condemnation which affects
Tenant's ability to maintain and operate the Equipment shall in no way affect
Tenant's obligations under this Lease, except as set forth below. In the event
that any applicable government authority or other legal requirement prevents
Tenant from operating or maintaining the Equipment, Tenant shall promptly remove
the same. The rights of Tenant set forth in this Section 15.25 are personal to
the named Tenant herein and its Affiliates (as defined in Article VII hereof)
and may not be sublet or otherwise transferred to any third person or entity
except to an Affiliate of Tenant. Except with respect to one (1) of the three
(3) generators, any associated fuel tank linked to such generator (and not
connected to the remaining two (2) generators) and the associated battery backup
system (as provided below), Tenant shall not be obligated to remove the
Equipment from the Building and the Land and restore the same to its condition
prior to the installation thereof. Notwithstanding any provision hereof to the
contrary, upon the expiration or termination of the term of this Lease, at
Landlord's option, Landlord may designate that one (1) of the three (3)
generators, any associated fuel tank linked to such generator (and not connected
to the remaining two (2) generators) and the associated battery backup system be
removed by Tenant at Tenant's sole cost and expense, and any damage caused by
such removal shall be repaired by Tenant at its sole cost and expense.
15.26 Roof Rights.
-----------
(a) Provided Tenant is not in default of any of its obligations
hereunder, Tenant shall have the conditional right to install and maintain up to
eight (8) antenna dishes of not more than forty (40) inches in height and any
associated equipment (including cabling or other conduits between the said
rooftop equipment itself and the Premises) (collectively, "Communications
Equipment") on the roof of the Building in the locations specified in Exhibit M,
which is incorporated herein by this reference, in accordance with the terms of
this Section 15.26, and in accordance with the specifications, if any, contained
in Exhibit M.
(b) Prior to installing any such Communications Equipment, Tenant shall
submit detailed plans and specifications therefor to Landlord for its review.
Said plans and specifications shall describe in detail the proposed size,
weight, color, number and configuration of the Communications Equipment, the
proposed location of the same on the Building, the manner in which the same
shall be installed and removed, and the name and license number of the competent
Virginia licensed contractor who will perform such installation. All such plans
shall be subject to Landlord's prior written approval, and the size, weight,
color, number (provided that Landlord may not determine that the number of
pieces of Communications Equipment shall be
<PAGE>
zero) configuration and location of such Communications Equipment may be limited
by Landlord in its sole and absolute discretion. In addition, Landlord may
request any reasonable additional changes to the plans and specifications, as
Landlord, in its sole discretion, deems necessary to protect the structure and
aesthetic appearance of the Building and/or Landlord's ability to properly
maintain and operate the Building. As a result, the design and installation of
said Communications Equipment shall be subject to the design limitations of the
Building and its structural, electrical and mechanical systems. No work may
commence with respect to the installation of said Communications Equipment
until: (i) Landlord has provided Tenant with Landlord's prior written approval
of final plans therefor in accordance with the terms of this subparagraph (b),
and (ii) Tenant has provided Landlord with written proof that Tenant has
obtained all licenses, permits and approvals from applicable government
authorities necessary for the installation and operation of said Communications
Equipment.
(c) The installation, operation and maintenance of the Communications
Equipment shall, at all times, comply with all applicable present and future
laws, ordinances (including zoning ordinances and land use requirements),
regulations, orders or other legal requirements of the United States of America,
the Commonwealth of Virginia, and any other public or quasi-public authority
having jurisdiction over the Building and insurance requirements relating to or
affecting the Premises, the Building, the condition thereof, all machinery,
equipment and furnishings therein incident to Tenant's occupancy of the Building
and its use thereof. The Communications Equipment shall be modified, removed or
relocated (subject to Landlord's prior written approval) from time to time by
Tenant in order to ensure continued compliance with the foregoing requirements.
Landlord's approval of any plans and specifications shall in no way constitute a
representation or warranty by Landlord that the same are in compliance with any
of the foregoing requirements. The installation and subsequent maintenance of
the Communications Equipment shall be subject to such reasonable regulations and
restrictions as are imposed thereon by Landlord. In the event that the
installation or maintenance of the Communications Equipment results in damage to
the Building or the Project, or Landlord incurs any liability relating to or
arising from the same, Tenant agrees: (i) to pay Landlord on demand the costs
incurred by Landlord in repairing any such damage if Tenant has failed to repair
the same within ten (10) days of Landlord's written notice regarding the same
(or such shorter period as Landlord deems necessary to ensure the proper
condition of the roof), and (ii) to indemnify Landlord against any such
liability. Tenant's rights under this Section 15.26 shall not include any rights
on the part of Tenant or Tenant's Agents to directly access the roof at any
time. All such access to the roof shall be obtained by prior request to
Landlord, whose permission for such access shall not be unreasonably withheld,
conditioned or delayed.
(d) Tenant shall pay all costs associated with the design,
installation, maintenance, operation, relocation and removal of the
Communications Equipment. Tenant shall reimburse Landlord, as additional rent,
for any costs incurred by Landlord with respect to the Communications Equipment,
including but not limited to: (i) any increased insurance premiums,(ii) any
engineering or architectural fees related to reviewing the aforesaid plans and
specifications, and (iii) any legal fees related to the review of the aforesaid
requirements and Tenant's compliance therewith. Tenant hereby indemnifies and
holds Landlord harmless from and against any claims, liabilities, causes of
action, losses, damages and costs incurred by Landlord as a result of the
installation, existence, operation, maintenance, relocation or removal
<PAGE>
of the Communications Equipment. Tenant covenants not to damage the roof or any
other part of the Building or the Project in the course of installing,
maintaining and removing the Communications Equipment. Except as expressly set
forth in the approved plans therefor, no such installation, maintenance or
removal of the Communications Equipment shall involve any penetration of the
Building's roof or exterior walls.
(e) Tenant covenants that the installation, maintenance, operation,
relocation and removal of the Communications Equipment shall in no way interfere
with Landlord's operation of the Building's systems or with other tenants' use
of their premises or operation of their equipment. In the event of any such
interference, the Communications Equipment shall be modified, removed or
relocated (subject to Landlord's prior written approval) from time to time by
Tenant. Landlord shall have the right to require Tenant to temporarily relocate
the Communications Equipment in order to allow Landlord to complete repairs,
maintenance or modification of the Building. In exercising its rights set forth
in the immediately preceding sentence, Landlord will use reasonable efforts to
minimize any interference with Tenant's use of the Communications Equipment.
(f) Tenant shall use any such Communications Equipment for corporate
purposes only. No Communications Equipment which Tenant is permitted to install
on the roof of the Building in accordance with the terms of this Section 15.26
shall be utilized by anyone other than Tenant or an Affiliate of Tenant or in
any manner as a source of revenue to Tenant not related to Tenant's regular
business operations (it being the intent of the parties, that Tenant may not
sublease, sell or otherwise transfer its rights under this Section 15.26 to a
third party as a separate source of revenue to Tenant).
(g) The maintenance and operation of the Communications Equipment shall
be at Tenant's sole risk, and any damage to the Communications Equipment will in
no way operate to affect Tenant's obligations under this Lease. Similarly, any
condemnation or other governmental action which affects Tenant's ability to
maintain and operate the Communications Equipment shall in no way affect
Tenant's obligations under this Lease, except as set forth below. In the event
that any applicable government authority or other legal requirement prevents
Tenant from operating or maintaining the Communications Equipment, Tenant shall
promptly remove the same. The rights of Tenant set forth in this Section 15.26
are personal to the named Tenant herein and its Affiliates (as defined in
Article VII hereof) and may not be assigned, sublet or otherwise transferred to
any third person or entity (notwithstanding a permitted assignment, sublease or
other transfer of Tenant's other rights hereunder) except to an Affiliate of
Tenant (as defined in Article VII hereof). Prior to the expiration or
termination of the Lease Term, Tenant shall remove the Communications Equipment
from the Building and restore the same to its condition prior to the
installation thereof. Tenant's failure to so remove the same shall constitute an
Event of Default under this Lease and a holdover by Tenant in the Premises.
(signature pages to follow)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed by their respective representatives thereunto duly authorized, as of
the date first above written
LANDLORD:
- --------
TYSONS CORNER PROPERTY LLC,
a Virginia limited liability company
ATTEST:
------
By: L&B Realty Advisors, Inc.,
a Delaware corporation,
its investment manager
/s/ M. Welch
--------------------------
By: /s/ David H. Phumlet [SEAL]
--------------------------
Name: David H. Phumlet
Title: President
Date: 1-7-00
(second signature page to follow)
<PAGE>
ATTEST: TENANT:
- ------ ------
/s/ James Cappelli MICROSTRATEGY, INC.,
- ------------------ a Delaware corporation
By: /s/ Mark Lynch [SEAL]
-----------------------
Name: Mark Lynch
Title: CFO
Date: 1/6/00
<PAGE>
EXHIBIT "A"
-----------
OUTLINE OF THE PREMISES
-----------------------
(The parties understand and acknowledge that the following depiction is merely
an approximation of the location of the Premises in the Building, and Landlord
makes no representations regarding the specific accuracy of said depiction).
(see attached)
<PAGE>
[Schematic of Building]
Exhibit A
Page 1 of 2
<PAGE>
[Schematic of Building]
Exhibit A
Page 2 of 2
<PAGE>
EXHIBIT "B"
-----------
RULES AND REGULATIONS
---------------------
To the extent that there is a conflict between the Lease and the Rules
and Regulations, the Lease shall take precedence over the contrary Rules and
Regulations.
1. Tenant may not: (a) obstruct sidewalks, doorways, vestibules, halls,
stairways, or other areas, (b) place refuse, furniture, boxes or other items
therein or (c) use such areas for any purpose other than ingress and egress to
and from the Premises. Canvassing, soliciting and peddling in the Building are
prohibited.
2. Tenant may use plumbing fixtures and appliances only for the
purposes for which constructed, and may place no unsuitable material therein.
. Tenant may not paint or place any signs or notices on any windows or
doors or in other parts of the Building which are visible outside of the
Premises, without Landlord's prior written approval (which Landlord may withhold
in its sole discretion) of the design and placement. Without notice to Tenant,
Landlord has the right to remove all unapproved signs at Tenant's expense.
. (Intentionally Omitted).
. (Intentionally Omitted).
. Tenant will notify the Building manager when safes or other heavy
equipment are to be taken in or out of the Building, and will move same only in
accordance with any reasonable Landlord requirements.
. Suite entry doors, when not in use, will be kept closed.
. All deliveries must be made via the service entrance and service
elevator, when provided, during normal working hours. Tenant must obtain
Landlord's written approval for any delivery after normal working hours. All
moving (except the initial move-in at the commencement of the Term) must be
conducted after normal working hours, and the manner (including any moving
company to be used) approved in advance by Landlord, which approval shall not be
unreasonably withheld so long as Tenant is not in Default under the Lease.
. Tenant will cooperate with Landlord's employees in keeping the
Premises neat and clean.
. Tenant will not cause or permit any improper noises in the Building,
or allow any unpleasant odors to emanate from the Premises, and will not
interfere with, injure or annoy other tenants or their invitee.
<PAGE>
. No animals other than seeing eye dogs and other handicapped
assistance animals are allowed in or about the Building.
. At Tenant's cost, Landlord will dispose of crates, boxes or other
large items throughout the business day. Landlord is responsible for the removal
of waste generated by normal office operations only.
. Tenant may not operate any machinery, other than ordinary office
machines customarily found in a modern office in the Tysons Corner submarket. No
space heaters or fans are allowed.
. Tenant must comply with all emergency and safety procedures
established by Landlord, the fire department, or any other governmental agency
having jurisdiction over the Building, including, without limitation,
participation in periodic drills, familiarization with emergency procedures and
the designation of individuals responsible for the implementation of emergency
action. Landlord has the right to evacuate the Building in the event of an
emergency or catastrophe.
. No bicycles, motorcycles or similar vehicles are allowed in the
Building or any part thereof with the exception of the garage or Landlord
designated areas.
. Tenant may not insert any nails, hooks, or screws into any part of
the Building (excepting small nails, hooks or screws for the purpose of hanging
pictures on the interior walls of the Premises), except as approved by Building
maintenance personnel.
. Tenant may not distribute any food or beverages from the Premises
(except for food brought into the Premises for consumption by Tenant's employees
in the Premises) without the prior written approval of the Building manager.
. Tenant may not place any additional locks on or rekey any doors
without the prior coordination with and consent of Landlord. Tenant must
surrender all keys upon termination of this Lease. Tenant will give Landlord the
combination to any vault, which combination will be held in confidence by the
Landlord, and only used in the event of an emergency.
. Tenant will not locate furnishings or cabinets adjacent to mechanical
or electrical access panels or over air conditioning outlets, and Tenant shall
pay on demand as Additional Rent the cost of moving such furnishings for
servicing such units. Building personnel will perform any repairs on or
replacements of the lighting and air conditioning equipment of the Building.
. Tenant will comply with any parking rules and regulations.
. Tenant may not use the Premises or any part of the Building for
residential purposes or for overnight lodging.
<PAGE>
. Tenant will not place vending machines in the Premises except for use
by Tenant and its invitees.
. (Intentionally Omitted).
. (Intentionally Omitted).
. (Intentionally Omitted).
. Tenant will not ask building personnel to perform such functions as
furniture moving, deliveries, picture hanging, or other similar tasks not
related to the general operation of the Building.
. Tenant will comply with all reasonable written procedures for the
security and safety of the Building, including without limitation, the manner of
access to the Building after normal business hours, keeping doors to Tenant
areas locked and cooperating with all reasonable requests of Building security
personnel.
. Before leaving the Premises unattended, Tenant shall close and lock
outside (between the Premises and the Common Areas) doors, and use reasonable
efforts to turn off lights, coffee pots, and office equipment. Tenant shall pay
for any damage resulting from failure to do so.
. Tenant may use a microwave oven and appliances of the type commonly
used to prepare coffee and tea in the Premises; provided, however, that no
offensive cooking odors shall be allowed to escape the Premises (for purposes
hereof an offensive odor shall be deemed to be offensive if it is complained of
by another Tenant).
. The Building has been designated as a non-smoking building. Tenant
shall comply and shall cause its employees to comply with this prohibition and
applicable non-smoking ordinances.
<PAGE>
. Landlord may refuse admission to the Building outside of ordinary
business hours to any person not known to the watchman in charge or not properly
identified, and may require all persons admitted to or leaving the Building
outside of ordinary business hours to register. Any person whose presence in the
Building at any time shall, in the reasonable judgment of Landlord, be
prejudicial to the safety, character, reputation and interests of the Building
or its tenants may be denied access to the Building or may be ejected therefrom.
Landlord reserves the right to exclude or expel from the Building any person who
in the judgment of Landlord is intoxicated or under the influence of liquor or
drugs or who violates these Rules and Regulations. In case of invasion, riot,
public excitement or other commotion, Landlord may prevent all access to the
building during the continuance of the same, by closing the doors or otherwise,
for the safety of the tenants, the Building and protection of property in the
Building. Landlord may require any person leaving the Building with any package
or other object to exhibit a pass from the tenant from whose premises the
package or object is being removed, but the establishment and enforcement of
such requirement shall not impose any responsibility on Landlord for the
protection of any tenant against the removal of property from its premises.
Landlord shall not be liable to any tenant for damages or loss arising from the
admission, exclusion or ejection of any person to or from any tenant's premises
or the Building under the provisions of this rule.
<PAGE>
EXHIBIT "C"
-----------
WORK LETTER
-----------
A. At Landlord's sole cost, Landlord will complete construction of the Building
(including Landlord's Work described below, Building core improvements, garage
facilities, plaza and retail areas) in accordance with the plans and
specifications therefor issued for permit dated January 8, 1999, as revised in
accordance with construction bulletins through July 23, 1999, which plans and
specifications are incorporated herein by this reference. To the extent that the
Landlord's Work described below is inconsistent with the aforementioned plans
and specifications, the definition of Landlord's Work below will control.
With respect to the Premises, said construction of the Building shall
consist of the preparation and delivery of the Premises in Base Building Shell
Condition, which shall be defined as the following ("Landlord's Work"):
1. Two (2) self-contained HVAC units have been installed in
mechanical rooms on each floor (except at the 6th Floor, for
which the mechanical room / units have been specifically
placed on the penthouse level) and all main distribution duct
work has been installed and designed for variable air volume
terminal units at interior zones and fan powered induction
units with electric heat at exterior zones; The Base Building
shall be in substantial compliance with the revised 1996
ASHRAE requirements including ASHRAE specifications for fresh
air mix as part of the building HVAC performance
specifications for an average density of not less than one (1)
person per one hundred fifty (150) usable square feet.
2. Seven (7) freeze protector fan powered induction units with
electric heaters and electronic thermostatic control will be
installed at the perimeter of each floor ("Landlord VAV
Work").
3. The sprinkler system on each floor has, in place, the
sprinkler supply distribution loop with branch lines and
upturned heads installed in accordance with code for light
hazard / shell building occupancy, ready for tenant use /
modification.
4. Core areas have been provided with code required and ADA
compliant fire alarm devices (The fire alarm system will be
addressable and expandable for tenant required alarm devices).
All Base Building life/safety equipment and related panels
will be fully installed.
5. Core areas have been provided with code required restroom and
water fountains fully installed and code compliant.
6. The building has been designed to accommodate diversified
tenant electrical loads for lighting and power up to 8 watts
per square foot of usable area. High and low voltage
electrical panels have been installed within the core of the
building at each
<PAGE>
floor with space for tenant electrical circuits. Transformers
have been included in the shell building to provide tenant
power at 120/208 volts. (Capacity has been provided to
accommodate additional transformers which may be added during
tenant improvements, at the tenant's expense) to provide
additional 120/208 volt power.
7. Windows will include high performance low-E insulated glazing
units. Window sills heights above finish floor vary depending
location on the floor. Window mullions will be spaced at 5' -
0" on center.
8. All standard window coverings and blinds fully installed and
operational.
9. All perimeter square columns, wet stacks and all spandrel
walls (north and east) have been fully furred, finished with
drywall and taped, in paint ready condition; all core walls
have been fully furred, finished with drywall and taped, in
paint ready condition. All other columns will be unfinished
except as specifically noted on the base building construction
documents.
10. Four (4) wet stacks have been installed on each floor.
11. Elevator lobbies will be unfinished except for the mechanical
distribution ductwork on floors two through six. All elevator
equipment will be in place and working.
12. There will be no ceiling grid or tile installed on the tenant
floors.
13. Core signage (stairs, elevators, bathrooms, mechanical,
electrical and telephone rooms) will be provided as required
for occupancy.
14. A perimeter Building security system with card key access will
be installed with the possibility of connection / expansion of
the security system for tenant security access and monitoring
as well. (The parties will coordinate the Building system and
Tenant's security system in accordance with and subject to the
limitations set forth in Section 5.7 of the Lease).
All additional improvements and alterations to the Premises beyond Landlord's
Work (the "Improvements") shall be at Tenant's cost and expense in accordance
with the following terms.
B. Attached hereto as Exhibit C-1 and incorporated herein by this reference is a
list of permit-ready drawings and specifications with respect to the
Improvements to be performed on the third and fifth floor portions of the
Premises, which plans and specifications are hereby approved by Landlord as the
"Final Plans" (as defined below) with respect to such portions of the Premises,
subject to: (1) conformance of the same to Landlord's comments on such plans and
specifications (which comments are attached hereto as Exhibit C-2 and also
incorporated herein by this reference), and (2) further modification with
respect to the elevator lobby portions of such
<PAGE>
plans (which elevator lobby portions the parties acknowledge are not yet
complete and must be submitted to Landlord for approval in accordance with the
terms set forth below). Attached hereto as Exhibit N and incorporated herein by
this reference, is a preliminary conceptual plan with respect to the
Improvements to be performed on the fourth floor portion of the Premises.
Attached hereto as Exhibit O and incorporated herein by this reference, are
preliminary conceptual plans with respect to the Improvements to be performed in
the elevator lobby portions of the Premises. Within thirty (30) days following
the execution of this Lease, Tenant will submit to Landlord for approval final
working drawings and specifications of materials for all Improvements that
Tenant desires with respect to the second and sixth floor portions of the
Premises, and within sixty (60) days following the execution of this Lease,
Tenant will submit to Landlord for approval final working drawings and
specifications of materials for all Improvements that Tenant desires with
respect to the fourth floor portions of the Premises. All such final working
drawings will: (i) comply with the ADA and all other applicable codes, laws,
rules, regulations and statutes, (ii) be consistent with the terms and
limitations set forth in Exhibit L hereto, which is incorporated herein by this
reference, (iii) incorporate the Tenant VAV Work (as described below) which is
consistent with the limitations on the Tenant VAV Work set forth below in this
Exhibit C, (iv) with respect to the plans for the second and sixth floor
portions of the Premises, be substantially consistent with the Improvements
described in the attached Final Plans (Exhibit C-1) with respect to the third
and fifth floor portions of the Premises, (v) with respect to the plans for the
fourth floor portion of the Premises, be consistent with the preliminary plans
with respect to such fourth floor attached hereto as Exhibit N, (vi) with
respect to the plans for the fourth floor portion of the Premises, not adversely
affect any Building systems, (vii) with respect to the plans for the fourth
floor portion of the Premises, incorporate screening reasonably acceptable to
Landlord with respect to any portions of the Improvements or associated
equipment which are visible from the exterior of the Building or located
adjacent to the windows of the Building in order to ensure that the exterior
appearance of the Building is consistent with that of Class A office buildings
in the Tysons Corner submarket, (viii) with respect to the plans for the
elevator lobby portions of the Premises, be consistent with the preliminary
plans with respect to such elevator lobbies attached hereto as Exhibit O, and
(ix) with respect to the plans and specifications for the Tenant VAV Work, be
consistent with the terms of Exhibits C-1 and N, as the same are modified by the
terms of Exhibit C-2. All plans for the Improvements require Landlord's prior
written approval (and notwithstanding any time periods set forth above, Tenant
shall not commence performance of any Improvements in any portion of the
Premises until Landlord has approved the Final Plans for such Improvements with
respect to such portion of the Premises), which approval will not be
unreasonably withheld provided that the foregoing conditions are met. As
modified by any Landlord-required changes, the final working drawings will be
the "Final Plans". Tenant is solely responsible for determining whether or not
it is a public accommodation and for compliance with ADA within the Premises.
Tenant's approval of the Final Plans constitutes an acknowledgment by Tenant
that they comply with ADA and all other applicable codes, laws, rules,
regulations and statutes. Landlord's approval of the plans, specifications and
working drawings for the Improvements shall create no responsibility or
liability on the part of Landlord for their completeness, design sufficiency, or
compliance with any codes, laws, rules, regulations or statutes of governmental
agencies or authorities.
<PAGE>
If Tenant requires any changes in the Final Plans (the "Tenant
Changes"), Tenant must present Landlord with revised drawings and
specifications. If Landlord approves the Tenant Changes, Tenant will incorporate
such changes in the Improvements.
Tenant shall not be obligated to utilize building standard materials in
connection with the Improvements, provided that the materials selected by Tenant
shall be subject to Landlord's prior written approval and shall be consistent
with the design and finishes of Class A office space in the Tysons Corner
submarket. In addition, the Improvements may include an internal staircase
between the floors of the Premises subject to the terms of this paragraph. The
design, location and manner of construction of any internal staircases shall be
subject to Landlord's approval. If the Improvements contain only one (1)
continuous internal staircase, Tenant shall not be required to remove the same
prior to the expiration or termination of the Lease Term. If the Improvements
include more than one (1) continuous internal staircase, at Landlord's option,
Tenant, at its cost and expense, shall be required to remove any additional
internal staircases prior to the expiration or termination of the Lease Term and
restore the portions of the Premises affected thereby to Base Building Shell
condition. In the event that Tenant exercises the first renewal option with
respect to less than the entire Premises, prior to the commencement of the First
Option Term, Tenant, at its sole cost and expense, will remove any internal
staircases affecting any portion of the Premises with respect to which this
Lease has not been renewed, and will restore the floor, structure and any other
portion of the Building to Base Building Shell condition.
The Improvements shall include the installation of ductwork and
additional variable air volume boxes in the Premises (beyond the equipment
described in Paragraph 2 of the Landlord's Work, as defined in Paragraph A
above) which shall be attached to and incorporated into the Building's HVAC
system serving the Premises ("Tenant VAV Work").
C. Tenant will bear the cost of architectural and engineering fees, if
any, relating to the Improvements [including: (i) the architectural fees related
to the preparation of all drawings, (including CAD drawings) plans and
specifications (collectively, "plans"), (ii) any architectural and engineering
fees which Landlord incurs in reviewing plans prepared by Tenant's architect or
work performed by Tenant or its contractors which plans or work are in the
nature of above- building standard improvements (including but not limited to
stairs, rooftop, lobbies, generator placement, floor loading and the like), all
of which will be subject to review by Landlord's architect at Tenant's cost and
expense, (iii) engineering fees related to Tenant's engineer's participation in
the planning and performance of the Improvements in the Premises (it being
understood that Tenant is required to use Landlord's engineer and may not
utilize an outside engineer in connection with the Improvements)] the cost of
any necessary permits and associated fees, and all costs and expenses incurred
in the construction of Improvements over and above Base Building Shell
condition, including the construction management fee payable to Landlord in
connection with the Improvements (as determined in accordance with the terms of
Paragraphs D and F below (collectively "Tenant's Costs") [In the event that
Tenant employs its own architect to prepare the Final Plans, upon completion of
the Improvements, Tenant's architect, at Tenant's cost and expense, shall
deliver to Landlord computer disks containing "as-built" CAD drawings and
specifications regarding such Improvements]; provided, however, Landlord will
credit
<PAGE>
against the foregoing Tenant's Costs, an allowance (the "Improvement Allowance")
consisting of the following components: (i) up to $4,760,600.00, plus (ii) up to
an additional $150,000.00 (which additional amount is calculated at the rate of
$30,000 per floor to offset the costs associated with the design and
construction of the elevator lobby on each full floor in the Building leased by
Tenant).
In addition, Landlord will credit against that portion of the Tenant's
Costs attributable to the Tenant VAV Work an additional amount not to exceed
$320,000.00 ("VAV Allowance") to offset costs of completing the Tenant VAV Work.
[By way of clarification only, and without affecting the parties respective
rights and obligations: The parties acknowledge that the foregoing VAV Allowance
was determined based upon a total agreed upon cost with respect to VAV boxes in
the Premises of $428,000.00, of which $108,000 was allocated to the Landlord in
order to allow Landlord to complete the Landlord VAV Work].
In addition to the Improvement Allowance, upon execution of this Lease
and submission by Tenant to Landlord of approved invoices from Tenant's
architect for at least the amount requested by Tenant detailing work performed
for Tenant in connection with the preparation of preliminary plans and drawings
for the Improvements, Landlord will pay Tenant a Preliminary Space Plan
Allowance of up to $14,648.00. No invoices submitted by Tenant for reimbursement
from the Preliminary Space Plan Allowance and reimbursed therefrom shall be
included in Tenant's Costs or submitted to Landlord for reimbursement or payment
pursuant to the other terms of this Exhibit C.
Tenant shall follow the procedures set forth in Paragraphs E and F
below in order to receive reimbursement or payment for such Tenant's Costs and
the Additional Costs.
D. Tenant will complete construction of the Improvements in accordance
with the Final Plans, the terms of Article III and the terms set forth below:
1. For the purpose of determining Tenant's Costs, Tenant will pay
Landlord a supplementary construction manager's fee of one and
one-half percent (1.5%) of Tenant's hard costs associated with
the construction of the Improvements in order to compensate
Landlord for costs incurred in connection with the supervision
and coordination of work being performed in the Building. Such
construction manager's fee shall be deducted by Landlord from
the aforesaid Improvement Allowance.
2. During Tenant's construction of the Improvements, Landlord and
its consultants and architect will have access to the Premises
for the purpose of monitoring the construction of the
Improvements and ensuring their compliance with the Final
Plans and the requirements of this Lease. Landlord and its
consultants and architect will not interfere with Tenant's or
its contractors' construction of the Improvements, except to
the extent necessary to ensure such compliance.
<PAGE>
E. Tenant, as construction manager, will enter into contracts with all
contractors and subcontractors performing the Improvements. As such, Tenant will
be responsible for all Tenant's Costs, subject to partial reimbursement in
accordance with the terms set forth below. Tenant will approve in writing and
thereafter submit to Landlord for payment invoices from Tenant's contractors and
subcontractors who have performed work and delivered materials in connection
with: (i) the Improvements (which may include, in addition to hard construction
costs, only the following "soft" costs associated with the Improvements:
architectural, design and engineering fees and the cost of procuring permits),
and (ii) the reasonable cost of installing two of the three generators forming a
part of the Generator Equipment described in Section 15.25 of the Lease and
Exhibit I hereto ("Reimbursable Generator Costs"), provided that such
Reimbursable Generator Costs shall not exceed the lesser of: (A) the cost of
installing two generators, or (B) the cost of installing one larger generator
with the same aggregate capacity as such two generators (collectively, "Approved
Invoices"). It is understood and agreed that no portion of the Improvement
Allowance shall be paid with respect to any costs other than those described
above in this Paragraph E with respect to Approved Invoices. Without limiting
the generality of the immediately preceding sentence, no portion of the
Improvement Allowance or VAV Allowance (nor any amounts payable pursuant to the
terms of Paragraph F below) shall be paid with respect to any costs associated
with the third generator described in Section 15.25, relocation costs,
furniture, fixtures not attached to the Building, computers or equipment, and no
unused portion, if any, of the Improvement Allowance or VAV Allowance shall be
utilized in any way to grant Tenant any rent abatement hereunder. Said Approved
Invoices shall be paid from the Improvement Allowance in accordance with the
following terms:
<PAGE>
1. Following execution of this Lease, Tenant shall submit to
Landlord from time to time Approved Invoices accompanied by
partial lien waivers (in form reasonably acceptable to
Landlord) from all contractors and subcontractors submitting
such Invoices. Such Invoices and accompanying lien waivers
shall be delivered to Landlord on or before the fifteenth
(15th) day of each calendar month.
2. To the extent that any portion of the Improvement Allowance
remains unpaid up to a total of $4,419,540.00 ($4,284,540 plus
$135,000.00), any such previously unpaid Approved Invoices
(other than those associated with the Tenant VAV Work, which
shall be paid in accordance with the terms of Paragraphs 4 and
5 below) shall be paid by Landlord on or before the thirtieth
(30th) day of the immediately succeeding calendar month.
3. Upon completion of the Improvements and delivery by Tenant to
Landlord of: (i) Certificates of Occupancy for the entire
Premises, (ii) full and complete lien waivers from all
contractors or subcontractors performing work or delivering
materials with respect to the Improvements, and (iii)
previously unpaid Approved Invoices for work and materials
forming a part of the Improvements (other than those
associated with the Tenant VAV Work, which shall be paid in
accordance with the terms of Paragraphs 4 and 5 below)
totaling at least the amount requested by Tenant, Landlord
will pay such Invoices to the extent that any portion of the
total Improvement Allowance ($4,910,600.00 [$4,760,600.00 plus
$150,000.00]) remains unpaid.
4. To the extent that any portion of the VAV Allowance remains
unpaid up to a total of $288,000.00, any such previously
unpaid Approved Invoices for the Tenant VAV Work shall be paid
by Landlord on or before the thirtieth (30th) day of the
immediately succeeding calendar month.
5. Upon completion of the Improvements and delivery by Tenant to
Landlord of: (i) Certificates of Occupancy for the entire
Premises, (ii) full and complete lien waivers from all
contractors or subcontractors performing work or delivering
materials with respect to the Improvements, and (iii)
previously unpaid Approved Invoices for work and materials
forming a part of the Tenant VAV Work totaling at least the
amount requested by Tenant, Landlord will pay such Invoices to
the extent that any portion of the total VAV Allowance
($320,000.00) remains unpaid.
F. If Tenant's Costs exceed the Improvement Allowance, subject to the
limitations set forth below, Tenant, at its option, may finance any Excess in
accordance with the terms of this Paragraph F. Tenant will submit to Landlord
Approved Invoices (as defined in Paragraph E above), which invoices have also
been approved in writing by Tenant (provided that no such Approved Invoices have
been previously submitted, reimbursed or paid from a portion of the Improvement
Allowance or the Preliminary Space Plan Allowance). Such invoices (which shall
be accompanied by lien waivers) shall be delivered to Landlord on or before the
fifteenth (15th) day of each calendar month, and any such previously unpaid
Approved Invoices shall be paid by Landlord on or before the thirtieth (30th)
day of the immediately succeeding calendar month subject to the Maximum set
forth below. The total amount paid by Landlord pursuant to this Paragraph F,
which shall not exceed, in the aggregate $732,400.00, shall be paid by Tenant to
Landlord, as additional rent, in equal monthly installment payments of
additional Base Rent under the Lease. The amount of such monthly installment
payments shall be determined as follows: The total amount paid by Landlord
pursuant to this Paragraph F, along with interest thereon at the rate of eleven
percent (11%) per annum shall be amortized on a straight line basis and payable
by Tenant to Landlord in equal monthly installments (along with Tenant's monthly
payment of Base Rent) beginning on the Final Commencement Date and continuing
through the balance of the initial Lease Term (as set forth in Section 1.3). [By
way of illustration only, if the total amount paid by Landlord pursuant to this
Paragraph F is $100,000.00 and the Final Commencement Date is October 1, 2000,
said $100,000 will be amortized over a 120 month period (October 1, 2000 -
September 1, 2010) at eleven percent interest per annum, resulting in a monthly
installment payment of $1,377.50 per month, payable by Tenant as Additional Base
Rent for each of the120 full calendar months of the initial Lease Term following
the Final Commencement Date].
G. Substantial Completion with respect to any full floor of the Premises
shall be deemed to occur when the Improvements specified in this Exhibit C
(excluding long lead time items) have been completed in accordance with the
Final Plans, except for punch-list items which do not substantially interfere
with Tenant's intended use of the Premises.
<PAGE>
EXHIBIT "C-1"
-------------
FINAL THIRD AND FIFTH FLOOR PLANS
---------------------------------
The following plans and specifications are hereby incorporated by
reference into this Exhibit C-1. Said plans and specifications are approved by
Landlord subject to Tenant's conformance of the same to Landlord's comments set
forth in Exhibit C-2. [The parties acknowledge that some of Landlord's comments
set forth in Exhibit C-2 have been addressed, in whole or in part, by Tenant's
January 4th revisions of the December 23rd plans].
MicroStrategy Phase One Floors 3 & 5 1861 International Drive, McLean, Virginia,
dated December 23, 1999, consisting of the following sheets:
CS.01 Abbreviations, Drawing Index, Symbols, Project
Information, Keyplans and Consultants
CS.02 General Notes
CS.03 General Notes
A1.01 Partition Plan Third Floor
A1.02 Partition Plan Fifth Floor
A2.01 Reflected Ceiling Plan Third Floor
A2.02 Reflected Ceiling Plan Fifth Floor
A3.01 Power/Signal Plan Third Floor
A3.02 Power/Signal Plan Fifth Floor
A4.01 Finish Plan Third Floor
A4.02 Finish Plan Fifth Floor
A5.01 Furniture and Equipment Plan Third Floor (for
information only)
A5.02 Furniture and Equipment Plan Fifth Floor (for
information only)
A7.01 Elevations
A8.01 Partition Types Sections/Details
A8.02 Sections/Details
<PAGE>
A9.01 Schedules
M-1 Cover Sheet Mechanical (revised January 4, 2000)
M-2 Third Floor Plan HVAC (revised January 4, 2000)
M-3 Fifth Floor Plan HVAC (revised January 4, 2000)
M-5 Roof Plan HVAC (revised January 4, 2000)
M-6 Details Mechanical (revised January 4, 2000)
M-7 Flow Diagrams Mechanical (revised January 4, 2000)
M-8 Schedules Mechanical (revised January 4, 2000)
P-1 Cover Sheet Plumbing (revised January 4, 2000)
P-2 Third Floor Plan Plumbing (revised January 4, 2000)
P-3 Fifth Floor Plan Plumbing (revised January 4, 2000)
E-1 Cover Sheet Electrical (revised January 4, 2000)
E-2 Third Floor Plan Lighting (revised January 4, 2000)
E-3 Fifth Floor Plan Lighting (revised January 4, 2000)
E-4 P-2 Parking Level Plan-Power (revised January 4,2000)
E-5 Third Floor Plan Power (revised January 4, 2000)
E-6 Fifth Floor Plan Power (revised January 4, 2000)
E-7 Roof Plan Power (revised January 4, 2000)
E-8 Power Riser Diagram (revised January 4, 2000)
E-9 Panel Schedules (revised January 4, 2000)
<PAGE>
EXHIBIT "C-2"
-------------
LANDLORD'S COMMENTS REGARDING TENANT'S PLANS
--------------------------------------------
(See attached)
<PAGE>
[LOGO OF L&B]
<TABLE>
<S> <C> <C>
L&B Realty Advisors, Inc.
Dedicated to Superior Client Service
1961 Chain Bridge Road
DESIGN/CONSTRUCTION DOCUMENT REVIEW Suite 105
McLean, Virginia 22102
Tel: 703-893-9400, Ext. 266
Fax: 703-893-1022
www.lbrealty.com
DATE: December 30, 1999 PROJ. NAME: 1861 International Drive, Tyson's
TENANT NAME: Microstrategy (MSI) LOCATION: 3rd and 5th Floors
DOCUMENT "Peer Review and Pricing" DOCUMENT December 23, 1999
REVIEWED: DATE:
REVIEWER: P. Comey / B. Yagmur SUBMITTED BY: Peter T. Comey
ARCHITECT: Ai (Interiors) ENGINEER: K.T. Associates, PC
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ITEM DWG SHT DETAIL OR REMARKS FOLLOW-UP/
NO. OR PAGE PAGE ACTION REQ'D
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. CS.01 Permit "High Rise" designation should be "Yes" (building stairs Confirm;
info. and elevators descend into parking garage). Revise.
- ---------------------------------------------------------------------------------------------------------------
2. CS.01 Permit Floor Area of Tenant Space is incorrect; should be the Confirm;
info. area for 'Single Tenant Usable - 27,062.74 SF/Floor Revise.
- ---------------------------------------------------------------------------------------------------------------
3. CS.01 Base Base building contractor (Davis Construction) address Confirm;
Bldg. incorrect - 12500 Parklawn Dr., Rockville, MD 20852) Revise
- ---------------------------------------------------------------------------------------------------------------
4. CS.01 Index Drawing index does not include engineering drawings. Revise.
- ---------------------------------------------------------------------------------------------------------------
5. A1.01 Plans Corridor dimension at core (4'-10") is not acceptable to Review;
A1.02 (3rd & 5th the landlord; 5'-0" clear is minimum (5'-6" is preferred). Revise.
Floors) NOTE: Corridor under construction at 4th Floor = 6'-0". [Coordinate]
- ---------------------------------------------------------------------------------------------------------------
6. A1.01 Wall Corridor Partition Type 'B' noted with drywall stopping Review;
A1.02 Type 3" above ceiling; Partition Detail (02/A8.01) shows it Revise.
Legend up to deck above/caulked. Landlord prefers this detail.
- ---------------------------------------------------------------------------------------------------------------
7. A1.01 Plan (3rd Operable Partition at Conference rooms No. 328A & B Confirm;
Floor) may conflict with large base building ductwork above. Coordinate.
- ---------------------------------------------------------------------------------------------------------------
8. A1.01 Plans No Specification/Note/Detail is included for required Review;
A1.02 (3rd/5th) waterproofing of concrete slab below future raised floor. Revise.
- ---------------------------------------------------------------------------------------------------------------
9. A1.01 Floor No floor plans/details have been included for the Review;
A1.02 Plans proposed construction of electrical switchgear and Detail:
emergency generator/UPS rooms in the garage levels. Coordinate.
Additional plans/details/layout/information required.
- ---------------------------------------------------------------------------------------------------------------
10. A1.01 Floor No floor plans/details have been included for the Review;
A1.02 Plans proposed installation and related construction required Detail;
for rooftop equipment. Additional architectural plans/ Coordinate.
details/layout/information/coordination required.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit C-2
Page 2 of 5
<PAGE>
1861 International Drive
Proposed Tenant Space Design Review
December 30, 1999
<TABLE>
<S> <C> <C> <C> <C>
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11. A1.02 Plan & Office No. 516 wall return to window mullion behind Confirm;
A2.02 Ceiling door (south window) is not clearly drawn/indicated; Revise.
(5th Flr.) return detail layout needs adjustment/clarification. Coordinate.
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12. A2.01 Ceilings Elevator lobby/corridor ceilings are not sufficiently Review;
A2.02 (3rd & 5th detailed (upgrade/finishes) commensurate with lease Design;
Floors) requirement for improvement of lobbies/corridors. Submit.
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13. A2.01 Ceilings Conduit and cable tray at east side of elevator lobby/ Review;
A2.02 (3rd & 5th corridor is within the corridor ceiling space; need to Revise.
Floors) extend conduit/move transition east into tenant space.
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14. A2.01 Ceiling Bulkhead at operable partition at Conference Room No. Confirm;
(3rd Flr.) 328A & B may be in conflict with large HVAC ductwork. Coordinate.
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15. A2.01 Ceiling Surface mounted strip fluorescent light fixtures (2) at Review;
(3rd Flr.) Conference Room Closet No. 328C are not acceptable; Revise.
replace these with building standard 2x2 or 2x4 fixture.
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16. A3.01 Power/ Conference Room No. 328B center floor outlets will Confirm;
Signal penetrate floor slab above the base building main Coordinate.
(3rd Flr.) distribution ductwork below; access may be difficult.
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17. A4.01 Finishes Wall finishes planned for elevator lobby/corridors not Review;
A4.02 (3rd & 5th indicated on Finish Plan. Floor/base finishes at lobby Design;
Floors) & corridors will require samples/submittals for review. Submit.
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18. A8.01 Wall Corridor Partition Type 'B' Detail (02/A8.01) shows it Review;
A1.01 Type up to deck above/caulked. Landlord prefers this detail. Revise.
A1.02 Detail [Conflicting notes indicated on Plan Wall Type Legend.)
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19. A8.01 Raised Raised Floor Closure Details (11-13/A8.01) does not Review;
Floor include condition at curtain wall window (at proposed 4th Revise.
Details Floor). Standard detail required by Landlord.
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20. A8.01 Raised Raised Floor Detail (14/A8.01) refers to manufacturer Review;
Floor as Tate Access Floors; Floor Plans (A1.01/02) indicate Revise;
Detail flooring manufacturer as same as the systems furniture. Coordinate.
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21. A9.01 Door Frame Type 'D' (corridor doors 3'-0" X 8'-0) is to be Review;
Sched. aluminum as required for building standard. Revise.
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22. A9.01 Finishes No room/space finish schedule provided. Wall finishes Review;
(3rd & 5th planned for elevator lobby/corridors not indicated on Design;
Floors) Finish Plan. Finishes at lobby/corridors submittal. Submit.
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23. A9.01 Finishes Floor Finish Carpet Type 'C-1' is listed as "Not Used". Review;
A4.01 (3rd & 5th Carpet Type 'C-1' is indicated on Finish Plans (A4.01 & Design;
A4.02 Floors) A4.02) throughout tenant space, lobby and corridors. Submit.
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24. M-2 HVAC VAV box design (sizing/heater) do not meet landlord's Review;
M-3 Plans standard box configurations/material order. Design Design;
M-8 (3rd & 5th includes four (4) sizes of cooling only ['A'] and three (3) Revise.
Floors) sizes of fan powered boxes ['F']; need to standardize.
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25. M-2 HVAC VAV box design/system layout is not consistent from Review;
M-3 Plans 3rd Floor to 5th Floor. All heater 4kW or larger are Design;
M-8 (3rd / 5th) shown to be 480v. Landlord 4kW boxes are 1P 277v. Revise;
Design needs to be standardized/coordinated. Coordinate.
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</TABLE>
Exhibit C-2
Page 3 of 5
<PAGE>
1861 International Drive Exh. C-2
Proposed Tenant Space Design Review
December 30, 1999
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26. M-2 HVAC VAV box heater design/layout appears to Review;
M-3 Plans concentrate heater box units away from Design;
(3rd/5th) north side of building; this is not Revise.
consistent with landlord's anticipated
layout.
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27. M-2 HVAC Main base building distribution ductwork Review;
M-3 Plans is indicated in the wrong location on Revise;
(3rd/5th) floor plans; actual ductwork was installed Coordinate.
approximately 15'-0" from exterior building
walls (east/west). Coordinate layout with
lights, VAV'S.
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28. M-2 HVAC Thermostats/Control wiring indicated on Review;
M-3 Plans exterior round concrete columns (west) will Revise;
(3rd/5th) be required to be surface mounted in approved Coordinate.
raceway enclosure.
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29. M-2 HVAC Perimeter linear diffusers are shown as set Review;
M-3 Plans into the suspended acoustical ceiling grid. Revise;
(3rd/5th) This is not consistent with building standard Coordinate.
details for diffusers to be placed in the
vertical return of perimeter drywall
bulkhead.
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30. M-2 HVAC Perimeter linear diffusers (supply and return) Review;
M-3 Plans in the elevator lobby are shown as set into Revise;
(3rd/5th) the suspended acoustical ceiling grid. Coordinate.
This ceiling is not acceptable.
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31. M-5 HVAC Plan/Notes/Details (Sheet M-6) lack Review;
Roof sufficient details and information on rooftop Revise;
Plan mechanical units, piping and support Coordinate.
equipment. Equipment sizes, weight, supports,
connections, etc. need to be included with
the design. Screening of units may be
required (as outlined).
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32. M-5 HVAC Plan/Note No. 1 Indicate a new 8" Diameter Review;
M-7 Roof Supply/Return riser for Glycol system. Riser Revise;
Plan/ Schematic indicates a 6" Diameter riser. Base Coordinate.
Riser building includes spare riser piping for
similar installation. Size to be confirmed; if
appropriate, Landlord would consider use.
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33. M-5 HVAC Air Separation Detail indicates supporting Review;
M-6 Roof/ expansion tank from above. On Roof Plan, Revise;
M-7 Details/ expansion and most/all Glycol system Coordinate.
Riser components are shown as outside (in the open
air/no structure above). Additional detail
and coordination required for placement of all
equipment.
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34. M-6 HVAC Pipe Support Detail indicates pressure treated Review;
Details wood supports. These are not permitted. Pre- Revise:
fabricated curbs and supports are required in Coordinate.
all applications.
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35. M-6 HVAC No detail are included for roof surface or Revise;
Details exterior wall piping penetrations and closure/ Detail.
sealant construction.
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36. M-6 HVAC No details are included for roof top equipment Revise;
Details structural support, building connections or Detail.
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37. M-7 HVAC HVAC equipment listed as supporting the "UPS" Revise;
Riser system is indicated on the P-3 level (future). Detail.
Additional detail/layout/location/
information is required.
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38. E-2 Lighting Surface mounted strip fluorescent light Review;
A2.01/Ceiling fixtures (2) at Conference Room Closet No. 328C Revise.
(3rd Fir.) are not acceptable; replace these with building
standard 2x2 or 2x4 fixture.
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Exhibit C-2
Page 4 of 5
<PAGE>
1861 International Drive
Proposed Tenant Space Design Review
December 30, 1999 Exhibit C-2
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39. E-2 Lighting Elevator lobby/corridor ceilings and Review;
E-3 /Ceiling lighting are not sufficiently detailed Design;
(3rd/5th) (upgrade/finishes) commensurate with Submit.
lease requirements for improvement of
lobbies/corridors. Revised lighting type
/layout required.
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40. E-4 P-2 Transformer location, layout, duct bank Review;
Power and connection indicated must be Detail;
considered schematic. Actual location, Coordinate.
feeds, connections and coordination
requires landlord and Virginia Power
review and approval.
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41. E-4 P-2 Proposed new tenant switchgear room Review;
Power layout and location indicated must be Revise;
considered schematic. Actual location, Detail;
feeds, connections and coordination Coordinate.
will depend on final landlord and
Virginia Power review and approval.
Landlord preference is for the proposed
new tenant switchgear room to be
immediately adjacent to existing base
building switchgear room. Additional
detail/layout/information required.
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42. E-4 P-2 No details are included for proposed Review;
E-8 Power/ emergency generator(s), UPS system(s), Revise;
Riser new bus new riser routing and other Detail;
Diagram electrical service and support Coordinate.
equipment. Additional detail/layout/
information required.
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43. E-5 Power/ Power connection to Type 'A' VAV (shut- Review;
E-6 Ceiling off) boxes not specified as circuited Design;
(3rd/5th) to Mechanical Panels (MA3, MA5). Assume Submit.
low voltage, transformer(s), and series
connections. Additional information
required.
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44. E-9 Panel Electrical power panels (typical) are Review;
Sched. not indicated as properly balanced or Revise;
labeled with new circuits and existing Coordinate.
circuits. Adjustments are required to
remedy.
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45.
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46.
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47.
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48.
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49.
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50.
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Exhibit C-2
Page 5 of 5
<PAGE>
EXHIBIT "D"
-----------
STATEMENT SPECIFYING COMMENCEMENT DATES
AND TERMINATION DATE
--------------------
The parties agree that notwithstanding anything to the contrary contained in the
Lease, the Delivery Date is _____________,the Commencement Date is __________,
the Interim Commencement Date is __________,the Final Commencement Date is
_______________, and the Termination Date is _______________________.
LANDLORD TENANT
--------------------------
<PAGE>
EXHIBIT "E"
-----------
PARKING
-------
A. Landlord is "Landlord" and Tenant is "Tenant" under that certain
Lease (the "Lease"), wherein Tenant leased from Landlord certain premises
located in Landlord's office building (the "Building") in Fairfax County,
Virginia, located at 1861 International Drive, McLean, Virginia.
B. Landlord desires to grant and Tenant desires to use 3.7 parking
spaces for every 1,000 square feet of Net Rentable Area in the Premises (as such
Net Rentable Area may change from time to time) ("Tenant's Allocated Parking
Space" or "Spaces"), which Spaces shall be located inside the Building's parking
garage (the "Garage"), and shall be used by Tenant all upon the terms and
conditions set forth below.
NOW, THEREFORE, for and in consideration of Ten and No/100 Dollars
($10.00) and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
. Subject to Landlord's agreement with any operator of the Garage
("Garage Tenant") and any agreements, easements or restrictions affecting the
Building (which shall not materially impair Tenant's rights with respect to the
Spaces), Landlord hereby grants Tenant a right to use the Spaces during the
Lease Term (including any Option Terms) (terminating upon any earlier
termination of the Lease for whatever reason) for parking motor vehicles. In
light of Tenant's phased-in occupancy of the Premises, as set forth in greater
detail in Section 3.1 of the Lease, Tenant's obligation to pay for the Spaces
shall be similarly phased-in. As a result, on the applicable Commencement Date
set forth in Section 3.1 with respect to each portion of the Premises, Tenant's
obligation to pay for the number of Spaces allocable to such portion of the
Premises (at the 3.7 per 1,000 square feet ratio set forth above) shall also
commence. The number of Tenant's Allocated Parking Spaces actually useable for
parking by Tenant shall be reduced by the number of spaces in the Garage which
are not usable due to the presence of Tenant's Generator Equipment therein (as
described in Section 15.25 of the Lease). However, Tenant shall remain obligated
to pay the Fee (as defined below) with respect to the Allocated Parking Spaces
which are occupied by Tenant's Generator Equipment.
. Tenant shall pay the then current market rental rate (the "Fee"), as
adjusted from time to time by Landlord or the operator of the Garage ("Garage
Tenant"), for each of the Spaces (per parking space), payable monthly in advance
on or before the first day of each month throughout the Lease Term to Landlord
(unless Landlord designates otherwise in writing). Any such payments to Landlord
will constitute Additional Rent under the Lease. Notwithstanding any provision
hereof to the contrary, the initial Fee per Space shall be Fifty Dollars
($50.00), and said Fee shall be escalated by two and one half percent (2.5%) per
year. Except as set forth below, all such Spaces shall be used by Tenant on an
unreserved basis in common with other tenants and visitors. However, twenty-five
(25) of the Spaces shall be reserved specifically for Tenant's use ("Reserved
Spaces") and marked with appropriate signage provided by Tenant, and shall be
designated as such in the Garage at no additional cost to Tenant. Tenant may
also
<PAGE>
designate a portion of the Spaces for "Tenant's Visitor's Parking." The location
of such reserved and visitor spaces in the Garage shall be determined by Tenant,
subject to Landlord's reasonable review.
. All motor vehicles (including all contents thereof) shall be in the
Garage at the sole risk of their owners and Tenant, and Landlord is not
responsible for the protection and security of such vehicles. Neither Landlord
nor Landlord's Agents has any liability for any property damage or personal
injury arising out of or in connection with said motor vehicles (unless arising
out of the gross negligence of Landlord or Landlord's Agents), and Tenant shall
indemnify and hold Landlord and Landlord's Agents harmless against all demands,
claims, damages, or causes of action arising out of or connected with Tenant's
use of the Spaces, or the negligence of Tenant or Tenant's Agents, acts or
omissions arising out of or in connection with said motor vehicles.
. This Exhibit E does not create a bailment between the parties hereto,
it being expressly agreed that the only relationship created between Landlord
and Tenant hereby is that of Landlord and Tenant.
. In its use of the Spaces, Tenant will have input to and will follow
all applicable Rules and Regulations established by Landlord or any Garage
Tenant and provided in writing to Tenant. Tenant's employees shall not use any
of the parking spaces designated for use by visitors only. Upon the occurrence
of a breach of any applicable Rules and Regulations, failure to pay the Fee or
Tenant's Default under the Lease, Landlord will be entitled to terminate this
Agreement following written notice to Tenant and an opportunity to cure as set
forth in Section 11.1 of the Lease, in which event Tenant's right to utilize the
Spaces will cease.
. If: the Garage is damaged by fire or other casualty, then Landlord
will proceed to restore the Garage at its sole cost and expense and immediately
provide Tenant, at the same fee as then-applicable with alternative parking
during such restoration period throughout the remainder of the Lease Term, or
until the Garage is fully restored. Any such alternative parking shall: (1) not
cause a reduction in Tenant's Allocated Parking Spaces, (2) be reasonable
convenient in term of location, quality and safety as the Garage, (3) except in
the case of an emergency, be designated by prior specific written notice to
Tenant.
. If all or any portion of the Garage is taken for any public or
quasi-public use, by right of eminent domain or otherwise, or be sold in lieu of
condemnation, then Landlord will keep this Agreement in effect by providing
Tenant with alternative parking in accordance with the terms of Paragraph 6
above.
. To further ensure that only those parties leasing Non-Allocated
Spaces in the Garage are utilizing such parking spaces, Tenant will, no more
than once every six (6) months, provide Landlord with a complete list of
Tenant's employees license plate numbers their vehicles. Tenant will use
commercially reasonable efforts to update the list, as necessary from time to
time.
<PAGE>
9. Subject to Landlord's receipt of any permits or other necessary
governmental approvals with respect thereto, the Garage will be configured so
that the majority of the parking spaces therein will be located behind a gate,
which, during regular office business hours will restrict access to only those
persons to whom Landlord has leased spaces therein. All of Tenant's Allocated
Parking Spaces except those Spaces designated by Tenant for use as "Tenant's
Visitor Parking" will be located behind said gate. The parties acknowledge that
Landlord may "oversell" parking behind the gate on a commercially reasonable
basis, provided that, upon written request from Tenant detailing problems
associated with the unavailability of Tenant's Allocated Spaces (including
Tenant's Reserved Spaces) behind the gate, Landlord will take whatever action is
reasonably necessary (including retaining a parking attendant or reducing the
number of spaces that Landlord "oversells") to alleviate any problems associated
with the unavailability of any portion of Tenant's Allocated Spaces behind the
gate. The cost of any such actions to remedy such a problem shall be a part of
the Operating Costs described in Section 4.3 of the Lease.
<PAGE>
EXHIBIT "F"
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ACCELERATED DEPRECIATION SCHEDULE REGARDING
AFTER HOURS HVAC SERVICE
------------------------
(see attached)
<PAGE>
EXHIBIT "F"
-----------
CALCULATION METHOD REGARDING AFTER-HOURS HVAC COST
--------------------------------------------------
The attached worksheets calculate the estimated hourly overtime HVAC costs as of
the date of this Lease (under two different scenarios, running HVAC on one
floor, and running HVAC throughout the Premises). The calculation of the
depreciation component of Landlord's HVAC costs will be made in accordance with
the terms of the attached worksheets. The other components of Landlord's costs
will be made in the same manner as set forth in the attached worksheets based
upon Landlord actual costs for such other components as of the date of Tenant's
use of such overtime HVAC, as set forth in Section 5.2 of the Lease.
EXHIBIT F
Page 1 of 7
<PAGE>
Exhibit F
OVERTIME HVAC CALCULATION FORMAT
1/6/2000 @ 17:45 Hrs
Project: 1861 International Drive Cost to run one floor
A/C Units = 2
Design KW: = n/a
Minimum Load Package Units = 2
Chiller Tonage Rating: = 116 (58x2)
REVISED
Step One: Electrical Costs:
Average KW Cost: = $0.090 Per Kwh
Building Average Voltage: = 460 Volts
A. Package Units (Two per floor). Each unit has three (3) compressors & one fan.
Min. Load (2 Units)= 116 Min. Tonage
One fan @ 26.5a= 21.089 Kw
Two compressors @ 20.5a= 32.628
Total Kw 53.717 53.72 KWh
B. Condenser Water Pumps (2 50 HP each
Condenser pumps needed: 1 = 62.0 AMPS
Total Kw 49.34 Kw
49.34 KWh
C. Cooling Tower Fans:
Fan motors: 1 = 24.9 AMPS
Run Time (Full time w/VFD) = 50%
Total Kw = 9.9077 9.91 KWh
D. VAV Boxes:
5 w/14 Kw heat & 1/2 hp fan, 277 = 74.709 Kw
10 w/10 Kw heat & 1/3 hp fan 277 = 106.09 Kw
4 w/4 Kw heat & 1/3 hp fan, 277v = 18.438 Kw
Run Time: = 50%
Total Kw = 99.62 Kw 99.62 KWh
Total A-D Kw:
Water Chilling Unit: = 53.72 KWh
Chilled/Condenser Pumps: = 49.34 Kwh
Cooling Tower Fans = 9.91 Kwh
VAV Boxes:: = 99.62 KWh
Total KWh Condition: = 212.58 KWh
EXHIBIT F
Page 2 of 7
<PAGE>
Step Two: Cooling Tower Water Usage
# of Pumps Used: = 1 Pumps
Condenser Pump Rate: = 1275 GPM's
Chiller Tonage Rating: = 116 Tons
(A) Cooling Tower Evaporation Make-up & Bleed: Total Values:
Minimum Load (2 A/C Units)= 116 Tons
Evaporation Rate = 1% of GPM rate: 1.00 %Ton
# of Pumps: 1 1275.00 PGPM
Total Pump GPM Rate: 1275 12.75 1%Rt
Bleed Cycles = (Egpm/C-1) 3 cycl 6.38 CGPM
Total Make-up = Rate + Cycles 19.13 TMup
Hourly Evaporation rate = E rate x 60 min. 1147.50 HMup
#1 Load Tonage x Hourly E rate = Make-up Rate 1147.5 LMup
Water & Sewage charges:
Water is supplied by City of Fairfax. Cooling towers have to be
metered to qualify for the water only (no sewer) rate:
1,000 gallons = 1 unit charge = $ 2.33
One gallon = $ 0.002330
LMup/1 unit = Unit x Cost = Cost per/hr. $2.67
Total Water Make-up Unit Cost: $2.67 Hr
Step Three: Equipment Depreciation
Equipment cost:
Package A/C Units (12 total): $350,000.00
Package A/C Units Operating (2 total): $ 58,333.33
Cooling Towers (2 total): $ 60,000.00
Cooling Towers Operating (1 total): $ 30,000.00
Condenser Pumps (2 total): $ 10,000.00
Condenser Pumps Operating (1 total): $ 5,000.00
Tower and Pump Piping: $ 48,000.00
VAV Boxes: $428,000.00
VAV Boxes Operating (20% total): $ 85,600.00
1. Equipment Cost: $ 226,933.33
2. Estimated Life: 20 Yrs
3. Annual Run Time: 3208 Hrs
Total Equipment Depreciation Cost: $3.54 Hr
EXHIBIT F
Page 3 of 7
<PAGE>
Exhibit F
Step Four: Equipment Maintenance Cost
<TABLE>
<S> <C>
E.M.C. = Maintenance Cost divided by Annual operating hours. Total Cost per Year
Maintenance Cost:
1. Air Filters $4,000.00
2. Water Treatment & Supplies $4,500.00
3. HVAC Supplies $4,200.00
4. MISC. Supplies $1,500.00
Annual Operating Hours: 3208
Total Cost: $14,200.00
Total Equipment Maintenance Cost: $0.74 Prhr
Step Five: Calculation Totals Per Condition Total Cost Per Hour
1. Electrical Cost: = $19.13 E.C.
2. Water Cost: = $2.67 W.C.
3. Equipment Depreciation Cost: = $3.54 EDC
4. Equipment Maintenance Cost: = $0.74 EMC
Total Cost Per Hour: = $26.08 Prhr
Step Six: Operating Cost per Floor: = $26.08 PrHr
Maintenance Engineering Costs = $5.85
Total Operating Cost Per Hour: = $31.93
</TABLE>
EXHIBIT F
Page 4 of 7
<PAGE>
Exhibit F
OVERTIME HVAC CALCULATION FORMAT
1/6/00
Project: 1816 International Drive Cost To Run Five Floors
A/C Units = 10
Design KW: = n/a
Minimum Load Package Units = 10
Chiller Tonage Rating: = 580
Step One: Electrical Costs:
Average KW Cost: = $0.090 Per Kwh
Building Average Voltage: = 460 Volts
A. Package Units (Two per floor):
Min. Load 10 Units)= 580 Min. Tonage
Ten fans @ 26.5a= 210.89 Kw
Twenty compressors @ 20.5a= 326.28 Kw
Total Kw 537.17 537.17 KWh
B. Condenser Water Pumps (2 50 HP each
Condenser pumps needed: 2 = 124.0 amps
Total Kw 98.68 Kw
98.68 KWh
C. Cooling Tower Fans:
Fan motors: 4 = 99.6 amps
Run Time (Full time w/2-VFD) = 50%
Total Kw = 39.63 39.63 KWh
D. VAV Boxes:
25 w/14 Kw heat & .5hp fan, 277 = 373.55 Kw
50 w/10 Kw heat & 1/3 hp fan 27 = 530.47 Kw
20 w/4 Kw heat & 1/3 hp fan, 277 = 92.19 Kw
Run Time: = 50%
Total Kw = 498.1 Kw 498.10 KWh
Total A-D Kw:
Water Chilling Unit: = 537.17 KWh
Chilled/Condenser Pumps: = 98.69 KWh
Cooling Tower Fans = 39.63 KWh
VAV Boxes:: = 498.10 KWh
Total KWh Condition: = 1173.58 KWh
EXHIBIT F
Page 5 of 7
<PAGE>
Exhibit F
Step Two. Coding Tower Water Usage
# of Pumps Used: = 2 Pumps
Condenser Pump Rate: = 2550 GPM's
Chiller Tonage Rating: = 580 Tons
(A) Cooling Tower Evaporation Make-up & Bleed: Total Values:
Minimum Load (10 A/C Units)= 580 Tons
Evaporation Rate = 1% of GPM rate: 1.00 %Ton
# of Pumps: 2 2550.00 PGPM
Total Pump GPM Rate: 2550 25.50 1%Rt
Bleed Cycles=(Egpm/C-1) 3 cycl 12.75 CGPM
Total Make-up = Rate + Cycles 38.25 TMup
Hourly Evaporation rate=E rate x 60 min. 2295.00 HMup
#1 Load Tonage x Hourly E rate=Make-Up Rate 2295 LMup
Water & Sewage charges:
Water is supplied by City of Fairfax. Cooling towers have to be
metered to qualify for the water only (no sewer) rate:
1,000 gallons = 1 unit charge = $2.33
One gallon = $0.002330
LMup / 1 unit=Unit x Cost=Cost per/hr. $5.35
Total Water Make-up Unit Cost: $5.35 Hr
Step Three: Equipment Depreciation
Equipment cost:
Package A/C Units (12 total): $ 291,666.67
Cooling Towers (2 total): $ 50,000.00
Condenser Pumps (2 total): $ 8,333.33
Tower and Pump Piping: $ 40,000.00
VAV Boxes: $ 428,000.00
1. Equipment Cost: $ 818,000.00
2. Estimated Life: 20 Yrs
3. Annual Run Time: 3208 Hrs
Total Equipment Depreciation Cost: $12.75 Hr
EXHIBIT F
Page 6 of 7
<PAGE>
Exhibit F
Step Four: Equipment Maintenance Cost
<TABLE>
<S> <C>
E.M.C. = Maintenance Cost divided by Annual operating hours. Total Cost per Year
Maintenance Cost:
1. Air Filters $4,000.00 $3,333.33
2. Water Treatment & Supplies $4,500.00 $3,750.00
3. HVAC Supplies $4,200.00 $3,500.00
4. MISC. Supplies $1,500.00 $1,250.00
Annual Operating Hours: 3208
Total Cost: $11,833.33
Total Equipment Maintenance Cost: $3.07 Prhr
Step Five: Calculation Totals Per Condition Total Cost Per Hour
1. Electrical Cost: = $105.62 E.C.
2. Water Cost: = $5.35 W.C.
3. Equipment Depreciation Cost: = $12.75 EDC
4. Equipment Maintenance Cost: = $3.07 EMC
Total Cost Per Hour: = $126.79 Prhr
Step Six: Operating Cost per Floor: = $126.79 PrHr
Maintenance Engineering Costs = $29.25
Total Operating Cost Per Hour: = $156.04
Per Floor Cost Per Hour (five floors in operation): = $31.21
</TABLE>
EXHIBIT F
Page 7 of 7
<PAGE>
EXHIBIT "G"
-----------
CLEANING SPECIFICATIONS
-----------------------
<TABLE>
<CAPTION>
JANITORIAL SPECIFICATIONS FREQUENCY
Main Lobbies, Elevator Lobbies, Public Areas And Corridors
<S><C>
Dust & clean lobby directory Nightly
Dust & clean all walls, from floor to 72"
above floor. Do not clean marble walls. Nightly
Dust all window ledges & frames Nightly
Empty all waste baskets and reline Nightly
Clean tile and floor (sweep and wash) Nightly
Dust and spot clean reception desk Nightly
Vacuum all carpeted areas and spot clean if necessary. Nightly
Vacuum all lobby furniture Nightly
Dust clean and spot clean all pictures, wall hangings,
and display cases from base to top. Nightly
Sweep, mop and spray buff marble floor areas. Nightly
Detail/edge vacuum all carpeted areas Weekly
Dust and clean all ventilating louvers. Weekly
Dust and clean all window blinds. Monthly
Dust and clean all recessed light fixtures (outside surface). Monthly
Clean and vacuum all ventilating louvers. Quarterly
Sweep and wet mop all floors at entrances. Nightly
Dust all unobstructed furniture, file
cabinets and library shelves. Nightly
Dust all fire extinguisher lockers, annunciator
panels and pull stations. Nightly
Damp wipe with non-abrasive detergent all brass entrances. Nightly
Clean and polish brass thresholds. Nightly
Wipe with damp cloth metal trim work, doors, door frames,
walls and light switches, and tenant signage, remove
finger prints, smudges, water and other marks. Nightly
Detail clean andpolish drinking fountains. Nightly
Wash all glass doors at entrances. Nightly
Wax lobby attendant's desk, if any. Weekly
Dust overhead pipes in elevator lobbies, corridors, stairwells. Monthly
Dust ceiling in lobby Monthly Vacuum and
clean all furniture, including upholstered chairs. Bi-monthly
Wash all cove base moldings As Needed
Dust all ceiling light fixtures, grids or lenses. As Needed
Loading dock and trash areas to be kept neat and clean Daily
Wipe and polish planters. As Needed
Service corridors should be spray
buffed, stripped and refinished. Weekly
Shampoo all mats and common area carpets. Quarterly or As Needed
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JANITORIAL SPECIFICATIONS FREQUENCY
Elevators
<S><C>
Clean and polish tracks, plates and grooves. Daily
Maintain hard surface floors in a manner consistent with
process used in main lobby area. Appearance shall be
consistent and free of traffic wear patterns. Daily
Damp wipe, dust, and/or thoroughly clean, using
the appropriate chemicals and polishes, all exterior
and interior doors, cab walls, door frames, and indicator panels. Daily
All service elevator areas must have protective
floor and wall coverings used to protect areas in front
of freight elevator from spillage resulting from trash removal. Nightly
Dust ceilings, light fixtures and ceiling finishes thoroughly. Weekly
Dust inside of telephone cabinets Weekly
Spot clean carpeted floors As Needed
</TABLE>
Tenant Areas
Spot clean all interior partitions,
glass windows, glass entrance doors. Nightly
Clean doors, door frames, walls and switch plates
to remove fingerprints, spills and other markings. Nightly
Clean all counters and counter tops in kitchen areas.
Remove dust from all spaces up to 72" above floor. Nightly
Edge vacuum all carpeted areas. Weekly
Spray buff all non-carpeted areas. Weekly
Spot clean walls and metal trim work. Weekly
Strip and refinish all non-carpeted areas. Monthly or As Needed
Spot clean all walls from ceiling to floors. Monthly
Dust all picture frames and wall hangings. Monthly
Dust all lighting and ventilation fixtures. Monthly
Remove hand marks and keep polished all brass handles. Nightly
Wipe off all counter tops, cabinet fronts,
and appliances in kitchen areas. Nightly
Clean all glass furniture tops. Nightly
Vacuum all carpeted tenant areas.
Spot clean all carpets as needed. Nightly
Vacuum, dust, spot clean interior tenant stairways. Nightly
Clean all interior partition glass including glass doors. Weekly
Maintain all composition hard surface floors to ensure a
scuff-free, gloss, clean appearance. Weekly
Pile lift all reception and hallway floor surfaces to remove
embedded dirt and restore pile to a uniform condition. Weekly
<PAGE>
JANITORIAL SPECIFICATIONS FREQUENCY
Restrooms
Fill floor drain with sufficient water to preclude
sewer gas from escaping. Nightly
Dust ventilating diffusers and light lenses. Nightly
Partitions - wash to remove streaks, stains
and smudges with proper combination lavatory cleaner
disinfectant and deodorizer (odor free) and fungicide. Nightly
Sweep and wash all tile floors. Nightly
Empty, remove and clean waste receptacles, replace
plastic liners. Nightly
Floors - remove all litter, wet mop with proper combination
lavatory cleaner, disinfectant deodorizer (odor free) and fungicide.
Rinse and mop with plain water. Remove all stains from underneath
sinks, toilets and urinals. Nightly
Vacuum all carpet, if applicable. Nightly
Refill all toilet tissue and toilet seat cover
dispensers (if any). Twice Daily
Check, refill if necessary, all soap and lotion dispensers. Nightly
Clean diffusers and light lenses. Weekly
Walls - wash completely (floor to ceiling) with
proper combination cleaner,disinfectant, deodorant
(odor free) and fungicide (no streaking). Monthly
Thresholds - clean and brighten. Weekly
Damp wipe all baseboards. Weekly
Machine scrub all tile floors. Monthly
Strip and seal all floors. No wax. Slight gloss.
Maintain a clean, scuff-free appearance. Quarterly
Damp wipe with mild non-abrasive detergent all doors,
kick plates, door frames, walls, light
switches, glass and partitions. Nightly
Clean and polish towel and toilet dispensers,
flush O-meters, shelves, piping, tampon machines, toilet hinges
and other material surface to remove all stains
and fingerprints. Refill all machines as necessary. Nightly
Clean glass mirrors and vanity tops, removing
all fingerprints, streaks, smudgesand splash marks,
sink elbow plumbing. Nightly
Empty and damp wash all waste containers using
proper disinfectant, deodorant and germicide
combination cleaner. Nightly
Clean toilets, toilet seats and urinals with
proper combination of lavatory cleaner, disinfectant and
deodorizer removing all streaks, stains and deposits, Clean
and polish all chrome work. Add deodorizer in all toilet bowls. Nightly
Wash and disinfect both sides of toilet seats. Nightly
Clean and organize janitorial closets. Nightly
<PAGE>
JANITORIAL SPECIFICATIONS FREQUENCY
Stairways and Landings
Police and remove all debris. Daily
Sweep, damp mop and/or vacuum all floors
on the garage elevator landings. Nightly
Spot clean, dust walls and handrails. Weekly
Sweep, damp mop and/or vacuum all flooring and stairs. Weekly
Damp wipe with non-abrasive detergent and clean all
doors, light switches, glass, hand rails, etc. Weekly
Wash and clean from floor to ceiling all light
fixtures, ledges, moldings, walls, grills, vents, piping, etc. Monthly
Dust mop and damp mop landings and stairs. As Needed
Damp mop to remove spills. As Needed
Exterior Maintenance
Maintain exterior grounds. 3 Times Daily
Remove litter from planters 3 Times Daily
Clean all lobby glass areas. Daily
Clean curb and gutter areas. Daily
Polish all thresholds and door handles. 3 Times Per Week
Power wash sidewalks. Monthly or As Needed
Remove gum from sidewalks. As Needed
Remove graffiti. As Needed
Empty exterior garbage and ash trays Daily
Clean exterior facade from base to 72". As Needed
<PAGE>
EXHIBIT "H"
-----------
TENANT'S SIGNAGE SPECIFICATIONS
-------------------------------
(see attached)
<PAGE>
[GRAPHIC OF SIGNAGE]
Subject to the terms of Paragraph 2.3 of the Lease, Tenant to install two (2)
signs of this general depiction on the exterior facades of the Building; the
total allowable signage square footage for both signs combined shall not exceed
one hundred eighty five (185) square feet.
Exhibit H
<PAGE>
[Letterhead of Creative Sign Systems]
January 4, 2000
MicroStrategy
8000 Crescent Drive
Vienna, VA 22182
Attn: Bill Painter
RE: Signage
Dear Mr. Painter:
Please find the attached drawing of the main site sign identification, which
consists of the logo in channel letters, fabricated from a stain finished
stainless steel. The face of each letter is #2283 red acrylic. Each letter is
internally illuminated with neon tubing. The face side tubing is clear red while
the back side tubing is white. The letter faces are illuminated in red while the
wall is haloed in a soft white.
Should you have any questions or require any additional information, please do
not hesitate to call.
Sincerley,
/s/ John B. Mayer
John B. Mayer,
President
lar
Exhibit H
<PAGE>
[graphic of building exterior-view No. 1]
Subject to the terms of Paragraph 2.3 of the Lease, Tenant to install two (2)
signs of this general depiction on the exterior facades of the Building; the
total allowable signage square footage for both signs combined shall not exceed
one hundred eighty five (185) square feet.
Exhibit H
<PAGE>
[graphic of building exterior-view No. 2]
Subject to the terms of Paragraph 2.3 of the Lease, Tenant to install two (2)
signs of this general depiction on the exterior facades of the Building; the
total allowable signage square footage for both signs combined shall not exceed
one hundred eighty five (185) square feet.
Exhibit H
<PAGE>
Larger Sign
[photograph of building with sign-1861 International Drive]
Exhibit H
<PAGE>
Smaller Sign
Initial Location
[photograph of building with sign-1861 International Drive]
Exhibit H
<PAGE>
Smaller Sign
Initial Location
[photograph of building with sign-1861 International Drive]
Exhibit H
<PAGE>
[graphic of signage]
Exhibit H
<PAGE>
EXHIBIT "I"
-----------
TENANT'S GENERATOR EQUIPMENT
----------------------------
(Preliminary location, plans and specifications)
----------------------------------------------
(see attached)
<PAGE>
[blocking diagram]
Exhibit I
<PAGE>
EXHIBIT "J"
-----------
TENANT'S TRANSFORMER EQUIPMENT
------------------------------
(Preliminary location, plans and specifications)
----------------------------------------------
(see attached)
<PAGE>
[SCHEMATIC FOR P-2 PARKING LEVEL PLAN -- POWER]
Exhibit J
<PAGE>
EXHIBIT "K"
-----------
TENANT'S ROOFTOP MECHANICAL EQUIPMENT
-------------------------------------
(Preliminary location, plans and specifications)
----------------------------------------------
(see attached)
<PAGE>
[SCHEMATIC FOR ROOF PLAN HVAC]
Exhibit K
<PAGE>
EXHIBIT "L"
-----------
GUIDELINES AND LIMITATIONS REGARDING IMPROVEMENTS
-------------------------------------------------
The parties acknowledge that the Building is a "Class A' office project in
Tyson's Corner, Virginia. Tenant's plans for the Improvements will be consistent
with Class A office space in the Tyson's Corner market. Tenant (and Tenant's
design consultants) are aware of the Landlord's interest in maintaining a high
level of quality and finish throughout the Building, including the Premises, to
reflect the level of design and finish of a Class A office building.
As of the date of this Lease, all of Tenant's detailed space plans have not been
completed, The basic configuration of the planned Premises is anticipated to
include a combination of enclosed offices and conference rooms along the
perimeter of each floor and open plan office space utilizing systems furniture
cubicles/workstations in the interior areas of each floor (around the core). It
is anticipated that the planned Premises will be designed to accommodate a
typical tenant occupancy load of up to 150 people per floor or an average of
approximately one (1) person per one hundred seventy five (175) square feet.
The anticipated design/layout for the planned Premises is also expected to
include interior offices, work areas and support spaces such as conference
rooms, copy and file rooms, break rooms, kitchenettes and coffee areas, which
are typically included in local market office configurations. The plans will not
include an employee cafeteria. The design is also expected to include on
medium-sized computer/network room not greater than 15,000 sq. ft. with the
potential for raised computer flooring. This room is intended for use as a
central computer and telecommunications systems center for the entire Premises.
The computer room improvements which are eligible for reimbursement from the
Improvement Allowance will not include computer equipment or other personal
property.
The typical level of interior finish expected for the planned Premises will
include standard and upgraded interior carpets, standard interior acoustical
ceilings and grid, interior paint and stains, and possibly vinyl and/or fabric
wall coverings in areas of higher traffic, higher finish and emphasized interior
design (lobbies, reception areas, conference rooms, executive suites, etc.)
The planned Improvements will include a typical level of tenant electrical power
and lighting distribution as well as tenant mechanical ductwork distribution,
connections and controls throughout all levels of the planned Premises. Upgraded
mechanical and electrical equipment (lighting, HVAC, etc.) may be installed by
Tenant as required to service certain specialized Tenant spaces and functions.
The Improvements will not include any specialty design or decorative feature
or element involving water, for example, or other such features in the
Premises. The Improvements also will not include unusually large conference
facilities or modifications to elevator doors or restrooms.
<PAGE>
EXHIBIT "M"
-----------
TENANT'S COMMUNICATIONS EQUIPMENT
---------------------------------
(Preliminary location, plans and specifications)
----------------------------------------------
(see attached)
<PAGE>
[SCHEMATIC FOR PROPOSED SATELLITE ARRAY LOCATION]
Exhibit M
<PAGE>
EXHIBIT "N"
-----------
PRELIMINARY CONCEPTUAL FOURTH FLOOR PLANS
-----------------------------------------
(see attached)
<PAGE>
[SCHEMATIC OF 4TH FLOOR MASTER PLAN]
Exhibit N
<PAGE>
PROPOSED DESIGN FOR THE 4TH FLOOR
MicroStrategy at 1861 International Drive
January 3, 2000
Approximately one half of the 4th floor will have special areas as shown on the
reduced floor plan. The special areas will include several data centers, the
main telephone room, the Network Operation Center for Strategy.com and several
additional mechanical & electrical rooms to serve these special areas. All of
these areas will have a raised access floor (raf) at different heights above the
slab. In the conditions where the raf abuts the glass curtain wall of the
building, there will also be a metal handrail attached to the raf, mecho shades
that screen the interior and a metal trim at the curtain wall sill that matches
the existing metal frames.
The other areas on this floor will be general office areas similar to the 3rd
and 5th floors.
Network Operation Center (NOC)
- ------------------------------
The NOC for Strategy.com has a 6" raf, a rear projection room, observation room
with a glass wall and operator consoles to house the many computer monitors.
The windows that occur in the projection room will be required to have a
black-out window treatment. This area will also have special lighting and a
special ceiling system for acoustical purposes. The walls will have a special
wall treatment and the flooring will be carpet tiles.
Data Centers, Main Telephone Room and Mechanical Rooms
- ------------------------------------------------------
These areas will have a 16" raf that provides under floor cooling generated in
the new mechanical rooms specifically designed for the computer equipment heat
loads. The ceiling systems and lighting will be the same as the general office
areas. The flooring will have a laminated floor tile on the raf and the walls
will be painted drywall with 4" vinyl base.
Mechanical System
- -----------------
The NOC and Data Centers will be served by a Computer Room AC System consisting
of three (3) 150-ton roof mounted Evaporative Fluid Coolers and approximately 11
down-flow glycol cooled computer grade units mounted on a 16" raf. An
architectural screen, visually consistent with the base building penthouse with
the modified parapet height, will be added on the roof to hide the new
mechanical units. The new mechanical units will also require steel supports
attached to the roof as designed by the base building structural engineer. One
of the fluid coolers, one of the associated pumps and part of the distribution
piping were designed as part of the 3rd and 5th floor fit-out. This system will
ultimately provide cooling for all of MicroStrategy's critical areas and will
include N+1 redundancy throughout. The remainder of the 4th floor (approximately
half) will remain on the base building system.
Exhibit N
<PAGE>
PROPOSED DESIGN FOR THE 4TH FLOOR (continued)
Page 2
Electrical System
- -----------------
Power for the lighting, receptacles and VAV boxes in the office area of the 4th
floor will be derived from the base building power distribution system. This
consists of a buss mounted disconnect switch, high voltage distribution for the
VAV and lighting and step down transformers for the receptacle load.
Normal power for the NOC and Data Centers will be derived from the supplemental
electrical service. This electrical service was designed and specified under the
3rd and 5th floor documents. It consists of a 3000 amp, 480 volt service with
main switches for different usage's. One main switch will power the generator
backed up loads and one main switch will control the generator and UPS backed up
loads. A single automatic transfer switch will transfer power from the normal
service to the generators.
Standby power generators will provide standby power to the un-interruptible
power supplies. Since multiple standby power generators will be used, they will
be linked with paralleling gear. The un-interruptible power supplies, associated
paralleling gear and distribution equipment will be located in the parking
garage. The power distribution units for the Data Center and the NOC will be
located in the individual spaces. The mechanical equipment associated with the
Data Center and the NOC will be powered by the utility and the standby power
generators. A blocking plan has been submitted as part of the 3rd and 5th floor
documents. The plan shows preliminary layouts for the generators, UPS's and new
electrical room.
Exhibit N
<PAGE>
MicroStrategy at 1861 International Drive
Revised 1/3/2000
PROPOSED ELECTRICAL SYSTEM FOR THE 4TH FLOOR
Power for the lighting, receptacles and VAV boxes in the office area of the
fourth floor will be derived from the base building power distribution system.
This consists of a buss mounted disconnect switch, high voltage distribution for
the VAV and lighting and step down transformers for the receptacle load.
Normal power for the NOC and Data center will be derived from the supplemental
electrical service. This electrical service was designed and specified under the
third and fifth floor project. It consists of a 3000 amp, 480 volt service with
main switches for different usage's. One main switch will power the generator
backed up loads and one main switch will control the generator and UPS backed up
loads. A single automatic transfer switch will transfer power from the normal
service to the generators.
A maximum of (3)-600KVA standby power generators will provide standby power to
the un-interruptible power supplies. The generator muffler exhausts will be run
from the generator to the building exterior. Routing and location to be
coordinated with landlord. Since multiple standby power generators will be used,
they will be linked with paralleling gear. The un-interruptible power supplies
will also be linked with paralleling gear. The standby power generators,
un-interruptible power supplies, associated paralleling gear and distribution
equipment will be located in the parking garage. The power distribution units
for the Data room and the NOC room will be located in the individual spaces. The
Mechanical equipment associated with the Data room and the NOC room will be
powered by the utility and the standby power generators. A blocking plan has
been submitted as part of the third and fifth floors. The plan shows preliminary
layouts for the generators, UPS's and new electrical room.
PROPOSED MECHANICAL SYSTEM FOR THE 4TH FLOOR
The 4th floor Network Operations Center (NOC) and data centers will be served by
a computer room AC system consisting of three (3) 150-ton roof mounted
evaporative fluid coolers and approximately 11 downflow glycol cooled computer
grade units mounted on a 16" raised access floor. One of the fluid coolers, one
of the associated pumps and part of the distribution piping are designed as part
of MicroStrategy's 3rd and 5th floor tenant fit-out. This system will ultimately
provide cooling for all of MicroStrategy's critical areas and will include N+l
redundancy throughout. The remainder of the 4th floor office space will remain
on the base building HVAC system.
Two fuel tanks and pumps shall be located on the lowest parking level (P3), in a
4 hour rated room. Fuel tanks shall provide fuel for emergency generators. A
fill box shall be located where a fuel truck can fill the tanks. Final location
shall be coordinated with landlord. A shaft will be required for the radiator
exhaust for the generators. Size and location of shaft shall also be coordinated
with landlord.
Exhibit N
<PAGE>
EXHIBIT "O"
-----------
PRELIMINARY CONCEPTUAL ELEVATOR LOBBY PLANS
-------------------------------------------
(see attached)
<PAGE>
Exhibit O
PROPOSED DESIGN DESCRIPTION OF FLOORS 2 THRU 6 PUBLIC AREAS
MicroStrategy at 1861 International Drive
December 30, 1999
Floors 2, 3, 5 and 6
- --------------------
These floors will all be similar in design intent and finishes. The elevator
lobbies will have carpeted flooring, with border and inlay pattern coppered
drywall ceiling with indirect cove lighting with recessed down lights and slot
diffeners, wall covering or special paint finish (Portex or other approved
Applor) on the walls and stained wood for headboard and trim. The elevator doors
and frames will remain an brushed stainless steel.
The public corridors will have carpet, acoustical tile ceiling with 9/16" grid,
swooped down lights, 3' x 8' wood vencor doors with aluminum facets and brushed
stainless steel hardware, wall covering or special paint finish on the walls and
stained wood headboard. Some doors may be wider than 3 feet for moving computer
equipment.
4th Floor
- ---------
This floor will be upgraded in design and finishes from the typical floor public
areas. The design intent for the elevator lobby is to have something that is
similar in the ground floor lobby design. The finishes will include a
combination stone and carpet flooring, wood, metal and/ or stone walls, cover
drywall ceiling with recessed down lights and/or special lighting fixtures and
stained wood for trim. The elevator doors and frames will remain as brushed
stainless steel.
The public corridors on the 4th floor may also be upgraded from the typical
floor. The finishes in the elevator lobby will continue in the reception area
and the corridor that leads to the Network Operation Center. Finishes in the
other public corridors on that floor may be more similar to the typical floor.
Exhibit O
<PAGE>
1861 INTERNATIONAL DRIVE
McLean, Virginia 22102
- --------------------------------------------------------------------------------
BUILDING STANDARDS
ARCHITECTURAL:
- -------------
PARTITIONS: Floor to ceiling partitions within the Tenant Space shall be
constructed using 2-1/2' thick, 25 gauge steel studs at 16 on
center with 5/6' thick gypsum wallboard.
Demising partitions between suites and public corridors shall be
constructed using 2-1/2" thick (min), 20 gauge slab-to-slab steel
studs at 16" on center with 5/8" thick gypsum wallboard. The
demising partitions shall be sound insulated and comply with one
(1) hour fire rating UL assembly requirements.
All partitions shall be taped, speckled, sanded and finished with
one coat of latex primer and one coat of latex eggshell finish
paint.
All partitions shall receive 4" straight vinyl base at carpeted
floor areas and 4" vinyl cove base at all resilient flooring.
DOORFRAMES: All lobby, public corridor and office doorframes shall be factory
finished Aluminum frames with 1/4" X 1/4" reveal trim and mitered
corners. Factory primed knocked down hollow metal doorframes may
be used at storage, utility rooms/closet doors.
DOORS: Glass doors may be used at Suite Entries. The use of glass doors
at suite entries is subject to landlord review and approval of
all submittals/shop drawings.
Tenant doors shall be 3'-0" X 6'-0", solid core, stain grade,
maple wood veneered doors. Hardwood edge bands to match face
veneers. The doors may be finished at the job site.
HARDWARE: All hardware shall be satin chromium plated finish #626.
Lock / latch sets shall be SCHLAGE, L-Series heavy-duty mortise
sets, Style #07, Escutcheon style L concealed.
All hardware sets to include floor mounted stops with black
resilient inserts. Location to be coordinated with Architect.
All door closers shall be LCN.
All floor stops, flush bolts and dust proof strikes shall be
IVES.
CEILING GRID: The suspended acoustical ceiling grid shall be Armstrong
Silhouette XL 9/16", Bolt-Slot, white grid with 1/4" reveal.
Typical ceiling height shall be 9'-0" AFF.
Exhibit O
<PAGE>
1861 INTERNATIONAL DRIVE
BUILDING STANDARDS
Page 2 of 3
CEILING TILE: The acoustical ceiling tile shall be Armstrong Cortega,
24" x 24", white tile, Item #2195
All gypsum wallboard ceilings shall be 1/2" thick gypsum
wallboard on 25 gauge, 2-1/2" thick metal studs at 16" on
center. The gypsum wallboard shall be finished as described
at partitions sections.
VCT: The vinyl composite floor tile shall be 12" x 12" x 1/8"
standard commercial grade tile. Tenant shall select the
color.
CARPET: The carpet shall be direct glue down, commercial grade, min.
30 oz. Cut pile, made of 100% nylon with a 10 (ten) year
warranty. Tenant shall select the pattern and color.
PAINT: All gypsum wallboard surfaces shall receive one coat of
latex primer and one coat of latex eggshell finish paint.
All interior wood and metal surfaces shall receive one coat
of latex primer and two coats of latex semi-gloss paint.
ELECTRICAL:
- -----------
LIGHT FIXTURES: The general lighting at the tenant space shall be 2' x 4'
Fluorescent 277V lite fixture with high efficiency
electronic ballast, cool white F32/T8 lamps and chrome 18
cell parabolic lenses. (LIGHTOLIER DPA2-G18LS-340277-SO).
The lighting at the public lobbies and corridors shall be
2' x 2' Fluorescent 277V light fixture with high efficiency
electronic ballast, cool white F32/T8 lamps and chrome 9
cell parabolic lenses. (LIGHTOLIER DPA2-G9LA-2U4277-SO).
EXIT LIGHTS: All exit light fixtures shall be LED, with white steel
housing and red letters as manufactured by Self-Powered
Lighting, Inc., Model CLC-AC-1/2-R-W-W-CC.
FIRE ALARM: Notifier fully addressable Fire Alarm System with XP Series
Transponder. All connections to building fire alarm panels
must be performed by the Landlord's fire alarm contractor.
(continued on next page)
Exhibit O
<PAGE>
1861 INTERNATIONAL DRIVE
BUILDING STANDARDS
Page: 3 of 3
MECHANICAL & PLUMBING:
- ---------------------
SPRINKLER PIPING: All sprinkler piping shall be manufactured to comply with ASTM
standards A53 and/or Al35. Fittings shall be class 250
threaded cast iron or grooved-end type iron fittings, style 77
as manufactured by Victaulic Corporation or accepted equal.
SPRINKLER HEADS: All sprinkler heads shall be fully --recessed heads at 165F
with painted off white escutcheon plates. All sprinkler heads
shall be located at the center of the tile in acoustical
ceilings.
FIRE DAMPERS: The fire dampers shall be as manufactured by Ruskin, type IBD2
with a 165F fusible link, UL approved.
Style A -- directly behind registers, Style B -- for
rectangular duct, and Style B -- for round duct,
REGISTERS / GRILLES / DIFFUSERS:
Perimeter diffusers shall be TITUS plenum slot diffusers.
Model #N-1-D or equal
Supply air diffusers shall be TITUS Modu-Bloc Series, 24"X24",
Model MBR-30 with 3/4" slots, with integral building standard
ceiling tile.
VAV BOXES: The VAV Boxes shall be;
. TRANE, Fan Powered, Variable Air Volume Terminal Units
with Electric Re-Heat for perimeter applications,
. TRANE Variable Air Volume Single Duct Terminal Units
for interior applications.
All VAV boxes to be equipped with DDC Controller and
Temperature Sensor compatible with the Base Building System.
*****
End of Building Standards
Exhibit O
<PAGE>
Exhibit 21.1
MICROSTRATEGY INCORPORATED
Subsidiaries
------------
MicroStrategy Incorporated
8000 Towers Crescent Drive
Vienna, VA 22182
Aventine Incorporated
(Delaware)
MicroStrategy Capital Corporation
(Delaware)
MicroStrategy Services Corporation
(Delaware)
MicroStrategy GmbH
(Austria)
MicroStrategy-FSC, Inc.
(Barbados)
MicroStrategy International Limited
(Bermuda)
MicroStrategy International II Limited
(Bermuda)
MicroStrategy Brasil Ltda
(Brazil)
MicroStrategy Canada Incorporated
(Canada)
MicroStrategy France SARL
(France)
MicroStrategy Deutschland GmbH
(Germany)
MicroStrategy Italy S.r.l.
(Italy)
<PAGE>
MicroStrategy Benelux B.V.
(Netherlands)
MicroStrategy Iberica, S.A.
(Spain)
MicroStrategy Schweiz AG
(Switzerland)
MicroStrategy Limited
(United Kingdom)
Strategy.com Incorporated
(Delaware)
<PAGE>
Exhibit 23.1
------------
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-58189) of MicroStrategy Incorporated and its
subsidiaries of our report dated April 12, 2000, relating to the restated
financial statements and financial statement schedule, which appears in this
Form 10-K.
PricewaterhouseCoopers LLP /s/ PricewaterhouseCoopers LLP
McLean, Virginia
April 12, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,941,000
<SECURITIES> 42,418,000
<RECEIVABLES> 40,915,000
<ALLOWANCES> 3,329,000
<INVENTORY> 0
<CURRENT-ASSETS> 121,406,000
<PP&E> 41,693,000
<DEPRECIATION> 11,099,000
<TOTAL-ASSETS> 203,368,000
<CURRENT-LIABILITIES> 68,297,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 101,738,000
<TOTAL-LIABILITY-AND-EQUITY> 203,368,000
<SALES> 85,797,000
<TOTAL-REVENUES> 151,258,000
<CGS> 2,597,000
<TOTAL-COSTS> 37,033,000
<OTHER-EXPENSES> 148,758,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,000
<INCOME-PRETAX> (32,497,000)
<INCOME-TAX> 1,246,000
<INCOME-CONTINUING> (33,743,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,743,000)
<EPS-BASIC> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
