<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
NEON SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 76-0345839
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
14100 SOUTHWEST FREEWAY
SUITE 500
SUGAR LAND, TEXAS 77478
(281) 491-4200
(Address, including zip code, telephone number,
including area code, of registrant's principal executive office)
JOE BACKER
NEON SYSTEMS, INC.
14100 SOUTHWEST FREEWAY
SUITE 500
SUGAR LAND, TEXAS 77478
(281) 491-4200
(Name, address, including zip code, telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
ROBERT P. TAYLOR, III RONALD G. SKLOSS
KENT JAMISON Brobeck, Phleger & Harrison LLP
Locke Purnell Rain Harrell 301 Congress Avenue, Suite 1200
(A Professional Corporation) Austin, Texas 78701
2200 Ross Avenue, Suite 2200 (512) 477-5495
Dallas, Texas 75201
(214) 740-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value per share........................................... $37,375,000 (a) $10,391
</TABLE>
(a) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION - DECEMBER 23, 1998
PROSPECTUS
, 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]
SHARES OF COMMON STOCK
- ----------------------------------------------------------------------
<TABLE>
<S> <C>
THE COMPANY:
- - We develop and sell
software products that
help organizations access
and integrate data,
transactions and
applications from the
Internet and mainframe and
client/server systems.
- - NEON Systems, Inc.
14100 Southwest Freeway
Suite 500
Sugar Land, Texas 77478
(281) 491-4200
PROPOSED SYMBOL & MARKET:
- - NESY/NASDAQ
THE OFFERING:
- - NEON is offering of the
shares and existing
stockholders are offering
of the shares.
- - The underwriters have an
option to purchase an
additional shares from
NEON to cover over-
allotments.
- - This is our initial public
offering, and no public
market currently exists
for our shares.
- - We plan to use the
proceeds from this
offering for working
capital and other general
corporate purposes as well
as the retirement of
existing indebtedness. We
will not receive any
proceeds from the shares
sold by the selling
stockholders.
- - Closing: , 1999.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
<S> <C> <C>
Per Share Total
- ----------------------------------------------------------------------------
Public offering price (Estimated): $ - $
Underwriting fees:
Proceeds to Company:
Proceeds to selling stockholders:
- ----------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE RISK FACTORS BEGINNING ON PAGE 6.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
CIBC OPPENHEIMER
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................................................................... 3
Risk Factors......................................................................... 6
Use of Proceeds...................................................................... 14
Dividend Policy...................................................................... 14
Corporate Information................................................................ 14
Capitalization....................................................................... 15
Dilution............................................................................. 16
Selected Consolidated Financial Data................................................. 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 18
Business............................................................................. 26
Management........................................................................... 39
Certain Transactions................................................................. 45
Principal and Selling Stockholders................................................... 47
Description of Capital Stock......................................................... 49
Shares Eligible for Future Sale...................................................... 51
Underwriting......................................................................... 53
Legal Matters........................................................................ 54
Experts.............................................................................. 54
Available Information................................................................ 55
Index to Consolidated Financial Statements........................................... F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED BY MORE DETAILED INFORMATION APPEARING IN OTHER
SECTIONS OF THIS PROSPECTUS. THE OTHER INFORMATION IS IMPORTANT, SO PLEASE READ
THIS ENTIRE PROSPECTUS CAREFULLY. UNLESS STATED OTHERWISE, THE INFORMATION
CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT
OPTION TO PURCHASE SHARES OF COMMON STOCK FROM NEON IS NOT EXERCISED.
REFERENCES IN THIS PROSPECTUS TO "NEON," THE "COMPANY," "WE," "OUR" AND "US"
REFER TO NEON SYSTEMS, INC. AND ITS PREDECESSORS AND SUBSIDIARIES, UNLESS THE
CONTEXT OTHERWISE REQUIRES. OUR FISCAL YEAR ENDS ON MARCH 31 AND IS NAMED FOR
THE CALENDAR YEAR IN WHICH THE FISCAL YEAR ENDS. FOR EXAMPLE, OUR FISCAL YEAR
ENDED MARCH 31, 1998 IS CALLED "FISCAL 1998."
THE COMPANY
We develop and sell software products that help organizations access and
integrate data, transactions and applications from the Internet and mainframe
and client/server systems. We refer to our products as Enterprise Access and
Integration software. Our products provide cost-effective, easy to implement
solutions that enable the deployment of new applications and legacy applications
across a variety of computing environments. Our products allow organizations to
preserve their investment in mainframe data and applications while taking
advantage of the flexibility of client/server systems and the ubiquity of the
Internet. More importantly, our products provide a timely, cost-effective way to
"Web-enable" existing applications and rapidly deploy new Internet applications
to participate in electronic commerce opportunities.
Many organizations' strategic initiatives depend on effectively delivering
information where it is needed and when it is needed. One of the greatest
challenges to implementing these strategies is exploiting powerful new
technologies within the existing systems infrastructure of an enterprise.
Specifically, mainframes provide proven reliability, scalability, security and
control, as well as time-tested applications. Client/server systems enable many
users and applications to share data, as well as server resources, and enable
applications to be developed and deployed more rapidly than mainframe
applications. The Internet offers a low-cost, global network infrastructure that
enables organizations to communicate externally with customers, suppliers and
partners and to coordinate internally by extending employee access to key
applications and information.
Shadow, our primary product line, consists of three software applications.
Shadow Direct enables client/server applications to access and integrate with
mainframe data and applications. Shadow Web Server enables Web browsers to
access and integrate with mainframe data and applications. Shadow Enterprise
Direct provides access and integration between client/server systems. In
addition to our Shadow products, our "Enterprise Subsystem Management" software
products support the increasing demands placed on the mainframe to support new
users and applications. We believe several factors, such as ease-of-use,
flexibility, high-performance, scalability and monitoring and control
capabilities, distinguish our products from existing software.
Our goal is to be the leading provider of enterprise access and integration
software. The following are key elements of our strategy:
- Maintain and enhance our technological leadership
- Capitalize on the market for Web-enabled applications and E-business
solutions
- Leverage our installed base of customers
- Exploit our product author development strength
- Maximize the benefits of our direct telesales model
Through September 30, 1998, we have shipped our products to over 200
organizations worldwide, including approximately one-fourth of the Fortune 100
companies. Representative domestic and international customers include American
Express, BASF, Dayton Hudson, Deutsche Bank, Exxon, Merrill Lynch, Motorola,
Office Depot, Sears, Skandia, the State of Illinois, Texaco and the U.S. Postal
Service.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered:
By the Company..................... shares
By the selling stockholders........ shares
Total.......................... shares
Common stock to be outstanding
after this offering.................. shares (a)
Use of proceeds........................ We intend to use the estimated net proceeds of
$ that we will receive from this offering
for working capital and other general corporate
purposes as well as the retirement of existing
indebtedness. We will not receive any proceeds from
the shares sold by the selling stockholders.
Proposed Nasdaq National Market
symbol............................... NESY
</TABLE>
- ---------------------
(a) The above information is based on shares outstanding as of September 30,
1998. It includes 3,125,000 shares of Common Stock to be issued on
conversion of 625,000 shares of Series A Redeemable, Convertible Preferred
Stock and excludes (1) 2,000,000 shares of Common Stock reserved for
issuance under NEON's 1999 Long-Term Incentive Plan, none of which are
outstanding; (2) 1,408,478 shares of Common Stock subject to options granted
under NEON's 1993 Stock Plan and outstanding as of September 30, 1998 at a
weighted average exercise price of $0.62 per share; and (3) 100,000 shares
of Common Stock reserved for issuance under NEON's Stock Option Plan for
Non-Employee Directors, none of which are outstanding.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
You should read the following summary consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and Notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License................................................. $ 2,108 $ 6,101 $ 9,697 $ 3,728 $ 5,962
Maintenance............................................. 220 924 2,318 1,074 1,913
--------- --------- --------- --------- ---------
Total revenues........................................ 2,328 7,025 12,015 4,802 7,875
Gross profit.............................................. 2,152 6,421 10,720 4,329 6,940
Operating income (loss)................................... (532) 891 1,443 379 1,107
Net income (loss)......................................... $ (598) $ 816 $ 1,161 $ 295 $ 708
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders....... $ (678) $ 736 $ 1,061 $ 245 $ 658
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (loss) per common share:
Basic................................................... $ (1.63) $ 0.42 $ 0.44 $ 0.10 $ 0.25
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................. $ (1.63) $ 0.14 $ 0.17 $ 0.04 $ 0.10
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in calculating earnings (loss) per common
share:
Basic................................................... 417 1,740 2,412 2,338 2,613
Diluted................................................. 417 5,709 6,665 6,617 7,086
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------------------
PRO FORMA
ACTUAL AS ADJUSTED (A)
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 3,044 $
Working capital.................................................. 1,809
Total assets..................................................... 7,528
Secured notes payable............................................ 1,049
Series A redeemable, convertible preferred stock................. 1,713
Total stockholders' equity....................................... 530
</TABLE>
- ---------------------
(a) Pro forma as adjusted reflects the conversion of all outstanding shares of
Series A Redeemable, Convertible Preferred Stock into shares of Common Stock
and the sale of the shares of Common Stock by NEON in this offering after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses and the application of the net proceeds therefrom. See
"Capitalization" and "Use of Proceeds."
5
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE OF VARIOUS RISKS,
INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE RISK
FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS,
BEFORE YOU DECIDE WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK. THE RISKS SET
OUT BELOW MAY NOT BE EXHAUSTIVE.
KEEP THESE RISK FACTORS IN MIND WHEN YOU READ "FORWARD-LOOKING" STATEMENTS
ELSEWHERE IN THIS PROSPECTUS. THESE ARE STATEMENTS THAT RELATE TO OUR
EXPECTATIONS FOR FUTURE EVENTS AND TIME PERIODS. GENERALLY, THE WORDS
"ANTICIPATE," "EXPECT," "INTEND" AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-
LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,
AND FUTURE EVENTS AND CIRCUMSTANCES COULD DIFFER SIGNIFICANTLY FROM THOSE
ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS.
OUR FINANCIAL RESULTS MAY VARY SIGNIFICANTLY FROM QUARTER TO QUARTER
Our future operating results may vary significantly from quarter to quarter
due to a variety of factors, many of which are outside our control. Factors that
could affect our quarterly operating results include:
- Volume and timing of customer orders
- Length of the sales cycle for our products, which typically ranges from
three to six months
- Size and timing of significant orders and their fulfillment
- Changes in the mix of products sold and the mix of channels through which
our products are sold
- Introduction of new products or product enhancements by our competitors or
ourselves
- Changes in prices of our products and those of our competitors
- Changes in the mix of domestic and international revenues and the level of
international expansion
- Amount and timing of expenditures relating to expansion of our business
and infrastructure
- General economic conditions
Our expense levels are based primarily on our estimates of future revenues
and are largely fixed. We may be unable to adjust spending rapidly enough to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to our planned expenditures would seriously
harm our business, operating results and financial condition.
The amount of revenues associated with particular software sales can vary
significantly. In various quarters in the past, we have derived a significant
portion of our software license revenues from a small number of relatively large
sales. An inability to close one or more large sales in any period could
severely harm our operating results for that period. Moreover, we typically
realize a majority of our software license revenues in the last month of a
quarter. As a result, minor delays in the timing of customer orders can cause
significant variability in our operating results for any particular period.
Our operating results have experienced certain seasonal fluctuations.
Historically, our revenues have tended to be strongest in the third and fourth
quarters of our fiscal year and to decrease slightly in our first fiscal
quarter. We believe that our seasonality is due in part to the calendar year
budgeting cycles of many of our customers, our employee recognition policies
which tend to reward our sales personnel for achieving fiscal year-end rather
than quarterly revenue quotas, and the timing of our hiring of sales force
personnel. In future periods, we expect that these seasonal trends may continue
to cause first fiscal quarter license revenues to decrease from the level
achieved in the preceding quarter.
6
<PAGE>
Due to the foregoing factors, we cannot predict with certainty our quarterly
revenues and operating results. Further, we believe that period-to-period
comparisons of our operating results are not necessarily a meaningful indication
of future performance. It is likely that in one or more future quarters our
results may fall below the expectations of securities analysts and investors. If
this occurs, the trading price of our Common Stock would likely decline.
OUR MARKETS ARE HIGHLY COMPETITIVE
We compete in markets that are intensely competitive and rapidly changing.
Our competitors are diverse and offer a variety of solutions directed at various
segments of the markets for middleware and enterprise subsystem management
software. We have experienced, and expect to continue to experience, increased
competition from current and potential competitors, many of which have
significantly greater financial, technical, marketing and other resources than
we do. Many competitors also have greater name recognition, a broader range of
products and more extensive customer bases.
Our Shadow products compete principally with middleware products from
established vendors such as IBM, Oracle and Information Builders, and to a
lesser extent with BEA Systems, Iona Technologies, New Era of Networks and TSI
International Software. Our Enterprise Subsystem Management products face
significant competition from BMC Software. We may also face competition from (1)
other business application software vendors who may internally develop, or
attain through acquisitions and partnerships, middleware and enterprise
subsystem management solutions, (2) internal development efforts by corporate IT
departments and (3) new entrants to the middleware or enterprise subsystem
management markets.
Our competitors may be able to respond more quickly than we can to new or
emerging technologies and changes in customer requirements. Competition could
seriously harm our ability to sell additional software and maintenance and
support renewals on terms favorable to us. Competitive pressures could reduce
our market share or require us to reduce the price of our products, either of
which could have a material adverse effect on our business, operating results
and financial condition.
SUBSTANTIAL DEPENDENCE ON SHADOW PRODUCT LINE
A substantial portion of our revenues is derived from the sale of Shadow
Direct and Shadow Web Server. We anticipate that these products will account for
a substantial amount of our revenues for the foreseeable future. Our future
success will depend on continued market acceptance of Shadow Direct and Shadow
Web Server and enhancements to these products. Competition, technological change
or other factors could reduce demand for, or market acceptance of, these
products and could have a material adverse effect on our business, operating
results and financial condition.
CHALLENGES RESULTING FROM GROWTH
Sustaining our growth has placed significant demands on management as well
as on our administrative, operational and financial resources. To manage our
growth, we must continue to:
- Expand our sales, marketing and customer support organizations
- Invest in the development of enhancements to existing products and new
products that meet changing customer needs
- Further develop our technical expertise so that we can influence and
respond to emerging industry standards
- Improve our operational processes and management controls
We cannot be certain that we will continue to experience growth or successfully
manage it. Our inability to sustain or manage our growth could have a material
adverse effect on our business, operating results and financial condition.
7
<PAGE>
RELIANCE ON CONTINUED USE OF THE MAINFRAME
We are dependent upon the continued use and acceptance of the mainframe in a
computing environment increasingly based on distributed platforms. We derive our
revenues primarily from our Shadow products, which enable businesses to access
data and transactions residing on the mainframe from Web-based and client/server
applications, and, to a lesser extent, from our Enterprise Subsystem Management
products for mainframes. Although demand for mainframe access and management
solutions has grown in recent years, there can be no assurance that it will
continue to grow. Our continued success depends on a number of factors,
including:
- Continued use of the mainframe as a central repository of mission-critical
data and transactions
- Growth in business demands for access to the data, applications and
transactions residing on mainframe computers from Web-based and
client/server applications
Unforeseen decreases in the continued use of the mainframe or in the growth of
demand for Web-based and client/server applications accessing mainframe data and
transactions could have a material adverse effect on our business, operating
results and financial condition.
NEED TO EXPAND OUR SALES AND SUPPORT ORGANIZATIONS
In order to increase market awareness and sales of our products, we must
continue to expand our direct and indirect sales operations, both domestically
and internationally. Our products require a sophisticated sales effort.
Competition for qualified sales personnel is intense, and we may not be able to
hire a sufficient number of suitable individuals for sales positions. We also
believe that our future success is dependent upon establishing successful
relationships with a variety of distribution partners. To date, we have entered
into agreements with only a small number of distribution partners. We cannot be
certain that we will be able to successfully retain our existing distribution
partners, recruit additional distribution partners, or that these distribution
partners will devote adequate resources to selling our products. Furthermore, we
believe that supporting our customers is critical to our success and requires
highly trained customer service and support personnel. We currently have a small
customer service and support organization and will need to increase our staff to
support new customers and the expanding needs of existing customers. Hiring
customer service and support personnel is very competitive in our industry due
to the limited number of people available with the necessary technical skills.
DEPENDENCE ON KEY PERSONNEL
Our success is highly dependent upon the continued service and skills of our
executive officers and other key technical, sales and marketing personnel, none
of whom is bound by an employment agreement. If we lose the services of any of
these key personnel, particularly our product authors, it could have a negative
impact on our business. Particularly, the services of Peter Schaeffer, our
founder and Chief Technology Officer, would be difficult to replace. We do not
maintain "key-man" life insurance policies covering any of our employees. In
addition, our future success will depend in large part upon our ability to
attract, retain and motivate highly skilled employees. Significant competition
exists for employees with the skills required to author the products and perform
the maintenance services offered by us, and there can be no assurance that we
will be able to continue to attract and retain sufficient numbers of highly
skilled employees.
OUR PRODUCTS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE
Our markets are characterized by rapid technological change, frequent new
product introductions and enhancements, uncertain product life cycles, changes
in customer requirements and evolving industry standards. The introduction of
new products embodying new technologies and the emergence of new industry
standards could render our existing products obsolete. Our future success will
depend
8
<PAGE>
upon our ability to continue to develop and introduce a variety of new products
and product enhancements to address the increasingly sophisticated needs of our
customers. We may experience delays in releasing new products and product
enhancements in the future. Material delays in introducing new products or
product enhancements may cause customers to forego purchases of our products and
purchase those of our competitors.
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
We market and sell our products domestically and internationally. We have
established direct telesales subsidiary offices in Germany and the United
Kingdom to market and sell our products in Europe. We have distributors in
Europe, Latin America and the Pacific Rim to market and sell our products in
those regions. We plan to expand our current international operations and to
establish additional facilities and marketing relationships in additional
regions. The expansion of our existing international operations and entry into
additional international markets will require significant management attention
and financial resources. We cannot be certain that our investments in
establishing facilities in other countries will produce desired levels of
revenue. We currently have limited experience in developing local versions of
our products and marketing and distributing our products internationally. In
addition, international operations are subject to certain inherent risks,
including:
- Impact of recessions in economies outside the United States
- Difficulty in accounts receivable collection and longer collection periods
- Cost of enforcement of contractual obligations
- Difficulties and costs of managing foreign operations
- Limited protection for intellectual property rights in some countries
- Currency exchange rate fluctuations
- Political and economic instability
- Potentially adverse tax consequences
Our international revenues are generally denominated in local currencies. We do
not currently engage in currency hedging activities; however, we may implement a
program to mitigate foreign currency transaction risk in the future. Future
fluctuations in currency exchange rates may adversely affect our revenues from
international sales.
LIMITED PROTECTION OF OUR PROPRIETARY TECHNOLOGY AND RISKS OF INFRINGEMENT
Our success depends to a significant degree upon our proprietary technology.
Companies in the software industry have experienced substantial litigation
regarding intellectual property. We rely on a combination of trademark, trade
secret and copyright law, and contractual restrictions and passwords to protect
our proprietary technology. However, these measures provide only limited
protection, and we may not be able to detect unauthorized use or take
appropriate steps to enforce our intellectual property rights, particularly in
foreign countries where the laws may not protect our proprietary rights as fully
as in the United States.
Any litigation to enforce our intellectual property rights would be
expensive and time-consuming, would divert management resources and may not be
adequate to protect our business. We also could be subject to claims that we
have infringed the intellectual property rights of others. In addition, we may
be required to indemnify our distribution partners and end-users for similar
claims made against them. Any claims against us could require us to spend
significant time and money in litigation, pay damages, develop new intellectual
property or acquire licenses to intellectual property that is the
9
<PAGE>
subject of the infringement claims. These licenses, if required, may not be
available on acceptable terms. As a result, intellectual property claims against
us could have a material adverse effect on our business, operating results and
financial condition.
POTENTIAL LOSS OF THIRD PARTY TECHNOLOGY
We have code-sharing arrangements with third parties under which we have
obtained and used certain source code in the development of some of our software
products. If any of these agreements are terminated, we could be required to
discontinue our use of the acquired source code, and we would have to spend time
and software development resources to replace the third-party code. Any
diversion of these resources could delay our development of new products or
product enhancements. In addition, we license several of our Enterprise
Subsystem Management products from Peregrine/Bridge Transfer Corporation
("PBTC") pursuant to a distributor agreement with an initial term through March
31, 2004. The license may be terminated by either party in the event of default.
The termination of such arrangements could have a material adverse effect on our
business, operating results and financial condition.
POSSIBLE CONFUSION WITH RESPECT TO OUR NAME
A number of organizations, including New Era of Networks, Inc. ("New Era"),
are utilizing the name "Neon," both alone and in combination with other words,
as a trademark, a tradename or both. New Era is also a developer and distributor
of middleware and other software products. New Era has used the acronym "NEON"
in its business, is listed on the Nasdaq National Market System under the symbol
"NEON" and has sought to obtain federal trademarks for products whose names
include the word "NEON." We are currently opposing in the U.S. Patent and
Trademark Office New Era's application to trademark "NEONet." Any litigation to
enforce our right to use the NEON name in our business or to prevent others from
using the NEON name would be expensive and time-consuming, would divert
management resources and may not be adequate to protect our business. If we
should lose any such litigation, we may have to change our name, which also
would be expensive and time-consuming and could adversely affect our business.
In addition, New Era's use of the "NEON" symbol on the Nasdaq National Market
System may create confusion in the marketplace and result in variations in our
stock price that are attributable to facts or circumstances relating to New Era.
EXPOSURE TO BMC SOFTWARE LITIGATION
We license several of our Enterprise Subsystem Management products from
PBTC. PBTC, NEON and other parties have been sued by BMC Software, Inc. ("BMC")
alleging misappropriation and infringement of certain trade secrets,
confidential information and corporate opportunity. BMC is seeking damages based
upon the disgorgement of all revenues derived from the sale or license of
certain of our Enterprise Subsystem Management products. PBTC has agreed to
indemnify us against damages arising from third-party intellectual property
infringement claims related to products that we license from it, including the
products subject to this lawsuit. However, PBTC may not have sufficient
resources to indemnify us against an adverse judgment. We believe that BMC's
claims are without merit and PBTC is defending this action vigorously on our
behalf. However, we cannot be certain that we will be successful in defending
this lawsuit. An adverse judgment in the lawsuit or a failure by PBTC to honor
its indemnity obligations to us could have a material adverse impact on our
business, operating results and financial condition.
OUR PRODUCTS MAY CONTAIN UNDETECTED SOFTWARE ERRORS
Our software products and the software products that we sell for others are
complex and may contain undetected errors. We have previously discovered
software errors in certain of the products that we have developed or sold.
Despite testing, we cannot be certain that errors will not be found in
10
<PAGE>
current versions, new versions or enhancements of our products after
commencement of commercial shipments. Such undetected errors could result in
adverse publicity, loss of revenues, delay in market acceptance or claims
against us by customers, all of which could seriously damage our business,
operating results and financial condition.
WE MAY BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS
Because our products provide critical database access, integration and
management functions, we may receive significant liability claims. Our
agreements with customers typically contain provisions intended to limit our
exposure to liability claims. These contract provisions may not preclude all
potential claims. Liability claims could require us to spend significant time
and money in litigation or to pay significant damages. As a result, any such
claims, whether or not successful, could have a material adverse effect on our
reputation and business, operating results and financial condition.
YEAR 2000 RISKS
Some computers, software and other equipment include programming code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches and are commonly referred to as the "Year 2000 Problem."
The Year 2000 Problem presents us with several potential risks including,
but not limited to, the following:
- SOFTWARE SOLD TO CUSTOMERS. We believe that it is not possible to
determine with complete accuracy that all Year 2000 Problems affecting our
software products and the software products that we sell for others have
been identified or corrected due to the complexity of these products.
- INTERNAL INFRASTRUCTURE. The Year 2000 Problem could affect computers,
software and other equipment that we use internally as well as divert
management's attention from ordinary business activities. In addition to
computers and related systems, the operation of our office and facilities
equipment, such as fax machines, photocopiers, telephone switches,
security systems, elevators and other common devices may be affected by
the Year 2000 Problem.
- SUPPLIERS/THIRD-PARTY RELATIONSHIPS. There can be no assurance that our
suppliers or other third parties that we rely upon will resolve any or all
Year 2000 Problems with their systems on a timely basis.
- STRAIN ON IT RESOURCES. The Year 2000 Problem is currently placing a
strain on organizations' IT budgets and resources. Some organizations may
lack sufficient resources to undertake the type of integration projects
that the NEON Shadow product line enables at the same time that they are
addressing the Year 2000 Problem.
We expect to identify and resolve all Year 2000 Problems that could
materially adversely affect our business, financial condition or results of
operations. We are currently developing contingency plans to be implemented as
part of our efforts to identify and correct Year 2000 Problems affecting our
internal systems and expect to complete our contingency plans by the end of the
first calendar quarter of 1999. However, we believe that it is not possible to
determine with complete certainty that all Year 2000 Problems affecting us will
be identified or corrected in a timely manner. If we fail to identify and
correct all Year 2000 Problems affecting our internal systems, or if we are
forced to implement our contingency plans, our business, financial condition or
results of operations could be materially adversely affected. For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Issues."
11
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for our Common
Stock, and an active public market for our Common Stock may not develop or
continue after this offering. The initial public offering price for our Common
Stock will be determined by negotiation between NEON and the representatives of
the Underwriters, and you may be unable to resell your shares of Common Stock at
or above that initial offering price. After this offering, the market price of
our Common Stock may be subject to significant fluctuations in response to
numerous factors, including:
- Variations in our annual or quarterly financial results or those of our
competitors
- Changes by financial research analysts in their estimates of our earnings
or our failure to meet such estimates
- Conditions in the economy in general or in the software and other
technology industries
- Announcements of key developments by competitors
- Loss of key personnel
- Unfavorable publicity affecting our industry or us
- Adverse legal events affecting us
- Sales of Common Stock by existing stockholders
From time to time, the stock market experiences significant price and volume
fluctuations, which may affect the market price of our Common Stock for reasons
unrelated to our performance. In the past, securities class action litigation
has been instituted against a company following periods of volatility in the
market price of a company's securities. If similar litigation were instituted
against us, it could result in substantial costs and a diversion of our
management's attention and resources, which could have an adverse effect on our
business.
CONTROL BY OFFICERS AND DIRECTORS
Executive officers, directors and entities affiliated with them will, in the
aggregate, beneficially own approximately % of our outstanding Common Stock
following the completion of this offering. As a result, these stockholders, if
they act together, could control all matters submitted to our stockholders for a
vote, including the election of directors and the approval of mergers and other
business combination transactions.
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our Common Stock (including
shares issued upon the exercise of outstanding options) in the public market
following this offering, the market price of our Common Stock could fall. Such
sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate. Upon
completion of this offering, we will have outstanding shares of Common
Stock (based upon shares outstanding as of November 30, 1998), assuming no
exercise of the Underwriters' over-allotment option and no exercise of
outstanding options after November 30, 1998. Of these shares, the shares
to be sold in this offering will be freely tradeable. As of November 30, 1998,
an additional 1,408,478 shares were reserved for issuance upon exercise of
outstanding options. This leaves
12
<PAGE>
shares (including shares issuable upon exercise of options) eligible for sale in
the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ----------------- ------------------------
<S> <C>
Upon effectiveness
180 days from
effectiveness
</TABLE>
We have granted certain registration rights to two of our stockholders.
Those rights enable such stockholders to require that we register, at our
expense, resales of their shares of Common Stock.
DISCRETION AS TO USE OF PROCEEDS
A substantial portion of the anticipated net proceeds of this offering has
not been designated for specific uses. Therefore, our Board of Directors will
have broad discretion with respect to the use of the net proceeds of this
offering.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of the Common Stock will be substantially
higher than the pro forma net tangible book value per share of the outstanding
Common Stock. As a result, we currently expect that you will incur immediate and
substantial dilution of $ per share based upon an assumed offering price of
$ per share. In the event we issue additional shares of Common Stock in the
future, you may experience further dilution. Furthermore, we have issued options
to acquire Common Stock at prices significantly below the assumed initial public
offering price. To the extent such options are exercised, there will be further
dilution.
ANTI-TAKEOVER EFFECTS OF CHARTER AND STATUTORY PROVISIONS
Provisions of our Certificate of Incorporation and Bylaws (as amended at the
completion of this offering) as well as Delaware law could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. We are subject to the provisions of Section 203 of the
Delaware General Corporation Law which restrict certain business combinations
with interested stockholders, which may have the effect of inhibiting a
non-negotiated merger or other business combinations.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they discuss our
future expectations, contain projections of our future results of operations or
of our financial condition or state other "forward-looking" information. We
believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or control. The risk factors listed in this section, as well
as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our Common Stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, operating results and financial
condition.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to NEON from its sale of shares of Common Stock in
this offering at an assumed initial public offering price of $ per share
will be approximately $ ($ million if the Underwriters' over-allotment
option is exercised in full), after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by NEON.
NEON expects to use the net proceeds for working capital and other general
corporate purposes as well as the retirement of existing indebtedness. The
existing indebtedness matures March 31, 1999 and bears interest at 8% per annum.
At September 30, 1998, the note amount outstanding was $1.0 million. Management
has broad discretion in the allocations of the net proceeds. Pending such uses,
NEON intends to invest the net proceeds of this offering in short-term,
interest-bearing, investment grade securities.
The Company will not receive any proceeds from the sale of Common Stock by
the selling stockholders (the "Selling Stockholders"). See "Principal and
Selling Stockholders."
DIVIDEND POLICY
NEON has not paid cash dividends on its Common Stock. NEON intends to retain
future earnings to finance the expansion of its business and does not anticipate
paying any cash dividends for the foreseeable future. Any future determination
as to the payment of dividends will be at the discretion of the Board of
Directors.
CORPORATE INFORMATION
NEON was incorporated in Delaware on May 14, 1993. References in this
prospectus to "NEON," the "Company," "we," "our" and "us" refer to NEON Systems,
Inc. and its predecessors and subsidiaries, unless the context otherwise
requires. NEON's principal executive office is located at 14100 Southwest
Freeway, Suite 500, Sugar Land, Texas 77478, and NEON's telephone number at that
office is 281-491-4200. NEON's World Wide Web address is www.neonsys.com.
Information contained in NEON's Web site does not constitute part of this
prospectus.
NEON and SHADOW are registered trademarks of NEON. NEON is in the process of
registering SHADOWDIRECT, SHADOW WEB SERVER, ENTERPRISE DIRECT, AFFINITY SERVER,
SPEED UNLOAD, SPEED LOAD and PDF as trademarks. Each trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder.
14
<PAGE>
CAPITALIZATION
The following table sets forth NEON's cash position and total capitalization
at September 30, 1998: (1) on an actual basis, (2) on a pro forma basis to give
effect to (a) the conversion of all outstanding shares of Series A Redeemable,
Convertible Preferred Stock into shares of Common Stock and (b) the amendments
to NEON's Certificate of Incorporation adopted by NEON's Board of Directors and
stockholders which are to be effective immediately prior to the offering
increasing the number of authorized shares of Preferred Stock and Common Stock,
and (3) on a pro forma as adjusted basis to reflect the sale of shares of
Common Stock by NEON at an assumed initial public offering price of $ per
share and the application of the estimated net proceeds from this offering in
the manner described in "Use of Proceeds." Read the following information in
conjunction with NEON's Consolidated Financial Statements and the Notes thereto
which can be found at the end of this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents....................................... $ 3,044 $ 3,044 $
--------- ----------- -------------
--------- ----------- -------------
Series A Redeemable, Convertible Preferred Stock, $0.01 par
value, 650,000 shares authorized; 625,000 shares issued and
outstanding (actual); none issued or outstanding (pro forma or
pro forma as adjusted) (a)..................................... $ 1,713 $ -- $ --
Stockholders' equity:
Preferred Stock, $0.01 par value, 10,000,000 shares
authorized; none outstanding (pro forma and pro forma as
adjusted) (a)............................................... -- -- --
Common Stock, $0.01 par value, 10,000,000 shares authorized;
2,637,915 shares outstanding (actual); 30,000,000 shares
authorized; 5,762,915 shares outstanding (pro forma);
shares outstanding (pro forma as adjusted) (b)..... 26 57
Additional paid-in capital.................................... 803 2,022
Retained earnings (deficit)................................... (299) 164
--------- ----------- -------------
Total stockholders' equity.................................. 530 2,243
--------- ----------- -------------
Total capitalization.................................... $ 2,243 $ 2,243 $
--------- ----------- -------------
--------- ----------- -------------
</TABLE>
- --------------------------
(a) Upon the consummation of the offering, no shares of Preferred Stock will be
outstanding.
(b) Excludes: (1) 2,000,000 shares of Common Stock reserved for issuance under
the NEON Systems, Inc. 1999 Long-Term Incentive Plan, (the "1999 Plan")
(none of which are outstanding); (2) 1,408,478 shares of Common Stock
subject to options granted under the NEON Systems, Inc. 1993 Stock Plan (the
"1993 Plan") and outstanding as of September 30, 1998 at a weighted average
exercise price of $0.62 per share; and (3) 100,000 shares of Common Stock
reserved for issuance under the NEON Systems, Inc. Stock Option Plan for
Non-Employee Directors (the "Director Plan"), none of which are outstanding.
See "Management--Stock Plans" and "--Director Compensation."
15
<PAGE>
DILUTION
The pro forma net tangible book value of NEON as of September 30, 1998,
after giving effect to the conversion of all outstanding shares of Series A
Redeemable, Convertible Preferred Stock into Common Stock prior to this
offering, was $7.3 million, or $1.27 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of NEON's total tangible
assets less total liabilities, divided by the total number of shares of Common
Stock outstanding on a pro forma basis. The pro forma net tangible book value of
NEON as of September 30, 1998 would have been $ , or $ per share
after giving effect to the sale of shares of Common Stock offered by NEON
(at an assumed initial public offering price of $ per share) and after
deduction of the estimated underwriting discounts and commissions and estimated
offering expenses payable by NEON and the application of the estimated net
proceeds from this offering. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares of
Common Stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Pro forma net tangible book value per share at September 30,
1998 (a).................................................... $ 1.27
Increase in pro forma net tangible book value per share
attributable to new stockholders............................
---------
Pro forma net tangible book value per share after offering
(a).........................................................
Dilution per share to new stockholders (a).................... $
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of September 30,
1998, the number of shares of Common Stock purchased from NEON, the total
consideration paid to NEON and the average price per share paid to NEON by
existing stockholders and by the investors purchasing shares of Common Stock in
this offering, before deducting estimated underwriting discounts and commissions
and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 5,762,915 % $2,075,000 % $ 0.36
New stockholders (a)..............
--------- ----- --------- -----
Total........................... 100.0% 100.0%
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
- --------------------------
(a) In the event that NEON issues additional shares of Common Stock in the
future, purchasers of Common Stock in this offering may experience further
dilution. The foregoing tables (1) include 3,125,000 shares of Common Stock
to be issued upon conversion of 625,000 shares of Series A Redeemable,
Convertible Preferred Stock and (2) assume no exercise of stock options
outstanding as of September 30, 1998. Options to purchase 1,408,478 shares
of Common Stock held by certain of NEON's employees were outstanding as of
September 30, 1998 at a weighted average exercise price of $0.62 per share.
To the extent these options are exercised, new investors will experience
further dilution. See "Management--Stock Plans."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected historical consolidated financial data for each of the three
years in the three-year period ended March 31, 1998, and as of March 31, 1996,
1997 and 1998, have been derived from the Consolidated Financial Statements of
NEON, which have been audited by KPMG Peat Marwick LLP, independent certified
public accountants. The selected historical consolidated financial data for NEON
set forth below for the year ended March 31, 1995 and the six months ended
September 30, 1997 and 1998, and as of March 31, 1995 and September 30, 1998
have been derived from unaudited consolidated financial statements, which
include, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments, that NEON considers necessary for a fair
presentation of financial position and results of operations for those periods.
The results of operations for the six months ended September 30, 1998 are not
necessarily indicative of results to be expected for any future period. The
information set forth below should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" which are included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------------------------ ---------------
1995 1996 1997 1998 1997
--------------- --------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License............................... $ 205 $ 2,108 $ 6,101 $ 9,697 $ 3,728
Maintenance........................... 3 220 924 2,318 1,074
------- ------- ------- ------- -------
Total revenues...................... 208 2,328 7,025 12,015 4,802
Cost of revenues:
Cost of licenses...................... 4 18 212 552 135
Cost of maintenance................... -- 159 392 743 338
------- ------- ------- ------- -------
Total cost of revenues.............. 4 177 604 1,295 473
------- ------- ------- ------- -------
Gross profit............................ 204 2,152 6,421 10,720 4,329
Operating expenses:
Sales and marketing................... 310 1,307 3,469 5,713 2,404
Research and development.............. 626 1,067 1,364 2,070 962
General and administrative............ 60 310 696 1,494 583
------- ------- ------- ------- -------
Total operating expenses............ 996 2,684 5,530 9,277 3,949
------- ------- ------- ------- -------
Operating income (loss)................. (792) (532) 891 1,443 379
Interest and other, net................. (4) (66) (67) 28 (5)
------- ------- ------- ------- -------
Income (loss) before provision for
income taxes.......................... (796) (598) 823 1,471 374
Provision for income taxes.............. -- -- 7 310 79
------- ------- ------- ------- -------
Net income (loss)....................... (796) (598) 816 1,161 295
------- ------- ------- ------- -------
Dividends on series A redeemable,
convertible
preferred stock....................... (80) (80) (80) (100) (50)
------- ------- ------- ------- -------
Net income (loss) applicable to common
stockholders.......................... $ (876) $ (678) $ 736 $ 1,061 $ 245
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Earnings (loss) per common share (a):
Basic................................. $ (2.10) $ (1.63) $ 0.42 $ 0.44 $ 0.10
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Diluted............................... $ (2.10) $ (1.63) $ 0.14 $ 0.17 $ 0.04
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Shares used in computing earnings (loss)
per common share (a):
Basic................................. 417 417 1,740 2,412 2,338
Diluted............................... 417 417 5,709 6,665 6,617
<CAPTION>
1998
---------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License............................... $ 5,962
Maintenance........................... 1,913
-------
Total revenues...................... 7,875
Cost of revenues:
Cost of licenses...................... 527
Cost of maintenance................... 408
-------
Total cost of revenues.............. 935
-------
Gross profit............................ 6,940
Operating expenses:
Sales and marketing................... 3,246
Research and development.............. 1,550
General and administrative............ 1,036
-------
Total operating expenses............ 5,833
-------
Operating income (loss)................. 1,107
Interest and other, net................. 15
-------
Income (loss) before provision for
income taxes.......................... 1,123
Provision for income taxes.............. 415
-------
Net income (loss)....................... 708
-------
Dividends on series A redeemable,
convertible
preferred stock....................... (50)
-------
Net income (loss) applicable to common
stockholders.......................... $ 658
-------
-------
Earnings (loss) per common share (a):
Basic................................. $ 0.25
-------
-------
Diluted............................... $ 0.10
-------
-------
Shares used in computing earnings (loss)
per common share (a):
Basic................................. 2,613
Diluted............................... 7,086
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------------------------------------------
1995 1996 1997 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 291 $ 131 $ 1,705 $ 2,804
Working capital (deficit)............... (530) 47 876 973
Total assets............................ 376 730 3,093 6,352
Secured notes payable................... 650 1,130 1,049 1,049
Series A redeemable, convertible
preferred stock....................... 1,153 1,233 1,563 1,663
Total stockholders' equity (deficit).... (1,637) (2,228) (1,416) (234)
<CAPTION>
AS OF SEPTEMBER
30,
1998
---------------
<S> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 3,044
Working capital (deficit)............... 1,809
Total assets............................ 7,528
Secured notes payable................... 1,049
Series A redeemable, convertible
preferred stock....................... 1,713
Total stockholders' equity (deficit).... 530
</TABLE>
- ------------------------------
(a) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the calculation of earnings (loss) per common share and shares
used in computing earnings (loss) per common share.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. NEON'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
OVERVIEW
NEON Systems, Inc. ("NEON" or the "Company") develops, markets and supports
Enterprise Access and Integration software. NEON was incorporated in May 1993
and introduced its first products, Shadow Direct and Shadow Web Server, in
November 1994 and January 1995, respectively. NEON introduced the third member
of the Shadow product line, Shadow Enterprise Direct, in February 1996. NEON's
Shadow products provide rapid and cost-effective access to and connectivity
between enterprise data, transactions and applications. Shadow Direct enables
client/server applications to access and integrate with mainframe data and
applications. Shadow Web Server enables Web browsers to access and integrate
with mainframe data and applications. Shadow Enterprise Direct provides access
and integration between client/server systems. In addition, through its
distributor agreement with PBTC, NEON launched the first of its Enterprise
Subsystem Management products in January 1997. This product line, which
currently consists of six products, improves the availability and performance of
mainframe subsystems to support the growing demands placed on the mainframe.
The Company has devoted significant resources to building its sales and
marketing functions, resulting in revenues increasing from $2.3 million in
fiscal 1996 to $12.0 million in fiscal 1998. NEON's revenues increased $3.1
million, or 64%, from $4.8 million for the six months ended September 30, 1997
to $7.9 million for the six months ended September 30, 1998. NEON has been
profitable since the quarter ended September 30, 1996. However, there can be no
assurance that NEON will remain profitable on a quarterly or annual basis.
Management expects to continue to devote substantial resources to its sales and
marketing functions in the future.
NEON derives revenues exclusively from software licenses and maintenance
services. Historically, NEON's Shadow products have generated substantially all
of its revenues. License fees, which are based upon the number and capacity of
servers as well as the number of client users, are generally due upon license
grant and include a one-year maintenance period. The license sales process
typically takes three to six months. After the initial year of license, NEON
provides ongoing maintenance services, which include technical support and
product enhancements, for an annual fee based upon the current price of the
products. Since NEON's inception, over 95% of customers have elected to continue
maintenance service after the first year. In fiscal 1996, 1997 and 1998 and the
six months ended September 30, 1998, maintenance revenues represented 9%, 13%,
19% and 24% of total revenues, respectively. Maintenance revenues are expected
to continue to increase as a percentage of total revenues as NEON's customer
base continues to grow.
NEON recognizes revenues in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position 97-2. NEON sells its
products under perpetual licenses and recognizes license revenues when all of
the following conditions are met: a non-cancelable license agreement has been
signed; the product has been delivered; there are no material uncertainties
regarding customer acceptance; collection of the receivable is probable; and no
other significant vendor obligation exists. Maintenance revenues are recognized
ratably over the maintenance service period, which is typically one year. The
portion of maintenance revenues that has not yet been recognized as revenue is
reported as deferred revenue on NEON's balance sheet.
18
<PAGE>
The Company conducts its business in the United Kingdom and Germany through
two wholly-owned, consolidated subsidiaries. Revenues from these subsidiaries
are denominated in local currencies. In other international markets, NEON
conducts substantially all of its business through independent third-party
distributors. Revenues derived from third party distributors are denominated in
U.S. dollars. Revenues recognized from sales to customers outside North America,
primarily in Europe, represented approximately 20%, 11%, 41% and 26% in fiscal
1996, 1997 and 1998 and the six months ended September 30, 1998, respectively.
The British pound and the German mark have been relatively stable against the
U.S. dollar for the past several years. As a result, foreign currency
fluctuations have not had a significant impact on NEON's revenues or operating
results. Management does not currently have an active foreign exchange hedging
program; however, NEON may implement a program to mitigate foreign currency
transaction risk in the future.
RESULTS OF OPERATIONS
The following table sets forth, for the periods illustrated, certain
statement of operations data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
------------------------------------- -----------------
1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License......................................... 98.6% 90.5% 86.8% 80.7% 77.6% 75.7%
Maintenance..................................... 1.4 9.5 13.2 19.3 22.4 24.3
------- ------- ------- ------- ------- -------
Total revenues................................ 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Cost of licenses................................ 1.9 0.8 3.0 4.6 2.8 6.7
Cost of maintenance............................. -- 6.8 5.6 6.2 7.0 5.2
------- ------- ------- ------- ------- -------
Total cost of revenues........................ 1.9 7.6 8.6 10.8 9.8 11.9
------- ------- ------- ------- ------- -------
Gross profit...................................... 98.1 92.4 91.4 89.2 90.2 88.1
Operating expenses:
Sales and marketing............................. 149.0 56.1 49.4 47.5 50.1 41.2
Research and development........................ 301.0 45.8 19.4 17.2 20.0 19.7
General and administrative...................... 28.8 13.3 9.9 12.4 12.1 13.1
------- ------- ------- ------- ------- -------
Total operating expenses...................... 478.8 115.3 78.7 77.2 82.2 74.0
------- ------- ------- ------- ------- -------
Operating income (loss)........................... (380.8) (22.9) 12.7 12.0 7.9 14.1
Interest and other, net........................... (1.9) (2.8) (1.0) 0.2 (0.1) 0.2
------- ------- ------- ------- ------- -------
Income (loss) before provision for income taxes... (382.7) (25.7) 11.7 12.3 7.8 14.3
Provision for income taxes........................ -- -- 0.1 2.6 1.6 5.3
------- ------- ------- ------- ------- -------
Net income (loss)................................. (382.7)% (25.7)% 11.6% 9.7% 6.2% 9.0%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1998
REVENUES
TOTAL REVENUES. NEON's revenues increased 64% from $4.8 million for the six
months ended September 30, 1997 to $7.9 million for the six months ended
September 30, 1998. No customer
19
<PAGE>
accounted for more than 10% of NEON's total revenue in the six months ended
September 30, 1997 or 1998.
LICENSE. License revenues increased 60% from $3.7 million for the six
months ended September 30, 1997 to $6.0 million for the six months ended
September 30, 1998. This increase resulted primarily from a $1.7 million
increase in license sales of NEON's Shadow products and a $555,000 increase in
license sales of new Enterprise Subsystem Management products.
MAINTENANCE. Maintenance revenues increased 78% from $1.1 million for the
six months ended September 30, 1997 to $1.9 million for the six months ended
September 30, 1998. This increase resulted primarily from a $788,000 increase in
maintenance agreement renewals from NEON's expanded installed base of customers.
COST OF REVENUES
COST OF LICENSES. Cost of license revenues includes costs of product
licenses, such as product manuals, distribution and media costs for NEON's
software products, as well as royalty payments to third parties related to
license revenues primarily resulting from NEON's sales of Enterprise Subsystem
Management products. Cost of license revenues increased 290% from $135,000, or
4% of license revenues, for the six months ended September 30, 1997 to $527,000,
or 9% of license revenues, for the six months ended September 30, 1998. The
dollar and percentage increases in the cost of license revenues were primarily
attributable to increased shipments of new Enterprise Subsystem Management
products sold by NEON under the terms of its distributor agreement with PBTC.
See "Business-- PBTC Relationship."
COST OF MAINTENANCE. Cost of maintenance revenues includes personnel and
other costs related to NEON's customer support department. Cost of maintenance
revenues increased 21% from $338,000, or 31% of maintenance revenues, for the
six months ended September 30, 1997 to $408,000, or 21% of maintenance revenues,
for the six months ended September 30, 1998. The dollar increase in the cost of
maintenance revenues was due principally to increased customer support costs in
providing maintenance services to NEON's growing installed customer base. The
percentage decrease resulted primarily from maintenance revenues outpacing
NEON's need for additional support staff. NEON anticipates that the cost of
maintenance revenues will continue to decrease as a percentage of maintenance
revenues as NEON's customer base continues to expand.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses include salaries,
commissions, bonuses, benefits and travel expenses of sales, presales support
and marketing personnel, together with trade show participation and other
promotional expenses. These expenses increased 35% from $2.4 million, or 50% of
total revenues, for the six months ended September 30, 1997 to $3.2 million, or
41% of total revenues, for the six months ended September 30, 1998. The dollar
increase reflects a $338,000 increase in expenses due to the establishment of
NEON's sales office in Germany and the hiring of additional personnel in NEON's
United Kingdom sales office. This dollar increase also reflects a $380,000
increase in additional compensation expenses incurred in the hiring of
additional North American sales personnel and the payment of increased sales
commissions as a result of NEON's revenue growth. The percentage decrease is
primarily a result of an increase in NEON's revenues and, to a lesser extent, an
increase in sales by NEON's North American and European internal sales
personnel, who command lower sales commissions than NEON's independent
international distributors. As NEON continues to devote resources to the
expansion of its sales and marketing organization, NEON expects that annual
sales and marketing expenses will increase in absolute dollars but should not
vary substantially as a percentage of total revenues from the level experienced
in the six-month period ended September 30, 1998.
20
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses include
salaries, bonuses and benefits to product authors, product developers and
product documentation personnel and the computer hardware, software and
telecommunication expenses associated with these personnel. NEON compensates
product authors based on a percentage of product license revenues generated by
products for which they are responsible. Research and development expenses
increased 61% from $962,000, or 20% of total revenues, for the six months ended
September 30, 1997 to $1.5 million, or 20% of total revenues, for the six months
ended September 30, 1998. The dollar increase resulted from a $544,000 increase
in compensation costs due to increased staffing and, to a lesser extent, from
increased product commissions paid to product authors. NEON believes that a
commitment to research and development is essential to maintaining market
leadership and expanding its product lines. Accordingly, NEON anticipates that
it will continue to devote substantial resources to product research and
development for the foreseeable future. Research and development expenses are
expected to increase in absolute dollar amounts but not vary substantially as a
percentage of total revenues from the level experienced in the six months ended
September 30, 1998. NEON has adopted Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed." Research and development expenditures generally have been
charged to operations as incurred and any capitalizable amounts have been
immaterial.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
salaries, personnel and related costs for NEON's executive, financial, legal and
administrative staff. General and administrative expenses increased 78% from
$583,000, or 12% of total revenues, for the six months ended September 30, 1997
to $1.0 million, or 13% of total revenues, for the six months ended September
30, 1998. This dollar increase resulted primarily from a $165,000 increase in
office and administrative costs associated with NEON's newly established
subsidiaries in the United Kingdom and Germany and, to a lesser extent,
increases in occupancy costs and administrative personnel additions necessary to
support NEON's growth. NEON anticipates general and administrative expenses will
continue to increase in absolute dollars and increase modestly as a percentage
of total revenues due to the increased administrative expenses of being a
publicly held company.
PROVISION FOR INCOME TAXES. NEON fully utilized its net operating loss
carryforward for U.S. income tax purposes in fiscal 1998. The effective income
tax rate was 21% and 37% for the six months ended September 30, 1997 and 1998,
respectively.
FISCAL YEARS ENDED MARCH 31, 1996, 1997 AND 1998
REVENUES
TOTAL REVENUES. Total revenues were $2.3 million, $7.0 million and $12.0
million in fiscal 1996, 1997 and 1998, respectively, representing increases of
202% from fiscal 1996 to fiscal 1997 and 71% from fiscal 1997 to fiscal 1998. No
customer accounted for more than 10% of NEON's total revenues in fiscal 1996,
1997 or 1998.
LICENSE. License revenues were $2.1 million, $6.1 million and $9.7 million
in fiscal 1996, 1997 and 1998, respectively, representing increases of 189% from
fiscal 1996 to fiscal 1997 and 59% from fiscal 1997 to fiscal 1998. From fiscal
1996 to fiscal 1997, the dollar increase was primarily due to increased license
sales of NEON's Shadow products. From fiscal 1997 to fiscal 1998, the dollar
increase was primarily due to increased sales of NEON's Shadow products and, to
a lesser extent, the introduction of new Enterprise Subsystem Management
products.
MAINTENANCE. Maintenance revenues were $219,000, $924,000 and $2.3 million
in fiscal 1996, 1997 and 1998, respectively, representing increases of 321% from
fiscal 1996 to fiscal 1997 and 151% from fiscal 1997 to fiscal 1998. These
dollar increases resulted from renewals of maintenance agreements
21
<PAGE>
from NEON's expanded installed base of customers and the recognition of deferred
first-year maintenance service fees.
COST OF REVENUES
COST OF LICENSES. Cost of license revenues was $18,000, $212,000 and
$552,000 in fiscal 1996, 1997 and 1998, respectively, representing 1%, 3% and 6%
of total license revenues in the respective periods. The dollar and percentage
increases in fiscal 1997 and 1998 were due primarily to increased sales of
Enterprise Subsystem Management products, resulting in increased royalties paid
to PBTC under NEON's distributor agreement with PBTC.
COST OF MAINTENANCE. Cost of maintenance revenues was $159,000, $392,000
and $743,000 in fiscal 1996, 1997 and 1998, respectively, representing 72%, 42%
and 32% of total maintenance revenues in the respective periods. The dollar
increases during the periods were due principally to increases in the number of
technical support staff providing support to NEON's growing customer base. The
percentage decreases resulted primarily from maintenance revenues outpacing the
need for additional support staff.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses were $1.3 million, $3.5
million and $5.7 million in fiscal 1996, 1997 and 1998, respectively,
representing 56%, 49% and 48% of total revenues in the respective periods. The
dollar increase from fiscal 1996 to 1997 resulted primarily from a $1.8 million
increase in compensation costs due principally to the hiring of additional sales
personnel and to higher commissions paid as a result of NEON's revenue growth.
The dollar increase from fiscal 1997 to fiscal 1998 resulted primarily from a
$1.3 million increase in costs associated with the recently established sales
offices in the United Kingdom and Germany, as well as a $793,000 increase in
compensation costs due to the hiring of additional sales personnel and increased
commissions paid as a result of NEON's revenue growth.
RESEARCH AND DEVELOPMENT. Research and development expenses were $1.1
million, $1.4 million and $2.1 million in fiscal 1996, 1997 and 1998,
respectively, representing 46%, 19% and 17% of total revenues in the respective
periods. The dollar increases in these periods were primarily attributable to
increased compensation costs due to additional staffing and increased product
commissions paid to product authors.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$310,000, $696,000 and $1.5 million in fiscal 1996, 1997 and 1998, respectively,
representing 13%, 10% and 12% of total revenues in the respective periods. The
dollar increase in fiscal 1996 to fiscal 1997 resulted primarily from increased
occupancy and support costs. The dollar increase from fiscal 1997 to fiscal 1998
resulted primarily from a $400,000 increase in office and administrative costs
associated with the recently established sales offices in the United Kingdom and
Germany.
PROVISION FOR INCOME TAXES. NEON fully utilized its net operating loss
carryforward for U.S. income tax purposes in fiscal 1998. NEON's U.S. income
taxes prior to fiscal 1998 were offset by net operating loss carry forwards. The
effective income tax rate was 21% for fiscal 1998.
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statements of
operations data for the nine quarters ended September 30, 1998, as well as the
percentage of NEON's revenues represented by each item. These data have been
derived from unaudited interim consolidated financial statements prepared on the
same basis as the audited Consolidated Financial Statements contained herein
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair presentation of
such information when read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1997 1997 1997 1997 1998 1998 1998
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License............................... $ 1,352 $ 1,844 $ 2,101 $ 1,894 $ 1,834 $ 2,578 $ 3,391 $ 2,905 $ 3,057
Maintenance........................... 167 262 385 432 642 638 606 889 1,024
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total revenues...................... 1,519 2,106 2,486 2,326 2,476 3,216 3,997 3,794 4,081
Cost of revenues:
Cost of licenses...................... 8 13 183 111 24 48 368 277 251
Cost of maintenance................... 102 99 114 189 149 154 251 200 207
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total cost of revenues.............. 110 112 297 300 173 202 619 477 458
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............................ 1,409 1,994 2,189 2,026 2,303 3,014 3,378 3,317 3,623
Operating expenses:
Sales and marketing................... 562 1,230 1,156 1,092 1,312 1,331 1,978 1,417 1,829
Research and development.............. 331 383 366 448 514 508 600 710 840
General and administrative............ 105 157 346 276 308 466 446 512 524
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses............ 998 1,770 1,868 1,816 2,134 2,305 3,024 2,639 3,193
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income........................ 411 224 321 210 169 709 354 678 430
Interest and other, net................. (21 ) (17 ) (9 ) (5 ) 0 24 9 (35 ) 50
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income before provision for income
taxes.................................. 392 207 312 205 169 733 363 643 480
Provision for income taxes.............. -- -- 7 39 40 154 77 238 177
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income.............................. $ 392 $ 207 $ 305 $ 166 $ 129 $ 579 $ 286 $ 405 $ 303
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License............................... 89.0% 87.6% 84.5% 81.4% 74.1% 80.2% 84.8%
Maintenance........................... 11.0 12.4 15.5 18.6 25.9 19.8 15.2
----- ----- ----- ----- ----- ----- -----
Total revenues...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Cost of licenses...................... 0.6 0.6 7.4 4.8 1.0 1.5 9.2
Cost of maintenance................... 6.7 4.7 4.6 8.1 6.0 4.8 6.3
Total cost of revenues................ 7.3 5.3 12.0 12.9 7.0 6.3 15.5
----- ----- ----- ----- ----- ----- -----
Gross profit............................ 92.8 94.7 88.0 87.1 93.0 93.7 84.5
Operating expenses:.....................
Sales and marketing................... 37.0 58.4 46.5 46.9 53.0 41.4 49.5
Research and development.............. 21.8 18.2 14.7 19.3 20.7 15.8 15.0
General and administrative............ 6.9 7.5 13.9 11.9 12.4 14.5 11.2
----- ----- ----- ----- ----- ----- -----
Total operating expenses............ 65.7 84.0 75.1 78.1 86.2 71.7 75.7
Operating income........................ 27.1 10.6 12.9 9.0 6.8 22.0 8.9
Interest and other, net................. (1.4) 0.8 (0.4) 0.2 0.0 0.7 0.2
----- ----- ----- ----- ----- ----- -----
Income before provision for income
taxes.................................. 25.8 9.8 12.6 8.8 6.8 22.8 9.1
Provision for income taxes.............. -- -- 0.3 1.7 1.6 4.8 1.9
----- ----- ----- ----- ----- ----- -----
Net income.............................. 25.8% 9.8% 12.3% 7.1% 5.2% 18.0% 7.2%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
<CAPTION>
<S> <C> <C>
Revenues:
License............................... 76.6% 74.9%
Maintenance........................... 23.4 25.1
----- -----
Total revenues...................... 100.0 100.0
----- -----
Cost of revenues:
Cost of licenses...................... 7.3 6.1
Cost of maintenance................... 5.3 5.1
Total cost of revenues................ 12.6 11.2
----- -----
Gross profit............................ 87.4 88.8
Operating expenses:.....................
Sales and marketing................... 37.3 44.8
Research and development.............. 18.7 20.6
General and administrative............ 13.5 12.9
----- -----
Total operating expenses............ 69.5 78.3
Operating income........................ 17.9 10.5
Interest and other, net................. (0.9) 1.2
----- -----
Income before provision for income
taxes.................................. 17.0 11.7
Provision for income taxes.............. 6.3 4.3
----- -----
Net income.............................. 10.7% 7.4%
----- -----
----- -----
</TABLE>
23
<PAGE>
NEON's quarterly operating results are subject to certain seasonal
fluctuations. Historically, NEON's license revenues have tended to be strongest
in the third and fourth quarters of its fiscal year and to decrease slightly in
its first fiscal quarter. NEON believes this seasonality is due to the calendar
year budgeting cycles of many of its customers, NEON's employee recognition
policies which tend to reward its sales personnel for achieving fiscal year-end
rather than quarterly revenue quotas and the timing of its hiring of sales force
personnel. In future periods, NEON expects these seasonal trends may cause first
fiscal quarter license revenues to decrease from the level achieved in the
preceding quarter. Based upon all of the factors described above, NEON believes
that its quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons should not be
relied upon as indications of future performance. See "Risk Factors--Our
Financial Results May Vary Significantly from Quarter to Quarter."
LIQUIDITY AND CAPITAL RESOURCES
NEON's cash and cash equivalent balance increased to $3.0 million at
September 30, 1998 from $2.8 million at March 31, 1998. This increase was due
primarily to positive cash flows from operating activities. Net cash used by
operating activities was $566,000 in fiscal 1996, and net cash provided by
operating activities was $1.9 million, $1.3 million and $193,000 in fiscal 1997
and 1998 and the six months ended September 30, 1998, respectively. Net cash
provided by operating activities during fiscal 1997 and 1998 and the six months
ended September 30, 1998 was primarily the result of operating profitability.
NEON's net cash provided by financing activities was $480,000, $2,000,
$28,000 and $101,000 in fiscal 1996, 1997 and 1998 and the six months ended
September 30, 1998, respectively. Net cash provided by financing activities in
fiscal 1996 consisted of the proceeds received from the issuance of convertible
promissory notes. The cash provided by financing activities in periods
subsequent to fiscal 1996 were from amounts received from the exercise of
employee stock options.
Net cash used by NEON in investing activities was $74,000, $306,000,
$276,000 and $59,000 in fiscal 1996, 1997 and 1998 and the six months ended
September 30, 1998, respectively, principally for purchases of property and
equipment, including computer hardware and software to support NEON's growing
employee base. As of September 30, 1998, NEON had no material commitment for
capital expenditures.
Since November 1995, NEON has financed its working capital requirements and
capital expenditures from internally generated cash flows from operations. From
its inception in May 1993 through November 1995, NEON received an aggregate of
$2.2 million from financing activities through the sale of Preferred Stock and
convertible promissory notes. Effective March 31, 1997, NEON amended and
consolidated three original notes dated September 29, 1994, March 30, 1995 and
November 22, 1995. Accrued interest of approximately $169,000 was converted to
principal and $250,000 of principal was converted into 125,000 shares of Series
A Redeemable, Convertible Preferred Stock. The new note in the amount of $1.0
million is due March 31, 1999 and accrues interest at 8% per annum, payable
quarterly.
NEON believes that the net proceeds from the sale of the Common Stock
offered by it hereby, together with its current cash balances and cash provided
by future operations will be sufficient to meet its working capital and
anticipated capital expenditure requirements for at least the next 12 months.
Thereafter, NEON may require additional funds to support its working capital
requirements or for other purposes and may seek to raise such additional funds
through public or private equity financing or from other sources. There can be
no assurance that additional financing will be available at all, or if
available, such financing will be obtainable on terms acceptable to NEON or that
any additional financing will not be dilutive.
YEAR 2000 ISSUES
BACKGROUND AND ASSESSMENT. Some computers, software and other equipment
include programming code in which calendar year data is abbreviated to only two
digits. As a result of this design decision, some of these systems could fail to
operate or fail to produce correct results if "00" is
24
<PAGE>
interpreted to mean 1900, rather than 2000. These problems are widely expected
to increase in frequency and severity as the year 2000 approaches and are
commonly referred to as the Year 2000 Problem. The Year 2000 Problem could
affect computers, software and other equipment used by NEON. Accordingly, NEON
is reviewing its internal computer programs and systems to ensure that such
programs and systems will be Year 2000 compliant. NEON presently believes that
its computer systems will be Year 2000 compliant in a timely manner. However,
while the estimated cost of these efforts is not expected to be material to
NEON's financial position or any year's results of operations, there can be no
assurance to this effect.
SOFTWARE SOLD TO CONSUMERS. All of NEON's products are designed to be Year
2000 compliant and have been tested for Year 2000 compliance. However, NEON
believes that it is not possible to determine with complete accuracy that all
Year 2000 Problems affecting its software products have been identified or
corrected due to the complexity of such products and the fact that such products
interact with other third party vendor products and operate on computer systems
that are not under NEON's control.
INTERNAL INFRASTRUCTURE. NEON believes that it has identified substantially
all of the major computers, software applications and related equipment used in
connection with its internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption to its business.
NEON has commenced the process of modifying, upgrading and replacing NEON's
accounting systems that have been identified as potentially being adversely
affected and expects to complete this process before the end of the first
calendar quarter of 1999. The cost related to these efforts is not material to
NEON's business, financial condition or results of operations.
SUPPLIERS/THIRD-PARTY RELATIONSHIPS. NEON has been gathering information
from vendor Web sites and available compliance statements and has initiated
communications with third-party suppliers of the major computers, software and
other equipment used, operated or maintained by NEON to identify and, to the
extent possible, resolve issues involving the Year 2000 Problem. There can be no
assurance that such suppliers will resolve any or all Year 2000 Problems with
such systems before the occurrence of a material disruption to the business of
NEON or any of its suppliers. Any failure of these third-parties to resolve Year
2000 problems with their systems in a timely manner could have a material
adverse effect on NEON's business, financial condition or results of operation.
STRAIN ON IT RESOURCES. Some organizations' systems may be seriously
disrupted as a result of the Year 2000 Problem. As a result, their attention and
capital expenditures could shift away from the need for applications addressed
by NEON's products to capital expenditures required to resolve their Year 2000
Problems.
CONTINGENCY PLANS. NEON is currently developing contingency plans to be
implemented as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems. NEON expects to complete its contingency plans
by the end of the first quarter of calendar year 1999. Depending on the systems
affected, these plans could include: (1) accelerated replacement of affected
equipment or software; (2) short to medium-term use of backup equipment and
software; (3) increased work hours for NEON personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 Problems which
arise or to provide manual workarounds for information systems; and (4) other
similar approaches. If NEON is required to implement any of these contingency
plans, such plans could have a material adverse effect on NEON's business,
financial condition or results of operations.
MOST LIKELY CONSEQUENCES OF THE YEAR 2000 PROBLEM. NEON expects to identify
and resolve all Year 2000 Problems that could materially adversely affect its
business, financial condition or results of operations. However, NEON believes
that it is not possible to determine with complete certainty that all Year 2000
problems affecting NEON will be identified or corrected in a timely manner. NEON
does not expect expenditures with respect to ensuring Year 2000 compliance of
its internal systems and software to exceed $50,000.
Based on the activities described above, NEON does not believe that the Year
2000 Problem will have a material adverse effect on its business, financial
condition or results of operations.
25
<PAGE>
BUSINESS
OVERVIEW
NEON Systems, Inc. ("NEON" or the "Company") develops, markets and supports
Enterprise Access and Integration software. NEON's primary product family,
Shadow, provides rapid and cost-effective access to, and connectivity between,
enterprise data, transactions and applications. Shadow products enable the
deployment of new applications and the extension of legacy applications across a
variety of computing environments, including the Internet and client/server and
mainframe systems. Shadow Direct enables client/server applications to access
and integrate with mainframe data and applications. Shadow Web Server enables
Web browsers to access and integrate with mainframe data and applications.
Shadow Enterprise Direct provides access and integration between client/server
systems. These products allow organizations to provide applications that combine
the reliability, scalability, security and control of the mainframe with the
flexibility and cost-effectiveness of the Internet and client/server
environments.
INDUSTRY BACKGROUND
In organizations today, a critical asset is the information technology
infrastructure. Many new organizational initiatives, such as managing
information flows across a supply chain, gaining a deeper understanding of
customer buying habits or characteristics, or engaging in more targeted
marketing, selling and production, depend on the effective delivery of
information where it is needed and when it is needed. One of the greatest
challenges to implementing these new strategies is exploiting powerful new
technologies within the existing systems infrastructure of an enterprise -
specifically, combining the strengths of the mainframe environment with the
benefits of Internet and client/server systems.
The advantages of the various platforms can be described as follows:
- MAINFRAMES. Mainframes offer proven reliability, scalability, security and
control as well as time-tested applications, often representing millions
of dollars of investment for an organization. As a result, many
organizations continue to depend on the mainframe to run core business
processes, such as inventory management, payroll processing and customer
billing and support. Historically, organizations have invested substantial
amounts in mainframe systems. According to IDC, in 1997 alone,
organizations invested approximately $18 billion in high-end servers,
comprised substantially of mainframe systems. As a result, a vast amount
of corporate data and records resides on mainframe systems, representing a
wealth of important corporate information.
- CLIENT/SERVER SYSTEMS. Client/server systems enable many users and
applications to share data as well as server resources and enable
applications to be developed and deployed more rapidly than mainframe
applications. Many organizations have deployed new client/server
applications, either developed in-house or purchased from packaged
application vendors.
- THE INTERNET. The Internet offers a low-cost, global network
infrastructure that enables organizations to communicate externally with
customers, suppliers and partners and to coordinate internally by
extending employee access to key applications and information. Web-based,
business critical applications typically leverage common Web browser
interfaces and offer a means to improve service levels while reducing
costs.
Organizations are seeking new applications that combine the strengths of the
mainframe environment with the benefits of the Internet and client/server
systems. While these applications offer high strategic value, they create
several challenges. The first set of challenges is organizational. It is very
difficult for organizations to recruit high-quality systems engineers with the
experience necessary to create these new applications. Although some engineers
may understand the complexities of the Internet or client/server environment,
few will be able to combine that expertise with a deep understanding of
mainframe systems. In addition, many talented mainframe systems engineers now
are
26
<PAGE>
preoccupied with finding and fixing Year 2000 Problems. The shortage of
qualified engineers frequently leads to expensive outsourced development
contracts during a time when internal IT departments are under increasing
pressure to contain costs.
The second set of challenges is created by the inherent limitations of
existing solutions. Organizations have historically addressed the need to
provide greater access to data and applications by means of a limited number of
inflexible techniques, including data extract programs, screen-scraping and file
transfers. These techniques have typically been implemented in an AD HOC manner
to address specific requirements as they have arisen over time. Accordingly,
they generally require extensive manual custom software coding, provide limited
functionality, flexibility and scalability, and may require a costly, burdensome
and ongoing maintenance program.
Over the past several years, a number of software products, known
generically as "middleware," have been introduced to provide organizations with
a packaged product to attempt to solve their access and integration challenges.
Middleware software provides the connection between a client application and a
server application, database or transaction processing system. Although current
middleware software products provide certain benefits, they generally are
limited in three major areas:
- Many current middleware products have been developed for client/server
systems and cannot integrate directly with mainframe operating systems
without the use of additional databases, hardware or proprietary
application programming interfaces ("APIs") that limit the access,
adaptability or performance of the solution.
- Many current middleware products do not include, or have a limited number
of, systems management tools, making these products more burdensome for IT
personnel to manage.
- Many current middleware products are difficult to integrate quickly into
existing IT infrastructures without a significant investment of time and
other resources.
Due to these limitations, organizations are increasingly seeking to deploy
more flexible, easy-to-install, cost-effective and high-performance enterprise
access and integration software products that leverage their investments in
legacy technology by integrating the strengths of the mainframe with the
benefits of the Internet and client/server systems.
THE NEON SOLUTION
NEON is a leading provider of Enterprise Access and Integration software.
NEON's primary product family, Shadow, provides rapid and cost-effective access
to, and connectivity between, enterprise data, transactions and applications.
Shadow products enable the deployment of new applications and the extension of
legacy applications across a variety of computing environments, including the
Internet and client/server and mainframe systems. This allows organizations to
provide applications that combine the reliability, scalability, security and
control of the mainframe with the flexibility and cost-effectiveness of the
Internet and client/server environments. Shadow Direct enables client/server
applications to access and integrate with mainframe data and applications.
Shadow Web Server enables Web browsers to access and integrate with mainframe
data and applications. Shadow Enterprise Direct provides access and integration
between client/server systems.
NEON's Shadow products provide organizations with the following benefits in
deploying new applications and extending existing applications:
- EASY TO USE AND COST-EFFECTIVE. The Shadow products were designed to be
easy to use and to provide a rapid return on investment. The Shadow
products can typically be installed without on-site assistance within one
day. As a result of this "out-of-the-box" functionality, customers can
rapidly implement and utilize Shadow products in deploying new and
extending existing applications with minimal training and typically less
coding than other products. Furthermore,
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unlike many middleware products, the Shadow products do not require
additional hardware and software components to connect distributed
computing applications with mainframe environments. Due to this reduced
complexity, Shadow products lower costs by reducing the management burden
on IT personnel.
- PRESERVE IT INVESTMENT. The Shadow products preserve an organization's
investment in mainframe technology while allowing customers to take
advantage of the benefits of the Internet and client/ server environments.
NEON believes mainframe platforms will continue to dominate large-scale IT
systems for the foreseeable future. Using NEON's Shadow products,
organizations can continue to use these reliable, mission-critical
applications as new technologies and market opportunities evolve.
- FLEXIBILITY. The Shadow products use industry-standard protocols that
allow users to select client-side development tools, mainframe data
sources and connection modes used to connect the client and server. The
Shadow products' flexible architecture allows organizations to maximize
the use of existing internal skills and technologies to develop new
applications using more familiar mainframe and client/server development
tools. These benefits allow organizations to quickly implement a Shadow
product that can be utilized for a variety of applications.
- HIGH PERFORMANCE; SCALABILITY. The Shadow products provide "real time"
access to and integration with mainframe systems through Internet or
client/server applications. While many middleware products provide
connectivity to mainframe systems, few provide the rapid response and
scalability delivered by the Shadow products. The Shadow products'
scalability allows IT groups to broadly expand the user base of an
application without concerns about deteriorating application performance.
- EXTENSIVE MANAGEMENT, MONITORING AND CONTROL CAPABILITIES. The Shadow
products provide a number of utilities that support all phases of the
application lifecycle. The Shadow products' end-to-end diagnostics provide
rapid resolution of development problems that result in faster delivery of
applications extended from the mainframe. The Shadow products maintain the
required performance and availability of mainframe-based applications
operating in a distributed environment at significantly reduced system
maintenance costs.
In addition to its Shadow products, NEON markets and sells a suite of
subsystem management software products referred to as Enterprise Subsystem
Management software. As organizations increasingly deploy Internet and
client/server applications that are dependent upon mainframe-based data and
applications, new demands will be placed on mainframe subsystems. For example,
when an application that once was subject to the demand characteristics of the
corporate office is made available to customers through the Internet, it may
need to be operational on a continuous basis to support global operations. In
addition, the number of potential users accessing the mainframe may increase
substantially, and its workload may fluctuate dramatically. NEON's Enterprise
Subsystem Management software products improve the availability and performance
of mainframe subsystems to support the growing demands placed on the mainframe
to support new users and applications.
THE NEON STRATEGY
NEON's goal is to be the leading provider of enterprise access and
integration software. The following are key elements of the NEON strategy:
- MAINTAIN AND ENHANCE TECHNOLOGICAL LEADERSHIP. NEON believes that it is a
technology leader in providing enterprise access and integration software.
The foundation of its technological leadership is the product architecture
and core code base that underlie the Shadow products. This architecture
not only provides significant advantages over competing products, but
provides the building blocks for the delivery of new Shadow products by
NEON. NEON intends to
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continue to maintain and enhance its technological leadership by
leveraging its proven architecture to rapidly develop and release new
products.
- CAPITALIZE ON MARKET FOR WEB-ENABLED APPLICATIONS AND E-BUSINESS
SOLUTIONS. NEON believes that many organizations are looking for
cost-effective ways to take advantage of the new channels, markets and
organizational structures presented by the rapid growth of the Internet.
The Shadow products provide a cost-effective way to "Web-enable"
applications and allow organizations to rapidly deploy new Internet
applications and participate in E-business opportunities. NEON intends to
continue to leverage its leadership in Web-enablement technology for
mainframe data and applications.
- LEVERAGE INSTALLED BASE OF CUSTOMERS. Approximately 200 organizations
worldwide, including approximately one-fourth of the Fortune 100
companies, have purchased NEON's products. NEON's customers span major
industries, including automobile manufacturing, energy, banking, financial
services, publishing, engineering and retail. To date, the majority of
these customers use NEON's products in specific departments, divisions or
locations. NEON believes it can penetrate more deeply into existing
customer sites as well as cross-sell either new Enterprise Access and
Integration products or Enterprise Subsystem Management products. In
addition, NEON believes there is a large opportunity to sell
organization-wide licenses to its installed base.
- EXPLOIT PRODUCT DEVELOPMENT STRENGTH. NEON employs a product authorship
program that rewards NEON's product authors individually with commissions
based on the market success of the NEON products they author. NEON
believes that the proximity of its product authors to the customer is
critical, and its product authorship program is designed to encourage
NEON's authors to evaluate the effectiveness of a product in the actual
customer environment. This authorship program contributes to NEON's
ability to hire and retain highly skilled authors. In addition to its
internal development resources, NEON distributes Enterprise Subsystem
Management products developed by PBTC. NEON believes that its relationship
with PBTC enables it to address a complementary software market without
substantial development resource commitment.
- MAXIMIZE BENEFITS OF DIRECT TELESALES MODEL. NEON utilizes a direct
telesales model that minimizes the number of remote sales offices and
customer site visits and focuses on effective use of the telephone and
Internet communications for product demonstrations and product sales. NEON
believes its direct telesales approach allows it to achieve better control
of the sales process and respond more rapidly to customer needs while
maintaining an efficient, low-cost sales model. NEON intends to continue
to expand its direct telesales force, both domestically and
internationally.
ENTERPRISE ACCESS AND INTEGRATION PRODUCTS
The Shadow product family consists of three major software products: Shadow
Direct, Shadow Web Server and Shadow Enterprise Direct.
SHADOW DIRECT. Shadow Direct provides organizations with direct access to
mainframe-based data, transactions and applications from the desktop. Shadow
Direct may be used in multi-tier client/server environments such as Unix and
Windows NT. Shadow Direct eliminates the need for separate hardware and software
components and provides a number of unique connection capabilities to meet a
wide variety of corporate application requirements. Shadow Direct also provides
strong performance qualities, such as scalability, management and control.
SHADOW WEB SERVER. Shadow Web Server provides "Web-enablement" of mainframe
applications for access by Web browsers, thereby allowing organizations to
rapidly install and deploy Web-based applications. Shadow Web Server provides
direct Internet access to mainframe-based data and
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transactions from the most popular Web browsers. Unlike most competitive
products providing Web-based access to mainframes, Shadow Web Server allows IT
organizations to utilize existing mainframe programming skills and software
management techniques without extensive retraining in distributed computing
languages and development tools. In addition, Shadow Web Server Web-enables
mainframe applications without compromising mainframe security levels and
provides secure access by supporting industry standard and proprietary NEON
security technologies. Similar to Shadow Direct, Shadow Web Server minimizes the
number of components that limit the scalability, manageability and control of
other products.
Shadow Direct and Shadow Web Server can be enhanced with Shadow Add-On
Components that meet changing application demands. The add-on components give
the customer the ability to purchase additional capabilities when required,
providing an adaptable solution that meets customers' evolving needs. The add-on
components can be used to extend client attributes, server attributes and/or
connection attributes. The server is typically extended to support additional
data or transactional sources as the need arises to use these in new
applications. In addition, batch encryption and decryption of files is available
for sensitive business transmission of data. This add-on component provides a
low-cost, cross-platform encryption technology to provide secure transmission of
sensitive business information. The add-on components provide NEON's customers
with an extendable and flexible long-term solution for their Enterprise Access
and Integration needs.
SHADOW ENTERPRISE DIRECT. Shadow Enterprise Direct provides organizations
with direct access to Unix and Windows NT-based data and applications from the
desktop. Shadow Enterprise Direct eliminates the need for maintaining multiple
database drivers and provides unique connection capabilities to meet a wide
variety of corporate database and applications requirements. Shadow Enterprise
Direct also provides strong performance qualities, such as scalability,
manageability and control.
NEON'S UNIQUE PRODUCT ARCHITECTURE
NEON's Enterprise Access and Integration Architecture is central to the
Shadow products' success. NEON designed this architecture to be open and
significantly less complex than competing architectures. NEON believes its
architecture not only provides significant technological advantages over
competing products, but also reduces the cost of product development and
time-to-market. NEON's Enterprise Access and Integration Architecture allows
organizations to implement a single architecture that meets mainframe access and
integration needs and maintains open standards for flexibility and adaptability.
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The following graphic depicts the Enterprise Access and Integration
Architecture:
[Schematic depicting NEON's Enterprise Access and Integration architecture.
The graphic sets forth line items for Shadow Client, Shadow Connection, Shadow
Management/Run-Time, Shadow Access and a bottom line item styled "Data and
Applications." At the top of the schematic are three categories styled Internet,
Client/Server and N-Tier depicting the relationship between the product
architecture and the capabilities for enterprise access and integration.]
The Enterprise Access and Integration Architecture consists of four
fundamental architectural elements that work together to deliver flexible,
high-performance capabilities for enterprise access and integration: Shadow
Client, Shadow Connection, Shadow Management/Run-Time and Shadow Access, each of
which represents a substantial NEON investment measured in terms of lines of
code and man-years of development.
SHADOW CLIENT. Shadow Client supports client API's, protocols and security
standards for all major application environments, including the Internet and
client/server and mainframe systems standardized on ODBC and HTML/HTTP. NEON is
continuing to develop and intends to deliver products based on industry standard
APIs such as OLE/DB and JDBC. Shadow Client provides a common interface that is
compatible with Windows-based productivity tools, Web browsers and widely-used
development languages, as well as application and Web servers.
SHADOW CONNECTION. Shadow Connection provides support for a number of
connection options from the client to Shadow Management/Run-Time. These options
provide flexibility, allowing organizations to select connection modes to fit a
variety of application demands.
SHADOW MANAGEMENT/RUN-TIME. Shadow Management/Run-Time is the hub for all
Shadow Add-On Components which allows local and remote access to mainframe-based
data and transactions. Shadow Management/Run-Time provides management,
execution, security and control of the enterprise access environment.
SHADOW ACCESS. Shadow Access integrates and supports a series of plug-in
modules for access to data and transactional sources. Organizations purchase
Shadow Add-on Components as their needs evolve. NEON continues to develop and
market additional add-on components to expand the versatility of the solution.
ENTERPRISE SUBSYSTEM MANAGEMENT PRODUCTS
NEON's Enterprise Subsystem Management products cost-effectively maintain
the performance and availability required by mainframe environments as the
demand for new applications increases. NEON markets these products through its
distributor agreement with PBTC.
NEON provides five products that address the market opportunity in
Information Management Systems ("IMS") subsystem management. These products
maintain high availability, integrity and performance of IMS databases, and the
ability to load and unload data, to manage indices and to place
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IMS data where desired. These products provide cost-effective means to handle
demands of existing and new applications as they are updated to take advantage
of Internet and client/server computing. NEON also provides Customer Information
and Control ("CICS") Affinities Server, a product that addresses the market
opportunity for CICS solutions. This product allows organizations to more
completely realize the advantages of IBM's System/390 SYSPLEX platform in the
CICS subsystem area.
CUSTOMERS
NEON's customer base spans major industries, including automobile,
manufacturing, energy, banking, financial services, publishing, engineering and
retail. The following is a representative list of NEON's customers that have
purchased at least $100,000 in licensed software and first year maintenance
services since April 1, 1996. No customer accounted for more than 10% of NEON's
total revenues in fiscal 1997, fiscal 1998 or the six months ended September 30,
1998.
Allied Dunbar Assurance
Allied Signal
American Express Travel
American Transtech
Avon Products
BASF Computer Services
Blue Cross Blue Shield of
Minnesota
Boeing
Cendant
Consumers Energy
Dayton Hudson
Delta Technology
Deutsche Bundesbank
Duke University Medical
Center
Foundation Health Systems
HM Land Registry
Hyundai Heavy Industries
J. Sainsbury Group
Marks & Spencer
Merrill Lynch
Metro MGI Informatic
Motorola
National Institutes of Health
National Westminster Bank
Norwest Services
Norwich Union Life
Office Depot
Qantas
Reynolds Metals
Royal Bank of Canada
Sears
Severn Trent Systems
Skandia
St. George Bank
State of Illinois
Texaco
Texas Legislative Council
Texas Workforce Commission
Trygg Hansa
U.S. Department of Defense
U.S. Postal Service
Unipart Information Technology
VW Gedas (U.K.)
Wells Fargo Bank
NEON provides its products to customers under non-exclusive,
non-transferable licenses. Under NEON's current standard license agreement,
licensed software may be used solely for the customer's internal operations, and
NEON does not sell or transfer title to its products to its customers.
CUSTOMER CASE STUDIES
The following examples illustrate how some of NEON's customers are using
Shadow products to provide rapid, cost-effective access to and connectivity
between enterprise data, transactions and applications. There can be no
assurance that new or existing customers will achieve any or all of the benefits
described below.
STATE OF ILLINOIS
The Illinois State Government consists of over 50 departments and agencies
and has an annual operating budget over $64.0 billion.
CHALLENGE. The Illinois State Government operates an IT service bureau to
manage the storage and retrieval of data generated by over 50 distinct
government departments located throughout Illinois. This service bureau, the
Central Management Services Group, maintains five mainframes (including a
variety of operating platforms such as DB2, IMS and IMS/DB) that support
approximately 30,000 state government employees. Several of these departments
were combined together to improve operational efficiency, customer service and
interaction with federal agencies. The Central Management Services Group was
required to integrate data from several different mainframe systems and deploy
several new
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client/server based applications to provide a consolidated view of state
residents' information for these newly consolidated groups.
RESULT. The Central Management Services Group implemented Shadow Direct to
provide the required access and integration solution for over 10,000 end-users.
The Shadow products were selected due to their ability to provide access to a
variety of mainframe systems, and to manage the performance requirements of
mainframe-based applications that have been extended to distributed
environments. In addition, the Shadow products allowed the Central Management
Service Group to rapidly implement a cost-effective solution that has kept pace
with the consolidation initiatives of the Illinois State government.
SKANDIA
Skandia ("Skandia"), headquartered in Sweden, provides worldwide insurance
and financial services to individuals, businesses and the public sector. Skandia
employs over 10,000 people.
CHALLENGE. With most of Skandia's data and applications residing on
mainframe systems, Skandia's IT Internet Group was given the task of integrating
those systems with several new Web-based applications. One application was to
provide call center personnel with in-depth information on customer insurance
portfolios, allowing them to respond more quickly and accurately to customer
inquiries and improve customer satisfaction.
RESULT. The call center Web-based application was designed, developed and
integrated with Shadow Web Server in less than two days. Through a browser
interface, the application prompts a call center worker for a customer number,
which identifies the customer and provides access to the appropriate customer
records residing on a mainframe. The application contains a combination of
textual information, graphics and links to mainframe-based data, allowing the
call center representative to obtain specific information about the customer.
The Shadow solution provided the high level of security, manageability and
performance required for a distributed Web-based application while leveraging
the benefits of Skandia's mainframe environment. The result was a significant
improvement in customer satisfaction.
TEXACO
Texaco Inc. ("Texaco") is one of the world's largest companies principally
engaged in the worldwide exploration for and production, transportation,
refining and marketing of petroleum products.
CHALLENGE. Transporting natural gas from the wellhead to the consumer
requires a cooperative effort among producers, pipeline operators, regional and
local distribution companies and other members of the supply chain.
Historically, it also required the generation and manual processing of paper
documents which accompanied virtually every step of the production, distribution
and billing process. Texaco wanted to replace this process with a Web-based
solution to reduce processing cost, improve the accuracy of data and, more
fundamentally, to improve the integration between the members of its natural gas
supply chain.
RESULT. Shadow Web Server provided the needed access between Texaco's
mainframe environment and the Internet, enabling Texaco to provide an integrated
supply chain solution and a more efficient process for the distribution of
natural gas. The application has saved countless hours of re-keying of
information, produced significant cost savings and substantially improved the
accuracy of transaction data.
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SALES AND MARKETING
NEON sells its products through a direct telesales force and, to a lesser
extent, through independent distributors.
DIRECT TELESALES. NEON utilizes a direct telesales model that minimizes the
number of remote sales offices and customer site visits and focuses on effective
use of the telephone and Internet communications for product demonstrations and
product sales. When necessary, NEON's sales force will also travel to customer
locations for on-site demonstrations and product trials. The direct telesales
model allows NEON's sales representatives to be successful without substantial
travel, thereby improving earning potential and providing a higher quality of
life. NEON believes this model is a significant factor in recruiting and
retaining outstanding sales professionals. NEON believes its direct telesales
approach allows it to achieve better control of the sales process and to respond
more rapidly to customer needs, while maintaining an overall low-cost sales
model. Sales cycles typically range from three to six months.
The direct telesales force for North America is based in Sugar Land, Texas
and generates a substantial majority of NEON's revenues. In January 1997, NEON
established its first international direct telesales office in London, England.
In August 1997, NEON established another international direct telesales office
in Frankfurt, Germany. NEON increased the size of its direct telesales
organization from 21 to 31 individuals over the last fiscal year and expects to
continue hiring sales personnel, both domestically and internationally, over the
next fiscal year.
INDEPENDENT DISTRIBUTORS. NEON has also established indirect distribution
channels through independent distributors in Europe, Latin America and the
Pacific Rim. At November 30, 1998, NEON had 11 distributors covering 16
countries. NEON's distributors typically perform marketing, sales and technical
support functions in their assigned country or region. They may distribute
directly to the customer, via other resellers or through a combination of both
channels. NEON continuously trains its international distributors in both
product capabilities and sales methodologies.
In addition to its internal marketing activities, NEON has established
relationships with other vendors that are complementary to NEON's efforts to
expand acceptance of the Shadow and Enterprise Subsystem Management products.
NEON's internal marketing activities include trade and road shows, public
relations, news releases, trade article placements and technical analyst
meetings as well as targeted print trade advertising. NEON also relies on its
Internet site and Web-based seminars to supplement its primary marketing
activities.
OEM RELATIONSHIPS. NEON has OEM relationships with Ardent Software
(formerly Prism Solutions), Informatica and Xantel. These companies embed Shadow
Direct in their products to provide access to mainframe-based enterprise data
and transactions from their respective applications. The OEM relationships and
NEON's software limit access to only their applications. In addition to
generating revenues, these relationships provide an opportunity for NEON's
direct telesales force to sell licenses offering broader Shadow product
functionality.
MARKETING RELATIONSHIPS. NEON has recently developed marketing
relationships with BEA Systems, IBM, Microsoft and Netscape. NEON believes that
these relationships could present NEON with access to sales opportunities
requiring a unique combination of product features and requirements that are not
available from any of the foregoing vendors acting independently.
CUSTOMER SUPPORT
NEON believes that high-quality and long-term customer support is a critical
requirement for continued growth and increased sales of its products. NEON has
made significant investments in increasing the size of its support organization
in the past and plans to continue to do so in the future. Customer support
personnel provide pre-sale, installation and post-sale technical support by
toll-free
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telephone, E-mail and facsimile, and through NEON's Internet site and bulletin
boards. Customer support is available on an around-the-clock basis. In addition,
customer service representatives contact each customer within six months after
installation to assess customer satisfaction and obtain feedback. As a result of
the "out-of-the-box" functionality of its products, NEON does not require a
large customer support organization.
PRODUCT DEVELOPMENT
NEON's research and development efforts are focused primarily on expanding
its Enterprise Access and Integration products. NEON believes that attracting
and retaining talented software developers is an important component of NEON's
product development activities. To this end, NEON has instituted a product
authorship incentive program that rewards NEON's product authors individually
with commissions based on the market success of the applications designed,
written, marketed and supported by them. NEON believes that the proximity of its
product authors to the customer is critical, and its product authorship program
is designed to encourage NEON's developers to evaluate the effectiveness of a
product in the actual user environment. NEON incorporates the recommendations of
existing and potential customers when developing its products and believes that
continued dialogue with customers is an important element in developing
enhancements to existing products and in the development of new products.
NEON has in the past devoted and expects in the future to devote a
significant amount of resources to developing new and enhanced products. NEON
currently has a number of product development initiatives underway.
Specifically, NEON is currently developing a Shadow product that will simplify
the maintenance of passwords between Microsoft's SNA/Servers and mainframes. In
addition, NEON is continuing to enhance its existing Shadow product line to
include support for OLE/ DB and provides a Web-browser-based management
interface.
TEXACO WORK AGREEMENT
NEON has a work agreement with Texaco pursuant to which Texaco provides NEON
use of its mainframe computer and certain of its under-utilized data processing
resources. NEON uses Texaco's resources in developing a number of its
application interfaces. The Texaco agreement specifies that ideas, concepts,
know-how and techniques that NEON develops under the agreement are to remain its
property and that Texaco may use such developments solely for its internal IT
operations. NEON has granted Texaco and its subsidiaries and affiliates a
worldwide, perpetual, non-transferable and royalty-free license with respect to
any products developed pursuant to the work agreement. Either party to the work
agreement may terminate the agreement upon 30 days' written notice to the other
party. Upon termination of the work agreement, NEON would have to locate
alternative mainframe sources to develop certain of its products. NEON believes
alternative mainframe sources are available at reasonable rates.
PBTC RELATIONSHIP
NEON markets and sells a suite of Enterprise Subsystem Management products,
in addition to its Shadow products, that improve the efficiency and performance
of mainframe environments. These products are developed pursuant to a
development and distribution agreement with PBTC. The PBTC agreement provides
NEON with exclusive rights to distribute PBTC's Enterprise Subsystem Management
software, with the exception of limited co-marketing rights held by IBM relating
to one of the PBTC Enterprise Subsystem Management products, as well as access
to PBTC's team of software developers. PBTC currently employs 12 developers with
an average of 21 years of experience. The agreement grants NEON worldwide
distribution rights through March 31, 2004. The agreement also grants to NEON
first refusal rights to acquire PBTC by matching any third-party offer that PBTC
or its stockholder chooses to accept, and an option to acquire PBTC that is
exercisable on or after January 1, 2002 or such earlier date that NEON has paid
PBTC royalty payments totaling $10.0 million or more
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in any single fiscal year. NEON believes that its relationship with PBTC
provides it with an opportunity to address a new and related software products
market, Enterprise Subsystem Management, without committing substantial
development resources, and enhances its overall research and development
capabilities. See "--Legal Proceedings" and "Certain Transactions--PBTC
Agreements."
COMPETITION
NEON competes in markets that are intensely competitive and characterized by
rapidly changing technology and evolving standards. NEON's competitors are
diverse and offer a variety of solutions directed at various segments of the
Enterprise Access and Integration and Enterprise Subsystem Management software
markets. NEON has experienced, and expects to continue to experience, increased
competition from current and potential competitors, many of whom have greater
name recognition, a larger installed customer base and significantly greater
financial, technical, marketing, and other resources than NEON.
NEON's Shadow products compete principally with middleware products from
established vendors such as IBM, Oracle and Information Builders and to a lesser
extent with BEA Systems, Iona Technologies, New Era and TSI International
Software. NEON's Enterprise Subsystem Management products face significant
competition from products offered by BMC. In addition, NEON faces competition
from (1) other business applications vendors who may internally develop, or
attain through acquisitions and partnerships, middleware and enterprise
subsystem management solutions, (2) internal development efforts by corporate IT
departments and (3) new entrants to the middleware or enterprise subsystem
management markets.
NEON's competitors 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 NEON. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins, longer sales cycles and loss of market share, any of which would
materially adversely affect NEON's business, operating results and financial
condition.
PROPRIETARY RIGHTS
NEON relies primarily on a combination of copyright, trademark and trade
secret laws, confidentiality procedures and contractual provisions to protect
its proprietary rights. However, NEON believes that such measures afford only
limited protection. There can be no assurance that others will not develop
technologies that are similar or superior to NEON's technology or design around
the copyrights and trade secrets owned by NEON. NEON licenses its products
pursuant to software license agreements, which include acknowledgements and
agreements by the licensee that are intended to establish and protect NEON's
proprietary rights and confidential information. NEON believes, however, that
these measures afford only limited protection. Despite NEON's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy aspects of
NEON's products or to obtain and use information that NEON regards as
proprietary. Policing unauthorized use of NEON's products is difficult and NEON
is unable to determine the extent to which piracy of its software products
exists. In addition, the laws of some foreign countries do not protect NEON's
proprietary rights as fully as do the laws of the United States. There can be no
assurance that NEON's means of protecting its proprietary rights will be
adequate or that competition will not independently develop similar or superior
technology.
A number of organizations, including New Era, are utilizing the name "Neon,"
alone and in combination with other words, as a trademark, a tradename or both.
New Era is also a developer and distributor of middleware and other software
products. New Era has used the acronym "NEON" in its business, is listed on the
Nasdaq National Market System under the symbol "NEON" and has sought to obtain
federal trademarks for products whose names include the word "NEON." We are
currently opposing in the U.S. Patent and Trademark Office New Era's application
to trademark "NEONet."
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Any litigation to enforce our right to use the NEON name in our business or to
prevent others from using the NEON name would be expensive and time-consuming,
would divert management resources and may not be adequate to protect our
business. If we should lose any such litigation, we may have to change our name,
which also would be expensive and time-consuming and could adversely affect our
business. In addition, New Era's use of the "NEON" symbol on the Nasdaq National
Market may create confusion in the marketplace and result in variations in our
stock price that are attributable to facts or circumstances relating to New Era.
NEON has code-sharing arrangements with third parties under which it has
obtained and used certain source code in the development of some of its software
products. If any of these agreements are terminated, NEON could be required to
spend time and software development resources. Any diversion of these resources
could delay NEON's development of new products or product enhancements.
NEON is not aware that it is infringing any proprietary rights of third
parties. There can be no assurance, however, that third parties will not claim
infringement by NEON of their intellectual property rights. BMC has brought suit
against NEON and other parties alleging misappropriation and infringement of
certain trade secrets. See "--Legal Proceedings." NEON expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in NEON's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require NEON to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to NEON, if at all. In the event of a successful claim of product
infringement against NEON and failure or inability of NEON to either license the
infringed or similar technology or develop alternative technology on a timely
basis, NEON's business, operating results and financial condition could be
materially adversely affected.
HUMAN RESOURCES
As of November 30, 1998, NEON and its subsidiaries employed 71 persons,
including 37 in sales, marketing and field operations, 14 in research and
development, 11 in finance and administration and nine in client services. None
of NEON's employees are represented by a labor union. NEON has experienced no
work stoppages and believes its relationship with its employees is good.
Competition for qualified personnel in NEON's industry is intense.
FACILITIES
NEON's principal administrative, engineering, manufacturing, marketing and
sales facility is approximately 34,300 square feet and is located in Sugar Land,
Texas. The lease for this facility will expire on August 31, 2003. In addition,
NEON leases offices in London, England and Frankfurt, Germany. Management
believes that its current facilities are adequate to meet its needs through the
next 12 months and that, if required, suitable additional space will be
available on commercially reasonable terms to accommodate expansion of NEON's
operations.
LEGAL PROCEEDINGS
BMC filed suit against PBTC, Skunkware, Inc., the privately held sole
stockholder of PBTC ("Skunkware"), John J. Moores (a director of NEON) and other
parties in the District Court of Travis County, Texas, 200th Judicial District.
In December 1996, NEON was named as a codefendant in that suit. BMC alleges
misappropriation and infringement of certain trade secrets, confidential
information and corporate opportunity, as well as breach of contract and
fiduciary relations by the individuals. In the lawsuit, BMC states that it is
seeking damages based upon the disgorgement of all revenues derived from the
sale or license of the PBTC utilities through the date of judgment. Furthermore,
BMC is
37
<PAGE>
seeking to hold PBTC, NEON, Skunkware and Mr. Moores jointly and severally
liable for these damages. NEON believes that the lawsuit is without merit and
has filed counterclaims against BMC for anti-competitive practices. PBTC is
defending NEON in the lawsuit pursuant to an indemnification provision in the
distributor agreement between NEON and PBTC. See "Certain Transactions--PBTC
Agreements." PBTC is minimally capitalized, and there can be no assurance that
PBTC will continue to have sufficient resources to fund the costs and expenses
of the lawsuit or indemnify NEON against an adverse judgment. If PBTC should
cease defending NEON in the lawsuit, NEON will be required to provide its own
defense and may not be able to recover the related costs from PBTC. If BMC is
successful in obtaining a judgment in its favor against NEON in the lawsuit,
that judgment could have a material adverse effect on NEON.
38
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of NEON as of November 30, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John J. Moores (a)........................ 53 Chairman of the Board of Directors
President, Chief Executive Officer and
Joe Backer................................ 60 Director
Peter Schaeffer........................... 42 Chief Technology Officer and Director
John S. Reiland........................... 49 Chief Financial Officer and Director
Don Pate.................................. 43 Vice President--Worldwide Sales
Wayne E. Webb, Jr......................... 47 Vice President and General Counsel
Jonathan J. Reed.......................... 42 Director of Marketing
Charles E. Noell III (a)(b)............... 46 Director
Norris van den Berg (a)(b)................ 60 Director
Richard Holcomb (a)....................... 36 Director
</TABLE>
- --------------------------
(a) Member of the Compensation Committee.
(b) Member of the Audit Committee.
JOHN J. MOORES has served as Chairman of NEON's Board of Directors since May
1993. Since December 1994, Mr. Moores has served as owner and Chairman of the
Board of the San Diego Padres Baseball Club, L.P. and since September 1991 as
Chairman of the Board of JMI Services, Inc., a private investment company. In
1980, Mr. Moores founded BMC, a vendor of system software utilities, and served
as its President and Chief Executive Officer until 1986 and as its Chairman of
the Board until 1992. Mr. Moores also serves as Chairman of the Board of
Peregrine Systems, Inc., an infrastructure management software company, and
numerous privately held companies, including PBTC. Mr. Moores serves as a
director of Bindview Development Corporation, a systems management software
company, and Homegate Hospitality, Inc., a hospitality company. Mr. Moores holds
a B.S. in Economics and a J.D. from the University of Houston.
JOE BACKER has served as NEON's President and Chief Executive Officer and as
a member of the Company's Board of Directors since November 1995. From December
1993 to October 1995, Mr. Backer was a private investor. Mr. Backer held the
position of Senior Vice President of BMC from November 1989 to November 1993.
Mr. Backer also serves as President, Chief Executive Officer and a member of the
Board of Directors of PBTC and Skunkware. In addition, Mr. Backer serves as a
member of the Board of Directors of Pavilion Technologies Inc., a privately held
software company headquartered in Austin, Texas. Mr. Backer holds a B.S. in
Electrical Engineering from Purdue University.
PETER SCHAEFFER is NEON's founder and has been a member of NEON's Board of
Directors since July 1991. Since November 1995, Mr. Schaeffer has served as
NEON's Chief Technology Officer. From July 1991 to October 1995, Mr. Schaeffer
served as NEON's President and Chief Executive Officer. From June 1990 to June
1991, Mr. Schaeffer was employed with Goal Systems International, Inc., a
privately held software development company. In 1986, Mr. Schaeffer co-founded
MVS Software, a privately held software development company, and was Vice
President--Technology of MVS Software until April 1990. Mr. Schaeffer holds a
B.S. in Organic Chemistry from the University of Chicago.
JOHN S. REILAND has served as NEON's Chief Financial Officer since July 1996
and as a member of NEON's Board of Directors since November 1998. Mr. Reiland
also serves as Chief Financial Officer of PBTC and of Skunkware. From June 1994
to April 1996, Mr. Reiland served as Senior Vice President, Chief Financial
Officer and a director of Pointe Communications Corporation, an
39
<PAGE>
international telecommunication and Internet service provider. From May 1991 to
May 1994, Mr. Reiland served as Vice President of Motor Columbus AG, an
international long-distance telephone service reseller, and also served as
President of its subsidiary, WorldCom International, Inc. Mr. Reiland is a
Certified Public Accountant and holds a B.B.A. in Accounting from the University
of Houston.
DON PATE has served as NEON's Vice President--Worldwide Sales since March
1998 and served as NEON's Vice President of Sales from November 1996 to March
1998. From October 1989 to November 1996, Mr. Pate served in several sales and
sales management positions with BMC, including Manager of International Sales,
Sales Operations Manager and Regional Manager. Prior to that, Mr. Pate was a
salesman for the IBM Corporation. Mr. Pate holds a B.S. in Economics and
Psychology from Houston Baptist University.
WAYNE E. WEBB, JR. has served as NEON's Vice President and General Counsel
since June 1998. Mr. Webb is also Vice President and General Counsel of PBTC.
From August 1989 through May 1998, Mr. Webb was a partner in the law firm of
Fulbright & Jaworski LLP. Mr. Webb holds a B.S. in Electrical Engineering from
Rice University and a J.D. from the University of Texas at Austin.
JONATHAN J. REED has served as NEON's Director of Marketing since January
1998. In January 1999, Mr. Reed will become NEON's Vice President of Marketing.
From July 1996 to December 1997, Mr. Reed served as NEON's Principal Consultant
and Technical Marketing Manager. From April 1995 until July 1996, Mr. Reed
served as Alliance Manager for Sybase, Inc., a distributed computing company.
From March 1991 to April 1995, Mr. Reed was employed by BMC where he served as a
Commercial Analyst. Mr. Reed holds a B.S. in Biology from the University of
Houston and an M.S. in Management and Computer Science from Houston Baptist
University.
CHARLES E. NOELL III has served as a director of NEON since May 1993. Since
January 1992, Mr. Noell has served as President and Chief Executive Officer of
JMI Services, Inc., and as a General Partner of JMI Equity Fund, L.P. ("JMI
Equity Fund"). Mr. Noell is a director of PBTC and also serves as a director of
Expert Software, Inc. a consumer software company, Transaction Systems
Architects, Inc., a business communications software company, and Homegate
Hospitality, Inc. Mr. Noell holds a B.A. in History from the University of North
Carolina at Chapel Hill and an M.B.A. from Harvard University.
NORRIS VAN DEN BERG has served as a director of NEON since May 1993. Mr. van
den Berg has served as a General Partner of JMI Equity Fund since July 1991. Mr.
van den Berg is also a director of PBTC and of Ardent Software, Inc. (formerly
Prism Solutions, Inc.), a data integration software company. Mr. van den Berg
holds a B.A. in Philosophy and Mathematics from the University of Maryland.
RICHARD HOLCOMB has served as a director of NEON since May 1993. Mr. Holcomb
is a co-founder of haht Software, a privately held software company, and has
served as its Chairman of the Board since 1995. Mr. Holcomb co-founded Q+E
Software, a privately held supplier of client/server database access technology,
and from 1986 through 1994 served as its President. Mr. Holcomb serves as an
appointed member of the North Carolina Information Resources Management
Commission and on the board of the North Carolina Electronics and Technologies
Association. Mr. Holcomb holds a B.A. in Computer Science from the University of
South Carolina and a M.S. in Computer Science from North Carolina State
University.
BOARD OF DIRECTORS AND COMMITTEES
Following the offering, NEON's Board of Directors will consist of seven
directors divided into three classes with each class serving for a term of three
years. At each annual meeting of stockholders, directors will be elected by the
holders of the Common Stock to succeed those directors whose terms are expiring.
Messrs. Backer and Noell are Class I directors whose terms will expire in 1999;
40
<PAGE>
Messrs. Holcomb and van den Berg are Class II directors whose terms will expire
in 2000; and Messrs. Moores, Reiland and Schaeffer are Class III directors whose
terms will expire in 2001.
The Board of Directors has created a Compensation Committee and an Audit
Committee. The Compensation Committee makes recommendations to the Board of
Directors concerning salaries and incentive compensation for the Company's
officers and employees and administers the Company's 1993 Stock Plan, the 1999
Long-Term Incentive Plan and the Director Plan. The members of the Compensation
Committee are Messrs. Holcomb, Moores, Noell and van den Berg (chairman). The
Audit Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the results and scope of audits and
other accounting-related services and reviews and evaluates NEON's internal
control functions. The members of the Audit Committee are Messrs. Noell
(chairman) and van den Berg.
DIRECTORS' COMPENSATION
During fiscal 1998, NEON's outside directors were not compensated for
serving as members of NEON's Board of Directors, and NEON expects that such
policy will not change in fiscal 1999, except that outside directors
subsequently joining the Board of Directors will receive option grants under the
Director Plan as described below. Mr. Holcomb received an option grant of 13,800
shares in fiscal 1998.
NEON has adopted the Director Plan for compensation of its outside directors
and has reserved 100,000 shares of Common Stock for issuance thereunder. Outside
directors joining the Board of Directors after the offering will receive options
to purchase 7,500 shares of Common Stock exercisable at the fair market value of
the Common Stock at the close of business on the date immediately preceding the
date of grant (the initial outside directors will be eligible for such grants
upon their re-election to the Board of Directors). Such annual options will vest
equally in 33 1/3% increments over the three-year period from the date of grant.
All stock options granted pursuant to the Director Plan will be nonqualified
stock options and will remain exercisable for a period of ten years from the
date of grant or, if sooner, six months after the option holder ceases to be a
director of NEON. In the event of a change in control of NEON or certain other
significant events, all options outstanding under the Director Plan shall
terminate, provided that immediately before the effective date of such
transaction each holder of an outstanding option under the Director Plan shall
be entitled to purchase the total number of shares of Common Stock that such
option holder would have been entitled to purchase during the entire remaining
term of the option.
41
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Holcomb, Moores, Noell and van den Berg served on the Compensation
Committee during fiscal 1998. These individuals do not serve as officers or
employees of NEON. Messrs. Noell and van den Berg are directors of PBTC and
Messrs. Backer, Moore, Noell and van den Berg are directors of Skunkware, the
sole stockholder of PBTC. See "Certain Transactions--PBTC Agreements." Messrs.
Moores and van den Berg serve as Chairman of the Board and as an executive
officer of JMI Services, Inc., respectively.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the compensation
earned by NEON's Chief Executive Officer and the four most highly compensated
executive officers (collectively, the "Named Executive Officers") other than the
Chief Executive Officer during fiscal 1998. There were no options or stock
appreciation rights granted to the Named Executive Officers during fiscal 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (A)
- ----------------------------------------------------- --------- --------- -----------------
<S> <C> <C> <C>
Joe Backer
President and Chief Executive Officer.............. $ 130,000 $ 140,602 $ --
Peter Schaeffer
Chief Technology Officer........................... 100,000 22,188 --
John S. Reiland
Chief Financial Officer............................ 110,000 22,544 --
Don Pate
Vice President--Worldwide Sales.................... 95,833 96,848 --
Jonathan J. Reed
Director of Marketing.............................. 112,708 12,695 --
</TABLE>
- --------------------------
(a) Excludes certain perquisites and other personal benefits received by a Named
Executive Officer that do not exceed the lesser of $50,000 or 10% of any
such officer's salary and bonus disclosed in the table.
OPTION EXERCISES IN FISCAL 1998 AND MARCH 31, 1998 OPTION VALUES. The
following table sets forth, for each Named Executive Officer, information
concerning option exercises for fiscal 1998 and the number and value of
securities underlying unexercised options held on March 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT OPTIONS AT
SHARES MARCH 31, 1998 MARCH 31, 1998 (A)
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED (A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joe Backer......... 22,000 $ 17,600 115,504 137,496 $ 92,403 $ 109,997
Peter Schaeffer.... -- -- 395,835 -- 316,668 --
John S. Reiland.... 13,189 10,551 -- 39,561 -- 31,649
Don Pate........... -- -- 13,189 39,561 10,551 31,649
Jonathan J. Reed... 3,564 2,406 -- 10,686 -- 7,213
</TABLE>
- --------------------------
(a) Based on the estimated fair market value of NEON's Common Stock at March 31,
1998 ($1.00 per share), as determined by NEON's Board of Directors, less the
exercise price payable for such shares, multiplied by the number of shares
issued upon exercise of the option.
42
<PAGE>
STOCK PLANS
1999 PLAN. The 1999 Plan provides for the grant of incentive stock options
and non-qualified stock options to purchase Common Stock, stock appreciation
rights, restricted stock and performance units, to key employees of NEON. The
purpose of the 1999 Plan is to attract and retain skilled, qualified executives
and key employees to motivate them to achieve long-range goals and to further
identify their interests with those of the other stockholders of the Company.
NEON has reserved 2,000,000 shares of Common Stock for issuance under the
1999 Plan. The 1999 Plan will be administered by the Compensation Committee of
the Board of Directors. The purchase price of Common Stock issuable upon
exercise of incentive stock options must not be less than the fair market value
of the Common Stock on the date of grant or, in the case of incentive stock
options issued to holders of more than 10% or greater of the outstanding voting
securities of NEON, 110% of the fair market value on the date of grant. The
maximum term of any incentive stock option is ten years. The aggregate fair
market value on the date of the grant of the stock for which incentive options
are exercisable for the first time by an employee during any calendar year may
not exceed $100,000. Options are exercisable over a period of time in accordance
with the terms of option agreements entered into at the time of the grant.
Options granted under the 1999 Plan are generally nontransferable by the
optionee and, unless otherwise determined by the Compensation Committee, must be
exercised by the optionee during the period of the optionee's employment with
the Company. In the event of a change in control of NEON or certain other
significant events, all options outstanding under the 1999 Plan shall terminate
(unless the terms of the transaction provide for their continuation or
substitution), provided that immediately before the effective date of the
transaction each holder of an option under the 1999 Plan shall be entitled to
purchase the total number of shares of Common Stock that such optionee would
have been entitled to purchase during the entire remaining term of the option.
1993 PLAN. The 1993 Plan was adopted by NEON's Board of Directors and
approved by the stockholders in May 1993. The 1993 Plan provides for the awards
of incentive stock option and non-qualified stock options to directors, officers
and employees of NEON. The 1993 Plan is administered by the Compensation
Committee of the Board of Directors. There are an aggregate of 2,600,000 shares
reserved for issuance upon exercise of options granted under the 1993 Plan. With
certain exceptions, employee options vest ratably over a four-year period
commencing with the date of grant and expire ten years after the date of grant,
unless terminated earlier as a result of termination of employment. As of
September 30, 1998, there were outstanding under the 1993 Plan options to
purchase an aggregate of 1,408,478 shares of Common Stock at a weighted average
exercise price of $0.62 per share held by 72 employees. In connection with
NEON's adoption of the 1999 Plan, NEON will not make any new grants under the
1993 Plan and options previously issued under the 1993 Plan will be exercisable
in accordance with their terms.
DIRECTOR PLAN. Under the Director Plan, nonqualified stock options will be
granted to outside directors upon their election to NEON's Board of Directors
after this offering. See "--Directors' Compensation."
401(K) PLAN
NEON has adopted the NEON Systems, Inc. 401(k) Plan. NEON's 401(k) plan is
available to all employees who have attained age 21 and have completed six
months of service. An employee may contribute, on a pre-tax basis, up to 15% of
the employee's wages from NEON, subject to limitations specified under the
Internal Revenue Code. Under the terms of NEON's 401(k) Plan, NEON may make a
discretionary matching contribution equal to a percentage of the employee's
contribution to the 401(k) Plan determined annually by NEON and a discretionary
amount determined annually by NEON and divided among eligible participants based
upon an employee's annual compensation in relation to
43
<PAGE>
the aggregate annual compensation of all eligible participants. Contributions
are allocated to each employee's individual account and are, at the employee's
election, invested in one, all or some combination of the investment funds
available under such 401(k) plan. Employee contributions are fully vested and
non-forfeitable. Employees will vest in any NEON contributions at the rate of
20% for each year of service commencing after the second year of service. To
date, NEON has not made any matching contributions under the 401(k) plan.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware General Corporation Law and NEON's Certificate of Incorporation
limit the liability of each director of NEON to it or its stockholders for
monetary damages for breach of his fiduciary duty as a director, except for: (1)
any breach of the director's duty of loyalty to the corporation or its
stockholders; (2) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of the law; (3) unlawful payments
of dividends or unlawful stock repurchases or redemptions; or (4) any
transaction from which the director derived an improper personal benefit.
NEON's Certificate of Incorporation and Bylaws provide that NEON will
indemnify its directors and officers against expense or liability in an action
to the fullest extent permitted by Delaware law. In addition, NEON is also a
party to indemnification agreements with each of its directors. NEON intends to
maintain directors' and officers' liability insurance.
44
<PAGE>
CERTAIN TRANSACTIONS
PBTC AGREEMENTS
NEON entered into a distributor agreement with PBTC, a database software
company, in January 1996. Under the distributor agreement, NEON marketed and
sublicensed certain Enterprise Subsystem Management products under a
non-exclusive worldwide license from PBTC. The distributor agreement provided
that NEON pay license fees for licensed products and for maintenance and support
and upgrade services equal to 50% of the revenues received by NEON. NEON paid
license fees of $117,350, $448,917 and $410,250 to PBTC in fiscal 1997, 1998 and
the six months ended September 30, 1998, respectively. NEON did not pay any
license fees to PBTC in fiscal 1996. In December 1998, NEON amended its
distributor agreement with PBTC. The amended agreement grants NEON an exclusive,
worldwide license to market and sublicense Enterprise Subsystem Management
products, with the exception of limited co-marketing rights held by IBM relating
to one of the PBTC Enterprise Subsystem Management products. The amended
distributor agreement has an initial term through March 31, 2004. See
"Business--Product Development--PBTC Relationship." The amended agreement grants
to NEON first refusal rights to acquire PBTC by matching any third-party offer
that PBTC or its stockholder chooses to accept, and an option to acquire PBTC
that is exercisable on or after January 1, 2002 or such earlier date that NEON
has paid PBTC license fees totaling $10.0 million or more in any single fiscal
year. In addition, beginning April 1, 1999, the amended agreement provides for
NEON to make quarterly advances in respect of anticipated license fees, with the
advances to be in equal quarterly payments based on annualized license fee
amounts of $1.0 million, $2.0 million, $3.0 million, $4.0 million and $5.0
million for fiscal 2000, 2001, 2002, 2003 and 2004, respectively. Following the
date, if any, in each quarter when the license fees earned equal the aggregate
amount of quarterly advances outstanding on the first day of such quarter, the
license fee that NEON pays under the agreement decreases from 50% to 40% of the
revenues received by NEON, with such decrease continuing in effect until the
start of the next quarter. Upon any termination or expiration of the distributor
agreement, any advances then outstanding are to be refunded to NEON by PBTC.
NEON is a co-defendant with PBTC and other parties in an infringement action
brought by BMC. See "Business--Legal Proceedings."
NEON has a services agreement with PBTC pursuant to which PBTC reimburses
NEON for PBTC's share of the general and administrative expenses supplied to it
by NEON and for the time spent by NEON's management developing and implementing
PBTC's product development and market strategy. The services agreement is
terminable on 30 days' notice by either party. PBTC pays the Company $23,923 per
month under the services agreement. For fiscal 1996, 1997 and 1998, and the six
months ended September 30, 1998, PBTC paid NEON $41,769, $257,076, $287,076 and
$143,538, respectively.
Messrs. Backer, Noell and van den Berg are directors of PBTC. Mr. Moores is
a controlling stockholder and a director of Skunkware, the sole stockholder of
PBTC. Messrs. Backer, Noell and van den Berg are also directors of Skunkware.
Mr. Backer is President and Chief Executive Officer of PBTC and Skunkware; Mr.
Reiland is Chief Financial Officer of PBTC and Skunkware; and Mr. Webb is Vice
President and General Counsel of PBTC.
PRIVATE PLACEMENT OF SERIES A REDEEMABLE, CONVERTIBLE PREFERRED STOCK
In May 1993, JMI Equity Fund purchased 500,000 shares of Series A
Redeemable, Convertible Preferred Stock of NEON (2,500,000 shares of Common
Stock issuable upon conversion thereof) for aggregate consideration of $1.0
million. These shares are convertible into 2,500,000 shares of Common Stock
immediately prior to the completion of this offering. Mr. Moores is a limited
partner of JMI Equity Fund and Messrs. Noell and van den Berg are general
partners of JMI Equity Fund.
45
<PAGE>
In connection with this transaction, JMI Equity Fund, the Company and Mr.
Schaeffer entered into a Stockholders Agreement setting forth the rights of JMI
Equity Fund and Mr. Shaeffer to elect a specified number of directors of NEON.
Pursuant to the Stockholders Agreement, Messrs. Holcomb, Moores, Noell and
Schaeffer were elected and currently serve as directors of NEON. The
Stockholders Agreement will terminate upon the closing of the offering.
The shares of Common Stock issued upon conversion of the Series A
Redeemable, Convertible Preferred Stock are entitled to registration rights. See
"Description of Capital Stock--Registration Rights."
ISSUANCE OF CONVERTIBLE DEBT TO JMI EQUITY FUND
In fiscal 1995 and fiscal 1996, JMI Equity Fund made loans to NEON in
aggregate amounts of $300,000 and $830,000, respectively. These loans bear
interest at the rate of 8% per annum and were evidenced by secured convertible
promissory notes that provide for the conversion of outstanding amounts under
the notes into shares of NEON's Series A Redeemable, Convertible Preferred
Stock. On March 31, 1997, these notes were amended and the notes, together with
accrued interest of approximately $169,000, were consolidated. At such time, JMI
Equity Fund exercised its right to convert $250,000 of the indebtedness into
125,000 shares of the Series A Redeemable, Convertible Preferred Stock and
relinquished its rights to convert the balance of the outstanding indebtedness.
Upon completion of the offering, these shares will be converted into 625,000
shares of Common Stock. The new note in the amount of approximately $1.0 million
is due March 31, 1999 and bears interest at 8% per annum. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
NEON'S POLICY
NEON believes that all of the transactions set forth above were made on
terms no less favorable to NEON than could have been obtained from unaffiliated
third parties. All future transactions, including loans between NEON and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
outside directors on the Board of Directors, and will continue to be on terms no
less favorable to NEON than could be obtained from unaffiliated third parties.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
This table sets forth, as of November 30, 1998, certain information
regarding the beneficial ownership of NEON's outstanding Common Stock, both
before this offering and immediately following this offering by: (1) each person
known by NEON to own beneficially more than 5% of the outstanding Common Stock;
(2) each director and each of the Named Executive Officers of NEON's directors;
(3) each Selling Stockholder; and (4) all directors and executive officers of
NEON as a group. Unless otherwise noted, each of the persons listed below has
sole voting and investment power with respect to his shares and the address for
each of the persons listed below is: c/o NEON Systems, Inc., 14100 Southwest
Freeway, Suite 500, Sugar Land, Texas 77478.
<TABLE>
<CAPTION>
SHARES OWNED PRIOR SHARES OWNED AFTER THE
TO THE OFFERING (A) OFFERING
---------------------- SHARES ----------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDER:
JMI Equity Fund, L.P. (b)............... 3,125,000 54.2% -- 3,125,000 %
DIRECTORS AND OFFICERS:
John J. Moores (c)...................... -- -- -- --
Charles E. Noell III (d)................ 3,125,000 54.2 -- 3,125,000
Norris van den Berg (e)................. 3,125,000 54.2 -- 3,125,000
Richard Holcomb (f)..................... 13,800 * -- 13,800
Joe Backer (g).......................... 204,252 3.4 -- 204,252
Peter Schaeffer (h)..................... 2,365,835 38.4 -- 2,365,835
John S. Reiland......................... 26,376 * -- 26,376
Don Pate (i)............................ 26,376 * -- 26,376
Jonathan J. Reed (j).................... 5,345 * -- 5,345
SELLING STOCKHOLDERS:
Dean Bobrowski.......................... 183,480 3.2
Sherrie Schaeffer.......................
All executive officers and directors as a
group (10 persons) (k)................... 5,814,764 91.0 -- 5,814,764
</TABLE>
- --------------------------
* Less than 1%.
(a) Percentage of outstanding shares is based on 5,767,910 shares of Common
Stock outstanding as of November 30, 1998 and shares outstanding
immediately following the completion of this offering and assumes no
exercise of the Underwriters' over-allotment option. Includes 3,125,000
shares of Common Stock issuable upon conversion of the 625,000 outstanding
shares of Series A Redeemable, Convertible Preferred Stock, which conversion
will occur prior to the completion of the offering. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities, subject to community property laws, where applicable. Shares of
Common Stock subject to options that are presently exercisable or
exercisable within 60 days of November 30, 1998 are deemed to be outstanding
and beneficially owned by the person holding such options for the purpose of
computing the percentage of ownership of such person but are not treated as
outstanding for the purpose of computing the percentage of any other person.
(b) Includes 3,125,000 shares of Common Stock issuable upon conversion of
625,000 shares of Series A Redeemable, Convertible Preferred Stock held by
JMI Equity Fund, L.P., which conversion will occur prior to the completion
of the offering. The address of JMI Equity Fund, L.P. is 12680 High Bluff
Drive, San Diego, California 92130.
(c) Excludes 3,125,000 shares issuable upon conversion of 625,000 shares of
Series A Redeemable, Convertible Preferred Stock held by JMI Equity Fund,
L.P., of which Mr. Moores is a limited partner. Mr. Moores does
47
<PAGE>
not exercise voting or dispositive control over the shares held by JMI
Equity Fund, L.P. and disclaims beneficial ownership of all such shares
except to the extent of his pecuniary interest therein.
(d) Includes 3,125,000 shares of Common Stock issuable upon conversion of
625,000 shares of Series A Redeemable, Convertible Preferred Stock held by
JMI Equity Fund, L.P. Mr. Noell is a general partner of JMI Equity Fund,
L.P. Mr. Noell disclaims beneficial ownership of all shares held by JMI
Equity Fund, L.P. except to the extent of his pecuniary interest therein.
(e) Includes 3,125,000 shares of Common Stock issuable upon conversion of
625,000 shares of Series A Redeemable, Convertible Preferred Stock held by
JMI Equity Fund, L.P. Mr. van den Berg is a general partner of JMI Equity
Fund, L.P. Mr. van den Berg disclaims beneficial ownership of all shares
held by JMI Equity Fund, L.P. except to the extent of his pecuniary interest
therein.
(f) Includes 13,800 shares of Common Stock issuable upon exercise of outstanding
stock options that are presently exercisable or will become exercisable
within 60 days of November 30, 1998.
(g) Includes 20,000 shares held by John Backer and Kristin Backer, the children
of Mr. Backer, as to which Mr. Backer disclaims beneficial ownership.
Includes 184,252 shares of Common Stock issuable upon exercise of
outstanding stock options that are presently exercisable or will become
exercisable within 60 days of November 30, 1998.
(h) Includes 395,835 shares of Common Stock issuable upon exercise of
outstanding stock options that are presently exercisable or will become
exercisable within 60 days of November 30, 1998.
(i) Includes 26,376 shares of Common Stock issuable upon exercise of outstanding
stock options that are presently exercisable or will become exercisable
within 60 days of November 30, 1998.
(j) Includes 1,781 shares of Common Stock issuable upon exercise of outstanding
stock options that are presently exercisable or will become exercisable
within 60 days of November 30, 1998.
(k) Includes 622,044 shares of Common Stock issuable upon exercise of
outstanding stock options that are presently exercisable or will become
exercisable within 60 days of November 30, 1998.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering NEON's authorized capital stock will
consist of 30,000,000 shares of Common Stock, $0.01 par value per share ("Common
Stock"), and 10,000,000 shares of Preferred Stock, $0.01 par value per share
(the "Preferred Stock"), issuable in series. There will be 5,767,910 shares of
Common Stock outstanding immediately prior to consummation of the offering, held
of record by 66 stockholders, and there will be no shares of Preferred Stock
outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. The holders of Common Stock are not entitled
to cumulate voting rights with respect to the election of directors, and as a
result, minority stockholders will not be able to elect directors on the basis
of their votes alone. Subject to preferences that may be applicable to any then
outstanding shares of Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of NEON, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any then outstanding Preferred Stock. Holders
of Common Stock have no preemptive, conversion or other rights to subscribe for
additional securities of NEON. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
the offering will be, validly issued, fully paid and nonassessable.
PREFERRED STOCK
NEON's Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of Common Stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of
NEON. Accordingly, the issuance of shares of Preferred Stock may discourage bids
for the Common Stock or may otherwise adversely affect the market price of the
Common Stock. NEON has no present plan to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
NEON is a party to a Registration Rights Agreement (the "Registration Rights
Agreement") between NEON, Mr. Schaeffer and JMI Equity Fund. Under the terms of
the Registration Rights Agreement, JMI Equity Fund and Mr. Schaeffer are
entitled to certain registration rights with respect to the 4,725,000 shares of
Common Stock owned by them, which includes the 3,125,000 shares of Common Stock
to be issued to JMI Equity Fund upon conversion of the 625,000 shares of
Preferred Stock prior to completion of the offering. Each time NEON proposes to
register any of its securities under the Securities Act, whether for its own
account or for other stockholders, JMI Equity Fund and Mr. Schaeffer are
entitled to have certain shares of Common Stock registered by NEON as well,
unless the Company is registering its securities on Form S-4 or Form S-8.
Additionally, JMI Equity Fund may require NEON to prepare and file two
registration statements under the Securities Act at NEON's expense to register
the shares of Common Stock held by JMI Equity Fund. JMI Equity Fund may also
require NEON to file additional registration statements on Form S-3 at its
request. All of these registration rights are subject to conditions and
limitations, including the right of the underwriters of an
49
<PAGE>
offering to limit the number of shares included in the registration and the
right of NEON not to effect a requested registration within 90 days after the
effective date of a NEON registration statement for a firm commitment
underwritten public offering in which JMI Equity Fund and Mr. Schaeffer shall
have been entitled to register their shares. NEON must pay expenses related to
the registering and distributing of shares of Common Stock of JMI Equity Fund
and Mr. Schaeffer under the Registration Rights Agreement.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
DELAWARE ANTI-TAKEOVER STATUTE. NEON is subject to the provisions of
Section 203 of the Delaware General Corporation Law, an anti-takeover law.
Subject to certain exceptions, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless: (1) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interest stockholder; (2) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned (x) by persons who are directors and
also officers and (y) by employee stock plans in which employee participants do
not have the right to determine confidentiality whether shares held subject to
the plan will be tendered in a tender or exchange offer; or (3) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
CERTIFICATE OF INCORPORATION. On January , 1999, NEON's stockholders
approved certain amendments to the Certificate of Incorporation, effective
immediately prior to the consummation of the offering, to provide: (1) for the
authorization of the Board of Directors to issue, without further action by the
stockholders, up to 10,000,000 shares of Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof; (2)
that any action required or permitted to be taken by stockholders of NEON must
be effected at a duly called annual or special meeting of the stockholders and
may not be effected by a consent in writing; (3) that special meetings of
stockholders of NEON may be called only by the Chairman of the Board, the Chief
Executive Officer or a majority of the members of the Board of Directors; (4)
for a classified Board of Directors; (5) that vacancies on the Board of
Directors, including newly created directorships, can be filled only by a
majority of the directors then in office; and (6) that directors of the Company
may be removed only for cause and only by the affirmative vote of holders of at
least 66 2/3% of the outstanding shares of voting stock, voting together as a
single class.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of NEON.
These provisions are designed to reduce the vulnerability of NEON to an
unsolicited proposal for a takeover of NEON that does not contemplate the
acquisition of all of its outstanding shares, or an unsolicited proposal for the
restructuring or sale of all or part of NEON. Such provisions, however, could
discourage potential acquisition proposals and could delay or prevent a change
in control of NEON. Such provisions may also have the effect of preventing
changes in the management of NEON. See "Risk Factors--Anti-Takeover Effects of
Charter and Statutory Provisions."
50
<PAGE>
TRANSFER AGENT AND REGISTRAR
NEON will apply for quotation of the Common Stock on the Nasdaq National
Market under the symbol "NESY." The Transfer Agent and Registrar for the Common
Stock is ChaseMellon Shareholder Services, L.L.C., and its address is 2323 Bryan
Street, Suite 2300, Dallas, Texas 75201.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for the Common Stock.
Upon completion of the offering, there will be an aggregate of shares of
Common Stock outstanding. Of these shares, all of the shares sold in the
offering will be freely transferable without restriction or limitation under the
Securities Act of 1933, as amended (the "Securities Act"), unless purchased by
"affiliates" of the Company, as defined under the Securities Act. The remaining
5,767,910 shares are "restricted shares" within the meaning of Rule 144 under
the Securities Act, and are subject to restrictions under the Securities Act and
the lock-up agreements described below.
NEON's stockholders and option holders have agreed not to sell, offer for
sale, or otherwise dispose of any Common Stock for a period of 180 days from the
date of this Prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. In addition, during the 180-day period, NEON
has agreed not to file any registration statement with respect to Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. Beginning 180 days after the date of this Prospectus,
5,746,166 of the restricted shares will become available for sale in the public
market, subject to the volume and other limitations of Rule 144. JMI Equity Fund
and Mr. Schaeffer have certain rights to have 4,725,000 shares registered in the
future under the Securities Act pursuant to the terms of an agreement with NEON.
See "Description of Capital Stock--Registration Rights."
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least one year, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company is
entitled to sell within any three-month period the number of shares of Common
Stock that does not exceed the greater of (1) one percent of the number of then
outstanding shares or (2) the average weekly reported trading volume during the
four calendar weeks preceding the sale. Sales under Rule 144 are also subject to
certain notice and manner of sale requirements and to the availability of
current public information about NEON and must be made in unsolicited brokers'
transactions or to a market maker. A person (or persons whose shares are
aggregated) who is not an "affiliate" of NEON under the Securities Act during
the three months preceding a sale and who has beneficially owned such shares for
at least two years is entitled to sell such shares under Rule 144 without regard
to the volume, notice, information and manner of sale provisions of such rule.
Affiliates of the Company must comply with the restrictions and requirements of
Rule 144 when transferring restricted shares even after the two year holding
period has expired and must comply with the restrictions and requirements of
Rule 144 (other than the one-year holding period) in order to sell unrestricted
shares. Rule 144 does not require the same person to have held the securities
for the applicable periods.
Any employee, officer or director of, or consultant to, NEON who purchased
or was awarded shares or options to purchase shares pursuant to a written
compensatory plan or contract is entitled to rely on the resale provisions of
Rule 701 under the Securities Act, which permits affiliates and non-affiliates
to sell such shares without having to comply with the holding period
restrictions of Rule 144, in each case commencing 90 days after the date of this
prospectus. In addition, non-affiliates may sell such shares without complying
with the public information, volume and notice provisions of Rule 144. Rule 701
is available for option holders of NEON as to all shares issued pursuant
to the exercise of options granted prior to this offering.
51
<PAGE>
After the offering, NEON intends to file a registration statement on Form
S-8 to register all of the shares of Common Stock reserved for issuance pursuant
to the 1993 Plan, the 1999 Plan and the Director Plan. Accordingly, shares
issued upon exercise of such options will be freely tradeable by holders who are
not affiliates of NEON and, subject to the volume and other limitations of Rule
144, by holders who are affiliates of NEON.
Prior to the offering, there has been no market for the Common Stock. No
predictions can be made of the effect, if any, that market sales of shares of
Common Stock or the availability of such shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of significant amounts
of Common Stock could adversely affect the prevailing market price of the Common
Stock, as well as impair the ability of NEON to raise capital through the
issuance of additional equity securities. See "Risk Factors--Shares Eligible for
Future Sale."
52
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement
dated , 1999 (the "Underwriting Agreement"), the Underwriters named
below (the "Underwriters"), who are represented by Donaldson, Lufkin & Jenrette
Securities Corporation, Hambrecht & Quist LLC and CIBC Oppenheimer Corp. (the
"Representatives"), have severally agreed to purchase from NEON and the Selling
Stockholders the respective number of shares of Common Stock set forth opposite
their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......................
Hambrecht & Quist LLC....................................................
CIBC Oppenheimer Corp....................................................
----------
Total....................................................................
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
NEON has granted to the Underwriters an option, exercisable within 30 days
after the date of this Prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of additional shares of Common Stock at the
initial public offering price less underwriting discounts and commission. The
Underwriters may exercise such option solely to cover overallotments, if any,
made in connection with the offering. To the extent that the Underwriters
exercise such option, each Underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of such additional shares based on
such Underwriter's percentage underwriting commitment as indicated in the
preceding table.
NEON and the Selling Stockholders have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that the Underwriters may be required to make in
respect thereof.
Each of NEON, its executive officers, directors, stockholders and option
holders have agreed, subject to certain exceptions, not to (1) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities
53
<PAGE>
convertible into or exercisable or exchangeable for Common Stock or (2) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (1) or (2) is
to be settled by the delivery of Common Stock, or such other securities, in cash
or otherwise) for a period of 180 days after the date of this prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, during such 180-day period, NEON has also agreed not
to file any registration statement with respect to, and each of its executive
officers, directors and certain stockholders of NEON has agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
Prior to the offering, there has been no established trading market for the
Common Stock. The initial public offering price of the shares of Common Stock
offered hereby will be determined by negotiation among NEON and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which NEON competes, the past and present operations of NEON, the historical
results of operations of NEON, the prospects for future earnings of NEON, the
recent market prices of securities of generally comparable companies and the
general condition of the securities markets at the time of the offering.
Other than in the United States, no action has been taken by NEON, the
Selling Stockholders or the Underwriters that would permit a public offering of
the shares of Common Stock offered hereby in any jurisdiction where action for
that purpose is required. The shares of Common Stock offered hereby may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
prospectus comes are advised to inform themselves about and observe any
restrictions relating to the offering and the distribution of this prospectus.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such an offer or a solicitation is unlawful.
In connection with the offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot the Offering, creating a syndicate
short position. The Underwriters may bid for and stabilize the price of the
Common Stock. In addition, the underwriting syndicate may reclaim selling
concessions from syndicate members and selected dealers if they repurchase
previously distributed Common Stock in syndicate covering transactions, in
stabilizing transactions or otherwise. These activities may stabilize or
maintain the market price of the Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end any
of these activities at any time.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
prospectus will be passed upon for NEON by Locke Purnell Rain Harrell (A
Professional Corporation), Dallas, Texas. Certain legal matters in connection
with the offering will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, Austin, Texas.
EXPERTS
The consolidated financial statements of NEON Systems, Inc. and subsidiaries
as of March 31, 1997 and 1998, and for each of the years in the three-year
period ended March 31, 1998 have been
54
<PAGE>
included herein and in the registration statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein and in the registration statement, and upon the authority of
such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
NEON has filed with the Securities and Exchange Commission, Washington, D.C.
20549 (the "Commission"), a registration statement on Form S-1 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with
respect to NEON and the shares offered by this prospectus, you should refer to
the registration statement, including the exhibits and schedules filed thereto.
Statements contained in this prospectus as to the contents of any agreement,
contract or other document referred to are not necessarily complete, and you
should refer to the copy of such contract or other document filed as an exhibit
to the registration statement or such other document. You may inspect a copy of
the registration statement without charge at the Commission's principal office
in Washington, D.C. and obtain copies of all or any part thereof upon payment of
certain fees from the Public Reference Section of the Commission at the
Commission's principal office, 450 Fifth Street, N.W., Washington, D.C. 20549,
or at the Commission's Regional Offices in New York, located at 7 World Trade
Center, Suite 1300, New York, New York 10048, or in Chicago, located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains an
Internet site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The Commission's World Wide Web address is www.sec.gov.
NEON intends to furnish holders of the Common Stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. NEON intends to furnish such other reports as it may determine or as may
be required by law.
55
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit).................................................. F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
NEON Systems, Inc.:
We have audited the accompanying consolidated balance sheets of NEON
Systems, Inc. and subsidiaries (collectively, the "Company") as of March 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the years in the three-year
period ended March 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NEON Systems, Inc. and subsidiaries as of March 31, 1997 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1998, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Houston, Texas
June 12, 1998, except for Note 10, which is
as of December 11, 1998
F-2
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF
----------------------- SEPTEMBER 30,
1997 1998 1998
----------- ---------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 1,705,188 $2,804,073 $3,044,312
Accounts receivable--trade.................................................... 901,764 2,283,194 3,527,334
Accounts receivable--related party............................................ 138,074 181,112 --
Deferred tax assets........................................................... -- 380,532 380,532
Other current assets.......................................................... 27,902 246,193 141,272
----------- ---------- -------------
Total current assets........................................................ 2,772,928 5,895,104 7,093,450
----------- ---------- -------------
Property and equipment:
Furniture and equipment....................................................... 398,936 662,155 720,723
Purchased software............................................................ 65,810 78,774 78,774
Less accumulated depreciation and amortization.............................. (144,787) (289,131) (370,159)
----------- ---------- -------------
Property and equipment, net................................................. 319,959 451,798 429,338
Other assets, net............................................................... -- 5,268 5,385
----------- ---------- -------------
Total assets................................................................ $ 3,092,887 $6,352,170 $7,528,173
----------- ---------- -------------
----------- ---------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accrued expenses............................................................... $ 365,006 $ 564,217 $ 320,921
Accounts payable.............................................................. 155,133 359,819 452,495
Accounts payable--related party............................................... -- -- 106,535
Taxes payable................................................................. 83,142 365,056 50,056
Customer deposits............................................................. 146,400 -- --
Deferred maintenance revenue.................................................. 1,147,259 2,584,340 3,305,764
Secured convertible notes payable (Note 3).................................... -- 1,049,101 1,049,101
----------- ---------- -------------
Total current liabilities................................................... 1,896,940 4,922,533 5,284,872
----------- ---------- -------------
Secured notes payable (Note 3).................................................. 1,049,101 -- --
Series A redeemable, convertible preferred stock, $.01 par value. Authorized
650,000 shares; 625,000 shares issued and outstanding at March 31, 1997 and
1998 and September 30, 1998 (Note 4).......................................... 1,563,333 1,663,333 1,713,333
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value. Authorized 10,000,000 shares; 2,260,380,
2,535,801 and 2,637,915 shares issued and outstanding at March 31, 1997 and
1998 and September 30, 1998, respectively.................................... 22,604 25,358 26,379
Additional paid-in capital.................................................... 577,712 698,751 798,554
Accumulated translation adjustment............................................ 1,133 (962) 4,357
Accumulated deficit........................................................... (2,017,936) (956,843) (299,322)
----------- ---------- -------------
Total stockholders' equity (deficit)........................................ (1,416,487) (233,696) 529,968
Commitments and contingencies (Note 8)........................................
----------- ---------- -------------
Total liabilities and stockholders' equity (deficit)........................ $ 3,092,887 $6,352,170 $7,528,173
----------- ---------- -------------
----------- ---------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
------------------------------- ------------------------
1996 1997 1998 1997 1998
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
License...................... $2,108,454 $6,101,089 $9,697,287 $3,728,193 $5,961,762
Maintenance.................. 219,458 923,563 2,317,520 1,073,624 1,913,128
--------- --------- --------- ----------- -----------
Total revenues............. 2,327,912 7,024,652 12,014,807 4,801,817 7,874,890
Cost of revenues:
Cost of licenses............. 17,614 211,688 551,736 134,991 527,134
Cost of maintenance.......... 158,509 392,384 742,953 338,185 407,715
--------- --------- --------- ----------- -----------
Total cost of revenues..... 176,123 604,072 1,294,689 473,176 934,849
--------- --------- --------- ----------- -----------
Gross profit................... 2,151,789 6,420,580 10,720,118 4,328,641 6,940,041
Operating expenses:
Sales and marketing.......... 1,306,937 3,469,286 5,712,689 2,404,246 3,246,378
Research and development..... 1,067,069 1,364,313 2,069,915 962,242 1,549,733
General and administrative... 310,018 696,349 1,494,278 582,969 1,036,490
--------- --------- --------- ----------- -----------
Total operating expenses... 2,684,024 5,529,948 9,276,882 3,949,457 5,832,601
--------- --------- --------- ----------- -----------
Operating income (loss)........ (532,235) 890,632 1,443,236 379,184 1,107,440
Interest income................ -- 23,660 64,029 31,658 32,621
Interest expense............... (66,175) (91,209) (85,521) (42,167) (42,704)
Other, net..................... -- 202 49,151 5,203 25,164
--------- --------- --------- ----------- -----------
Income (loss) before provision
for income taxes............. (598,410) 823,285 1,470,895 373,878 1,122,521
Provision for income taxes..... -- 6,865 309,802 78,514 415,000
--------- --------- --------- ----------- -----------
Net income (loss).............. (598,410) 816,420 1,161,093 295,364 707,521
Dividends on series A
redeemable, convertible
preferred stock.............. (80,000) (80,000) (100,000) (50,000) (50,000)
--------- --------- --------- ----------- -----------
Net income (loss) applicable to
common stockholders.......... $(678,410) $ 736,420 $1,061,093 $ 245,364 $ 657,521
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Earnings (loss) per common
share:
Basic........................ $ (1.63) $ 0.42 $ 0.44 $ 0.10 $ 0.25
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Diluted...................... $ (1.63) $ 0.14 $ 0.17 $ 0.04 $ 0.10
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Shares used in computing
earnings (loss) per common
share:
Basic........................ 417,393 1,739,683 2,411,524 2,338,396 2,612,595
Diluted...................... 417,393 5,708,511 6,665,141 6,617,047 7,086,137
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL ACCUMULATED STOCKHOLDERS'
COMMON PAID-IN TRANSLATION ACCUMULATED EQUITY
STOCK CAPITAL ADJUSTMENT DEFICIT (DEFICIT)
---------- ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at March 31,
1995.................. $ 20,870 $ 418,216 $ -- $(2,075,946) $ (1,636,860)
Net loss................ -- -- -- (598,410) (598,410)
Stock option grants..... -- 87,000 -- -- 87,000
Preferred stock
dividends............. -- -- -- (80,000) (80,000)
---------- ---------- ------------ ------------ --------------
Balance at March 31,
1996.................. 20,870 505,216 -- (2,754,356) (2,228,270)
Exercise of stock
options............... 1,734 654 -- -- 2,388
Net income.............. -- -- -- 816,420 816,420
Stock option grants..... -- 71,842 -- -- 71,842
Foreign currency
translation gain...... -- -- 1,133 -- 1,133
Preferred stock
dividends............. -- -- -- (80,000) (80,000)
---------- ---------- ------------ ------------ --------------
Balance at March 31,
1997.................. 22,604 577,712 1,133 (2,017,936) (1,416,487)
Exercise of stock
options............... 2,754 25,028 -- -- 27,782
Net income.............. -- -- -- 1,161,093 1,161,093
Tax benefit related to
exercise of stock
options............... -- 82,349 -- -- 82,349
Stock option grants..... -- 13,662 -- -- 13,662
Foreign currency
translation loss...... -- -- (2,095) -- (2,095)
Preferred stock
dividends............. -- -- -- (100,000) (100,000)
---------- ---------- ------------ ------------ --------------
Balance at March 31,
1998.................. 25,358 698,751 (962) (956,843) (233,696)
Exercise of stock
options (unaudited)... 1,021 99,803 -- -- 100,824
Net income
(unaudited)........... -- -- -- 707,521 707,521
Foreign currency
translation gain
(unaudited)........... -- -- 5,319 -- 5,319
Preferred stock
dividends
(unaudited)........... -- -- -- (50,000) (50,000)
---------- ---------- ------------ ------------ --------------
Balance at September 30,
1998 (unaudited)...... $ 26,379 $ 798,554 $ 4,357 $ (299,322) $ 529,968
---------- ---------- ------------ ------------ --------------
---------- ---------- ------------ ------------ --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
------------------------------- ------------------------
1996 1997 1998 1997 1998
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................ $(598,410) $ 816,420 $1,161,093 $ 295,364 $ 707,521
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization................. 31,283 73,291 144,344 77,610 81,028
Deferred tax benefit........... -- -- (380,532) -- --
Tax benefit related to stock
options...................... -- -- 82,349 -- --
Noncash compensation expense... 87,000 71,842 13,662 -- --
Changes in assets and
liabilities:
Accounts receivable.......... (433,920) (567,418) (1,424,468) (556,841) (1,063,028)
Other current assets......... (38,827) 10,925 (218,291) (94,626) 104,921
Other assets................. 1,531 380 (5,268) (8,160) (117)
Accrued expenses............. 139,837 142,492 199,211 (180,658) (222,314)
Accounts payable............. (4,854) 84,776 204,686 86,460 199,211
Customer deposits............ -- 146,400 (146,400) -- --
Taxes payable................ 15,427 32,785 281,914 78,514 (315,000)
Deferred maintenance
revenue.................... 234,736 895,512 1,437,081 464,678 721,424
Accrued interest payable..... -- 169,102 -- 20,982 (20,982)
--------- --------- --------- ----------- -----------
Net cash provided by (used in)
operating activities............. (566,197) 1,876,507 1,349,381 183,323 192,664
--------- --------- --------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of furniture and
equipment...................... (74,025) (260,897) (263,219) (66,614) (58,568)
Purchases of computer software... -- (45,159) (12,964) -- --
--------- --------- --------- ----------- -----------
Net cash used in investing
activities....................... (74,025) (306,056) (276,183) (66,614) (58,568)
--------- --------- --------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from notes payable...... 480,000 -- -- -- --
Issuance of common stock......... -- 2,388 27,782 13,208 100,824
--------- --------- --------- ----------- -----------
Net cash provided by financing
activities....................... 480,000 2,388 27,782 13,208 100,824
--------- --------- --------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents................. (160,222) 1,572,839 1,100,980 129,917 234,920
Effect of exchange rate changes on
cash............................. -- 1,133 (2,095) (298) 5,319
Cash and cash equivalents at
beginning of period.............. 291,438 131,216 1,705,188 1,705,188 2,804,073
--------- --------- --------- ----------- -----------
Cash and cash equivalents at end of
period........................... $ 131,216 $1,705,188 $2,804,073 $1,834,807 $3,044,312
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Conversion of note payable and
accrued interest into preferred
stock............................ $ -- $ 250,000 $ -- $ -- $ --
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Cash paid during the period for
income taxes..................... $ -- $ -- $ 242,930 $ -- $ 730,000
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Cash paid during the period for
interest......................... $ -- $ -- $ 83,928 $ 41,964 $ 41,964
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
NEON Systems, Inc. and subsidiaries (collectively, the "Company") is
comprised of the parent company, Neon Systems, Inc., and its wholly-owned
international subsidiaries, Neon Systems (UK) Ltd. and Neon Systems (GmbH). The
Company develops, markets and supports Enterprise Access and Integration
software. The Company's primary product family, Shadow, helps organizations
access and integrate data, transactions and applications from the Internet and
mainframe and client/server systems.
BASIS OF CONSOLIDATION OF FINANCIAL STATEMENTS
All significant intercompany balances and transactions have been eliminated
in consolidation.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The unaudited consolidated financial statements as of September 30, 1998 and
for the six-month periods ended September 30, 1997 and 1998 have been prepared
on the same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations of such interim periods in accordance with generally
accepted accounting principles. Results for the six months ended September 30,
1998 are not necessarily indicative of results to be expected for the full
fiscal year.
ESTIMATES
The preparation of 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 periods. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues from software license sales are recognized when all of the
following conditions are met: a non-cancelable license agreement has been
signed; the product has been delivered; there are no material uncertainties
regarding customer acceptance; collection of the receivable is probable; and no
other significant vendor obligations exists. License revenues generally include
software maintenance agreements for the first year following the date of sale.
In such cases, revenues are allocated between license fees and maintenance
revenues based on Company specific evidence. Revenues from first-year
maintenance agreements and separately priced software maintenance agreements for
subsequent years are deferred and recognized ratably on a straight-line basis
over the maintenance period.
The Company also markets and sells its products through independent foreign
distributors. License and maintenance revenues from these transactions are
recognized when all of the above conditions are met.
F-7
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The American Institute of Certified Public Accountants (AICPA) issued
Statement of Position (SOP) 97-2, SOFTWARE REVENUE RECOGNITION in October 1997,
which replaces the previous revenue recognition rules provided by SOP 91-1. SOP
97-2 is effective for transactions entered into in fiscal years beginning after
December 15, 1997, which, in the case of the Company, is April 1, 1998. The
Company believes it is in substantial compliance with this SOP and, accordingly,
its adoption is not expected to have a material impact on the Company's future
financial statements.
INTERNATIONAL OPERATIONS
The Company primarily sells software product licenses in North America.
During 1998, approximately 41% of sales were to international customers located
in Europe, Asia, South America and Australia.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
accelerated methods for computer hardware and straight-line methods for other
property based on the estimated useful lives, generally three to seven years, of
the various classes of property.
CASH AND CASH EQUIVALENTS
Cash and interest-bearing deposits with original maturities of less than
three months are included in cash and cash equivalents. Cash equivalents consist
of highly liquid investments with original maturities of three months or less.
INCOME TAXES
The Company accounts for income taxes using an asset and liability approach,
which requires the recognition of deferred income tax assets and liabilities for
the expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred income tax assets and
liabilities are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates.
PER SHARE INFORMATION
Per share information is based on the weighted average number of common
shares outstanding during each period for the basic computation and, if
dilutive, the weighted-average number of potential common shares resulting from
the assumed conversion of outstanding stock options, warrants and convertible
preferred stock for the diluted computation.
F-8
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of the numerators and denominators of the basic and diluted
per share computation is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1996 1997 1998 1997 1998
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)................................. $ (598,410) $ 816,420 $ 1,161,093 $ 295,364 $ 707,521
Dividends on series A redeemable, convertible
preferred stock................................. (80,000) (80,000) (100,000) (50,000) (50,000)
---------- ----------- ----------- ----------- -----------
Net income (loss) applicable to common
stockholders.................................. $ (678,410) $ 736,420 $ 1,061,093 $ 245,364 $ 657,521
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding during the period:
Basic......................................... 417,393 1,739,683 2,411,524 2,338,396 2,612,595
Dilutive stock options........................ -- 843,828 1,128,617 1,153,651 1,348,542
Series A redeemable, convertible preferred
stock....................................... -- 3,125,000 3,125,000 3,125,000 3,125,000
---------- ----------- ----------- ----------- -----------
Diluted....................................... 417,393 5,708,511 6,665,141 6,617,047 7,086,137
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Income (loss) per common share:
Basic......................................... $ (1.63) $ 0.42 $ 0.44 $ 0.10 $ 0.25
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Diluted....................................... $ (1.63) $ 0.14 $ 0.17 $ 0.04 $ 0.10
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
</TABLE>
The calculation of common shares outstanding for the diluted computation for
the year ended March 31, 1996 excludes shares of Series A Redeemable,
Convertible Preferred Stock which are convertible into 3,125,000 shares of
Common Stock. The inclusion of such potential common shares in the diluted per
share computations would be antidilutive since the Company incurred a net loss
for the year ended March 31, 1996.
PREFERRED STOCK
The carrying value of the Series A Redeemable, Convertible Preferred Stock
is periodically increased by amounts representing dividends not currently
declared or paid, but which are payable under the mandatory redemption features.
RESEARCH AND PRODUCT DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred. Software
development costs that qualify for capitalization under Statement of Financial
Accounting Standards (SFAS) No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED, are evaluated
F-9
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for recoverability by the Company. No such costs have been capitalized to date
as the impact on the financial statements would be immaterial.
STOCK OPTION PLAN
Prior to April 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As
such, compensation expense has been recorded on the date of grant only if the
estimated value of the underlying stock exceeded the exercise price. On April 1,
1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1996 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
FOREIGN CURRENCY TRANSLATION
For the Company's international subsidiaries, the functional currencies are
the British pound and the German mark. Accordingly, assets and liabilities of
the subsidiaries are translated into U.S. dollars at year-end exchange rates.
Income and expense items are translated at average rates prevailing during the
period. The adjustments resulting from translating the financial statements of
the international subsidiaries are reflected as a cumulative translation
adjustment included in stockholders' deficit.
STOCK SPLIT
In August 1996, the Company's Board of Directors declared a five-for-one
stock split of the Company's Common Stock which was effected as a dividend. All
stock-related data in the consolidated financial statements and related notes
reflects this stock split for all periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE ("SFAS 128"). SFAS 128 establishes new
standards for computing and presenting earnings per share ("EPS") amounts for
companies with publicly held common stock or potential common stock. The new
standards require the presentation of both basic and diluted EPS amounts for
companies with complex capital structures. Basic EPS is computed by dividing
earnings (loss) attributable to common stockholders by the weighted average
number of common shares outstanding for the period, and excludes the effect of
potentially dilutive securities (such as options, warrants and convertible
securities) which are convertible into common stock. Dilutive EPS reflects the
potential dilution from such convertible securities. SFAS 128 is effective for
periods ending after December 15, 1997 retroactive to all periods presented.
F-10
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE ("SFAS
129"). SFAS 129 establishes standards for disclosing information about a
company's outstanding debt and equity securities and eliminates exemptions from
such reporting requirements for nonpublic companies. SFAS 129 is effective for
periods ending after December 15, 1997. The Company has adopted the requirements
of SFAS 129 in its financial statements for the year ended March 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income in a company's
financial statements. Comprehensive income includes all changes in a company's
equity accounts (including net income or loss) except investments by, or
distributions to, the company's owners. Items which are components of
comprehensive income (other than net income or loss) include foreign currency
translation adjustments, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. The
components of comprehensive income must be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 is effective for fiscal years beginning after December 15, 1997. The Company
will adopt the requirements of SFAS 130 in its financial statements for the year
ending March 31, 1999.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
("SFAS 131"). SFAS 131 establishes standards for the way that public companies
report, in their annual financial statements, certain information about their
operating segments, their products and services, the geographic areas in which
they operate and their major customers. SFAS 131 also requires that certain
information about operating segments be reported in interim financial
statements. SFAS 131 is effective for periods beginning after December 15, 1997.
The Company will adopt the requirements of SFAS 131 in its financial statements
for the year ending March 31, 1999.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 will require that such deferred costs be charged to results of
operations upon its adoption. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998. The Company will adopt the requirements of SOP 98-5 as
of April 1, 1999.
NOTE 2--LINE OF CREDIT
The Company has an available line of credit in an amount up to $1.5 million
at March 31, 1998, bearing interest at prime plus 1.0%, which is secured by all
the Company's assets, including accounts receivable and intellectual property.
The line of credit matures November 25, 1998. The amount available under the
line of credit is subject to a borrowing formula with a maximum amount equal to
80% of the Company's eligible accounts receivable as defined. The amount
available to the Company pursuant to the borrowing formula at March 31, 1998 was
$528,000. The Company had no amounts outstanding under the credit line at March
31, 1998.
F-11
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 3--SECURED NOTE PAYABLE
During the year ended March 31, 1997 the Company amended and consolidated
three original notes dated September 29, 1994, March 30, 1995 and November 22,
1995 for $300,000, $350,000 and $480,000, respectively. These notes and accrued
interest of $169,101 at March 31, 1997 were converted to a new senior note in
the principal amount of $1,049,101 and $250,000 of principal was converted into
125,000 shares of the Company's Series A Redeemable, Convertible Preferred
Stock.
The new note is secured by accounts receivable and property and equipment
and accrues interest at the rate of 8% per annum. The principal amount of the
note is due December 31, 1998.
NOTE 4--SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Series A Redeemable, Convertible Preferred Stock is convertible into
shares of Common Stock. Each share of Series A Redeemable, Convertible Preferred
Stock is convertible into five shares of Common Stock (subject to adjustment
upon the occurrence of certain events). The Series A Redeemable, Convertible
Preferred Stock also has voting rights based on the Common Stock conversion
ratio.
The Series A Redeemable, Convertible Preferred Stock accrues annual
dividends at $0.16 per share. The Series A Redeemable, Convertible Preferred
Stock has mandatory conversion and mandatory redemption provisions, which
require among other things that the Series A Redeemable, Convertible Preferred
Stock be redeemed in April 2000, at the original issuance price of $2.00 per
share plus cumulative unpaid dividends. Series A Redeemable, Convertible
Preferred Stock dividends accrued, but not yet declared, at March 31, 1997 and
1998 were $313,333 and $413,333, respectively.
NOTE 5--STOCK OPTION PLAN
Under the 1993 Stock Plan for the officers and employees of the Company, the
Board of Directors authorized the grant of non-qualified incentive stock options
to purchase up to 2,600,000 shares of the Company's Common Stock. Such options
become exercisable either on the date of grant or in such installments as the
grant may specify up to 10 years from the date of grant.
At March 31, 1998, stock options to acquire 1,162,745 shares were granted
and outstanding, with exercise prices ranging from $0.01 to $1.00 per share. The
compensation cost that has been charged to expense was approximately $87,000,
$72,000 and $13,700 in 1996, 1997 and 1998, respectively.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, compensation cost has been recognized to the extent that the
estimated value of the underlying stock exceeds the exercise price on the date
of the grant. Had the Company determined compensation cost
F-12
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 5--STOCK OPTION PLAN (CONTINUED)
based on SFAS No. 123, the Company's net income (loss) and diluted per share
amounts would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------
1996 1997 1998
---------- -------- ----------
<S> <C> <C> <C>
Net income (loss) as reported..................... $ (598,410) $816,420 $1,161,093
---------- -------- ----------
---------- -------- ----------
Net income (loss), pro forma...................... $ (553,160) $802,539 $1,097,780
---------- -------- ----------
---------- -------- ----------
Net income (loss) per share as reported........... $ (1.63) $ 0.14 $ 0.17
---------- -------- ----------
---------- -------- ----------
Net income (loss) per share, pro forma............ $ (1.33) $ 0.14 $ 0.16
---------- -------- ----------
---------- -------- ----------
</TABLE>
The per share weighted average fair values of stock options granted during
1997 and 1998 were $0.29 and $0.36, respectively, on the dates of grant using
the minimum value method with the following weighted average assumptions: 1997
- -- no expected dividend yield, risk-free interest rate of 6.5%, and an expected
life of five years; 1998 -- no expected dividend yield, risk-free interest rate
of 5.9%, and an expected life of five years.
Stock option activity during periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balance at March 31, 1995.................... 703,255 $ 0.13
Granted.................................... 332,330 0.17
----------
Balance at March 31, 1996.................... 1,035,585 0.14
Granted.................................... 371,025 0.22
Exercised.................................. (173,415) 0.10
Forfeited.................................. (35,625) 0.20
----------
Balance at March 31, 1997.................... 1,197,570 0.19
Granted.................................... 280,460 0.84
Exercised.................................. (275,421) 0.10
Forfeited.................................. (39,864) 0.20
----------
Balance at March 31, 1998.................... 1,162,745 0.35
----------
----------
</TABLE>
At March 31, 1998, the weighted average remaining contractual life of
outstanding options was 8.7 years. At March 31, 1997 and 1998, the number of
options exercisable was 583,061 and 561,188, respectively, and the weighted
average exercise prices of those options were $0.18 and $0.73, respectively.
F-13
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 6--INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------
1996 1997 1998
-------- ------ ----------
<S> <C> <C> <C>
United States Federal:
Current................................................... $ -- $ -- $ 647,905
Deferred.................................................. -- -- (354,340)
State--current.............................................. -- -- 23,210
Foreign--current............................................ -- 6,865 (6,973)
-------- ------ ----------
$ -- $6,865 $ 309,802
-------- ------ ----------
-------- ------ ----------
</TABLE>
For the years ended March 31, 1997 and 1998, the Company's effective income
tax rate differed from the statutory tax rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate........................... $ (203,459) (34)% $ 279,917 34% $ 500,105 34%
Increase (decrease) in valuation
allowance.................................. 203,459 34 (279,917) (34) (217,427) (14.8)
State tax expense............................ -- -- -- -- 23,210 1.6
Other........................................ -- -- 6,865 1 3,914 0.3
---------- ------- ---------- ------- ---------- -------
Effective tax rate........................... $ -- --% $ 6,865 1% $ 309,802 21.1%
---------- ------- ---------- ------- ---------- -------
---------- ------- ---------- ------- ---------- -------
</TABLE>
As of March 31, 1997 and 1998, deferred tax assets were as follows:
<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------------
1997 1998
---------- ---------
<S> <C> <C>
Deferred maintenance revenues................ $ 424,142 $ 318,291
Net operating loss carryforwards:
United Kingdom............................. 18,465 54,484
Germany.................................... -- 225,180
Other...................................... -- 7,757
---------- ---------
Total deferred tax assets................ 442,607 605,712
Valuation allowance...................... (442,607) (225,180)
---------- ---------
Net deferred tax assets.................. $ -- $ 380,532
---------- ---------
---------- ---------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized and a valuation
F-14
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 6--INCOME TAXES (CONTINUED)
allowance is recorded. The valuation allowance (increased) decreased $(194,271),
$279,917 and $217,427 during the years ended March 31, 1996, 1997 and 1998,
respectively.
At March 31, 1998, the Company has net operating loss carryforwards for
income tax purposes of $175,756 and $662,295 related to the United Kingdom and
Germany, respectively, which are available to offset future taxable income, if
any. The net operating losses are carried forward indefinitely.
NOTE 7--RELATED PARTY TRANSACTIONS
The Company entered into a distributor agreement with PBTC, a database
software company, in January 1996. Under the distributor agreement, the Company
markets and sublicenses certain Enterprise Subsystem Management products under a
non-exclusive worldwide license from PBTC. The distributor agreement provides
that the Company pay license fees for license products and for maintenance and
support and upgrade services equal to 50% of the revenues received by the
Company. The Company paid license fees of $0, $117,350 and $448,917 for the
years ended March 31, 1996, 1997 and 1998, respectively, and $78,233 and
$410,250 for the six-month periods ended September 30, 1997 and 1998,
respectively to PBTC. The Company also has a services agreement with PBTC
pursuant to which PBTC reimburses the Company for PBTC's share of the general
and administrative expenses supplied to it by the Company and for the time spent
by the Company's management developing and implementing PBTC's product
development and market strategy. Such amounts are presented as a reduction of
general and administrative expenses in the accompanying consolidated financial
statements. PBTC pays the Company $23,923 per month under the services
agreement. Such amounts totaled $41,769, $257,076 and $287,076 for the years
ended March 31, 1996, 1997 and 1998, respectively and $143,538 for each of the
six-month periods ended September 30, 1997 and 1998, and are included in the
accompanying statements of operations.
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Company leases office space and computer software under operating lease
agreements expiring through 2000. Future minimum rental payments under operating
leases having initial or remaining noncancelable lease terms in excess of one
year are as follows:
<TABLE>
<CAPTION>
YEARS ENDING MARCH 31,
<S> <C>
1999......................................... $ 514,120
2000......................................... 515,669
2001......................................... 512,660
2002......................................... 512,660
2003......................................... 512,660
Thereafter................................... 170,887
----------
$2,738,656
----------
----------
</TABLE>
Total rent expense under all operating leases was $58,331, $168,964 and
$433,035 in the years ended March 31, 1996, 1997 and 1998, respectively.
F-15
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
In December 1996, the Company was named as a codefendant in a lawsuit
originally filed in August 1995 against PBTC and a group of employees of PBTC
who were also former employees of BMC. The Company is a distributor for PBTC.
BMC alleges that PBTC and the named individuals misappropriated and misused
certain trade secrets of BMC. The Company and other defendants deny the
allegations, are vigorously defending against them and are asserting
counterclaims against BMC. PBTC has assumed the cost of defense and has agreed
to indemnify the Company against any losses which may result from the lawsuit.
Products sold by the Company and developed by PBTC which are the subject of the
lawsuit were first made available in the fiscal year ended March 31, 1998.
Revenues recorded by the Company in the year ended March 31, 1998 relating to
products which are the subject of this lawsuit were approximately 5% of annual
revenues. Management believes the ultimate resolution will not have a material
effect on the Company's consolidated financial position, results of operations
or cash flows.
The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
NOTE 9--FOREIGN OPERATIONS
The table below summarizes selected financial information with respect to
the Company's operations by geographic location. The Company's United Kingdom
operations accounted for over 96% of total European revenues in fiscal 1996,
1997 and 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
--------------------------------------- -----------------------------
1996 1997 1998 1997 1998
----------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
North America.................... $ 2,327,912 $ 6,660,990 $ 9,735,198 $ 3,520,827 $ 6,194,913
Europe........................... -- 363,662 2,279,609 1,280,990 1,679,978
----------- ----------- ----------- ------------- -------------
$ 2,327,912 $ 7,024,652 $12,014,807 $ 4,801,817 $ 7,874,891
----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ------------- -------------
Operating income (loss):
North America.................... $ (598,410) $ 778,810 $ 939,234 $ 577,600 $ 829,457
Europe........................... -- 20,613 419,872 (240,583) 277,984
----------- ----------- ----------- ------------- -------------
$ (598,410) $ 799,423 $ 1,359,106 $ 337,017 $ 1,107,441
----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ------------- -------------
Identifiable assets:
North America.................... $ 730,037 $ 2,456,061 $ 3,964,737 $ 2,951,435 $ 5,527,888
Europe........................... -- 636,826 2,387,433 1,365,571 2,000,285
----------- ----------- ----------- ------------- -------------
$ 730,037 $ 3,092,887 $ 6,352,170 $ 4,317,006 $ 7,528,173
----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ------------- -------------
</TABLE>
F-16
<PAGE>
NEON SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1998 AND
FOR THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED.)
NOTE 10--SUBSEQUENT EVENTS (UNAUDITED)
In December 1998, the Company amended its distributor agreement with PBTC
whereby PBTC has granted the Company an exclusive, worldwide license to market
and sublicense Enterprise Subsystem Management products, with the exception of
limited co-marketing rights held by IBM relating to one of the PBTC Enterprise
Subsystem Management products. The amended distributor agreement has an initial
term through March 31, 2004.
In December 1998, the maturity date of the senior convertible note payable
was extended from December 31, 1998 to March 31, 1999.
On November 25, 1998 the line of credit expired, and the Company elected not
to extend the maturity date.
F-17
<PAGE>
- -------------------------------------------------
- -------------------------------------------------
, 1999
[LOGO]
SHARES OF COMMON STOCK
--------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
CIBC OPPENHEIMER
- ------------------------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the Company
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of Common Stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table indicates the estimated expenses to be incurred by NEON
in connection with the offering described in the Registration Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission filing
fee........................................ $10,391
NASD filing fee.............................. 4,238
NASDAQ National Market listing fee........... 72,875
Blue sky fees and expenses................... *
Printing and engraving fees.................. *
Accountants' fees and expenses............... *
Legal fees and expenses...................... *
Transfer agent's fees and expenses........... *
Miscellaneous................................ *
-------
Total.................................... $ *
-------
-------
</TABLE>
- ------------------------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that any person made a party to any action by reason of the fact that
he is or was a director, officer, employee or agent of NEON may and, in certain
cases, must be indemnified by NEON against, in the case of a non-derivative
action, judgments, fines, amounts paid in settlement and reasonable expenses
(including attorneys' fees) incurred by him as a result of such action, and in
the case of a derivative action, against expenses (including attorneys' fees),
if in either type of action he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of NEON. This
indemnification does not apply, in a derivative action, to matters as to which
it is adjudged that the director, officer, employee or agent is liable to NEON,
unless upon court order it is determined that, despite such adjudication of
liability, but in view of all the circumstances of the case, he is fairly and
reasonably entitled to indemnity for expenses, and, in a non-derivative action,
to any criminal proceeding in which such person had reasonable cause to believe
his conduct was unlawful.
Article 15 of NEON's Certificate of Incorporation, as amended, provides that
no director of NEON shall be liable to NEON or its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permitted by the DGCL.
Article 16 of NEON's Certificate of Incorporation, as amended, also provides
that NEON shall indemnify to the fullest extent permitted by Delaware law any
and all of its directors and officers, or former directors and officers, or any
person who may have served at NEON's request as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise.
Reference is made to Section of the Underwriting Agreement to be filed
as Exhibit 1.1 hereto, pursuant to which the Underwriters and the Selling
Stockholders have agreed to indemnify officers and directors of NEON against
certain liabilities under the Securities Act.
NEON has entered into Indemnification Agreements with each director of NEON,
a form of which is filed as Exhibit 10.14 to this Registration Statement.
Pursuant to such agreements, NEON will be obligated, to the extent permitted by
applicable law, to indemnify such directors against all expenses, judgments,
fines and penalties incurred in connection with the defense or settlement of any
actions brought against them by reason of the fact that they were directors of
NEON or assumed certain
II-1
<PAGE>
responsibilities at the direction of NEON. NEON also intends to purchase
directors and officers liability insurance in order to limit its exposure to
liability for indemnification of directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, NEON has issued unregistered shares of its
Common Stock, par value $.01 per share, to a limited number of persons as
described below. NEON also issued 125,000 shares of its Series A Redeemable,
Convertible Preferred Stock, par value $.01 per share, to JMI Equity Fund, L.P.
in the transaction described in paragraph (2) below.
(1) From August 1996 through November 1998, NEON issued and sold 594,860
shares of Common Stock to employees at prices ranging from $0.01 to $1.00 per
share upon exercise of stock options granted pursuant to NEON's 1993 Stock Plan.
(2) In March 1997, NEON issued and sold 125,000 shares of Series A
Redeemable, Convertible Preferred Stock to JMI Equity Fund, L.P. pursuant to the
conversion of $250,000 in convertible debt held by such limited partnership.
(3) In June 1998, NEON issued and sold 47,780 shares of Common Stock to
Wayne E. Webb, Jr. for an aggregate purchase price of $86,004 pursuant to a
restricted stock purchase effected under the 1993 Plan.
(4) Effectively immediately prior to the consummation of the sale of shares
of Common Stock pursuant to NEON's offering, NEON will issue 3,125,000 shares of
its Common Stock to JMI Equity Fund, L.P. pursuant to the conversion of 625,000
shares of its Series A Redeemable, Convertible Preferred Stock held by such
limited partnership.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and NEON believes that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof or Rule 701 pursuant to compensatory benefit
plans and contracts relating to compensation as provided under such Rule 701.
The recipients in such transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with NEON, to information about
NEON.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement by and among NEON Systems,
Inc. and the Underwriters.
3.1 Form of Certificate of Incorporation of NEON Systems, Inc,
as amended.
3.2 Bylaws of NEON Systems, Inc.
4.1* Specimen Stock Certificate.
4.2 Certificate of Incorporation, as amended and Bylaws of NEON
Systems, Inc. (see Exhibits 3.1 and 3.2).
5.1* Opinion of Locke Purnell Rain Harrell (A Professional
Corporation).
10.1 NEON Systems, Inc. 1993 Stock Plan.
10.2 NEON Systems, Inc. 401(k) Plan.
10.3 NEON Systems, Inc. 1999 Long-Term Incentive Plan.
10.4 NEON Systems, Inc. Stock Option Plan for Non-Employee
Directors.
10.5 Distributor Agreement dated as of January 1, 1996 by and
between Peregrine/Bridge Transfer Corporation and NEON
Systems, Inc., as amended.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.6 Texaco Inc. Information Technology Department Miscellaneous
Work Agreement dated as of July 1, 1991 between NEON
Systems, Inc. and Texaco Inc.
10.7 Series A Stock Purchase Agreement dated as of May 19, 1993
by and between NEON Systems, Inc., JMI Equity Fund, L.P.
and Peter Schaeffer.
10.8 Secured Convertible Promissory Note Purchase Agreement dated
as of September 29, 1994 by and between NEON Systems, Inc.
and JMI Equity Fund, L.P., as amended.
10.9 Secured Convertible Promissory Note Purchase Agreement dated
as of March 30, 1995 by and between NEON Systems, Inc. and
JMI Equity Fund, L.P., as amended.
10.10 Secured Convertible Promissory Note Purchase Agreement dated
as of November 22, 1995 by and between NEON Systems, Inc.
and JMI Equity Fund, L.P.
10.11 Secured Promissory Note dated March 31, 1997 to the order of
JMI Equity Fund, L.P. in the original principal amount of
$1,049,100.78, as amended.
10.12 Amendment to Convertible Debt Documentation and Exercise of
Conversion Right dated March 31, 1997 by and between NEON
Systems, Inc. and JMI Equity Fund, L.P.
10.13 Registration Rights Agreement dated as of May 19, 1993 by
and between NEON Systems, Inc., JMI Equity Fund, L.P. and
Peter Schaeffer.
10.14 Form of Indemnification Agreement between NEON Systems, Inc.
and each of its directors.
10.15 Lease Agreement between Turner Andreac, LLC and NEON
Systems, Inc., for office space located at 14100 Southwest
Freeway, Suite 500 in Sugar Land, Texas.
10.16 Lease Agreement, dated December 19, 1996, between Nu-Swift
Sovereign Limited and NEON Systems (U.K.) Limited , for
office space located at Sovereign House 26/30 London Road
in Twickenham, Middlesex.
10.17 Lease Agreement dated September 1, 1997 between NEON Systems
GmbH and Triple P. Deutschland GmbH.
10.18 Agreement by and between Goal Systems International Inc.,
NEON Systems, Inc. and Peter Schaeffer dated January 8,
1992.
10.19 Stockholders Agreement dated May 19, 1993 by and among NEON
Systems, Inc. and JMI Equity Fund, L.P. and Peter
Schaeffer.
10.20 Stock Restriction Agreement dated May 19, 1993 by and among
NEON Systems, Inc., Peter Schaeffer and JMI Equity Fund,
L.P.
10.21 Service Agreement dated as of December 18, 1998 by and among
NEON Systems, Inc. and Peregrine/Bridge Transfer
Corporation.
10.22 Stock Purchase Agreement dated June 1, 1998 by and between
NEON Systems, Inc. and Wayne E. Webb, Jr.
10.23 Stockholders Agreement, dated June 1, 1998, by and between
NEON Systems, Inc. and Wayne E. Webb, Jr.
11.1 Statement regarding Computation of Per Share Earnings.
21.1 Subsidiaries of NEON Systems, Inc.
23.1 Consent of KPMG Peat Marwick LLP.
23.2* Consent of Locke Purnell Rain Harrell (A Professional
Corporation) (included in its opinion filed as Exhibit
5.1).
24.1 Power of Attorney (included on first signature page).
27.1 Financial Data Schedule for year ended March 31, 1996.
27.2 Financial Data Schedule for year ended March 31, 1997.
27.3 Financial Data Schedule for year ended March 31, 1998.
27.4 Financial Data Schedule for six months ended September 30,
1998.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required under the related instructions, are not applicable or the
information has been provided in the Consolidated Financial Statements or the
Notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes to provide the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company, the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by any director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on this 23 day of December, 1998.
NEON SYSTEMS, INC.
By: /s/ JOE BACKER
-----------------------------------------
Joe Backer
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joe Backer and John Reiland, and each of them,
such individual's true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for such individual and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and any
registration statement related to the offering contemplated by this registration
statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises as fully and to intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JOHN J. MOORES
- ------------------------------ Chairman of the Board December 23, 1998
John J. Moores
President and Chief
/s/ JOE BACKER Executive Officer
- ------------------------------ (Principal Executive December 23, 1998
Joe Backer Officer) and Director
/s/ PETER SCHAEFFER
- ------------------------------ Chief Technology Officer December 23, 1998
Peter Schaeffer and Director
Chief Financial Officer
/s/ JOHN S. REILAND (Principal Financial and
- ------------------------------ Accounting Officer) and December 23, 1998
John S. Reiland Director
/s/ CHARLES E. NOELL III
- ------------------------------ Director December 23, 1998
Charles E. Noell III
/s/ NORRIS VAN DEN BERG
- ------------------------------ Director December 23, 1998
Norris van den Berg
/s/ RICHARD HOLCOMB
- ------------------------------ Director December 23, 1998
Richard Holcomb
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
(A) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement by and among NEON Systems,
Inc. and the Underwriters.
3.1 Form of Certificate of Incorporation of NEON Systems, Inc,
as amended.
3.2 Bylaws of NEON Systems, Inc.
4.1* Specimen Stock Certificate.
4.2 Certificate of Incorporation, as amended and Bylaws of NEON
Systems, Inc. (see Exhibits 3.1 and 3.2).
5.1* Opinion of Locke Purnell Rain Harrell (A Professional
Corporation).
10.1 NEON Systems, Inc. 1993 Stock Plan.
10.2 NEON Systems, Inc. 401(k) Plan.
10.3 NEON Systems, Inc. 1999 Long-Term Incentive Plan.
10.4 NEON Systems, Inc. Stock Option Plan for Non-Employee
Directors.
10.5 Distributor Agreement dated as of January 1, 1996 by and
between Peregrine/Bridge Transfer Corporation and NEON
Systems, Inc., as amended.
10.6 Texaco Inc. Information Technology Department Miscellaneous
Work Agreement dated as of July 1, 1991 between NEON
Systems, Inc. and Texaco Inc.
10.7 Series A Stock Purchase Agreement dated as of May 19, 1993
by and between NEON Systems, Inc., JMI Equity Fund, L.P.
and Peter Schaeffer.
10.8 Secured Convertible Promissory Note Purchase Agreement dated
as of September 29, 1994 by and between NEON Systems, Inc.
and JMI Equity Fund, L.P., as amended.
10.9 Secured Convertible Promissory Note Purchase Agreement dated
as of March 30, 1995 by and between NEON Systems, Inc. and
JMI Equity Fund, L.P., as amended.
10.10 Secured Convertible Promissory Note Purchase Agreement dated
as of November 22, 1995 by and between NEON Systems, Inc.
and JMI Equity Fund, L.P.
10.11 Secured Promissory Note dated March 31, 1997 to the order of
JMI Equity Fund, L.P. in the original principal amount of
$1,049,100.78, as amended.
10.12 Amendment to Convertible Debt Documentation and Exercise of
Conversion Right dated March 31, 1997 by and between NEON
Systems, Inc. and JMI Equity Fund, L.P.
10.13 Registration Rights Agreement dated as of May 19, 1993 by
and between NEON Systems, Inc., JMI Equity Fund, L.P. and
Peter Schaeffer.
10.14 Form of Indemnification Agreement between NEON Systems, Inc.
and each of its directors.
10.15 Lease Agreement between Turner Andreac, LLC and NEON
Systems, Inc., for office space located at 14100 Southwest
Freeway, Suite 500 in Sugar Land, Texas.
10.16 Lease Agreement, dated December 19, 1996, between Nu-Swift
Sovereign Limited and NEON Systems (U.K.) Limited , for
office space located at Sovereign House 26/30 London Road
in Twickenham, Middlesex.
10.17 Lease Agreement dated September 1, 1997 between NEON Systems
GmbH and Triple P. Deutschland GmbH.
10.18 Agreement by and between Goal Systems International Inc.,
NEON Systems, Inc. and Peter Schaeffer dated January 8,
1992.
10.19 Stockholders Agreement dated May 19, 1993 by and among NEON
Systems, Inc. and JMI Equity Fund, L.P. and Peter
Schaeffer.
10.20 Stock Restriction Agreement dated May 19, 1993 by and among
NEON Systems, Inc., Peter Schaeffer and JMI Equity Fund,
L.P.
10.21 Service Agreement dated as of December 18, 1998 by and among
NEON Systems, Inc. and Peregrine/Bridge Transfer
Corporation.
10.22 Stock Purchase Agreement dated June 1, 1998 by and between
NEON Systems, Inc. and Wayne E. Webb, Jr.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------------------------------------------------------------------
10.23 Stockholders Agreement, dated June 1, 1998, by and between
NEON Systems, Inc. and Wayne E. Webb, Jr.
<S> <C>
11.1 Statement regarding Computation of Per Share Earnings.
21.1 Subsidiaries of NEON Systems, Inc.
23.1 Consent of KPMG Peat Marwick LLP.
23.2* Consent of Locke Purnell Rain Harrell (A Professional
Corporation) (included in its opinion filed as Exhibit
5.1).
24.1 Power of Attorney (included on first signature page).
27.1 Financial Data Schedule for year ended March 31, 1996.
27.2 Financial Data Schedule for year ended March 31, 1997.
27.3 Financial Data Schedule for year ended March 31, 1998.
27.4 Financial Data Schedule for six months ended September 30,
1998.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
APPENDIX
DESCRIPTION OF ARTWORK ON INSIDE FRONT COVER
Four-color graphic representing NEON's ability to unlock mainframe-based
information to distributed computing environments. The center graphic is a bank
safe door superimposed on the front of a mainframe computer. The door is open
(representing the unlocking of data, transmissions, and applications) with
tubular streams of international currency connecting from the mainframe to three
separate images representing the Internet, the client/server environment, and
the n-tier environment. The NEON overview copy from page 19 of the prospectus
will be paraphased at the bottom of the page.
<PAGE>
DESCRIPTION OF ARTWORK ON INSIDE BACK COVER
Two-color listing of NEON Enterprise Access and Integration software
products, appropriately trademarked and listed by Shadow Products, Shadow Add-On
Components, and Enterprise Subsystem Management Products.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NEON SYSTEMS, INC.
ARTICLE 1
The name of the corporation is NEON Systems, Inc.
ARTICLE 2
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE 3
The purpose of the corporation is to engage in any lawful activity for
which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE 4
The total number of shares of all classes of capital stock that the
corporation shall have the authority to issue is Forty Million (40,000,000)
shares divided into two classes of which Ten Million (10,000,000) shares, par
value $.01 per share, shall be designated preferred stock ("Preferred Stock")
and Thirty Million (30,000,000) shares, par value $.01 per share, shall be
designated common stock ("Common Stock").
A. PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed by
law, to provide for the issuance of shares of Preferred Stock in one or more
series, to establish the number of shares to be included in each such series and
to fix the designations, powers, preferences and rights of the shares of each
such series, and any qualifications, limitations or restrictions thereof.
<PAGE>
B. COMMON STOCK
1. DIVIDENDS. Subject to the preferential rights, if any, of the
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the corporation which are by law available therefor, dividends payable either in
cash, in property or in shares of Common Stock or other securities of the
corporation.
2. VOTING RIGHTS. At every annual or special meeting of stockholders of
the corporation every holder of Common Stock shall be entitled to one vote, in
person or by proxy, for each share of Common Stock standing in his or her name
on the books of the corporation.
3. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
corporation, after payment or provision for payment of the debts and other
liabilities of the corporation and of the preferential amounts, if any, to which
the holders of Preferred Stock may be entitled, the holders of all outstanding
shares of Common Stock shall be entitled to share ratably in the remaining
assets of the corporation.
ARTICLE 5
The business and affairs of the corporation shall be managed by or under
the direction of the Board of Directors. The Board of Directors may exercise
all such authority and powers of the corporation and do all such lawful acts and
things as are not by statute or this Certificate of Incorporation directed or
required to be exercised or done by the stockholders.
A. NUMBER OF DIRECTORS
The number of directors of the corporation (exclusive of directors to be
elected by the holders of any one or more series of Preferred Stock of the
corporation which may be outstanding, voting separately as a series or class)
shall be fixed from time to time by action of not less than a majority of the
members of the Board of Directors then in office, though less than a quorum, but
in no event shall be less than one.
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B. CLASSES
Subject to the rights, if any, of any series of Preferred Stock then
outstanding, the directors shall be divided into three classes, designated Class
I, Class II and Class III. The number of directors in each class shall be the
whole number contained in the quotient arrived at by dividing the authorized
number of directors by three, and if a fraction is also contained in such
quotient then if such fraction is one-third (1/3) the extra director shall be a
member of Class III and if the fraction is two-thirds (2/3) one of the extra
directors shall be a member of Class III and the other shall be a member of
Class II. The term of office of directors elected to each class at the 1999
annual meeting of stockholders shall expires as follows: Class I shall expire
at the 2000 annual meeting of stockholders, Class II shall expire at the 2001
annual meeting of stockholders and Class III shall expire at the 2002 annual
meeting of stockholders. At each annual meeting of stockholders following the
1999 annual meeting of stockholders, directors shall be elected to succeed those
directors whose terms expire for a term of office to expire at the third
succeeding annual meeting of stockholders after their election. All directors
shall hold office until the annual meeting of stockholders for the year in which
their term expires and until their successors are duly elected and qualified, or
until their earlier death, resignation, disqualification or removal.
C. VACANCIES
Subject to the rights, if any, of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, disqualification or removal may be filled
only by a majority vote of the directors then in office, though less than a
quorum, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified, or until such director's earlier death,
resignation, disqualification or removal.
D. REMOVAL
Any director or the entire Board of Directors may be removed only for cause
and only by the vote of the holders of a majority of the securities of the
corporation then entitled to vote at an election of directors.
ARTICLE 6
Elections of directors need not be by written ballot unless the By-Laws of
the corporation shall otherwise provide.
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ARTICLE 7
Nominations of persons for election to the Board of Directors may be made
at an annual meeting of stockholders or special meeting of stockholders called
by the Board of Directors for the purpose of electing directors (i) by or at the
direction of the Board or (ii) by any stockholder of the corporation entitled to
vote for the election of directors at such meeting who complies with the notice
procedures set forth in this Article 7. Such nominations, other than those made
by or at the direction of the Board, shall be made pursuant to timely notice in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not less than 60 days nor more than 90 days prior to
the scheduled date of the meeting, regardless of any postponement, deferral or
adjournment of that meeting to a later date; PROVIDED, HOWEVER, that if less
than 70 days' notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
delivered or received not later than the close of business on the 10th day
following the earlier of (i) the day on which such notice of the date of the
meeting was mailed or (ii) the day on which such public disclosure was made.
A stockholder's notice to the Secretary shall set forth (i) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director (a) the name, age, business address and residence address of such
person, (b) the principal occupation or employment of such person, (c) the class
and number of shares of the corporation which are beneficially owned by such
person on the date of such stockholder's notice and (d) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, or any successor statute thereto (the "Exchange Act") (including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (ii) as to the
stockholder giving notice (a) the name and address, as such information appears
on the corporation's books, of such stockholder and any other stockholders known
by such stockholder to be supporting such nominee(s), (b) the class and number
of shares of the corporation which are beneficially owned by such stockholder
and each other stockholder known by such stockholder to be supporting such
nominee(s) on the date of such stockholders notice, (c) a representation that
the stockholder is a holder of record of stock of the corporation entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice; and (iii) a
description of all arrangements or understandings between the stockholder and
each nominee and other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder.
Subject to the rights, if any, of the holders of any series of Preferred
Stock then outstanding, no person shall be eligible for election as a director
of the corporation unless nominated in accordance with the procedures set forth
in this Article 7. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Article 7 and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
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ARTICLE 8
At an annual meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
properly brought before the annual meeting of stockholders (i) by or at the
direction of the Board of Directors or (ii) by a stockholder of the corporation
who complies with the procedures set forth in this Article 8. For business or a
proposal to be properly brought before an annual meeting of stockholders by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the scheduled
date of the annual meeting, regardless of any postponement, deferral or
adjournment of that meeting to a later date; PROVIDED, HOWEVER, that if less
than 70 days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so delivered or mailed and received not later than the close of business
on the 10th day following the earlier of (i) the day on which such notice of the
date of the meeting was mailed or (ii) the day on which such public disclosure
was made.
A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before an annual meeting of stockholders (i) a
description, in 500 words or less, of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as such information appears on the
corporation's books, of the stockholder proposing such business and any other
stockholders known by such stockholder to be supporting such proposal, (iii) the
class and number of shares of the corporation that are beneficially owned by
such stockholder and each other stockholder known by such stockholder to be
supporting such proposal on the date of such stockholder's notice, (iv) a
description, in 500 words or less, of any interest of the stockholder in such
proposal and (v) a representation that the stockholder is a holder of record of
stock of the corporation and intends to appear in person or by proxy at the
meeting to present the proposal specified in the notice.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that the business was not properly brought before the
meeting in accordance with the procedures prescribed by this Article 8, and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing, nothing in this Article 8 shall be interpreted
or construed to require the inclusion of information about any such proposal
in any proxy statement distributed by, at the direction of, or on behalf of,
the Board of Directors.
ARTICLE 9
Any action required or permitted to be taken at any annual or special
meeting of stockholders may only be taken upon the vote of the stockholders at
an annual or special meeting duly called and may not be taken by written consent
of the stockholders.
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<PAGE>
ARTICLE 10
Subject to the rights of the holders of any series of Preferred Stock,
special meetings of the stockholders, unless otherwise prescribed by statute,
may be called at any time only by the Chairman of the Board or Chief Executive
Officer of the corporation or by the Board of Directors.
ARTICLE 11
In addition to any affirmative vote required by applicable law or any other
provision of this Certificate of Incorporation or specified in any agreement,
and in addition to any voting rights granted to or held by the holders of any
series of Preferred Stock, the affirmative vote of the holders of not less than
two-thirds (2/3) of all securities of the corporation entitled to vote generally
in the election of directors shall be required to adopt an agreement of merger
or consolidation (other than with respect to the merger of a wholly- owned
subsidiary of the corporation with and into the corporation pursuant to Section
253 of the General Corporation Law of Delaware) or to approve the sale, lease or
exchange of all or substantially all of the corporation's property and assets
(other than a mortgage or pledge thereof).
ARTICLE 12
The Board of Directors is expressly authorized to adopt, amend or repeal
the By-Laws of the corporation. Any By-Laws made by the directors under the
powers conferred hereby may be amended or repealed by the directors or by the
stockholders. Notwithstanding the foregoing and anything contained in this
Certificate of Incorporation to the contrary, the By-Laws shall not be amended
or repealed by the stockholders, and no provision inconsistent therewith shall
be adopted by the stockholders, without the affirmative vote of the holders of
at least two-thirds (2/3) of the voting power of all shares of the corporation
entitled to vote generally in the election of directors voting together as a
single class.
ARTICLE 13
The Board of Directors, each committee of the Board of Directors and each
individual director, in discharging their respective duties under applicable law
and this Certificate of Incorporation and in determining what they each believe
to be in the best interests of the corporation and its stockholders, may
consider the effects, both short-term and long-term, of any action or proposed
action taken or to be taken by the corporation, the Board of Directors or any
committee of the Board of Directors on the interests of (i) the employees,
licensees, associates, customers, suppliers and/or creditors of the corporation
and its subsidiaries and (ii) the communities in which the corporation and its
subsidiaries own or lease property or conduct business, all to the extent that
the Board of Directors, any committee of the Board of Directors or any
individual director deems pertinent under the circumstances (including the
possibility that the interests of the corporation may
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<PAGE>
best be served by the continued independence of the corporation); PROVIDED,
HOWEVER, that the provisions of this Article 13 shall not limit in any way the
right of the Board of Directors to consider any other lawful factors in making
its determinations, including, without limitation, the effects, both short-term
and long-term, of any action or proposed action on the corporation or its
stockholders directly; and PROVIDED FURTHER that this Article 13 shall be deemed
solely to grant discretionary authority to the Board of Directors, each
committee of the Board of Directors and each individual director and shall not
be deemed to provide to any specific constituency any right to be considered.
ARTICLE 14
Whenever a compromise or arrangement is proposed between the corporation
and its creditors or any class of them and/or between the corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
corporation or any creditor or stockholder thereof or on the application of any
receiver or receivers appointed for the corporation under the provisions of
Section 291 of the General Corporation Law of Delaware, or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
corporation under the provisions of Section 279 of the General Corporation Law
of Delaware, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which said application has been made, be
binding on all the creditors or class of creditors, and/or on all of the
stockholders or class of stockholders, of the corporation, as the case may be,
and also on the corporation.
ARTICLE 15
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; PROVIDED, HOWEVER, that the foregoing shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of Delaware or (iv)
for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of Delaware is hereafter amended to
permit further elimination or limitation of the personal liability of directors,
then the liability of a director of the corporation shall be eliminated or
limited to the fullest extent permitted by the General Corporation Law of
Delaware as so amended. Any repeal or modification of this Article 15 shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
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<PAGE>
ARTICLE 16
Each person who was or is made a party or is threatened to be made a party
to or is involved (including, without limitation, as a witness) in any actual or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director or officer of the corporation or is or was serving at
the request of the corporation as a director or officer of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer or agent or in any other capacity while serving as such a
director or officer, shall be indemnified and held harmless by the corporation
to the fullest extent authorized by the General Corporation Law of Delaware, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than said law permitted the corporation
to provide prior to such amendment), or by other applicable law as then in
effect, against any expense, liability and loss (including attorneys' fees,
judgments, fines, excise taxes under the Employee Retirement Income Security Act
of 1974, as amended from time to time ("ERISA"), penalties and amounts to be
paid in settlement) actually and reasonably incurred or suffered by such
indemnitee in connection therewith.
A. Any indemnification under this Article 16 (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that indemnification is proper in the circumstances because the
indemnitee has met the applicable standard of conduct set forth in the General
Corporation Law of Delaware, as the same exists or hereafter may be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment). Such
determination shall be made (i) by the Board of Directors by a majority vote of
the directors who are not parties to such proceeding, even though less than a
quorum (the "Disinterested Directors"), or (ii) if there are no such
Disinterested Directors, or, if such Disinterested Directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
The majority of Disinterested Directors may, as they deem appropriate, elect to
have the corporation indemnify any other employee, agent or other person acting
for or on behalf of the corporation.
B. Costs, charges and expenses (including attorneys' fees) incurred by a
director or officer of the corporation, or such other person acting on behalf of
the corporation as determined in accordance with Paragraph A, in defending a
proceeding shall be paid by the corporation in advance of the final disposition
of such proceeding upon receipt of an undertaking by or on behalf of the
director, officer or other person to repay all amounts so advanced in the event
that it shall ultimately be determined that such director, officer or other
person is not entitled to be indemnified by the corporation as authorized in
this Article 16. The majority of the Disinterested Directors may, in the manner
set forth above, and upon approval of such director, officer, employee, agent or
other person acting on behalf of the corporation, authorize the corporation's
counsel to represent such person, in any proceeding whether or not the
corporation is a party to such proceeding.
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<PAGE>
C. Any indemnification or advance of costs, charges, and expenses under
this Article 16 shall be made promptly, and in any event within 60 days, upon
the written request of the person seeking indemnification or advancement of
expenses (hereinafter a "claimant"). The right to indemnification or advances
as granted by this Article 16 shall be enforceable by the claimant in any court
of competent jurisdiction, if the corporation denies such request in whole or in
part, or if no disposition thereof is made within 60 days. The claimant's costs
and expenses incurred in connection with successfully establishing his or her
right to indemnification, in whole or in part, in any such action shall also be
indemnified by the corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under this Article 16 where the required undertaking, if any, has been
received by the corporation) that the claimant has not met the standard of
conduct set forth in the General Corporation Law of Delaware, as the same exists
or hereafter may be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the corporation to provide broader
indemnification rights than said law permitted the corporation to provide prior
to such amendment), but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its Board of
Directors, its independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the General Corporation Law of
Delaware, as the same exists or hereafter may be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior o such amendment), nor the fact that there has
been an actual determination by the corporation (including its Board of
Directors, its independent legal counsel and its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
D. The indemnification and advancement of expenses provided by this
Article 16 shall not be deemed exclusive of any other rights to which a claimant
may be entitled under any law (common or statutory), bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding
office or while employed by or acting as agent for the corporation, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent of the corporation, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. All rights to indemnification
under this Article 16 shall be deemed to be a contract between the corporation
and each director and officer of the corporation who serves or served in such
capacity at any time while this Article 16 is in effect. Any repeal or
modification of this Article 16 or any repeal or modification of relevant
provisions of the General Corporation Law of Delaware or any other applicable
laws shall not in any way diminish any rights to indemnification of such
director or officer or the obligations of the corporation arising hereunder with
respect to any action, suit or proceeding arising out of or relating to, any
actions, transactions or facts occurring prior to the final adoption of such
modification or repeal. For the purposes of this Article 16 references to "the
corporation" include all constituent corporations parties to a consolidation or
merger as well as the resulting or surviving corporation, so that any person who
is or was a director or officer of such a constituent corporation or is or was
serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other
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enterprise shall stand in the same position under the provisions of this Article
16 with respect to the resulting or surviving corporation, as he or she would if
he or she had served te resulting or surviving corporation in the same capacity.
E. The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was or has agreed to become a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her on his or her behalf in
any such capacity, or arising out of his or her status as such, whether or not
the corporation would have the power to indemnify him or her against such
liability under the provisions of this Article 16.
F. If this Article 16 or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each person entitled to indemnification under the first
paragraph of this Article 16 as to all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes, penalties and amounts to
be paid in settlement) actually and reasonably incurred or suffered by such
person and for which indemnification is available to such person pursuant to
this Article 16 to the full extent permitted by any applicable portion of this
Article 16 that shall not have been invalidated and to the full extent permitted
by applicable law.
ARTICLE 17
Without limiting the purpose of the corporation set forth in Article 3
above, the corporation shall have the corporate power to from time to time enter
into an agreement regarding, or adopt a plan regarding, and in either case
thereafter consummate, an exchange whereby the corporation acquires partnership
interests, shares of capital stock or other securities of one or more
partnerships, corporations or other entities in exchange for cash and/or
securities of the corporation. Any such agreement duly executed and delivered
by the corporation, and any such plan duly adopted by the corporation, prior to
the effectiveness of this Article 17 shall be the valid acts of the corporation
notwithstanding such later effectiveness of this Article 17.
ARTICLE 18
The corporation reserves the right to amend, add, alter, change, repeal or
adopt any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation. In addition to any
affirmative vote required by applicable law or any other provision of this
Certificate of Incorporation or specified in any agreement, and in addition to
any voting rights granted to or held by the holders of any series of Preferred
Stock, the affirmative vote of the holders of not less than two-thirds (2/3) of
the voting power of all securities of the corporation entitled to vote generally
in the election of directors shall be required to amend, add, alter, change,
repeal or adopt any provisions inconsistent with Articles 5, 7, 8, 9, 10, 11,
12, 13, 14, 15, 16 or this Article 18 of this Certificate of Incorporation.
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Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
NEON SYSTEMS, INC.
ARTICLE 1
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation may also have an office or
offices other than said registered office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at any such place,
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors (or, in the case of a special meeting called
by the Chairman of the Board of the corporation, as shall be designated by the
Chairman of the Board) and stated in the notice of meeting or in a duly executed
waiver thereof.
SECTION 2. ANNUAL MEETING. The annual meeting of stockholders shall be
held at such date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of meeting or in a duly executed waiver
thereof. At such annual meeting, the stockholders shall elect, by a plurality
vote, a Board of Directors and transact such other business as may properly be
brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, unless
otherwise prescribed by statute, may be called at any time only by the Board of
Directors, the Chairman of the Board or the Chief Executive Officer of the
Corporation.
<PAGE>
SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly required by
statute, written notice of each annual and special meeting of stockholders
stating the date, place and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder of record entitled to vote at such meeting not less than ten
nor more than sixty days before the date of the notice. Notice shall be given
personally or by mail and, if by mail, shall be sent in a postage prepaid
envelope, addressed to the stockholder at the address appearing on the records
of the corporation. Notice by mail shall be deemed given at the time when the
same shall be deposited in the United States mail, postage prepaid. Notice of
any meeting shall not be required to be given to any person who attends such
meeting, except when such person attends the meeting in person or by proxy for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened, or who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an annual or special meeting of stockholders
need be specified in any written waiver of notice.
SECTION 5. LIST OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before each
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, showing the address of and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city, town or village where the
meeting is to be held which place shall be specified in the notice of meeting,
or, if not specified, at the place where the meeting is to be held. The list
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 6. QUORUM; ADJOURNMENTS. The holders of a majority of the voting
power of the issued and outstanding stock of the corporation entitled to vote at
a meeting of stockholders, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of
stockholders, except as otherwise provided by statute or by the corporation's
Certificate of Incorporation as the same may be amended from time to time (the
"Certificate of Incorporation"). A quorum, once established, shall not be
broken by the withdrawal of enough votes to leave less than a quorum, and the
votes present may continue to transact business until adjournment. If, however,
such quorum shall not be present or represented by proxy at any meeting of
stockholders, then the stockholders entitled to vote at such meeting, present in
person or represented by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented by proxy, at which time any business may
be transacted that might have been transacted at the meeting as originally
called. If the adjournment is for more than thirty days, or, if after
adjournment a new record date is set, then a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
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SECTION 7. ORGANIZATION. At each meeting of stockholders, the Chairman of
the Board or the Chief Executive Officer shall act as chairman of the meeting.
The Secretary or, in his or her absence or inability to act, the person whom the
chairman of the meeting shall appoint secretary of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 8. ORDER OF BUSINESS. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
SECTION 9. VOTING. Except as otherwise provided by statute or the
Certificate of Incorporation, each stockholder of the corporation shall be
entitled at each meeting of stockholders to one vote for each share of capital
stock of the corporation standing in his or her name on the record of
stockholders of the corporation:
(a) on the date fixed pursuant to the provisions of Section 7 of
Article 5 of these Bylaws as the record date for the determination of the
stockholders who shall be entitled to notice of and to vote at such
meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice thereof
shall be given, or, if notice is waived, at the close of business on the
date next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him or her by a proxy signed by such
stockholder or the stockholder's attorney-in-fact, but no proxy shall be voted
after three years from its date, unless the proxy provides for a longer period.
Any such proxy shall be delivered to the secretary of the meeting at or prior to
the time designated in the order of business for so delivering such proxies.
When a quorum is present at any meeting, the vote of the holders of a majority
of the voting power of the issued and outstanding stock of the corporation
entitled to vote thereon, present in person or represented by proxy, shall
decide any matter brought before such meeting, unless the matter is one upon
which by express provision of statute or of the Certificate of Incorporation or
of these Bylaws, a different vote is required, in which case such express
provision shall govern and control the decision of such matter. Unless required
by statute, or determined by the chairman of the meeting to be advisable, the
vote on any matter need not be by written ballot. On a vote by written ballot,
each written ballot shall be signed by the stockholder voting, or by his or her
proxy, and shall state the number of shares voted.
SECTION 10. INSPECTORS. The Board of Directors shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof and make a written report thereof. If any of the
inspectors so appointed shall fail to appear or shall be unable to act, the
chairman of the meeting shall appoint one or more inspectors. Each inspector,
before entering upon the discharge of his or her duties, shall take and sign an
oath faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of
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his or her ability. The inspectors shall ascertain the numbers of shares of
capital stock of the corporation outstanding and the voting power of each,
determine the number of shares represented at the meeting and the validity of
proxies and ballots, count all votes and ballots, determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors and certify their determination of the number of
shares represented at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of their duties. No director or candidate for the
office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders or employees of the corporation.
ARTICLE 3
BOARD OF DIRECTORS
SECTION 1. PLACE OF MEETINGS. Meetings of the Board of Directors shall be
held at such place or places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as shall be specified in
the notice of any such meeting.
SECTION 2. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. If such annual meeting is not so
held, then the annual meeting of the Board of Directors may be held at such
other time or place (within or without the State of Delaware) as shall be
specified in a notice thereof given as hereinafter provided in Section 5 of this
Article 3.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting that would otherwise be held on that day
shall be held at the same hour on the next succeeding business day (unless the
Chairman of the Board determines otherwise). Notice of regular meetings of the
Board of Directors need not be given except as otherwise required by statute or
these Bylaws.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, by three or more directors of the
corporation (unless there are fewer than three directors, in which case all of
the directors may call such special meeting) or by the Chief Executive Officer.
SECTION 5. NOTICE OF MEETINGS. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 5, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these Bylaws, such notice need not state the
purposes of
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such meeting. Notice of each such meeting shall be sent to each director,
addressed to such director at his or her residence or usual place of business,
by telegraph, cable, telex, telecopier or other similar means, or delivered to
him or her personally or given to him or her by telephone or other similar
means, at least twenty-four hours before the time at which such meeting is to be
held. Notice of any such meeting need not be given to any director who shall,
either before or after the meeting, submit a signed wavier of notice or who
shall attend such meeting, except when he or she shall attend for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 6. QUORUM AND MANNER OF ACTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute, the Certificate of Incorporation or these Bylaws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. A quorum, once established, shall
not be broken by the withdrawal of enough directors to leave less than a quorum,
and the directors present may continue to transact business until adjournment.
In the absence of a quorum at any meeting of the Board of Directors, a majority
of the directors present at such meeting may adjourn such meeting to another
time and place. Notice of the time and place of any such adjourned meeting
shall be given to all of the directors unless such time and place were announced
at the meeting at which the adjournment was taken, in which case such notice
shall only be given to the directors who were not present at such meeting. At
any adjourned meeting at which a quorum is present, any business may be
transacted that might have been transacted at the meeting as originally called.
The directors shall act only as a Board of Directors and the individual
directors shall have no power as such.
SECTION 7. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board or, in his or her absence or if one shall not have been
elected, another director chosen by a majority of the directors present, shall
act as chairman of the meeting and preside at the meeting. The Secretary or, in
his or her absence or if one shall not have been elected, any person appointed
by the chairman of the meeting, shall act as secretary of the meeting and keep
the minutes thereof.
SECTION 8. RESIGNATIONS. Any director of the corporation may resign at
any time by giving written notice of his or her resignation to the corporation.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon its receipt by the corporation. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 9. COMPENSATION. The Board of Directors shall have authority to
fix the compensation, including fees and reimbursement of expenses, of directors
for services to the corporation in any capacity.
SECTION 10. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more
committees, including an executive
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committee, each committee to consist of one or more of the directors of the
corporation. Without limiting the foregoing, there shall be a nominating
committee of the Board of Directors, which committee shall consist of three
directors of the corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In addition, in the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he, she or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
Except to the extent restricted by statute or the Certificate of
Incorporation, each such committee, to the extent provided in the resolution
creating it, shall have and may exercise all the powers and authority of the
Board of Directors and may authorize the seal of the corporation to be affixed
to all papers that require it. Each such committee shall serve at the pleasure
of the Board of Directors and have such name as may be determined from time to
time by resolution adopted by the Board of Directors. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors.
SECTION 11. ACTION BY CONSENT. Unless restricted by the Certificate of
Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or such committee, as the case may be.
SECTION 12. TELEPHONIC MEETING. Unless restricted by the Certificate of
Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
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ARTICLE 4
OFFICERS
SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the corporation
shall include the Chairman of the Board, the Chief Executive Officer, the
President, one or more Vice Presidents (including Senior, Executive Vice
Presidents or other classifications of Vice Presidents), the Secretary and the
Treasurer. The Chief Executive Officer shall recommend to the Board of
Directors candidates for all offices of the corporation (except the office of
Chairman of the Board and Chief Executive Officer). The Board of Directors
shall elect officers of the corporation after consideration of such
recommendations (and any and all other factors it considers relevant or
appropriate). The office of the President or any other office may be shared by
more than one person, each of whom shall have such classification (such as
President of a division of the corporation) as the Board of Directors
determines. If the Board of Directors so wishes, it may also elect other
officers (including one or more Assistant Treasurers and one or more Assistant
Secretaries) as may be necessary or desirable for the business of the
corporation. Any two or more offices may be held by the same person, and no
officer except the Chairman of the Board need be a director. Each officer shall
hold office until his or her successor shall have been duly elected and shall
have qualified, or until death, or until he or she shall have resigned or have
been removed or disqualified, as hereinafter provided in these Bylaws.
SECTION 2. RESIGNATIONS. Any officer of the corporation may resign at any
time by giving written notice of his resignation to the corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon
receipt by the corporation. Unless otherwise specified therein, the acceptance
of any such resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any officer of the corporation may be removed, either
with or without cause, at any time, by action of the Board of Directors, the
Chairman of the Board or the Chief Executive Officer (provided, however that the
Chief Executive Officer shall not have the authority to remove the Chairman of
the Board).
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
elected from among the members of the Board of Directors. Unless the Board of
Directors elects a Chief Executive Officer other than the Chairman of the Board,
the Chairman shall also be the Chief Executive Officer of the corporation. If
present, the Chairman shall preside at all meetings of the Board of Directors.
The Chairman shall advise and counsel with the Chief Executive Officer (if the
Chairman is not the Chief Executive Officer) and the President, and in the
absence of both such officers with other officers of the corporation, and shall
perform such other duties as may from time to time be assigned to him or her by
the Board of Directors.
SECTION 5. THE CHIEF EXECUTIVE OFFICER. Subject to the direction of the
Board of Directors, the Chief Executive Officer shall have general charge of the
business affairs and property
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of the corporation and general supervision over its officers and agents. The
Chief Executive Officer shall see that all orders and resolutions of the Board
of Directors are carried into effect, and shall perform such other duties as may
from time to time be assigned to him or her by the Board of Directors. At the
request of the Chairman of the Board or in his or her absence or in the event of
his or her inability or refusal to act, the Chief Executive Officer shall
perform the duties of the Chairman of the Board, and, when so acting, shall have
the powers of and be subject to the restrictions placed upon the Chairman of the
Board in respect of the performance of such duties.
SECTION 6. THE PRESIDENT. The President shall perform all duties incident
to the office of President and such other duties as may from time to time be
assigned to him or her by the Board of Directors, the Chairman of the Board or
the Chief Executive Officer.
SECTION 7. VICE PRESIDENT. Each Vice President shall perform all such
duties as from time to time may be assigned to him or her by the Board of
Directors, the Chairman of the Board or the Chief Executive Officer. At the
request of the President or in his or her absence or in the event of his or her
inability or refusal to act, the Vice President, or if there shall be more than
one, the Vice Presidents in the order determined by the Board of Directors (or
if there shall be no such determination, then the Vice Presidents in the order
of their election), shall perform the duties of the President, and, when so
acting, shall have the powers of and be subject to the restrictions placed upon
the President in respect of the performance of such duties.
SECTION 8. TREASURER. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the corporation;
(c) deposit all moneys and other valuables to the credit of the
corporation in such depositories as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, monies due and payable to the
corporation from any source whatsoever;
(e) disburse the funds of the corporation and supervise the
investment of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of Directors
may require, an account of the financial condition of the corporation; and
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(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
or her by the Board of Directors.
SECTION 9. SECRETARY. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) ensure that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law;
(c) be custodian of the records and the seal of the corporation and
shall have the authority to affix and attest the seal to all certificates
for shares of the corporation and to affix and to attest the seal to all
other documents to be executed on behalf of the corporation under its seal;
(d) ensure that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are
properly kept and filed; and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
or her by the Board of Directors.
SECTION 10. THE ASSISTANT TREASURER. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there shall be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of his or her inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties as from time to time
may be assigned by the Board of Directors.
SECTION 11. THE ASSISTANT SECRETARY. The Assistant Secretary, or if there
shall be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there shall be no such determination, then in the
order of their election), shall, in the absence of the Secretary or in the event
of his or her inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as from time to time
may be assigned by the Board of Directors.
SECTION 12. OFFICERS' BOND OR OTHER SECURITY. If required by the Board of
Directors, any officer of the corporation shall give a bond or other security
for the faithful performance of his or her duties, in such amount and with such
surety as the Board of Directors may require.
SECTION 13. COMPENSATION. The compensation of the officers of the
corporation for their
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services as such officers shall be fixed from time to time by the Board of
Directors. An officer of the corporation shall not be prevented from receiving
compensation by reason of the fact that he or she is also a director of the
corporation.
ARTICLE 5
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. STOCK CERTIFICATES. Every holder of stock in the corporation
shall be entitled to have a certificate signed by, or in the name of the
corporation by, the Chairman of the Board, the Chief Executive Officer, the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the corporation, certifying the
number of shares owned by him or her in the corporation. If the corporation
shall be authorized to issue more than one class of stock or more than one
series of any class, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate that the corporation shall issue to represent such class or series
of stock; provided that, except as otherwise provided in Section 202 of the
General Corporation Law of the State of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions or such preferences and/or
rights.
SECTION 2. FACSIMILE SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his or her legal representative, to
give the corporation a bond in such sum as it may direct sufficient to indemnify
it against any claim that may be made against the corporation on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
SECTION 4. TRANSFER OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of
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succession, assignment or authority to transfer, the corporation shall issue a
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its records; PROVIDED, HOWEVER, that the corporation
shall be entitled to recognize and enforce any lawful restriction on transfer.
Whenever any transfer of stock shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of transfer if, when the
certificates are presented to the corporation for transfer, both the transferor
and the transferee request the corporation to do so.
SECTION 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
SECTION 6. REGULATIONS. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the corporation.
SECTION 7. FIXING THE RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; PROVIDED, HOWEVER, that the Board of Directors may, in its discretion,
fix a new record date for the adjourned meeting.
SECTION 8. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the owner
of shares of stock to receive dividends and to vote as such owner, shall be
entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE 6
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of stock of
the corporation, unless otherwise provided by statute or the Certificate of
Incorporation.
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SECTION 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, determine to be proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation or for such other purpose as the Board of Directors
may deem to be conducive to the interests of the corporation. The Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
SECTION 3. SEAL. The seal of the corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 4. FISCAL YEAR. The fiscal year of the corporation shall end on
March 31 of each calendar year and may thereafter be changed by resolution of
the Board of Directors.
SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or other
orders for the payment of money of the corporation shall be signed, endorsed or
accepted in the name of the corporation by such officer, officers, person or
persons as from time to time may be designated by the Board of Directors or by
an officer or officers authorized by the Board of Directors to make such
designation.
SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may
authorize any officer or officers, agent or agents, in the name and on behalf of
the corporation to enter into or execute and deliver any and all contracts,
deeds, bonds, mortgages and other obligations or instruments, and such authority
may be general or confined to specific instances.
SECTION 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board or
the Chief Executive Officer, from time to time, may (or may appoint one or more
attorneys or agents to) cast the votes that the corporation may be entitled to
cast as a stockholder or otherwise in any other corporation or business
enterprise, any of whose shares or securities may be held by the corporation, at
meetings of the holders of the shares or other securities of such other
corporation or business enterprise. If one or more attorneys or agents are
appointed, then the Chairman of the Board or the Chief Executive Officer may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the Chief Executive
Officer may, or may instruct the attorneys or agents appointed to, execute or
cause to be executed in the name and on behalf of the corporation or under its
seal or otherwise, such written proxies, consents, waivers or other instruments
as may be necessary or proper in the circumstances.
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ARTICLE 7
AMENDMENTS
These Bylaws may be amended or repealed or new bylaws adopted as provided
by the Certificate of Incorporation.
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EXHIBIT 10.1
NEON SYSTEMS, INC.
1993 STOCK PLAN
1. PURPOSE. This 1993 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of Neon Systems, Inc., a
Delaware corporation (the "Company"), and of any present or future parent or
subsidiary of the Company (collectively, "Related Corporations"), by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) to directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder which do not qualify as ISOs
("Non-Qualified Options"); (c) to directors, officers, employees and consultants
of the Company and Related Corporations by providing them with awards of stock
in the Company ("Awards"); and (d) to directors, officers, employees and
consultants of the Company and Related Corporations by providing them with
opportunities to make direct purchases of stock in the Company ("Purchases").
Both ISOs and Non-Qualified options are referred to hereafter individually as an
"Option" and collectively as "Options." Options, Awards and authorizations to
make Purchases are referred to hereafter collectively as "Stock Rights." As used
herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation," respectively, as those terms are defined in Section
424 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be
administered by the Board of Directors of the Company (the "Board") or by a
committee appointed by the Board (the "Committee"); provided that, to the
extent required by Rule 16b-3 promulgated under the Securities Exchange Act
of 1934 or any successor provision ("Rule 16b-3"), with respect to specific
grants of Stock Rights, the Plan shall be administered by a disinterested
administrator or administrators within the meaning of Rule 16b-3.
Hereinafter, all references in this Plan to the "Committee" shall mean the
Board if no Committee has been appointed. Subject to ratification of the
grant or authorization of each Stock Right by the Board (if so required by
applicable state law), and subject to the terms of the Plan, the Committee
shall have the authority to (i) determine the employees of the Company and
Related Corporations (from among the class of employees eligible under
paragraph 3 to receive ISOs) to whom ISOs shall be granted, and determine
(from among the class of individuals and entities eligible under paragraph
3 to receive Non-Qualified Options and Awards and to make Purchases) to
whom Non-Qualified Options, Awards and authorizations to make Purchases may
be granted; (ii) determine the time or times at which Options or Awards
shall be granted or Purchases made; (iii) determine the option price of
shares subject to each Option, which price shall not be less than the
minimum price specified in paragraph 6, and the purchase price of shares
subject to each Purchase; (iv) determine whether each Option granted shall
be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7)
the time or times when each option shall become exercisable and the
duration of the exercise period; (vi) determine whether restrictions such
as repurchase options are to be imposed
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on shares subject to Options, Awards and Purchases and the nature of such
restrictions, if any; and (vii) interpret the Plan and prescribe and
rescind rules and regulations relating to it. If the Committee determines
to issue a Non-Qualified Option, it shall take whatever actions it deems
necessary, under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the
Plan or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such
rules and regulations for carrying out the Plan as it may deem best. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock
Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of its members
as its chairman, and shall hold meetings at such time and places as it may
determine. Acts by a majority of the members of the Committee, or acts
reduced to or approved in writing by a majority of the members of the
Committee (if consistent with applicable state law), shall constitute the
valid acts of the Committee. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove
members (with or without cause) and appoint new members in- substitution
therefor, fill vacancies however caused, or remove all members of the
Committee and thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may be
granted to members of the Board consistent with the provisions of the first
sentence of paragraph 2(A) above, if applicable. All grants of Stock
Rights to members of the Board shall in all other respects be made in
accordance with the provisions of this Plan applicable to other eligible
persons. Consistent with the provisions of the first sentence of paragraph
2(A) above, members of the Board who either (i) are eligible to receive
grants of Stock Rights pursuant to the Plan or (ii) have been granted Stock
Rights may vote on any matters affecting the administration of the Plan or
the grant of any Stock Rights pursuant to the Plan, except that no such
member shall act upon the granting to himself of Stock Rights, but any such
member may be counted in determining the existence of a quorum at any
meeting of the Board during which action is taken with respect to the
granting to such member of Stock Rights.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees
of the Company or any Related Corporation. Non-Qualified options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right.
Granting of any Stock Right to any individual or entity shall neither entitle
the recipient to, nor disqualify the recipient from, participation in any other
grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 100,000, subject to adjustment as provided in
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paragraph 13. If any Stock Right granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the unpurchased shares
subject to such Stock Right shall again be available for grants of Stock Rights
under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time after May 14, 1993 and prior to May 13, 2003. The date of grant of
a Stock Right under the Plan will be the date specified by the Committee at the
time it grants the Stock Right; provided, however, that such date shall not be
prior to the date on which the Committee acts to approve the grant.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS. The exercise price per share
specified in the agreement relating to each Non-Qualified option granted
under the Plan shall in no event be less than the minimum legal
consideration required therefor under the laws of the State of Delaware or
the laws of any jurisdiction in which the Company or its successors in
interest may be organized.
B. PRICE FOR ISOS. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less
than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, the
price per share specified in the agreement relating to such ISO shall not
be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the date of grant. For purposes of determining
stock ownership under this paragraph, the rules of Section 424(d) of the
Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each eligible
employee may be granted Options treated as ISOs only to the extent that, in
the aggregate under this Plan and all incentive stock option plans of the
Company and any Related Corporation, ISOs do not become exercisable for the
first time by such employee during any calendar year with respect to stock
having a fair market value (determined at the time the ISOs were granted)
in excess of $100,000. The Company intends to designate any Options
granted in excess of such limitation as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the last business day for
which the prices or quotes discussed in this sentence are available prior
to the date such Option is granted and shall mean (i) the average (on that
date) of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is traded, if the
Common Stock is then traded on a national securities exchange; or (ii) the
last reported sale price (on that date) of the Common Stock on the NASDAQ
National Market List, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
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over-the-counter securities, if the Common Stock is not reported on the
NASDAQ National Market List. The "fair market value" of the stock issuable
upon exercise of an Option granted pursuant to the Plan within 120 days
prior to the time the Common Stock is publicly traded shall be deemed to be
equal to the initial per share purchase price at which the Common Stock is
offered to the public. However, if the Common Stock is not publicly traded
at the time an Option is granted under the Plan, "fair market value" shall
be deemed to be the fair value of the Common Stock as determined by the
Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of
the Common Stock in private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each option shall expire on the date specified by the
Committee, but not more than (i) ten years from the date of grant in the case of
Options generally and (ii) five years from the date of grant in the case of ISOS
granted to an employee owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Related Corporation, as determined under paragraph 6(B). Subject to earlier
termination as provided in paragraphs 9 and 10, the term of each ISO shall be
the term set forth in the original instrument granting such ISO, except with
respect to any part of such ISO that is converted into a Non-Qualified Option
pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The option shall either be fully exercisable on the
date of grant or shal1 become exercisable thereafter in such installments
as the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
exercisable, it shall remain exercisable until expiration or termination of
the option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
accelerate the date of exercise of any installment of any option; provided
that the Committee shall not, without the consent of an optionee,
accelerate the exercise date of any installment of any Option granted to
any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the
annual vesting limitation contained in Section 422(d) of the Code, as
described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed
by the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his or her
ISOs shall become exercisable, and his or her
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ISOs shall terminate after the passage of ninety (90) days from the date of
termination of his or her employment, but in no event later than on their
specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof ) have been converted into Non-Qualified
Options pursuant to paragraph 16. For purposes of this paragraph 9,
employment shall be considered as continuing uninterrupted during any bona
fide leave of absence (such as those attributable to illness, military
obligations or governmental service) provided that the period of such leave
does not exceed 90 days or, if longer, any period during which such
optionee's right to reemployment is guaranteed by statute. A bona fide leave
of absence with the written approval of the committee shall not be considered
an interruption of employment under this paragraph 9, provided that such
written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved
period of absence. ISOs granted under the Plan shall not be affected by any
change of employment within or among the Company and Related Corporations, so
long as the optionee continues to be an employee of the Company, or any
Related Corporation. Nothing in the Plan shall be deemed to give any grantee
of any Stock Right the right to be retained in employment or other service by
the Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his or her death, any ISO owned
by such optionee may be exercised, to the extent otherwise exercisable on
the date of his death, by his estate, personal representative or
beneficiary who has acquired the ISO by will or by the laws of descent and
distribution, at any time prior to the earlier of (i) the specified
expiration date of the ISO or (ii) the date 180 days following the date of
the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his or her disability,
such optionee shall have the right to exercise any ISO held by him or her
on the date of termination of employment, to the extent otherwise
exercisable on that date, at any time prior to the earlier of the specified
expiration date of the ISO or 180 days from the date of the termination of
the optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Code or any successor statute.
11. ASSIGNABILITY. No Stock Right shall be assignable or transferable by
the grantee except by will or by the laws of descent and distribution. During
the lifetime of a grantee each Stock Right shall be exercisable only by such
grantee.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any Non-
Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time
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<PAGE>
confer authority and responsibility on one or more of its own members and/or one
or more officers of the Company to execute and deliver such instruments. The
proper officers of the Company are authorized and directed to take any and all
action necessary or advisable from time to time to carry out the terms of such
instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of Options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"),
the Committee or the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board") shall, as to
outstanding Options, either (i) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for the
shares then subject to such Options the consideration payable with respect
to the outstanding shares of Common Stock in connection with the
Acquisition; or (ii) upon written notice to the optionees, provide that all
Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which
period the Options shall terminate; or (iii) terminate all Options in
exchange for a cash payment equal to the excess of the fair market value of
the shares subject to such Options (to the extent then exercisable) over
the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, an optionee upon exercising an Option
shall be entitled to receive for the purchase price paid upon such exercise
the securities he would have received if he had exercised his option prior
to such recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for
the Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such adjustments made with respect
to ISOs
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would constitute a modification of such ISOs or would cause adverse tax
consequences to the holders, it may refrain from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, each option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by
the Committee.
F. ISSUANCES OF SECURITIES. 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 Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under
the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described
in subparagraphs A, B or C above, the class and aggregate number of shares
set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall
also be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
installment thereof) shall be exercise by giving written notice to the Company
at its principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Stock Right being exercised and
specify the number of shares as to which such Stock Right is being exercised,
accompanied by full payment of the purchase price therefor either (a) in United
States dollars in cash or by check, (b) at the discretion of the Committee,
through delivery of shares of Common Stock having a fair market value equal as
of the date of the exercise to the cash exercise price of the Stock Right, (c)
at the discretion of the Committee, by delivery of the grantee's personal
recourse note bearing interest payable not less than annually at no less than
100% of the lowest applicable Federal rate, as defined in Section 1274(d) of the
Code, (d) at the discretion of the Committee and consistent with applicable law,
through the delivery of an assignment to the Company of a sufficient amount of
the proceeds from the sale of the Common Stock acquired upon exercise of the
Stock Right and an authorization to the broker or selling agent to pay that
amount to the Company, which sale shall be at the participant's direction at the
time of exercise, or (e) at the discretion of the Committee, by any combination
of (a), (b), (c) and (d) above. If the Committee exercises its discretion to
permit payment of the exercise price of an ISO by means of the methods set forth
in clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall
be exercised in writing at the time of the grant of the ISO in question. The
holder of a Stock Right shall not have the rights of a shareholder with respect
to the shares covered by such Stock Right until the date of issuance of a stock
certificate to such holder for such shares. Except as expressly provided above
in paragraph 13 with respect to changes in
7
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capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on May
14, 1993, subject, with respect to the validation of ISOs granted under the
Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the
approval of stockholders is not obtained prior to that May 14, 1994 any grants
of ISOs under the Plan made prior to that date will be rescinded. The Plan
shall expire at the end of the day on May 13, 2003 (except as to Options
outstanding on that date). Subject to the provisions of paragraph 5 above, Stock
Rights may be granted under the Plan prior to the date of stockholder approval
of the Plan. The Board may terminate or amend the Plan in any respect at any
time, except that, without the approval of the stockholders obtained within 12
months before or after the Board adopts a resolution authorizing any of the
following actions: (a) the total number of shares that may be issued under the
Plan may not be increased (except by adjustment pursuant to paragraph 13); (b)
the benefits accruing to participants under the Plan may not be materially
increased; (c) the requirements as to eligibility for participation in the Plan
may not be materially modified; (d) the provisions of paragraph 3 regarding
eligibility for grants of ISOs may not be modified; (e) the provisions of
paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); (f) the expiration date of the Plan may not be extended; and (g) the Board
may not take any action which would cause the Plan to fail to comply with Rule
16b-3. Except as otherwise provided in this paragraph 15, in no event may
action of the Board or stockholders alter or impair the rights of a grantee,
without such grantee.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS. The Committee, at the
written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISOs. At the time of such conversion, the Committee (with the consent of the
optionee) may impose such conditions on the exercise of the resulting Non-
Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate action.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after he makes a Disqualifying Disposition (as described in Sections
421, 422 and 424 of the Code and regulations thereunder) of any stock acquired
pursuant to the exercise of ISOs granted under the Plan. A Disqualifying
Disposition is generally any disposition occurring before the later of (a)
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the date two years following the date the ISO was granted or (b) the date one
year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of a Stock Right hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includible in gross income. The Committee in its discretion may
condition (i) the exercise of an option, (ii) the grant of an Award, (iii) the
making of a Purchase of Common Stock for less than its fair market value, or
(iv) the vesting or transferability of restricted stock or securities acquired
by exercising a Stock Right, on the grantee's making satisfactory arrangement
for such withholding. Such arrangement may include payment by the grantee in
cash or by check of the amount of the withholding taxes or, at the discretion of
the Committee, by the grantee's delivery of previously held shares of Common
Stock or the withholding from the shares of Common Stock otherwise deliverable
upon exercise of a Stock Right shares having an aggregate fair market value
equal to the amount of such withholding taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Stock Rights in connection
with the Plan.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of the State of Delaware, or the laws of any jurisdiction in which the Company
or its successors in interest may be organized. In construing this Plan, the
singular shall include the plural, unless the context otherwise requires.
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FIRST AMENDMENT TO
NEON SYSTEMS, INC.
1993 STOCK PLAN
1. PURPOSE. This First Amendment to Neon Systems, Inc., 1993 Stock Plan
(this "Amendment") is intended to amend certain provisions of the 1993 Stock
Plan (the "Plan") of Neon Systems, Inc., a Delaware corporation (the "Company").
The Plan was adopted and approved by the Board of Directors and Sole Stockholder
of the Company on May 14, 1993.
2. AMENDMENT OF PLAN. The Plan is hereby amended as follows:
(a) AGGREGATE SHARES SUBJECT TO THE PLAN. The second sentence of
paragraph 4 of the Plan is hereby amended to read as follows:
The aggregate number of shares which may be issued pursuant to
the Plan is 320,000, subject to adjustment as provided in
paragraph 13.
(b) CORRECTION OF STATED TERMINATION DATE. The third sentence of
paragraph 15 of the Plan erroneously states that the Plan will end on May 13,
1993 rather than the intended expiration date of May 13, 2003. The third
sentence of such paragraph 15 is hereby amended by replacing the reference
therein to "May 13, 1993" with a reference to "May 13, 2003."
3. BOARD AND STOCKHOLDER APPROVAL. This Amendment will become effective
upon its adoption and approval by the Board of Directors of the Company and the
stockholders of the Company.
4. CONTINUATION OF THE PLAN. As modified hereby, the Plan shall continue
in full force and effect. References to the Plan after the date hereof shall
mean the Plan as amended pursuant to this Amendment. The law governing the
validity and construction of the Plan, as modified hereby, shall be that
determined in accordance with paragraph 21 of the Plan.
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SECOND AMENDMENT TO
NEON SYSTEMS, INC.
1993 STOCK PLAN
1. PURPOSE. This Second Amendment to Neon Systems, Inc. 1993 Stock Plan
(this "Amendment") is intended to amend certain provisions of the 1993 Stock
Plan (the "Plan") of Neon Systems, Inc., a Delaware corporation (the "Company").
The Plan was adopted and approved by the Board of Directors and Sole Stockholder
of the Company on May 14, 1993.
2. AMENDMENT OF PLAN. The Plan is hereby amended by amending the second
sentence of paragraph 4 of the Plan to read in its entirety as follows:
The aggregate number of shares which may be issued pursuant to
the Plan is 2,600,000, subject to adjustment as provided in
paragraph 13.
3. BOARD AND STOCKHOLDER APPROVAL. This Amendment will become effective
upon its adoption and approval by the Board of Directors of the Company and the
stockholders of the Company.
4. CONTINUATION OF THE PLAN. As modified hereby, the Plan shall continue
in full force and effect. References to the Plan after the date hereof shall
mean the Plan as amended pursuant to this Amendment. The law governing the
validity and construction of the Plan, as modified hereby, shall be that
determined in accordance with paragraph 21 of the Plan.
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Exhibit 10.2
NEON SYSTEMS, INC. 401(K) PLAN
SUMMARY PLAN DESCRIPTION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
I. INTRODUCTION TO YOUR PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .1
II. GENERAL INFORMATION ABOUT YOUR PLAN. . . . . . . . . . . . . . . . . . . . . .1
1. General Plan Information . . . . . . . . . . . . . . . . . . . . . . .1
2. Employer Information . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. Plan Administrator Information . . . . . . . . . . . . . . . . . . . . .2
4. Plan Trustee Information . . . . . . . . . . . . . . . . . . . . . . . .2
5. Service of Legal Process . . . . . . . . . . . . . . . . . . . . . . . .3
III. PARTICIPATION IN YOUR PLAN . . . . . . . . . . . . . . . . . . . . . . . . . .3
1. Eligibility Requirements . . . . . . . . . . . . . . . . . . . . . . . .3
2. Participation Requirements . . . . . . . . . . . . . . . . . . . . . . .3
IV. CONTRIBUTIONS TO YOUR PLAN . . . . . . . . . . . . . . . . . . . . . . . . . .4
1. Employer Contributions to the Plan . . . . . . . . . . . . . . . . . . .4
2. Participant Salary Reduction Election. . . . . . . . . . . . . . . . . .4
3. Your Share of Employer Contributions . . . . . . . . . . . . . . . . . .6
4. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5. Forfeitures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6. Transfers From Qualified Plans (Rollovers) . . . . . . . . . . . . . . .7
7. Directed Investments . . . . . . . . . . . . . . . . . . . . . . . . . .8
V. BENEFITS UNDER YOUR PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . .8
1 Distribution of Benefits Upon Normal Retirement. . . . . . . . . . . . .8
2. Distribution of Benefits Upon Late Retirement. . . . . . . . . . . . . .8
3. Distribution of Benefits Upon Death. . . . . . . . . . . . . . . . . . .8
4. Distribution of Benefits Upon Disability . . . . . . . . . . . . . . . .9
5. Distribution of Benefits Upon Termination of Employment. . . . . . . . .9
6. Vesting in Your Plan . . . . . . . . . . . . . . . . . . . . . . . . . 10
7. Benefit Payment Options. . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
8. Pre-Retirement Distribution of Benefits. . . . . . . . . . . . . . . . 11
9. Hardship Distribution of Benefits. . . . . . . . . . . . . . . . . . . 11
10. Treatment of Distributions From Your Plan. . . . . . . . . . . . . . . 12
11. Domestic Relations Order . . . . . . . . . . . . . . . . . . . . . . . 13
12. Pension Benefit Guaranty Corporation . . . . . . . . . . . . . . . . . 13
VI. YEAR OF SERVICE RULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1. Year of Service and Hour of Service. . . . . . . . . . . . . . . . . . 13
2. 1 -Year Break in Service . . . . . . . . . . . . . . . . . . . . . . . 14
VII. YOUR PLAN'S "TOP HEAVY RULES\. . . . . . . . . . . . . . . . . . . . . . . . 15
1. Explanation of "Top Heavy Rules\ . . . . . . . . . . . . . . . . . . . 15
VIII. LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1. Loan Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
IX. CLAIMS BY PARTICIPANTS AND BENEFICIARIES . . . . . . . . . . . . . . . . . . 17
1. The Claims Review Procedure. . . . . . . . . . . . . . . . . . . . . . 17
X. STATEMENT OF ERISA RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . 18
1. Explanation of Your ERISA Rights . . . . . . . . . . . . . . . . . . . 18
XI. AMENDMENT AND TERMINATION OF YOUR PLAN . . . . . . . . . . . . . . . . . . . 20
1. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
ii
<PAGE>
NEON SYSTEMS, INC. 401(K) PLAN
SUMMARY PLAN DESCRIPTION
I. INTRODUCTION TO YOUR PLAN
NEON Systems, Inc. wishes to recognize the efforts its employees have made
to its success and to reward them by adopting a 401(k) Profit Sharing Plan and
Trust. This 401(k) Profit Sharing Plan and Trust will be for the exclusive
benefit of eligible employees and their beneficiaries.
Your Plan is a "salary reduction plan." It is also called a "401(k) plan."
Under this type of plan, you may choose to reduce your compensation and have
these amounts contributed to this Plan on your behalf.
The purpose of this Plan is to reward eligible employees for long and loyal
service by providing them with retirement benefits.
Between now and your retirement, your Employer' intends to make
contributions for you and other eligible employees. When you retire, you will be
eligible to receive the value of the amounts which have accumulated in your
account.
This Summary Plan Description is a brief description of your Plan and your
rights, obligations, and benefits under that Plan. Some of the statements made
in this Summary Plan Description are dependent upon this Plan being "qualified"
under the provisions of the Internal Revenue Code. This Summary Plan Description
is not meant to interpret, extend, or change the provisions of your Plan in any
way. The provisions of your Plan may only be determined accurately by reading
the actual Plan document, including the Adoption Agreement.
A copy of your Plan and the Adoption Agreement are on file at your
Employer's office and may be read by you, your beneficiaries, or your legal
representatives at any reasonable time. If you have any questions regarding
either your Plan, the Adoption Agreement or this Summary Plan Description, you
should ask your Plan's Administrator. In the event of any discrepancy between
this Summary Plan Description and the actual provisions of the Plan, the Plan
will govern.
II. GENERAL INFORMATION ABOUT YOUR PLAN
There is certain general information which you may need to know about your
Plan. This information has been summarized for you in this Section.
1. General Plan Information
NEON Systems, Inc. 401(k) Plan is the name of your Plan.
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<PAGE>
Your Employer has assigned Plan Number 001 to your Plan.
The provisions of your Plan become effective on January 1, 1997, which is
called the Effective Date of the Plan.
Your Plan's records are maintained on a twelve-month period of time. This
is known as the Plan Year. The Plan Year begins on January 1st and ends on
December 31st.
Certain valuations and distributions are made on the Anniversary Date of
your Plan. This date is December 31st.
The contributions made to your Plan will be held and invested by the
Trustee of your Plan.
Your Plan and Trust will be governed by the laws of the State of Texas.
2. Employer Information
Your Employer's name, address and identification number are:
NEON Systems, Inc.
14141 S.W. Frwy., Suite 6200
Sugar Land, Texas 77478
76-0345839
Your Plan allows other employers to adopt its provisions. You or your
beneficiaries may examine or obtain a complete list of employers, if any, who
have adopted your Plan by making a written request to the Administrator.
3. Plan Administrator Information
The name, address and business telephone number of your Plan's
Administrator are:
NEON Systems, Inc.
14141 S.W. Frwy., Suite 6200
Sugar Land, Texas 77478
(713) 491-4200
Your Plan's Administrator keeps the records for the Plan and is responsible for
the administration of the Plan. The Administrator has discretionary authority to
construe the terms of the Plan and make determinations on questions which may
affect your eligibility for benefits. Your Plan's Administrator will also answer
any questions you may have about your Plan.
4. Plan Trustee Information
The name of your Plan's Trustee is:
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<PAGE>
John Reiland
The principal place of business of your Plan's Trustee is:
14141 S.W. Frwy., Suite 6200
Sugar Land, Texas 77478
Your Plan's Trustee has been designated to hold and invest Plan assets for
the benefit of you and other Plan participants. The trust fund established by
the Plan's Trustee will be the funding medium used for the accumulation of
assets from which benefits will be distributed.
5. Service of Legal Process
The name and address of your Plan's agent for service of legal process are:
NEON Systems, Inc.
14141 S.W. Frwy., Suite 6200
Sugar Land, Texas 77478
Service of legal process may also be made upon the Trustee or
Administrator.
III. PARTICIPATION IN YOUR PLAN
Before you become a member or a "participant" in the Plan, there are
certain eligibility and participation rules which you must meet. These rules are
explained in this Section.
1. Eligibility Requirements
You will participate in the Plan as of the Effective Date of the Plan which
is January 1, 1997 if you were employed on such date. Otherwise, you will be
eligible to participate in the Plan if you have completed one-half Year of
Service and have attained age 21.
You will have completed one-half of one Year of Service if you are in the
employ of your Employer six (6) months after your employment commencement date.
2. Participation Requirements
Once you have satisfied your Plan's eligibility requirements, your next
step will be to actually become a member or a "participant" in the Plan. You
will become a participant on a specified day of the Plan Year. This day is
called the Effective Date of Participation.
You will become a participant on the first day of the Plan Year Quarter
coinciding with or next following the date you satisfy the eligibility
requirements.
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<PAGE>
IV. CONTRIBUTIONS TO YOUR PLAN
1. Employer Contributions to the Plan
Each year, your Employer will contribute to your Plan the following
amounts:
(a) The total amount of the salary reduction you elected to defer. (See
the Section in this Article entitled "Participant Salary Reduction Election.")
(b) A discretionary matching contribution equal to a percentage of the
amount of the salary reduction you elected to defer, which percentage will be
determined each year by the Employer.
For a participant to qualify for a matching contribution, the following
conditions apply:
- If you are actively employed on the last day of the Plan Year, you will
share regardless of the number of Hours of Service credited during the Plan
Year.
- If you terminate employment (not actively employed on the last day of the
Plan Year), you must be credited with more than 500 Hours of Service.
- You will share in the matching contribution for the year regardless of
the number of Hours of Service credited in the year of your death,
disability or retirement.
(c) A discretionary amount determined each year by your Employer.
For a participant to qualify for the discretionary contribution, the
following conditions apply:
- If you are actively employed on the last day of the Plan Year, you will
share regardless of the number of Hours of Service credited during the Plan
Year.
- If you terminate employment (not actively employed on the last day of the
Plan Year), you must be credited with more than 500 Hours of Service.
- You will share for the year regardless of the number of Hours of Service
credited in the year of your death, disability or retirement.
2. Participant Salary Reduction Election
As a participant, you may elect to defer not less than 1 % nor more than
15% of your compensation each year instead of receiving that amount in cash.
However, your total deferrals in any taxable year may not exceed a dollar limit
which is set by law. The limit for 1996 is $9,500. This limit will be increased
in future years for cost of living changes.
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<PAGE>
You may elect to defer your salary as of each entry date. Such election
will become effective as soon as administratively feasible. Your election will
remain in effect until you modify or terminate it. You may modify your election
as of each entry date of any year. The modification will be come effective as
soon as administratively feasible.
The amount you elect to defer, and any earnings on that amount, will not be
subject to income tax until it is actually distributed to you. This money will,
however, be subject to Social Security taxes at all times.
You should also be aware that the annual dollar limit is an aggregate limit
which applies to all deferrals you may make under this plan. or other cash or
deferred arrangements (including tax-sheltered 403(b) annuity contracts,
simplified employee pensions or other 401(k) plans in which you may be
participating. Generally, if your total deferrals under all cash or deferred
arrangements for a calendar year exceed the annual dollar limit, the excess
must be included in your income for the year. For this reason, it is desirable
to request in writing that these excess deferrals be returned to you. If you
fail to request such a return,
You must decide which plan or arrangement you would like to have return the
excess. If you decide that the excess should be distributed from this Plan, you
should communicate this in writing to the Administrator no later than the
March 1st. following the close of the calendar year in which such excess
deferrals were made. The Administrator may then return the excess deferral and
any earnings to you by April 15th.
In the event you receive a hardship distribution from your deferrals to
this Plan or any other plan maintained by your Employer, you will not be allowed
to make additional salary reductions for a period of twelve (12) months after
you receive the distribution. Furthermore, the dollar limitation set by law
with respect to your taxable year following, the year in which you received the
distribution, will be reduced by your salary reductions, if any, for the taxable
year of the distribution.
You will always be 100% vested in the amount you deferred. This means that
you will always be entitled to all of the deferred amount. This money will,
however, be affected by any investment gains or losses.
Distributions from your deferred account are not permitted before age 59
1/2 EXCEPT in the event of:
(a) death;
(b) disability;
(c) termination of employment; or
(d) reasons of proven financial hardship (See the Section in Article V
entitled "Hardship Distribution of Benefits").
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<PAGE>
In addition, if, you are a highly compensated employee (generally owners,
officers or individuals receiving wages in excess of certain amounts established
by law), a distribution from your deferred account of certain excess
contributions may be required to comply with the law. The Administrator will
notify you when a distribution is required.
3. Your Share of Employer Contributions
Your Employer will allocate the amount you elect to defer to an account
maintained on your behalf.
If you are eligible, your Employer will also allocate the matching
contribution made to the Plan on your behalf. (See the Section in this Article
entitled "Employer Contributions to the Plan.")
Your Employer's discretionary contribution will be "allocated" or divided
among participants eligible to share in the contribution for the Plan Year. Your
share of the contribution will depend upon how much compensation you received
during the year and the compensation received by other eligible participants.
Your share of your Employer's discretionary contribution is determined by
the following fraction:
Your Compensation
Employer's X ------------------------------
Discretionary Contribution Total Compensation of All
Participants Eligible to Share
For example:
Suppose the Employer's discretionary contribution for the Plan Year is $20,000.
Employee A's compensation for the Plan Year is $25,000. The total compensation
of all participants eligible to share, including Employee A, is $250,000.
Employee A's share will be:
$25,000
$20,000 X -------- or $2,000
$250,000
In addition to the Employer's contributions made to your account, your
account will be credited annually with a share of the investment earnings or
losses of the trust fund.
You should also be aware that the law imposes certain limits on how much
money may be allocated to your account for a year. These limits are extremely
complex, but generally no more than the lesser of $30,000 or 25% of your
compensation, may be allocated to you (excluding earnings) in any year. The
Administrator will inform you if these limits have affected you.
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<PAGE>
4. Compensation
For the purposes of your Plan, compensation has a special meaning.
Compensation is defined as your total salary, wages and other amounts which are
includible in your income for purposes of income taxes that is paid during the
Plan Year. However the following will be excluded:
--reimbursements or other expense allowances, fringe benefits, moving
expenses, deferred compensation, and welfare benefits.
In addition, salary reduction contributions to any cafeteria plan, tax
sheltered annuity, SEP or 401(k) Plan will be included as compensation for Plan
purposes.
Your compensation will be recognized for benefit purposes from your date of
entry into the Plan.
The Plan, by law, cannot recognize compensation in excess of $150,000. This
amount will be adjusted in future years for cost of living increases. It will
also be applied to certain highly compensated employees and their family members
as if they were a single participant. If you or a member of your family may be
affected by this rule, ask your Administrator for further details.
5. Forfeitures
Forfeitures are created when participants terminate employment before
becoming entitled to their full benefits under the Plan. Your account may grow
from the forfeitures of other participants. Forfeitures will be "allocated" or
divided among participants eligible to share for a Plan Year. However, a portion
of forfeited amounts will be used to reduce your Employer's contributions to the
Plan.
6. Transfers From Qualified Plans (Rollovers)
At the discretion of the Administrator, you may be permitted to deposit
into your Plan distributions you have received from other plans. Such a deposit
is called a "rollover" and may result in tax savings to you. You should consult
qualified counsel to determine if a rollover is in your best interest.
Your rollover will be placed in a separate account called a "participant's
rollover account." The Administrator may establish rules for investment.
You will always be 100% vested in your "rollover account." This means that
you will always be entitled to all of your rollover contributions. Rollover
contributions will be affected by any investment gains or losses.
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<PAGE>
7. Directed Investments
The Administrator may establish rules for investment of your account
balance. If the Administrator approves, you may direct the investment of your
account balance.
V. BENEFITS UNDER YOUR PLAN
1. Distribution of Benefits Upon Normal Retirement
Your Normal Retirement Date is the date of your 59 1/2 birthday (Normal
Retirement Age).
At your Normal Retirement Age, you will be entitled to 100% of your account
balance. Payment of your benefits will begin as soon as practicable following
your Normal Retirement Date.
2. Distribution of Benefits Upon Late Retirement
You may remain employed past your Plan's Normal Retirement Date and retire
instead on your Late Retirement Date. Your Late Retirement Date is any date you
choose to retire, after first having reached your Normal Retirement Date. On
your Late Retirement Date, you will be entitled to 100% of your account balance.
Actual benefit payments will begin as soon as practicable following your Late
Retirement Date.
3. Distribution of Benefits Upon Death
Your beneficiary will be entitled to a single lump-sum distribution of 100%
of your account balance upon your death.
If you are married at the time of your death, your spouse will be the
beneficiary of the death benefit, unless you otherwise elect in writing on a
form to be furnished to you by the Administrator. IF YOU WISH TO DESIGNATE A
BENEFICIARY OTHER THAN YOUR SPOUSE, HOWEVER, YOUR SPOUSE MUST IRREVOCABLY
CONSENT TO WAIVE ANY RIGHT TO THE DEATH BENEFIT. YOUR SPOUSE'S CONSENT MUST BE
IN WRITING, BE WITNESSED BY A NOTARY OR A PLAN REPRESENTATIVE AND ACKNOWLEDGE
THE SPECIFIC NONSPOUSE, BENEFICIARY.
If, however,
(a) your spouse has validly waived any right to the death benefit in the
manner outlined above,
(b) your spouse cannot be located; or
(c) you are not married at the time of your death,
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<PAGE>
then your death benefit will be paid to the beneficiary of your own choosing in
a single lump sum. You may designate the beneficiary on a form to be supplied to
you by the Administrator. If you change your designation, your spouse must again
consent to the change.
Regardless of the method of distribution selected, your entire death
benefit must generally be paid to your beneficiaries within five years after
your death (the "5-year rule"). However, if your designated beneficiary is a
person (instead of your estate or most trusts), then you or your beneficiary
may elect to have minimum distributions begin within one year of your death
and it may be paid over the designated beneficiary's life expectancy (the
"1-year rule"). If your spouse is the beneficiary, then under the "1-year
rule" the start of payments may be delayed until the year in which you would
have attained age 70 1/2. The election to have death benefits distributed
under the "1-year rule" instead of the "5-year rule" must be made no later
than the time at which minimum distributions must commence under the "1-year
rule" (or, in the case of a surviving spouse, the "5-year rule," if earlier).
Since your spouse participates in these elections and has certain rights in
the death benefit, you should immediately report any change in your marital
status to the Administrator.
4. Distribution of Benefits Upon Disability
Under your Plan, disability is defined as a physical or mental condition
resulting from bodily injury, disease, or mental disorder which renders you
incapable of continuing any gainful occupation with your Employer. Your
disability will be determined by a licensed physician chosen by the
Administrator. However, if your condition constitutes total disability under the
federal Social Security Act, then the Administrator may deem that you are
disabled for purposes of the Plan.
If you become disabled while a participant, you will be entitled to 100% of
your account balance. Payment of your disability benefits will be made to you as
if you had retired. (See the Section in this Article entitled "Benefit Payment
Options.")
5. Distribution of Benefits Upon Termination of Employment
Your Plan is designed to encourage you to stay with your Employer until
retirement. Payment of your account balance under your Plan is generally only
available upon your death, disability or retirement.
If your employment terminates for reasons other than those listed above,
you will be entitled to receive only your "vested percentage" of your account
balance and the remainder of your account will be forfeited. Only contributions
made by your Employer are subject to forfeiture. (See the Section in this
Article entitled "Vesting in Your Plan.")
If you so elect, the Administrator will direct the Trustee to distribute
your vested benefit to you before the date it would normally be distributed
(upon your death, disability or retirement). If your vested benefit under the
Plan at the time of any prior distribution exceeded
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<PAGE>
$3,500 or currently exceeds $3,500, you must give written consent before the
distribution may be made. Amounts of $3,500 or less will be distributed without
the need for consent.
Under the Plan's administrative procedures, if the value of your vested
account is zero, any non-vested account balance will be forfeited immediately.
6. Vesting in Your Plan
Your "vested percentage" in your account is determined under the following
schedule and is based on vesting Years of Service. You will always, however, be
100% vested upon your Normal Retirement Age. (See the Section in this Article
entitled "Distribution of Benefits Upon Normal Retirement.")
Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage
<S> <C>
3 20%
4 40%
5 60%
6 80%
7 100%
</TABLE>
Regardless of this vesting schedule, you are always 100% vested in your
salary reduction amounts contributed to the Plan.
7. Benefit Payment Options
At the time you are entitled to receive a distribution under the Plan, the
Administrator will direct the distribution of your benefits to you in one lump-
sum cash payment.
GENERALLY, WHENEVER A DISTRIBUTION IS TO BE MADE TO YOU ON OR BEFORE AN
ANNIVERSARY DATE, IT MAY BE POSTPONED BY THE PLAN FOR A PERIOD OF UP TO 180
DAYS, FOR ADMINISTRATIVE CONVENIENCE. HOWEVER, UNLESS YOU ELECT IN WRITING TO
DEFER THE RECEIPT OF BENEFITS, NO DISTRIBUTION MAY BEGIN LATER THAN THE 60TH DAY
AFTER THE CLOSE OF THE PLAN YEAR IN WHICH THE LATEST OF THE FOLLOWING EVENTS,
OCCURS:
(a) than date on which you reach the age of 65 or your Normal
Retirement Age;
(b) the 10th anniversary of the year in which you became a
participant in the Plan;
(c) the date you terminated employment with your Employer.
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<PAGE>
Regardless of whether you elect to delay the receipt of benefits, there are
other rules which generally require minimum payments to begin no later than the
April 1st following the year in which you reach age 70 1/2. You should see the
Administrator if you feel you may be affected by this rule.
8. Pre-Retirement Distribution of Benefits
You may be entitled to receive a pre-retirement distribution if you have
reached the age of 59 1/2 and are 100% vested in your account from which such
distribution is made. However, any distribution will reduce the value of the
benefits you will receive at normal retirement. This distribution is made at
your election.
Also, the law restricts any pre-retirement distribution from certain
accounts which are maintained for you under the Plan before you reach age
59 1/2. These accounts are generally the ones set up to receive your salary
reduction contributions and other Employer contributions which are used to
satisfy special rules for 401(k) plans. Ask your Administrator if you need
more details.
9. Hardship Distribution of Benefits
The Administrator may direct the Trustee to distribute up to 100% of your
account balance in the event of immediate and heavy financial need. This
hardship distribution is not in addition to your other benefits and will
therefore reduce the value of the benefits you will receive at normal
retirement.
Distribution may only be made front a fully vested account balance.
Withdrawal will be authorized only if the distribution is to be used for
one of the following purposes:
(a) The payment of medical expenses (described in Section 213(d) of
the Internal Revenue Code) previously incurred by you or your dependent or
necessary for you or your dependent to obtain medical care;
(b) The costs directly related to the purchase of your principal
residence (excluding mortgage payments);
(c) The payment of tuition and related educational fees for the next
twelve (12) months of post-secondary education for yourself, your spouse or
dependent;
(d) The payment necessary to prevent your eviction from your
principal residence or foreclosure on the mortgage of your principal
residence.
There are restrictions placed on hardship distributions which are made from
certain accounts. These accounts are generally the accounts which receive your
salary reduction contributions and other Employer contributions which are used
to satisfy special rules that apply
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<PAGE>
to 401(k) plans. Any hardship distribution from these accounts will be limited
to your salary reduction contributions. Ask your Administrator if you need
further details.
In addition, a distribution will be made from these accounts only if you
certify and agree that all of the following conditions are satisfied:
(a) The distribution is not in excess of the amount of your immediate
and heavy financial need;
(b) You have obtained all distributions, other than hardship
distributions, and all nontaxable loans currently available under all plans
maintained by your Employer;
(c) That your elective contributions and employee contributions will
be suspended for at least twelve (12) months after your receipt of the
hardship distribution; and
(d) That you will not make elective contributions for your taxable
year immediately following the taxable year of the hardship distribution,
except to the extent permitted by the Plan.
10. Treatment of Distributions From Your Plan
Whenever you receive a distribution from your Plan, it will normally be
subject to income taxes. You may, however, reduce, or defer entirely, the tax
due on your distribution through use of one of the following methods:
(a) The rollover of all or a portion of the distribution to an Individual
Retirement Account (IRA) or another qualified employer plan. This will result in
no tax being due until you begin withdrawing funds from the IRA or other
qualified employer plan. The rollover of the distribution, however, MUST be made
within strict time frames (normally, within 60 days after you receive your
distribution). Under certain circumstances all or a portion of a distribution
may not qualify for this rollover treatment. In addition, most distributions
will be subject to mandatory federal income tax withholding at a rate of 20%.
This will reduce the amount you actually receive. For this reason, if you wish
to roll over all or a portion of your distribution amount, the direct transfer
option described in paragraph (b) below would be the better choice.
(b) You may request that a direct transfer of all or a portion of your
distribution amount be made to either an Individual Retirement Account (IRA) or
another qualified employer plan willing to accept the transfer. A direct
transfer will result in no tax being due until you withdraw funds from the IRA
or other qualified employer plan. Like the rollover, under certain circumstances
all or a portion of the amount to be distributed may not qualify for this direct
transfer. If you elect to actually receive the distribution rather than request
a direct transfer, then in most cases 20% of the distribution amount will be
withheld for federal income tax purposes.
12
<PAGE>
(c) The election of favorable income tax treatment under 10-year forward
averaging," "5-year forward averaging" or, if you qualify, "capital gains"
method of taxation.
WHENEVER YOU RECEIVE A DISTRIBUTION, THE ADMINISTRATOR WILL DELIVER TO YOU
A MORE DETAILED EXPLANATION OF THESE OPTIONS. HOWEVER, THE RULES WHICH DETERMINE
WHETHER YOU QUALIFY FOR FAVORABLE TAX TREATMENT ARE VERY COMPLEX. YOU SHOULD
CONSULT WITH QUALIFIED TAX COUNSEL BEFORE MAKING A CHOICE.
11. Domestic Relations Order
As a general rule, your interest in your account, including your "vested
interest," may not be alienated. This means that your interest may not be sold,
used as collateral for a loan, given away or otherwise transferred. In addition,
your creditors may not attach, garnish or otherwise interfere with your account.
There is an exception, however, to this general rule. The Administrator may
be required by law to recognize obligations you incur as a result of court
ordered child support or alimony payments. The Administrator must honor a
"qualified domestic relations order." A "qualified domestic relations order" is
defined as a decree or order issued by a court that obligates you to pay child
support or alimony, or otherwise allocates a portion of your assets in the Plan
to your spouse, former spouse, child or other dependent. If a qualified domestic
relations order is received by the Administrator, all or a portion of your
benefits may be used to satisfy the obligation. The Administrator will determine
the validity of any domestic relations order received.
12. Pension Benefit Guaranty Corporation
Benefits provided by your Plan are NOT insured by the Pension Benefit Guaranty
Corporation (PBGC) under Title IV of the Employee Retirement Income Security Act
of 1974 because the insurance provisions under ERISA are not applicable to your
Plan.
VI. YEAR OF SERVICE RULES
1. Year of Service and Hour of Service
You will have completed a Year of Service for vesting purposes if you are
credited with 1000 Hours of Service during a Plan Year, even if you were not
employed on- the first or last day of the Plan Year.
An "Hour of Service" has a special meaning for Plan purposes. You will be
credited with an Hour of Service for:
(a) each hour for which you are directly or indirectly compensated by
your Employer for the performance of duties during the Plan Year;
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<PAGE>
(b) each hour for which you are directly or indirectly compensated by
your Employer for reasons other than performance of duties (such as
vacation, holidays, sickness, disability, lay-off, military duty, jury duty
or leave of absence during the Plan Year); and
(c) each hour for back pay awarded or agreed to by your Employer.
You will not be credited for the same Hours of Service both under (a) or
(b), as the case may be, and under (c).
2. 1-Year Break in Service
A 1-Year Break in Service is a computation period during which you have not
completed more than 500 Hours of Service with your Employer.
A 1-Year Break in Service does NOT occur, however, in the computation period in
which you enter or leave the Plan for reasons of:
(a) an authorized leave of absence;
(b) certain maternity or paternity absences.
The Administrator will be required to credit you with Hours of Service for
a maternity or paternity absence. These are absences taken on account of
pregnancy, birth, or adoption of your child. No more than 501 Hours of Service
will be credited for this purpose and these Hours of Service will be credited
solely to avoid your incurring a 1-Year Break in Service. The Administrator may
require you to furnish proof that your absence qualifies as a maternity or
paternity absence.
These break in service rules may be illustrated by the following examples:
Employee A works 300 hours in a Plan Year. At the end of the Plan Year,
Employee A will have a 1-Year Break in Service because she has worked less
than 501 hours in a Plan Year. Employee B works 300 hours in a Plan Year
and takes an authorized leave of absence for which he is credited with an
additional 250 hours. Employee B will NOT have a 1-Year Break in Service
because he is credited with more than 500 hours in a Plan Year.
If you are reemployed after a 1-Year Break in Service and were vested in
any portion of your account derived from Employer contributions, you will
receive credit for all Years of Service credited to you before your 1-Year
Break in Service.
If you do not have a "vested interest" in the Employer contributions
allocated to your account when you terminate your employment, you will lose
credit for your pre-break Years of Service when your consecutive 1-Year Breaks
in Service equal or exceed the greater of 5 years, or your pre-break Years of
Service. For example:
14
<PAGE>
Employee B terminated employment on January 1, 2000 with 2 Years of
Service. Employee B was not vested at the time of his termination of
employment. Employee B returns to work on January 1, 2003. Employee B will
be credited with his 2 pre-break Years of Service because his period of
termination years) did not exceed 5 years.
VII. YOUR PLAN'S "TOP HEAVY RULES"
1. Explanation of "Top Heavy Rules"
A 401(k) Profit Sharing Plan that primarily benefits "key employees" is
called a "top heavy plan." Key employees are certain owners or officers of your
Employer. A Plan is a "top heavy plan" when more than 60% of the contributions
or benefits have been allocated to key employees.
Each year, the Administrator is responsible for determining whether your
Plan is a "top heavy plan."
If your Plan becomes top heavy in any Plan Year, then non-key employees
will be entitled to certain "top heavy minimum benefits," and other special
rules will apply. Among these top heavy rules are the following:
(a) Your Employer may be required to make a contribution equal to 3%
of your compensation to your account;
(b) Instead of the vesting schedule outlined in the Article and
Section in this Summary entitled "BENEFITS UNDER YOUR PLAN: Vesting in Your
Plan," your nonforfeitable right to benefits or contributions derived from
Employer contributions will be determined according to the following
schedule:
<TABLE>
<CAPTION>
Vesting Schedule
Years of Service Percentage
<S> <C>
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
(c) If you are a participant in more than one Plan, you may not be
entitled to minimum benefits under both Plans.
VIII. LOANS
You may apply to the Administrator for a loan from the Plan. Your
application must be in writing on forms which the Administrator will provide to
you. The Administrator may also
15
<PAGE>
request that you provide additional information, such as financial statements,
tax returns and credit reports. After considering your application, the
Administrator may, in its discretion, determine that you qualify for the loan.
The Administrator will inform the Trustee that you qualify. The Trustee may then
review the Administrator's determination and make a loan to you if it is a
prudent investment for the Plan.
1. Loan Requirements
There are various rules and requirements that apply for any loan. These
rules are outlined in this Section. In addition, your Employer has established a
written loan program which explains these requirements in more detail. You can
request a copy of the loan program from the Administrator. Generally, the rules
for loans include the following:
(a) Loans must be made available to all participants and their
beneficiaries on a uniform and non-discriminatory basis.
(b) All loans must be adequately secured. You may use up to one-half
(1/2) of your vested account balance under the Plan as security for the
loan. If more security is required, your principal residence may be used,
if permitted by State law. The Plan may also require that repayments on the
loan obligation be by payroll deduction.
(c) All loans must bear a reasonable rate of interest. The interest
rate must he one a bank or other professional lender would charge for
making a loan in a similar circumstance.
(d) All loans must have a definite repayment period which provides
for payments to be made not less frequently than quarterly, and for the
loan to be amortized on a level basis over a reasonable period of time, not
to exceed five (5) years. However, if you use the loan to acquire your
principal residence, you may repay the loan over a reasonable period of
time that may be longer than five (5) years.
(e) All loans will be considered a directed investment from your
account under the Plan. All payments of principal and interest by you on a
loan will be credited to your account.
(f) The amount the Plan may loan to you is limited by rules under the
Internal Revenue Code. All loans, when added to the outstanding balance of
all other loans from the Plan, will be limited to the lesser of:
(1) $50,000 reduced by the excess, if any, of your highest
outstanding balance of loans from the Plan during the one-year period
prior to the date of the loan over -your current outstanding balance
of loans; or
(2) 1/2 of your vested account balance.
Also, no loan in an amount less than $1,000 will be made.
16
<PAGE>
(g) If you fail to make payments when they are due under the loan,
you will be considered to be "in default." The Trustee would then have
authority to take all reasonable actions to collect the balance owing on
the loan. This could include filing a lawsuit or foreclosing on the
security for the loan. Under certain circumstances, a loan that is in
default may be considered a distribution from the Plan, and could result in
taxable income to you. In any event, your failure to repay a loan will
reduce the benefit you would otherwise be entitled to from the Plan.
IX. CLAIMS BY PARTICIPANTS AND BENEFICIARIES
Benefits will be paid to participants and their beneficiaries without the
necessity of formal claims. You or your beneficiaries, however, may make a
request for any Plan benefits to which you may be entitled. Any such request
must be made in writing, and it should be made to the Administrator. (See the
Article in this Summary entitled "GENERAL INFORMATION ABOUT YOUR PLAN.")
Your request for Plan benefits will be considered a claim for Plan
benefits, and it will be subject to a full and fair review. If your claim is
wholly or partially denied, the Administrator will furnish you with a written
notice of this denial. This written notice must be provided to you within a
reasonable period of time (generally 90 days) after the receipt of your claim by
the Administrator. The written notice must contain the following information:
(a) the specific reason or reasons for the denial;
(b) specific reference to those Plan provisions on which the denial
is based;
(c) a description of any additional information or material necessary
to correct your claim and an explanation of why such material or
information is necessary; and
(d) appropriate information as to the steps to be taken if you or
your beneficiary wishes to submit your claim for review.
If notice of the denial of a claim is not furnished to you, in accordance
with the above within a reasonable period of time, your claim will be deemed
denied. You will then be permitted to proceed to the review stage described in
the following paragraphs.
If your claim has been denied, and you wish to submit your claim for
review, you must. follow the Claims Review Procedure.
1. The Claims Review Procedure
(a) Upon the denial of your claim for benefits, you may file your
claim for review, in writing, with the Administrator.
17
<PAGE>
(b) YOU MUST FILE THE CLAIM FOR REVIEW NO LATER THAN 60 DAYS AFTER
YOU HAVE RECEIVED WRITTEN NOTIFICATION OF THE DENIAL OF YOUR CLAIM FOR
BENEFITS OR, IF NO WRITTEN DENIAL OF YOUR CLAIM WAS PROVIDED, NO LATER THAN
60 DAYS AFTER THE DEEMED DENIAL OF YOUR CLAIM.
(c) You may review all pertinent documents relating to the denial of
your claim and submit any issues and comments, in writing, to the
Administrator.
(d) Your claim for review must be given a full and fair review. If
your claim is denied, the Administrator must provide you with written
notice of this denial within 60 days after the Administrator's receipt of
your written claim for review. There may be times when this 60-day period
may be extended. This extension may only be made, however, where there are
special circumstances which are communicated to you in writing within the
60-day period. If there is an extension, a decision will be made as soon as
possible, but not later than 120 days after receipt by the Administrator of
your claim for review.
(e) The Administrator's decision on your claim for review will be
communicated to you in writing and will include specific references to the
pertinent Plan provisions on which the decision was based.
(f) If the Administrator's decision on review is not furnished to you
within the time limitations described above, your claim will be deemed
denied on review.
(g) If benefits are provided or administered by an insurance company,
insurance service, or other similar organization which is subject to
regulation under the insurance laws, the claims procedure relating to these
benefits may provide for review. If so that company, service, or
organization will be the entity to which claims are addressed. If you have
any questions regarding the proper person or entity to address claims, you
should ask the Administrator.
X. STATEMENT OF ERISA RIGHTS
1. Explanation of Your ERISA Rights
As a participant in this Plan you are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974, also
called ERISA. ERISA provides that all Plan participants are entitled to:
(a) examine, without charge, all Plan documents, including:
(1) insurance contracts;
(2) collective bargaining agreements; and
18
<PAGE>
(3) copies of all documents filed by the Plan with the U.S.
Department of Labor, such as detailed annual reports and Plan
descriptions.
This examination may take place at the Administrator's office and
at other specified employment locations of the Employer. (See the
Article in this Summary entitled "GENERAL INFORMATION ABOUT YOUR
PLAN");
(b) obtain copies of all Plan documents and other Plan information
upon written request to the Plan Administrator. The Administrator may make
a reasonable charge for the copies;
(c) receive a summary of the Plan's annual financial report. The
Administrator is required by law to furnish each participant with a copy of
this summary annual report;
(d) obtain a statement telling you whether you have a right to
receive a retirement benefit at Normal Retirement Age and, if so, what 'our
benefits would be at Normal Retirement Age if you stop working under the
Plan now. If you do not have a right to a retirement benefits the statement
will tell you how many years you have to work to get a right to a
retirement benefit. THIS STATEMENT MUST BE REQUESTED IN WRITING AND IS NOT
REQUIRED TO BE GIVEN MORE THAN ONCE A YEAR. The Plan must provide the
statement free of charge.
In addition to creating rights for Plan participants, ERISA imposes duties
upon the people who are responsible for the operation of the Plan. The people
who operate your Plan, called "fiduciaries" of the Plan, have a duty to do so
prudently and in the interest of you and other Plan participants and
beneficiaries. No one, including your employer or any other person, may fire you
or otherwise discriminate against you in any way to prevent you from obtaining a
pension benefit or exercising your rights under ERISA.
If your claim for a retirement benefit is denied in whole or in part, you
must receive a written explanation of the reason for the denial. You have the
right to have the Administrator review and reconsider your claim. (See the
Article in this Summary entitled "CLAIMS BY PARTICIPANTS AND BENEFICIARIES.")
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive them within
30 days, you may file suit in a federal court. In such a case, the court may
require the Administrator to provide the material's and pay you up to $100.00 a
day until you receive the materials, unless the materials were not sent because
of reasons beyond the control of the Administrator.
If you have a claim for benefits which is denied or ignored, in whole or in
part, you may file suit in a state or federal court.
If the Plan's fiduciaries misuse the Plan's money, or if you are
discriminated against for asserting your rights, you may seek assistance from
the U.S. Department of Labor, or you may file suit in a federal court; The court
will decide who should Pay court costs and legal fees. If
19
<PAGE>
you are successful, the court may order the person you have sued to pay these
costs and fees. If you lose, the court may order you to pay these costs and fees
if, for example, it finds your claim is frivolous.
If you have any questions about this statement, or about your rights under
ERISA, you should contact the nearest Area Office of the U.S. Labor-Management
Services Administration, Department of Labor.
XI. AMENDMENT AND TERMINATION OF YOUR PLAN
1. Amendment
Your Employer has the right to amend your Plan at any time. In no event,
however, will any amendment:
(a) authorize or permit any part of the Plan assets to be used for
purposes other than the exclusive benefit of participants or their
beneficiaries; or
(b) cause any reduction in the amount credited to your account; or
(c) cause any part of your Plan assets to revert to the Employer.
2. Termination
Your Employer has the right to terminate the Plan at any time. Upon
termination, all amounts credited to your account will become 100% vested.
20
<PAGE>
IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be
executed on this 5th day of December, 1996. Furthermore, this Plan may not be
used unless acknowledged by MFS Fund Distributors, Inc. or its authorized
representative.
EMPLOYER:
NEON Systems, Inc.
By: /s/ John S. Reiland
------------------------------
EMPLOYER
/s/ John S. Reiland
- -----------------------------------
TRUSTEE-JOHN REILAND
- -----------------------------------
TRUSTEE
- -----------------------------------
TRUSTEE
PARTICIPATING EMPLOYER:
- -----------------------------------
(enter name)
By: N/A
------------------------------
The following Acceptance of The First National Bank of Boston will be completed
if the Bank is named as Trustee:
The First National Bank of Boston
By: N/A
-------------------------
Authorized Officer
NOTE: The First National Bank-of Boston will act as Trustee only when
Plan assets are invested exclusively in mutual funds distributed
by MFS Fund Distributors, Inc. If the Trustee is another
corporation or an individual, at least 50% of Plan assets must be
so invested, unless MFS Fund Distributors, Inc. otherwise -agrees
in writing.
21
<PAGE>
This Plan may not be used, and shall not be deemed to be a Prototype Plan,
unless an authorized representative of MFS Fund Distributors, Inc. has
acknowledged the use of the Plan. Such acknowledgment is for administerial
purposes only. It acknowledges that the Employer is using the Plan but does not
represent that this Plan, including the choices selected on the Adoption
Agreement, has been reviewed by a representative of the sponsor or constitutes a
qualified retirement plan.
MFS Fund Distributors,
By: /s/ David Jobbler
------------------------------
With regard to any questions regarding the provisions of the Plan, adoption of
the Plan, or the effect of an opinion letter from the IRS, call or write (this
information must be completed by the sponsor of this Plan or its designated
representative):
Name: Otto E. Rogelstad, Esq.
---------------------------------------------------------------------
Address: MFS Fund Distributors. Inc,
---------------------------------------------------------------------
500 Boylston Street
---------------------------------------------------------------------
Boston, Massachusetts 02116
---------------------------------------------------------------------
Telephone: 800 637-1044
---------------------------------------------------------------------
22
<PAGE>
AMENDMENT TO
MFS FUND DISTRIBUTORS, INC.
401(K) PROFIT SHARING PLAN AND TRUST
1. Article VI of the Plan is amended by the addition of the new
subsection, effective as of the following date:
a. For Plans not entitled to extended reliance as described in
Revenue Ruling 94-76, the first day of the first Plan Year beginning on or
after December 31, 1994, or if later, 90 days after December 31, 1994; or
b. For Plans entitled to extended reliance as described in Revenue
Ruling 94-76, as of the first day of the first plan year beginning in 1999.
However, in the event of a transfer of assets to the Plan from a money
purchase plan that occurs after the date of the most recent determination
letter, the effective date of the amendment shall be the date immediately
preceding the date of such transfer of assets.
TRANSFER OF ASSETS FROM A MONEY PURCHASE PLAN
Notwithstanding any provision of this plan to the contrary, to the extent
that any optional form of benefit under this plan permits a distribution prior
to the employee's retirement, death, disability, or severance from employment,
and prior to plan termination, the optional form of benefit is not available
with respect to benefits attributable to assets Including the post-transfer
earnings thereon) and liabilities that are transferred, within the meaning of
Section 414(l) of the Internal Revenue (Code, to this plan from a money purchase
pension plan qualified under 401(a) of the Internal Revenue Code (other than
any portion of those assets and liabilities attributable to voluntary employee
contributions).
2. Article VI is amended by the addition of the following new subsection,
effective as of December 12, 1994:
UNIFORMED SERVICES
Notwithstanding any provision of this plan to the contrary, contributions,
benefits and service credit with respect to qualified military service will be
provided in accordance with Section 414(u) of the Internal Revenue Code.
Loan repayments will be suspended under this plan as permitted under Code
Section 414(u)(4).
23
<PAGE>
ADOPTION AGREEMENT FOR
MFS FUND DISTRIBUTORS, INC.
STANDARDIZED 401(K) PROFIT SHARING
PLAN AND TRUST
The undersigned Employer adopts the MFS Fund Distributors, Inc.
Standardized 401(k) Profit Sharing Plan and Trust for those Employees who shall
qualify as Participants hereunder, to be known as the
Al NEON Systems, Inc. 401(k) Plan
--------------------------------------------------------------------------
(Enter Plan Name)
It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:
CAUTION: The failure to properly fill out this Adoption Agreement may
result in disqualification of the Plan.
EMPLOYER INFORMATION
B1 Name of Employer NEON Systems, Inc.
------------------------------------------------------
------------------------------------------------------
B2 Address 14141 S.W. Frwy., Suite 6200
----------------------------------------------------------------
Sugar Land , TX 77478
----------------------- ----------------- --------------
City State Zip
Telephone (713) 491-4200
-----------------------
B3 Employer Identification Number 76-0345839
----------------------
B4 Date Business Commenced May 1993
----------------------
B5 TYPE OF ENTITY
a. / / S Corporation
b. / / Professional Service Corporation
c. /X/ Corporation
d. / / Sole Proprietorship
e. / / Partnership
f. / / Other
---------------------------
AND, is the Employer a member of...
1
<PAGE>
g. A controlled group? / / Yes /X/ No
h. an affiliated service group? / / Yes /X/ No
B6 NAME(S) OF TRUSTEE(S)
a. John Reiland
---------------------------------------------------------------------
b.
---------------------------------------------------------------------
c.
---------------------------------------------------------------------
d.
---------------------------------------------------------------------
e.
---------------------------------------------------------------------
/ / If checked, The First National Bank of Boston is selected as Trustee.
NOTE: The First National Bank of Boston will act as Trustee only when
Plan assets are invested exclusively in mutual funds distributed
by MFS Fund Distributors, Inc. If the Trustee is another
corporation or an individual, at least 50% of Plan assets must be
so invested, unless MFS Fund Distributors, Inc. otherwise agrees
in writing.
B7 TRUSTEES' ADDRESS
a. /X/ Use Employer Address
b. / /
----------------------------------------------------------------
Street
---------------------------, ------------------, --------------
City State Zip
c. / / The address of The First National Bank of Boston is:
c/o MFS Service Center, Inc.
J.W. McCormack Station
P.O. Box 4501
Boston, Massachusetts 02101-9817
B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE:
a. /X/ State
b. / / Commonwealth of
c. Texas and this Plan and Trust shall be governed under the same.
-------
2
<PAGE>
B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period:
Commencing on a. April 1st (e.g., January 1st) and
-----------------------
month day
ending on b. March 31st
-------------------------
month day
PLAN INFORMATION
C1 EFFECTIVE DATE
This Adoption Agreement of the MFS Fund Distributors, Inc. Standardized 401
(k) Profit Sharing Plan and Trust shall:
a. /X/ establish a new Plan and Trust effective as of January 1, 1997
(hereinafter called the "Effective Date").
b. / / constitute an amendment and restatement in its entirety of a
previously established qualified Plan and Trust of the Employer
which was effective _____________ (hereinafter called the
"Effective Date'). Except as specifically provided in the Plan,
the effective date of this amendment and restatement
is_____________. (For TRA '86 amendments, enter the first day of
the first Plan Year beginning in 1989.)
C2 PLAN YEAR means the 12 consecutive month period:
Commencing on a. January 1st (e.g., January 1st)
----------------
and ending on b. December 1st.
----------------
IS THERE A SHORT PLAN YEAR?
c. /X/ No
d. / / Yes, beginning
------------------------------------.
and ending
------------------------------------.
C3 ANNIVERSARY DATE of Plan (Annual Valuation Date)
a. December 31st
-------------------
month day
3
<PAGE>
C4 PLAN NUMBER assigned by the Employer (select one)
a. /X/ 001
b. / / 002
c. / / 003
d. / / Other
C5 NAME OF PLAN ADMINISTRATOR (Document provides for the Employer to appoint
an Administrator. If none is named, the Employer will become the
Administrator.)
a. /X/ Employer (Use Employer Address)
b. / / Name
-----------------------------------------------------------
Address / / Use Employer Address
-----------------------------------------------------------
-------------------------, ------------------, ----------
City State Zip
Telephone
------------------------------------------------------
Administrator's I.D. Number
----------------------------------
C6 PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS
a. /X/ Employer (Use Employer Address)
b. / / Name
------------------------------------------------------
Address
------------------------------------------------------
------------------------------------------------------
ELIGIBILITY, VESTING AND RETIREMENT AGE
D1 ELIGIBLE EMPLOYEES (Plan Section 1.15) shall mean all Employees who have
satisfied the eligibility requirements except those checked below:
a. /X/ N/A. No exclusions.
b. / / Employees whose employment is governed by a collective bargaining
agreement between the Employer and "employee representatives"
under which retirement benefits were the subject of good faith
bargaining. For this purpose, the term "employee representatives"
does not include any organization more than half of whose members
are employees who are owners, officers, or executives of the
Employer.
4
<PAGE>
c. / / Employees who are nonresident aliens who received no earned
income (within the meaning of Code Section 911(d)(2)) from the
Employer which constitutes income from sources within the United
States (within the meaning of Code Section 861(a)(3)).
NOTE: For purposes of this section, the term Employee shall
include all Employees of this Employer, any Affiliated
Employer, and any leased employees deemed to be Employees
under Code Section 414(n) or 414(o).
D2 HOURS OF SERVICE (Plan Section 1.31) will be determined on the basis of
the method selected below. Only one method may be selected. The method
selected will be applied to all Employees covered under the Plan.
a. /X/ On the basis of actual hours for which an Employee is paid or
entitled to payment.
b. / / On the basis of days worked. An Employee will be credited with
ten (10) Hours of Service if under the Plan such Employee would
be credited with at least one (1) Hour of Service during the day.
c. / / On the basis of weeks worked. An Employee will be credited
forty-five (45) Hours of Service if under the Plan such Employee
would be credited with at least one (1) Hour of Service during a
the week.
d. / / On the basis of semi-monthly payroll periods. An Employee will be
credited with ninety-five with at least one (95) Hours of Service
if under the Plan such Employee would be credited (1) Hour of
Service during the semimonthly payroll period.
e. / / On the basis of months worked. An Employee will be credited with
one hundred ninety (190) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of Service
during the month.
D3 CONDITIONS OF ELIGIBILITY (Plan Section 3.1)
(Check either a OR b and c, and if applicable, d)
Any Eligible Employee will be eligible to participate in the Plan if such
Eligible Employee has satisfied the service and age requirements, if any,
specified below:
a. / / NO AGE OR SERVICE REQUIRED.
b. /X/ SERVICE REQUIREMENT. (may not exceed 1 year)
1. / / None
2. /X/ 1/2 Year of Service
3. / / 1 Year of Service
4. / / Other
------------------------------
NOTE: If the Year(s) of Service selected is or includes a
fractional year, an Employee will not be required to
complete any specified number of Hours of Service to receive
credit for such fractional year. If expressed in Months of
Service, an
5
<PAGE>
Employee will not be required to complete any specified
number of Hours of Service in a particular month.
c. /X/ AGE REQUIREMENT (may not exceed 21)
1. / / N/A - No Age Requirement.
2. / / 20 1/2
3. /X/ 21
4. / / Other
------------------------------
d. /X/ FOR NEW PLANS ONLY - Regardless of any of the above age or
service requirements, any Eligible Employee who was employed on
the Effective Date of the Plan shall be eligible to participate
hereunder and shall enter the Plan as of such date.
D4 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2)
An Eligible Employee shall become a Participant as of:
a. / / the first day of the Plan Year in which he met the requirements.
b. / / the first day of the Plan Year in which he met the requirements,
if he met the requirements in the first 6 months of the Plan
Year, or as of the first day of the next succeeding Plan Year if
he met the requirements in the last 6 months of the Plan Year.
c. / / the earlier of the first day of the seventh month or the first
day of the Plan Year coinciding with or next following the date
on which he met the requirements.
d. / / the first day of the Plan Year next following the date on which
he met the requirements. (Eligibility must be 1/2 Year of Service
or less and age 20 1/2 or less.)
e. / / the first day of the month coinciding with or next following the
date on which he met the requirements.
f. /X/ Other: the first day of the Plan Year Quarter coinciding with or
next following the date on which he/she met the requirements,
provided that an Employee who has satisfied the maximum age and
service requirements that are permissible in Section D3 above and
who is otherwise entitled to participate, shall commence
participation no later than the earlier of (a) 6 months after
such requirements are satisfied, or (b) the first day of the
first Plan Year after such requirements are satisfied, unless the
Employee separates from service before such participation date.
D5 VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b))
The vesting schedule, based on number of Years of Service, shall be as
follows:
a. / / 100% upon entering Plan. (Required if eligibility requirement is
greater than one (1) Year of Service.)
6
<PAGE>
<TABLE>
<S> <C> <C>
b. / / 0-2 years 0%
3 years 100%
c. / / 0-4 years 0%
5 years 100%
d. / / 0-1 year 0%
e. / / 0-1 year 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
e. / / 1 year 25%
2 years 50%
3 years 75%
4 years 100%
f. / / 1 year 20%
2 years 40%
3 years 60%
4 years 80%
5 years 100%
g. / / 0-2 years 0%
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years 100%
</TABLE>
h. / / Other - Must be at least as liberal as either c or g above.
<TABLE>
<CAPTION>
Years of Service Percentage
<S> <C>
-------------------- ----------------
-------------------- ----------------
-------------------- ----------------
-------------------- ----------------
-------------------- ----------------
-------------------- ----------------
-------------------- ----------------
</TABLE>
7
<PAGE>
D6 FOR AMENDED PLANS (Plan Section 6.4(f)) If the vesting schedule has been
amended to a less favorable schedule, enter the pre-amended schedule below:
a. / / Vesting schedule has not been amended or amended schedule is more
favorable in all years.
<TABLE>
<CAPTION>
b. / / Years of Service Percentage
<S> <C> <C>
-------------------- ----------------
-------------------- ----------------
-------------------- ----------------
-------------------- ----------------
-------------------- ----------------
-------------------- ----------------
-------------------- ----------------
</TABLE>
D7 TOP HEAVY VESTING (Plan Section 6.4(c)) If this Plan becomes a Top Heavy
Plan, the following vesting schedule, based on number of Years of Service,
for such Plan Year and each succeeding Plan Year, whether or not the Plan
is a Top Heavy Plan, shall apply and shall be treated as a Plan amendment
pursuant to this Plan. Once effective, this schedule shall also apply to
any contributions made prior to the effective date of Code Section 416
and/or before the Plan became a Top Heavy Plan.
a. / / N/A (D5a, b, d, e or f was selected)
<TABLE>
<S> <C> <C>
b. /X/ 0- 1 year 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
c. / / 0-2 years 0%
3 years 100%
</TABLE>
NOTE: This section does not apply to the Account balances of any
Participant who does not have an Hour of Service after the Plan
has initially become top heavy. Such Participant's Account
balance attributable to Employer contributions and Forfeitures
will be determined without regard to this section.
D8 VESTING (Plan Section 6.4(h)) In determining Years of Service for vesting
purposes, Years of Service attributable to the following shall be EXCLUDED:
a. / / Service prior to the Effective Date of the Plan or a predecessor
plan.
b. /X/ N/A.
c. / / Service prior to the time an Employee attained age 18.
d. /X/ N/A.
8
<PAGE>
D9 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER
a. /X/ No.
b. / / Yes: Years of Service with _____ shall be recognized for the
purpose of this Plan.
NOTE: If the predecessor Employer maintained this qualified Plan, then
Years of Service with such predecessor Employer shall be
recognized pursuant to Section 1.74 and b. must be marked.
D10 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.42) means:
a. /X/ the date a Participant attains his 59 1/2 birthday. (not to
exceed 65th)
b. / / the later of the date a Participant attains his birthday (not to
exceed 65th) or the
c. / / ______ (not to exceed 5th) anniversary of the first day of the
Plan Year in which participation in the Plan commenced.
D11 NORMAL RETIREMENT DATE (Plan Section 1.43) shall commence:
a. /X/ as of the Participant's "NRA."
OR (must select b. or c. AND 1. or 2.)
b. / / as of the first day of the month ...
c. / / as of the Anniversary Date ...
1. / / coinciding with or next following the Participant's "NRA."
2. / / nearest the Participant's "NRA."
D12 EARLY RETIREMENT DATE (Plan Section 1.12) means the:
a. /X/ No Early Retirement provision provided.
b. / / date on which a Participant ...
c. / / first day of the month coinciding with or next following the date
on which a Participant ...
d. / / Anniversary Date coinciding with or next following the date on
which a Participant ...
AND, if b, c or d was selected ...
1. / / attains his birthday and has
2. / / completed at least ________ Years of Service.
9
<PAGE>
CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
E1 a. COMPENSATION (Plan Section 1.9) with respect to any Participant means:
1. /X/ Wages, tips and other Compensation on Form W-2
2. / / Code Section 3401(a) wages
3. / / 415 safe-harbor compensation
b. COMPENSATION shall be
1. /X/ actually paid (must be selected if Plan is integrated)
2. / / accrued
c. FOR PURPOSES OF THIS SECTION E1, Compensation shall be based on:
1. /X/ the Plan Year.
2. / / the Fiscal Year coinciding with or ending within the Plan
Year.
3. / / the Calendar Year coinciding with or ending within the Plan
Year.
NOTE: The Limitation Year shall be the same as the year on which
Compensation is based.
d. HOWEVER, for an Employee's first year of participation, Compensation
shall be recognized as of
1. / / the first day of the Plan Year.
2. /X/ the date the Participant entered the Plan.
e. IN ADDITION, COMPENSATION and. "414(s) Compensation"
1. /X/ shall
2. / / shall not include compensation which is not currently
includible in the Participant's gross income by reason of
the application of Code Sections 125, 402(a)(8),
402(b)(1)(B), or 403(b).
f. AND, COMPENSATION
1. / / shall
2. /X/ shall not include (even if includible in gross income)
reimbursements or other expense allowances, fringe benefits
(cash or noncash), moving expenses, deferred compensation
and welfare benefits.
10
<PAGE>
E2 SALARY REDUCTION ARRANGEMENT - ELECTIVE CONTRIBUTION (Plan Section 4.2)
Each Employee may elect to have his Compensation reduced by:
a. / / %
-----------
b. / / up to %
------------
c. /X/ from 1% to 15%
------- -------
d. / / up to the maximum percentage allowable not to exceed the limits
of Code Sections 401(k), 404 and 415.
AND...
e. /X/ A Participant may elect to commence salary reductions of each
entry date (ENTER AT LEAST ONE DATE OR PERIOD). A Participant may
modify the amount of salary reductions of each entry date (ENTER
AT LEAST ONE DATE OR PERIOD).
AND...
Shall cash bonuses paid within 2 1/2 months after the end of the
Plan Year be subject to the salary reduction election?
f. / / Yes
g. /X/ No
E3 FORMULA FOR DETERMINING EMPLOYER'S MATCHING CONTRIBUTION
(Plan Section 4. 1 (b))
a. / / NIA. There shall be no matching contributions.
b. / / The Employer shall make matching contributions equal to ____%
(e.g., 50%) of the Participant's salary reductions.
c. /X/ The Employer may make matching contributions equal to a
discretionary percentage, to be determined by the Employer, of
the Participant's salary reductions.
d. / / The Employer shall make matching contributions equal to the sum
of ____% of the portion of the Participant's salary reduction
which does not exceed _____% of the Participant's Compensation
plus ____% of the portion of the Participant's salary reduction
which exceeds _____% of the Participant's Compensation, but does
not exceed _____% of the Participant's Compensation.
e. / / The Employer shall make matching contributions equal to the
percentage determined under the following schedule:
<TABLE>
<CAPTION>
Participant's Total Matching
Years of Service Percentage
<S> <C>
------------------------- -----------------------
------------------------- -----------------------
------------------------- -----------------------
</TABLE>
11
<PAGE>
FOR PLANS WITH MATCHING CONTRIBUTIONS
f. /X/ Matching contributions
g. / / shall
h. /X/ shall not be used in satisfying the deferral percentage tests.
(If used, full vesting and restrictions on withdrawals will apply
and the match will be deemed to be an Elective Contribution.)
i. / / For Plan Years beginning prior to 1990, a Year of Service
j. / / shall
k. /X/ shall not be required in order to share in the matching
contributions. For Plan Years beginning after 1989, a Year of
Service shall not be required in order to share in the matching
contributions.
l. / / In determining matching contributions, only salary reductions up
to ____% of a Participant's Compensation will be matched.
m. /X/ N/A
n. / / The matching contribution made on behalf of a Participant for any
Plan Year shall not exceed $_______.
o. /X/ N/A
p. /X/ Matching contributions shall be made on behalf of
1. /X/ all Participants.
2. / / only Non-Highly Compensated Employees.
12
<PAGE>
MFS FUND DISTRIBUTORS, INC.
STANDARDIZED/NON-STANDARDIZED 401(K)
PROFIT SHARING PLAN AND TRUST
ADDENDUM TO ADOPTION AGREEMENT
E3 q. /X/ Notwithstanding anything in the Plan to the contrary, all
matching contributions which relate to distributions of Excess
Deferred Compensation, Excess Contributions, and Excess Aggregate
Contributions shall be Forfeited. (Select this option only if it
is applicable.)
E4 WILL A DISCRETIONARY EMPLOYER CONTRIBUTION BE PROVIDED (OTHER THAN A
DISCRETIONARY MATCHING OR QUALIFIED NON-ELECTIVE CONTRIBUTION) (Plan
Section 4.1)?
a. / / No.
b. / / Yes, the Employer may make a discretionary contribution out of
its current or accumulated Net Profit.
c. /X/ Yes, the Employer may make a discretionary contribution which is
not limited to its current or accumulated Net Profit.
IF YES (b. or c. is selected above), the Employer's discretionary contribution
shall be allocated as follows:
d. /X/ FOR A NON-INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be
allocated in the same ratio as each Participant's Compensation bears to the
total of such Compensation of all Participants.
e. /X/ FOR AN ENTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be
allocated in accordance with Plan Section 4.4(b)(3) based on a
Participant's Compensation in excess of
f. / / The Taxable Wage Base.
g. / / The greater of $10,000 or 20% of the Taxable Wage Base.
h. / / _____% of the Taxable Wage Base. (See Note below.)
i. / / $ ________. (See Note below.)
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% if h. or i. above is more than 20% and less than or
equal to 80% of the Taxable Wage Base.
13
<PAGE>
2. 5.4% if h. or i. above is less than 100% and more than 80%
of the Taxable Wage Base.
E5 QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 4.1)
a. /X/ N/A. There shall be no Qualified Non-Elective Contributions
except as provided in Sections 4.6 and 4.8.
b. / / The Employer shall make a Qualified Non-Elective Contribution
equal to _____% of the total Compensation of all Participants
eligible to share in the allocations.
c. / / The Employer may make a Qualified Non-Elective Contribution in an
amount to be determined by the Employer.
E6 FORFEITURES (Plan Section 4.4(e))
a. Forfeitures of contributions other than matching contributions shall
be...
1. /X/ added to the Employer's contribution under the Plan.
2. / / allocated to all Participants eligible to share in the
allocations in the same proportion that each Participant's
Compensation for the year bears to the Compensation of all
Participants for such year.
b. Forfeitures of matching contributions shall be ...
1. / / NIA. No matching contributions or match is-fully vested.
2. /X/ used to reduce the Employer's matching contribution.
3. / / allocated to all Participants eligible to share in the
allocations in proportion to each such Participant's
Compensation for the year.
4. / / allocated to all Non-Highly Compensated Employees eligible
to share in the allocations in proportion to each such
Participant's Compensation for the year.
E7 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.4(1))
Any Participant who terminated employment during the Plan Year for reasons
other than death, Total and Permanent Disability of retirement:
a. With respect to the allocation of Employer Non-Elective Contributions
(other than matching), Qualified Non-Elective Contributions, and
Forfeitures for Plan Years beginning prior to 1990:
1. /X/ N/A
2. / / shall share in such allocations provided such Participant
completed a Year of Service.
3. / / shall not share in such allocations regardless of Hours of
Service.
14
<PAGE>
NOTE: The Plan provides that for Plan Years beginning after 1989, a
terminated Participant shall share in such allocations provided
such Participant completed more than 500 Hours of Service.
b. With respect to the allocation of Employer Matching Contributions, a
Participant:
1. For Plan Years beginning after 1989,
i. / / N/A, Plan does not provide for matching contributions.
ii. / / shall share in the allocations, regardless of Hours of
Service.
iii. /X/ shall share in the allocations provided such
Participant completed more than 500 Hours of Service.
2. For Plan Years beginning before 1990,
i. /X/ N/A, new Plan, or same as Plan Years beginning after
1989.
ii. / / shall share in the allocations, regardless of Hours of
Service.
iii. / / shall share in the allocations provided such
Participant completed a Year of Service.
E8 ALLOCATIONS OF EARNINGS (Plan Section 4.4(c))
Allocations of earnings with respect to amounts contributed to the Plan
after the previous Anniversary Date or other valuation date shall be
determined ...
a. / / by using a weighted average.
b. / / by treating, one-half of all such contributions as being a part
of the Participant's nonsegregated account balance as of the
previous Anniversary Date or valuation date.
c. / / by using the method specified in Section 4.4(c).
d. /X/ other BY USING THE ACTUAL INVESTMENT EXPERIENCE OF INDIVIDUAL
ACCOUNTS
E9 LIMITATIONS ON ALLOCATIONS (Plan Section 4.9)
a. If any Participant is or was covered under another qualified defined
contribution plan maintained by the Employer, other than a Master or
Prototype Plan or if the Employer maintains a welfare benefit fund, as
defined in Code Section 419(e), or an individual medical account, as
defined in Code Section 415(l)(2), under which amounts are treated as
Annual Additions with respect to any Participant in this Plan:
1. /X/ N/A.
2. / / The provisions of Section 4.9(b) of the Plan will apply as
if the other plan were a Master or Prototype Plan.
3. / / Provide the method under which the Plans will limit total
Annual Additions to the Maximum Permissible Amount, and will
properly reduce any Excess Amounts, in a manner that
precludes Employer discretion.
15
<PAGE>
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
b. If any Participant is or ever has been a Participant in a defined
benefit plan maintained by the Employer:
1. /X/ N/A
2. / / In any Limitation Year, the Annual Additions credited to the
Participant under this Plan may not cause the sum of the
Defined Benefit Plan Fraction and the Defined Contribution
Fraction to exceed 1.0. If the Employer's contribution that
would otherwise be made on the Participant's behalf during
the limitation year would cause the 1.0 limitation to be
exceeded, the rate of contribution under this Plan will be
reduced so that the sum of the fractions equals 1.0. If the
1.0 limitation is exceeded because of an Excess Amount, such
Excess Amount will be reduced in accordance with Section
4.9(a)(4), of the Plan.
3. / / Provide the method under which the Plans involved will
satisfy the 1.0 limitation in a manner that precludes
Employer discretion.
E10 DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h))
Distributions upon the death of a Participant prior to receiving any
benefits shall ...
a. /X/ be made pursuant to the election of the Participant or
beneficiary.
b. / / begin within 1 year of death for a designated beneficiary and be
payable over the life (or over a period not exceeding the life
expectancy) of such beneficiary, except that if the beneficiary
is the Participant's spouse, begin within the time the
Participant would have attained age 70 1/2.
c. / / be made within 5 years of death for all beneficiaries.
d. / / other
----------------------------------------
E11 LIFE EXPECTANCIES (Plan Section 6.5(f)) for minimum distributions required
pursuant to Code Section 401(a)(9) shall ...
a. /X/ be recalculated at the Participant's election.
b. / / be recalculated.
c. / / not be recalculated.
E12 CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION
Distributions upon termination of employment pursuant to Section 6.4(a) of
the Plan shall not be made unless the following conditions have been
satisfied:
a. /X/ N/A. Immediate distributions may be made at Participant's
election.
b. / / The Participant has incurred___ 1-Year Break(s) in Service.
c. / / The Participant has reached his or her Early or Normal Retirement
Age.
d. / / Distributions may be made at the Participant's election on or
after the Anniversary Date following termination of employment.
16
<PAGE>
e. / / Other
-----------------------------
E13 FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6)
Distributions under the Plan may be made ...
a. 1. /X/ in lump sums.
2. / / in lump sums or installments.
b. AND, pursuant to Plan Section 6.13,
1. /X/ no annuities are allowed (avoids Joint and Survivor rules).
2. / / annuities are allowed (Plan Section 6.13 shall not apply).
NOTE: b. 1. above may not be elected if this is an amendment to a plan
which permitted annuities as a form of distribution or if this
Plan has accepted a plan to plan transfer of assets from a plan
which permitted annuities as a form of distribution.
c. AND may be made in ...
1. /X/ cash only (except for insurance or annuity contracts).
2. / / cash or property.
TOP HEAVY REQUIREMENTS
F1 TOP HEAVY DUPLICATIONS (Plan Section 4.4(i)): When a Non-Key Employee is a
Participant in this Plan and a Defined Benefit Plan maintained by the
Employer, indicate which method shall be utilized to avoid duplication of
top heavy minimum benefits.
a. /X/ The Employer does not maintain a Defined Benefit Plan.
b. / / A minimum, non-integrated contribution of 5% of each Non-Key
Employee's total Compensation shall be provided in this Plan, as
specified in Section 4.4(i). (The Defined Benefit and Defined
Contribution Fractions will be computed using 100% if this choice
is selected.)
c. / / A minimum, non-integrated contribution of 7 1/2% of each Non-Key
Employee's total Compensation shall be provided in this Plan, as
specified in Section 4.4(i). (If this choice is selected, the
Defined Benefit and Planned Contribution Fractions will be
computed using 125% for all Plan Years in which the Plan is Top
Heavy, but not Super Top Heavy.)
d. / / Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude
Employer discretion and avoid inadvertent omissions, including
any adjustments required under Code Section 415(e).
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
17
<PAGE>
F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy
purposes where the Employer maintains a Defined Benefit Plan in addition to
this Plan, shall be based on...
a. /X/ N/A. The Employer does not maintain a defined benefit plan.
b. / / Interest Rate:
--------------------------
Mortality Table:
------------------------
F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined
Contribution Plans (other than paired plans).
a. /X/ N/A.
b. / / A minimum, non-integrated contribution of 3% of each Non-Key
Employee's total Compensation shall be provided in the Money
Purchase Plan (or other plan subject to Code Section 412), where
the Employer maintains two (2) or more non-paired Defined
Contribution Plans.
c. / / Specify the method under which the Plans will provide top heavy
minimum benefits for Non-Key Employees that will preclude
Employer discretion and avoid inadvertent omissions, including
any adjustments required under Code Section 415(e).
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
MISCELLANEOUS
G1 LOANS TO PARTICIPANTS (Plan Section 7.4)
a. /X/ Yes, loans may be made up to $50,000 or 1/2 Vested interest.
b. / / No, loans may not be made.
If YES, (check all that apply) ...
c. /X/ Loans shall be treated as a Directed Investment.
d. / / Loans shall only be made for hardship or financial necessity.
e. /X/ The minimum loan shall be $1,000.
f. / / $ 10,000, de minimis loans may be made regardless of Vested
interest. (If selected, Plan may need security in addition to
Vested interest.)
NOTE: Department of Labor Regulations require the adoption of a
separate written loan program setting forth the requirements
outlined in Plan Section 7.4.
18
<PAGE>
G2 DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.13) are permitted for the
interest in any one or more accounts.
a. /X/ Yes, regardless of the Participant's Vested interest in the Plan.
b. / / Yes, but only with respect to the Participant's Vested interest
in the Plan.
c. / / Yes, but only with respect to those accounts which are 100%
Vested.
d. / / No directed investments are permitted.
G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.11)
a. /X/ Yes, transfers from qualified plans (and rollovers) will be
allowed.
b. / / No, transfers from qualified plans (and rollovers) will not be
allowed.
AND, transfers shall be permitted ...
c. /X/ from any Employee, even if not a Participant.
d. / / from Participants only.
G4 EMPLOYEES' VOLUNTARY CONTRIBUTIONS (Plan Section 4.12)
a. / / Yes, Voluntary Contributions are allowed subject to the limits of
Section 4.7.
b. /X/ No, Voluntary Contributions will not be allowed.
NOTE: TRA '86 subjects voluntary contributions to strict discrimination
rules.
G5 HARDSHIP DISTRIBUTIONS (Plan Section 6.11)
a. /X/ Yes, from any accounts which are 100% Vested.
b. / / Yes, from Participant's Elective Account only.
c. / / Yes, but limited to the Participant's Account only.
d. / / No.
NOTE: Distributions from a Participant's Elective Account are limited
to the portion of such account attributable to such Participant's
Deferred Compensation and earnings attributable thereto up to
December 31, 1988. Also hardship distributions are not permitted
from a Participant's Qualified Non-Elective Account.
G6 PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10)
a. /X/ If a Participant has reached the age of 59 1/2 distributions may
be made, at the Participant's election, from any Accounts which
are 100% Vested without requiring the Participant to terminate
employment.
b. / / No pre-retirement distribution may be made.
19
<PAGE>
NOTE: Distributions from a Participant's Elective Account and Qualified
Non-Elective Account are not permitted prior to age 59 1/2.
G7 TRUST INVESTMENTS: (Plan Section 7.2) Assets under this Plan shall be
invested as follows (select all that apply):
a. / / Life Insurance Contracts (must also select b. and/or c.)
1. / / shall be purchased at the option of the Administrator.
2. / / shall be purchased at the option of the Participant.
AND (select all that apply) ...
3. / / Each initial Contract shall have a minimum face amount of
4. / / Each additional life insurance contract shall have a minimum
face amount of $__________________.
5. / / No initial or additional life insurance shall be purchased
for any Participant who is under age ____ on the contract
issue date.
6. / / No life insurance shall be purchased until the Participant
has been credited with ____ Years of Service.
7. / / No life insurance shall be purchased until the Participant
has been credited with ____ Years of Service while a
Participant in the Plan.
8. / / The maximum amount of all Contracts purchased on behalf of a
Participant shall not exceed $_______.
9. / / Waiver of premium is included on all life insurance
contracts and is paid with the Employer Contributions
allocated to the Participant's Accounts.
b. / / Annuity Contracts (as permitted by the Insurer) shall be
purchased...
1. / / at the option of the Administrator
2. / / at the option of the Participant
c. /X/ Investments may be made in any investments permitted pursuant to
Plan Sections 7.2 and 7.3 other than those permitted by a. or b.
above unless so elected.
An Employer who has ever maintained or who later adopts any plan in addition to
this Plan (including a welfare benefit fund, as defined in Code Section 419(e),
which provides post-retirement medical benefits allocated to separate accounts
for Key Employees, as defined in Code Section 419A(d)(3) or an individual
medical account, as defined in Code Section 415(l)(2)) may not rely on the
opinion letter issued by the National Office of the Internal Revenue Service as
evidence that this Plan is qualified under Code Section 401. If the Employer who
adopts or maintains multiple plans wishes to obtain reliance that the Employer's
plan(s) qualified, application for a determination letter should be made to the
appropriate key district director of Internal Revenue.
20
<PAGE>
The Employer may not rely on the opinion letter issued by the National Office of
the Internal Revenue Service as evidence that this Plan is qualified under Code
Section 401 unless the terms of the Plan, as herein adopted or amended, that
pertain to the requirements of Code Sections 401(a)(4), 401(a)(17), 401(1),
401(a)(5), 410(b) and 414(s), as amended by the Tax Reform Act of 1986, or
later laws, (a) are made effective retroactively to the first day of the first
Plan Year beginning after December 31, 1988 (or such later date on which these
requirements first become effective with respect to this Plan); or (b) are made
effective no later than the first day on which the Employer is no longer
entitled, u rider regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions of the Plan
constitute such an interpretation.
This Adoption Agreement may be used only in conjunction with basic Plan document
#02. This Adoption Agreement and the basic Plan document shall together be known
as MFS Fund Distributors, Inc. Standardized 401(k) Profit Sharing Plan and
Trust #02-002.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
This Plan may be used only in conjunction with a product purchased from MFS Fund
Distributors, Inc. or any of its affiliates or subsidiaries.
MFS Fund Distributors, Inc. will notify the Employer of any amendments made to
the Plan or of the discontinuance or abandonment of the Plan provided this Plan
has been acknowledged by MFS Fund Distributors, Inc. or its authorized
representative. Furthermore, in order to be eligible to receive such
notification, we agree to notify MFS Fund Distributors, Inc. of any change in
address.
21
<PAGE>
EXHIBIT 10.3
NEON SYSTEMS, INC.
1999 LONG-TERM INCENTIVE PLAN
I. GENERAL
1. PURPOSE. The NEON Systems, Inc. 1999 Long-Term Incentive Plan (the
"1999 Plan") has been established by NEON Systems, Inc. (the "Company") to:
(a) Attract and retain key executive and managerial employees of the
Company;
(b) Motivate participating employees by means of appropriate
incentives, to achieve long-range goals;
(c) Provide incentive compensation opportunities which are
competitive with those of other major corporations; and
(d) Further identify Participants' interests with those of the
Company's other stockholders through compensation alternatives based on the
Company's common stock;
and thereby promote the long-term financial interest of the Company and its
Subsidiaries, including the growth in value of the Company's equity and
enhancement of long-term stockholder return.
2. EFFECTIVE DATE. Subject to the approval of the holders of a majority
of the Stock of the Company, the 1999 Plan shall be effective as of January 1,
1999; PROVIDED, HOWEVER, that awards made under the 1999 Plan prior to such
approval of the 1999 Plan by stockholders of the Company are contingent on such
approval of the 1999 Plan by the stockholders of the Company and shall be null
and void if approval of the stockholders of the Company is withheld. The 1999
Plan shall terminate on December 31, 2008.
3. DEFINITIONS. The following definitions are applicable to the 1998
Plan.
"Board" means the Board of Directors of the Company.
"Change of Control" has the meaning ascribed to it in Part I.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
"Disabled" means the inability of a Participant, by reason of a physical or
mental impairment, to engage in any substantial gainful activity, of which the
Board shall be the sole judge.
"Fair Market Value" of any Stock means (a) if the Stock is listed on a
national securities exchange, the closing price on the Stock on a given date;
(b) if the Stock is traded on an exchange or
<PAGE>
market in which prices are reported on a bid and asked price, the average of the
mean between the bid and asked price for the Stock on a given date; and (c) if
the Stock is not listed on a national securities exchange nor traded on the
over-the-counter market, such value as the Committee, in good faith, shall
determine.
"1934 Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute.
"Option Date" means, with respect to any Stock Option, the date on which
the Stock Option is awarded under the 1999 Plan.
"Participant" means any regular full-time employee of the Company or any
Subsidiary (meaning an employee who works 30 hours or more per week) who is
selected by the Committee to participate in the 1999 Plan.
"Permitted Transferees" means a member of an optionee's immediate family,
trusts for the benefit of such immediate family members, and partnerships in
which the optionee and/or such immediate family members are the only partners,
provided that no consideration is provided for the transfer. Immediate family
members shall include an optionee's spouse, descendants (children, grandchildren
and more remote descendants), and shall include step-children and relationships
arising from legal adoption.
"Related Company" means any corporation during any period in which it is a
Subsidiary, or during any period in which it directly or indirectly owns 50% or
more of the total combined voting power of all classes of stock of the Company
that are entitled to vote.
"Restricted Period" has the meaning ascribed to it in Part V.
"Restricted Stock" has the meaning ascribed to it in Part V.
"Retirement" means (i) termination of employment in accordance with the
retirement procedures set by the Company from time to time; (ii) termination of
employment because a participant becomes Disabled; or (iii) termination of
employment voluntarily with the consent of the Company (of which the Board shall
be the sole judge).
"Stock" means NEON Systems, Inc. Common Stock.
"Stock Appreciation Right" means the right of a holder of a Stock Option to
receive Stock or cash as described in Part IV.
"Stock Option" means the right of a Participant to purchase Stock pursuant
to an Incentive Stock Option or Non-Qualified Option awarded pursuant to the
provisions of the 1999 Plan.
"Subsidiary" means any corporation during any period of which 50% or more
of the total combined voting power of all classes of stock entitled to vote is
owned, directly or indirectly, by the Company.
-2-
<PAGE>
4. ADMINISTRATION. The authority to manage and control the operation and
administration of the 1999 Plan shall be vested in the Board. Subject to the
provisions of the 1999 Plan, the Board will have authority to select employees
to receive awards of Stock Options, with or without tandem Stock Appreciation
Rights, Restricted Stock and/or Performance Units, to determine the time or
times of receipt, to determine the types of awards and the number of shares
covered by the awards, to establish the terms, conditions, performance criteria,
restrictions, and other provisions of such awards, to determine the number and
value of Performance Units awarded and earned, and to amend, modify or suspend
awards. In making such award determinations, the Board may take into account
the nature of services rendered by the respective employee, his or her present
and potential contribution to the Company's success and such other factors as
the Board deems relevant. The Board is authorized to interpret the 1999 Plan,
to establish, amend, and rescind any rules and regulations relating to the 1999
Plan, to determine the terms and provisions of any agreements made pursuant to
the 1999 Plan, to modify such agreements, and to make all other determinations
that may be necessary or advisable for the administration of the 1999 Plan.
With respect to persons subject to Section 16 of the 1934 Act, transactions
under the 1999 Plan are intended to comply with all applicable conditions of
Rule 16b-3 or its successor rule or statute under the 1934 Act. To the extent
any provision of the 1999 Plan or action by the Board of Directors or the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law.
The Board may delegate any or all of its authority, powers and discretion
under this 1999 Plan to the Committee, and the Board may revest any or all such
authority, powers and discretion in itself at any time. If the 1999 Plan is
delegated, the Committee shall consist solely of two or more Non-Employee
Directors (as defined in Rule 16b-3 under the 1934 Act) until such time as such
other requirements are imposed by applicable law. If appointed, the Committee
shall function as follows: A majority of the Committee shall constitute a
quorum, and the acts of a majority of the members present at any meeting at
which a quorum is present, or acts approved in writing by all members of the
Committee, shall be the acts of the Committee, unless provisions to the contrary
are embodied in the Company's Bylaws or resolutions duly adopted by the Board.
All actions taken and decisions and determinations made by the Board or the
Committee pursuant to the Plan shall be binding and conclusive on all persons
interested in the Plan. No member of the Board or the Committee shall be liable
for any action or determination taken or made in good faith with respect to the
Plan.
5. PARTICIPATION. Subject to the terms and conditions of the 1999 Plan,
the Board shall determine and designate, from time to time, the full-time
employees of the Company and/or its Subsidiaries who will participate in the
1999 Plan. In the discretion of the Board, a Participant may be awarded Stock
Options with or without tandem Stock Appreciation Rights, Restricted Stock or
Performance Units or any combination thereof, and more than one award may be
granted to a Participant. Except as otherwise agreed to by the Company and the
Participant, any award under the 1999 Plan shall not affect any previous award
to the Participant under the 1999 Plan or any other plan maintained by the
Company or its Subsidiaries.
6. SHARES SUBJECT TO THE 1999 PLAN. The shares of Stock with respect to
which awards may be made under the 1999 Plan shall be either authorized and
unissued shares or issued and outstanding shares (including, in the discretion
of the Board, shares purchased in the market). Subject to the provisions of
paragraph I.10, the number of shares of Stock available under the 1999 Plan for
the grant of Stock Options with or without tandem Stock Appreciation
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Rights, Performance Units and Restricted Stock shall not exceed 2,000,000 shares
in the aggregate. If, for any reason, any award under the 1999 Plan or any
portion of the award, shall expire, terminate or be forfeited or cancelled, or
be settled in cash pursuant to the terms of the 1999 Plan and, therefore, any
such shares are no longer distributable under the award, such shares of Stock
shall again be available for award under the 1999 Plan. The maximum number of
shares of Stock with respect to which options or rights may be granted each
calendar year to each employee shall be 100,000.
7. COMPLIANCE WITH APPLICABLE LAWS AND WITHHOLDING OF TAXES.
Notwithstanding any other provision of the 1999 Plan, the Company shall have no
liability to issue any shares of Stock under the 1999 Plan unless such issuance
would comply with all applicable laws and the applicable requirements of any
securities exchange or similar entity. Prior to the issuance of any shares of
Stock under the 1999 Plan, the Company may require a written statement that the
recipient is acquiring the shares for investment and not for the purpose or with
the intention of distributing the shares. All awards and payments under the
1999 Plan are subject to withholding of all applicable taxes, which withholding
obligations may be satisfied, with the consent of the Board, through the
surrender of shares of Stock which the Participant already owns, or to which a
Participant is otherwise entitled under the 1999 Plan. The Company shall have
the right to deduct from all amounts paid in cash in consequence of the exercise
of a Stock Option or Stock Appreciation Right or in connection with an award of
Restricted Stock or Performance Units under the 1999 Plan any taxes required by
law to be withheld with respect to such cash payments. Where an employee or
other person is entitled to receive shares of Stock pursuant to the exercise of
a Stock Option or a Stock Appreciation Right or with respect to an award of
Performance Units pursuant to the 1999 Plan, the Company shall have the right to
require the employee or such other person to pay to the Company the amount of
any taxes that the Company is required to withhold with respect to such shares,
or, in lieu thereof, to retain, or sell without notice, a sufficient number of
such shares to cover the amount required to be withheld. Upon the disposition
(within the meaning of Code Section 424(c)) of shares of Stock acquired pursuant
to the exercise of an Incentive Stock Option prior to the expiration of the
holding period requirements of Code Section 422(a)(1), the employee shall be
required to give notice to the Company of such disposition and the Company shall
have the rght to require the employee to pay to the Company the amount of any
taxes that are required by law to be withheld with respect to such disposition.
Upon termination of the Restricted Period with respect to an award of Restricted
Stock (or such earlier time, if any, as an election is made by the employee
under Code Section 83(b), or any successor provisions thereto, to include the
value of such shares in taxable income), the Company shall have the right to
require the employee or other person receiving shares of Stock in respect of
such Restricted Stock award to pay to the Company the amount of taxes that the
Company is required to withhold with respect to such shares of Stock or, in lieu
thereof, to retain or sell without notice a sufficient number of shares of Stock
held by it to cover the amount required to be withheld. The Company shall have
the right to deduct from all dividends paid with respect to Restricted Stock the
amount of taxes that the Company is required to withhold with respect to such
dividend payments.
8. TRANSFERABILITY. Incentive Stock Options with or without tandem Stock
Appreciation Rights, Performance Units, and, during the period of restriction,
Restricted Stock awarded under the 1999 Plan are not transferable except as
designated by the Participant by will or by the laws of descent and
distribution. Incentive Stock Options may be exercised during the lifetime of
the Participant only by the Participant or his guardian or legal representative.
If
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provided in the option agreement, Non-Qualified Stock Options with or without
tandem Stock Appreciation Rights may be transferred by a Participant to
Permitted Transferees, and may be exercised either by the Participant, his
guardian or legal representative and as otherwise permitted under the laws of
descent and distribution, or by a Permitted Transferee.
9. EMPLOYEE AND STOCKHOLDER STATUS. The 1999 Plan does not constitute a
contract of employment, and selection as a Participant will not give any
employee the right to be retained in the employ of the Company or any
Subsidiary. No award under the 1999 Plan shall confer upon the holder thereof
any right as a stockholder of the Company prior to the date on which he fulfills
all service requirements and other conditions for receipt of shares of Stock.
If the redistribution of shares is restricted pursuant to paragraph I.7,
certificates representing such shares may bear a legend referring to such
restrictions.
10. ADJUSTMENTS TO NUMBER OF SHARES SUBJECT TO THE 1999 PLAN. In the
event of any change in the outstanding shares of Stock of the Company by reason
of any stock dividend, split, spinoff, recapitalization, merger, consolidation,
combination, extraordinary dividend, exchange of shares or other similar change,
the aggregate number of shares of Stock with respect to which awards may be made
under the 1999 Plan, the terms and the number of shares of any outstanding Stock
Options, Stock Appreciation Rights, Restricted Stock and Performance Units, and
the purchase price of a share of Stock under Stock Options, may be equitably
adjusted by the Board in its sole discretion.
11. BUSINESS COMBINATIONS. In addition to the rights and obligations of
the Committee to modify, adjust or accelerate exercisability of outstanding
options, in the event that, while any options, Stock Appreciation Rights,
Restricted Shares or Performance Units are outstanding under the 1999 Plan,
there shall occur (a) a merger or consolidation of the Company with or into
another corporation in which the Company shall not be the surviving corporation
(for purposes of this paragraph 11, the Company shall not be deemed the
surviving corporation in any such transaction if, as the result thereof, it
becomes a wholly-owned subsidiary of another corporation), (b) a dissolution of
the Company, or (c) a transfer of all or substantially all of the assets or
shares of stock of the Company in one transaction or a series of related
transactions to one or more other persons or entities (any of the foregoing
events as described in (a)-(c) above, a "Change of Control") then, with respect
to each option, Stock Appreciation Right and share of Restricted Stock
outstanding immediately prior to the consummation of such transaction and
without the necessity of any action by the Committee:
(i) If provision is made in writing in connection with such
transaction for the continuance and/or assumption of the options, rights,
Restricted Shares and Performance Units granted under the 1999 Plan, or the
substitution for such options, rights, Restricted Shares and Performance
Units of new options, rights, Restricted Shares and Performance Units, with
appropriate adjustment as to the number and kind of shares or other
securities deliverable with respect thereto, the options, rights,
Restricted Shares and Performance Units granted under the 1998 Plan, or the
new options, rights, Restricted Shares and Performance Units substituted
therefor, shall continue, subject to such adjustment, in the manner and
under the terms provided in the respective agreements.
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(ii) In the event provision is not made in connection with such
transaction for the continuance and/or assumption of the options, rights,
Restricted Shares and Performance Units granted under the 1999 Plan, or for
the substitution of equivalent options, rights and awards, then (A) each
holder of an outstanding option shall be entitled, immediately prior to the
effective date of such transaction, to purchase the full number of shares
that he or she would otherwise have been entitled to purchase during the
entire remaining term of the option; (B) the holder of any right shall be
entitled, immediately prior to the effective date of such transaction, to
exercise such right to the extent the related option is or becomes
exercisable at such time in accordance with its terms; (C) the recipient of
any Performance Unit shall be entitled, immediately prior to the effective
date of such transaction, to receive all remaining values under such unit;
(D) all restrictions on any award of Restricted Shares shall lapse, and (E)
any restriction or risk of forfeiture imposed under the 1999 Plan shall
lapse immediately prior to the effective date of such transaction. The
unexercised portion of any option or right shall be deemed cancelled and
terminated as of the effective date of such transaction.
12. AGREEMENT WITH COMPANY. At the time of any awards under the 1999
Plan, the Board will require a Participant to enter into an agreement with the
Company in a form specified by the Board, agreeing to the terms and conditions
of the 1999 Plan and to such additional terms and conditions, not inconsistent
with the 1999 Plan, as the Board may, in its sole discretion, prescribe.
13. AMENDMENT AND TERMINATION OF 1999 PLAN. Subject to the following
provisions of this paragraph 13, the Board may at any time and in any way amend,
suspend or terminate the 1999 Plan. No amendment of the 1999 Plan and, except
as provided in paragraph I.10, no action by the Board shall, without further
approval of the stockholders of the Company, increase the total number of shares
of Stock with respect to which awards may be made under the 1999 Plan,
materially increase the benefits accruing to Participants under the 1999 Plan or
materially modify the requirements as to eligibility for participation in the
1999 Plan, if stockholder approval of such amendment is a condition of
Securities and Exchange Commission Rule 16b-3 or its successor rule or statute,
the Code or any exchange or market system on which the Stock is listed at the
time such amendment is adopted. No amendment, suspension or termination of the
1998 Plan shall alter or impair any Stock Option with or without tandem Stock
Appreciation Right, share of Restricted Stock or Performance Unit previously
awarded under the 1999 Plan without the consent of the holder thereof.
II. INCENTIVE STOCK OPTIONS
1. DEFINITION. The award of an Incentive Stock Option under the 1999
Plan entitles the Participant to purchase shares of Stock at a price fixed at
the time the option is awarded, subject to the following terms of this Part II.
2. ELIGIBILITY. The Board shall designate the Participants to whom
Incentive Stock Options, as described in section 422(b) of the Code or any
successor section thereto, are to be awarded under the 1999 Plan and shall
determine the number of option shares to be offered to each of them. Incentive
Stock Options may be awarded only to employees. In no event shall the
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aggregate Fair Market Value (determined at the time the option is awarded) of
Stock with respect to which Incentive Stock Options are exercisable for the
first time by an individual during any calendar year (under all plans of the
Company and all Related Companies) exceed $100,000.
3. PRICE. The purchase price of a share of Stock under each Incentive
Stock Option shall be determined by the Board, provided, however, that in no
event shall such price be less than the greater of (a) 100% of the Fair Market
Value of a share of Stock as of the Option Date (or 110% of such Fair Market
Value if the holder of the option owns stock possessing more than 10% of the
combined voting power of all classes of stock of the Company or any Subsidiary)
or (b) the par value of a share of Stock on such date. To the extent provided
by the Board, the full purchase price of each share of Stock purchased upon the
exercise of any Incentive Stock Option shall be paid in cash or in shares of
Stock (valued at Fair Market Value as of the day of exercise), or in any
combination thereof, at the time of such exercise and, as soon as practicable
thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto.
4. EXERCISE. Each Incentive Stock Option shall become and be exercisable
at such time or times and during such period or periods, in full or in such
installments as may be determined by the Board at the Option Date. In addition,
if permitted by the Board or the terms of the agreement evidencing such Stock
Option, Participants may elect to pay the purchase price of shares of Stock
purchased upon the exercise of Incentive Stock Options in cash or through the
actual or constructive delivery at the time of such exercise of shares of Stock
(valued at Fair Market Value as of the day of exercise) owned by the
Participant, or any combination thereof, equivalent to the purchase price of
such Incentive Stock Options. A Participant's payment of the purchase price in
connection with the exercise of an Incentive Stock Option through delivery of
shares of Stock (the "ISO Stock") that were acquired through the exercise of an
Incentive Stock Option and that have not been held for more than one year will
be considered a disposition (within the meaning of Code Section 424(c)) of the
ISO Stock, resulting in the disqualification of the ISO Stock from treatment as
an incentive stock option under Code Section 422, and the Participant's
recognition of ordinary income. Participants should consult with their tax
advisors prior to electing to exercise an Incentive Stock Option by this method.
5. OPTION EXPIRATION DATE. The "Expiration Date" with respect to an
Incentive Stock Option or any portion thereof awarded to a Participant under the
1999 Plan means the earliest of:
(a) the date that is 10 years after the date on which the Incentive
Stock Option is awarded (or, if the Participant owns stock possessing more
than 10% of the combined voting power of all classes of stock of the
Company or any Subsidiary, the date that is five years after the date on
which the Incentive Stock Option is awarded);
(b) the date established by the Board at the time of the award;
(c) the date that is one year after the Participant's employment with
the Company and all Related Companies is terminated by reason of the
Participant becoming Disabled or by reason of the Participant's death; or
(d) the date that the Participant's employment with the Company and
all Related Companies is terminated by reasons other than death or becoming
Disabled.
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All rights to purchase shares of Stock pursuant to an Incentive Stock Option
shall cease as of such option's Expiration Date.
III. NON-QUALIFIED STOCK OPTIONS
1. DEFINITION. The award of a Non-Qualified Stock Option under the 1999
Plan entitles the Participant to purchase shares of Stock at a price fixed at
the time the option is awarded, subject to the following terms of this Part III.
2. ELIGIBILITY. The Board shall designate the Participants to whom
Non-Qualified Stock Options are to be awarded under the 1999 Plan and shall
determine the number of option shares to be offered to each of them.
3. PRICE. The purchase price of a share of Stock under each
Non-Qualified Stock Option shall be determined by the Board; provided, however,
that in no event shall such price be less than the Fair Market Value of a share
of Stock as of the Option Date.
4. EXERCISE. Each Non-Qualified Stock Option shall become and be
exercisable at such time or times and during such period or periods, in full or
in such installments as may be determined by the Board at the Option Date. To
the extent provided by the Board, the full purchase price of each share of Stock
purchased upon the exercise of any Non-Qualified Stock Option shall be paid in
cash or in shares of Stock (valued at Fair Market Value as of the day of
exercise), or in any combination thereof, at the time of such exercise and, as
soon as practicable thereafter, a certificate representing the shares so
purchased shall be delivered to the person entitled thereto. In addition, if
permitted by the Board or the terms of the agreement evidencing such Stock
Option, Participants may elect to pay the purchase price of shares of Stock
purchased upon the exercise of Non-Qualified Stock Options in cash or through
the constructive delivery at the time of such exercise of shares of Stock
(valued at Fair Market Value as of the day of exercise) owned by the
Participant, or any combination thereof, equivalent to the purchase price of
such Non-Qualified Stock Options, and, as soon as practicable thereafter, a
certificate representing the net number of shares so purchased shall be
delivered to the person entitled thereto. Participants also may elect to pay,
if permitted by the Board or the terms of the agreement evidencing such Stock
Option, the purchase price, in whole or in part, of shares of Stock purchased
upon the exercise of Non-Qualified Stock Options through the Company's
withholding of shares of Stock (valued at Fair Market Value as of the day of
exercise) that would otherwise by issuable upon exercise of such options
equivalent to the purchase price of such Non-Qualified Stock Options and, as
soon as practicable thereafter, a certificate representing the net number of
shares so purchased shall be delivered to the person entitled thereto.
5. OPTION EXPIRATION DATE. The "Expiration Date" with respect to a
Non-Qualified Stock Option or any portion thereof awarded to a Participant under
the 1999 Plan means the earliest of:
(a) the date established by the Board at the time of the award;
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(b) the date that is one year after the Participant's employment with
the Company and all Related Companies is terminated by reason of the
Participant becoming Disabled or by reason of the Participant's death; or
(c) the date that the Participant's employment with the Company and
all Related Companies is terminated by reasons other than death or becoming
Disabled.
All rights to purchase shares of Stock pursuant to a Non-Qualified Stock Option
shall cease as of such option's Expiration Date.
IV. STOCK APPRECIATION RIGHTS
1. DEFINITION. A Stock Appreciation Right is an award that may be
granted in tandem with a Non-Qualified Stock Option or Incentive Stock Option,
and entitles the holder to receive an amount equal to the difference between the
Fair Market Value of the shares of Stock at the time of exercise of the Stock
Appreciation Right and the option price, subject to the applicable terms and
conditions of the tandem options and the following provisions of this Part IV.
2. ELIGIBILITY. The Board may, in its discretion, award the holders of
any Incentive Stock Options or Non-Qualified Stock Options awarded under the
1999 Plan a Stock Appreciation Right under this Part IV concurrent with, or
subsequent to, the award of the Stock Option.
3. EXERCISE. A Stock Appreciation Right may be exercised under the
applicable terms and conditions of the Incentive Stock Option or Non-Qualified
Stock Option with respect to which the Stock Appreciation Right is awarded. A
Stock Appreciation Right shall entitle the holder of a Stock Option to receive,
upon the exercise of the Stock Appreciation Right, shares of Stock (valued at
their Fair Market Value at the time of exercise), cash or a combination thereof,
in the discretion of the Board, in an amount equal in value to the excess of the
Fair Market Value of the shares of Stock subject to the Stock Appreciation Right
as of the date of such exercise over the purchase price of the Stock Option.
The exercise of a Stock Appreciation Right will result in the surrender of the
related Incentive Stock Option or Non-Qualified Stock Option and, unless
otherwise provided by the Board in its sole discretion, the exercise of a Stock
Option will result in the surrender of a related SAR, if any.
4. EXPIRATION DATE. The "Expiration Date" with respect to a Stock
Appreciation Right shall be determined by the Board, and shall be not later than
the Expiration Date for the related Stock Option. If neither the right nor the
related Stock Option is exercised before the end of the day on which the right
ceases to be exercisable, such right shall be deemed exercised as of such date
and payment shall be made to the holder in cash.
V. RESTRICTED STOCK
1. DEFINITION. Restricted Stock awards are grants of Stock to
Participants, the vesting of which is subject to a required period of employment
and any other conditions established by the Board.
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2. ELIGIBILITY. The Board shall designate the Participants to whom
Restricted Stock is to be awarded and the number of shares of Stock that are
subject to the award.
3. TERMS AND CONDITIONS OF AWARDS. All shares of Restricted Stock
awarded to Participants under the 1999 Plan shall be subject to the following
terms and conditions and to such other terms and conditions, not inconsistent
with the 1999 Plan, as shall be prescribed by the Board in its sole discretion
and as shall be contained in the Agreement referred to in Part I, paragraph 12.
(a) Restricted Stock awarded to Participants may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as
hereinafter provided, for a period of 10 years or such shorter period as
the Board may determine, but not less than one year, after the time of the
award of such stock (the "Restricted Period"). Except for such
restrictions, the Participant as owner of such shares shall have all the
rights of a stockholder, including but not limited to the right to vote
such shares and, except as otherwise provided by the Board, the right to
receive all dividends paid on such shares.
(b) The Board may in its discretion, at any time after the date of
the award of Restricted Stock, adjust the length of the Restricted Period
to account for individual circumstances of a Participant or group of
Participants, but in no case shall the length of the Restricted Period be
less than one year.
(c) Except as otherwise determined by the Board in its sole
discretion, a Participant whose employment with the Company and all Related
Companies terminates prior to the end of the Restricted Period for any
reason shall forfeit all shares of Restricted Stock remaining subject to
any outstanding Restricted Stock Award.
(d) Each certificate issued in respect of shares of Restricted Stock
awarded under the 1999 Plan shall be registered in the name of the
Participant and, at the discretion of the Board, each such certificate may
be deposited in a bank designated by the Board. Each such certificate
shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) contained in the NEON Systems, Inc. 1999
Long-Term Incentive Plan and an agreement entered into between
the registered owner and NEON Systems, Inc. A copy of such plan
and agreement is on file in the office of the Secretary of NEON
Systems, Inc., 14100 Southwest Freeway, Suite 500, Sugar Land,
Texas 77478.
(e) At the end of the Restricted Period for Restricted Stock, such
Restricted Stock will be transferred free of all restrictions to a
Participant (or his or her legal representative, beneficiary or heir).
4. SUBSTITUTION OF CASH. The Board may, in its discretion, substitute
cash equal to the Fair Market Value (determined as of the date of distribution)
of Stock otherwise required to be distributed to a Participant in accordance
with Part V, paragraph 3.
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VI. PERFORMANCE UNITS
1. DEFINITION. Performance Units are awards to Participants who may
receive value for the units at the end of a Performance Period. The number of
units earned, and value received for them, will be contingent on the degree to
which the performance measures established at the time of the initial award are
met.
2. ELIGIBILITY. The Board shall designate the Participants to whom
Performance Units are to be awarded, and the number of units to be the subject
of such awards.
3. TERMS AND CONDITIONS OF AWARDS. For each Participant, the Board will
determine the timing of awards; the number of units awarded; the value of units,
which may be stated either in cash or in shares of Stock; the performance
measures used for determining whether the Performance Units are earned; the
performance period during which the performance measures will apply; the
relationship between the level of achievement of the performance measures and
the degree to which Performance Units are earned; whether, during or after the
performance period, any revision to the performance measures or performance
period should be made to reflect significant events or changes that occur during
the performance period; and the number of earned Performance Units that will be
paid in cash and/or shares of Stock.
4. PAYMENT. The Board will compare the actual performance to the
performance measures established for the performance period and determine the
number of units to be paid and their value. Payment for units earned shall be
wholly in cash, wholly in Stock or in a combination of the two, in a lump sum or
installments, and subject to vesting requirements and such other conditions as
the Board shall provide. The Board will determine the number of earned units to
be paid in cash and the number to be paid in Stock. For Performance Units
valued when awarded in shares of Stock, one share of Stock will be paid for each
unit earned, or cash will be paid for each unit earned equal to either (a) the
Fair Market Value of a share of Stock at the end of the Performance Period or
(b) the Fair Market Value of the Stock averaged for a number of days determined
by the Board. For Performance Units valued when awarded in cash, the value of
each unit earned will be paid in its initial cash value, or shares of Stock will
be distributed based on the cash value of the units earned divided by (a) the
Fair Market Value of a share of Stock at the end of the Performance Period or
(b) the Fair Market Value of a share of Stock averaged for a number of days
determined by the Board.
5. RETIREMENT, DEATH OR TERMINATION. A Participant whose employment with
the Company and Related Companies terminates during a performance period because
of Retirement or death shall be entitled to the prorated value of earned
Performance Units, issued with respect to that performance period, at the
conclusion of the performance period based on the ratio of the months employed
during the period to the total months of the performance period. If the
Participant's employment with the Company and Related Companies terminates
during a performance period for any reason other than Retirement or death, the
Performance Units issued with respect to that performance period will be
forfeited on the date his employment with the Company and Related Companies
terminates. Notwithstanding the foregoing provisions of this Part VI, if a
Participant's employment with the Company and Related Companies terminates
before the end of the Performance Period with respect to any Performance Units
awarded to him, the Board may determine that the Participant will be entitled to
receive all or any portion of the units that he or she would otherwise receive,
and may accelerate the determination and payment
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of the value of such units or make such other adjustments as the Board, in its
sole discretion, deems desirable.
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EXHIBIT 10.4
NEON SYSTEMS, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
SECTION 1. PURPOSE OF PLAN.
The purpose of this Stock Option Plan for Non-Employee Directors (the
"PLAN") of NEON Systems, Inc., a Delaware corporation (the "COMPANY"), is to
provide directors of the Company who are not employed by the Company with the
opportunity to obtain equity ownership interests in the Company through the
exercise of stock options.
SECTION 2. PERSONS ELIGIBLE UNDER PLAN.
Participation in this Plan is limited to non-employee directors. A non-
employee director (referred to herein as a "DIRECTOR") is a director of the
Company who, at the time stock options are granted to him or her under the Plan
is not an employee of the Company or of any subsidiary of the Company.
SECTION 3. ADMINISTRATION.
This Plan shall be administered by the Board of Directors (the "BOARD") of
the Company. The grant of options (the "OPTIONS") to purchase shares of Common
Stock, par value $.01 per share, of the Company (the "COMMON SHARES") under this
Plan and the amount, price and nature of the awards shall be automatic as
described in Section 4. However, subject to the provisions of this Plan, the
Board, in its sole and absolute discretion, is authorized to do all things
necessary or desirable in connection with the administration of this Plan,
including, without limitation, the following:
(i) Subject to Section 8, adopt, amend and rescind rules and
regulations relating to this Plan;
(ii) Determine whether, and the extent to which, adjustments are
required pursuant to Section 7 hereof; and
(iii) Interpret and construe this Plan and the terms and conditions
of any Option granted hereunder.
SECTION 4. TERMS AND CONDITIONS OF OPTIONS.
(a) AMOUNT AND EXERCISE PRICE OF OPTION GRANTS. Each Director elected to
the Board following the date of the closing of the Company's initial public
offering of its Common Shares pursuant to a Form S-1 Registration Statement
filed with the Securities and Exchange Commission (the "IPO") and who was not
affiliated with the Company prior to the date of the original filing in December
1998 of the Company's Registration Statement on Form S-1 relating to the IPO
shall automatically be granted on the date of such election an Option to
purchase 7,500 Common Shares, subject to adjustment as provided in Section 7.
The exercise price (the "EXERCISE PRICE") for each Option granted pursuant to
this Section 4(a) shall be the fair market value of the Common Shares at the
<PAGE>
close of business on the last business day preceding the date of the Director's
initial election to the Board at an annual meeting of stockholders of the
Corporation (the "ANNUAL MEETING"), or if such Director is elected or appointed
to the Board other than at an Annual Meeting, on the last business day preceding
the date of such Director's election or appointment (in each event, the "DATE OF
GRANT"), which with respect to an Option shall be the closing price of such
Common Share on such Date of Grant (or, if there were no sales on such date, on
the immediately preceding business day on which there were sales) as reported on
the National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ"), or if such Common Shares are not
listed or admitted to trading on the NASDAQ National Market System, the last
quoted sales price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the NASDAQ System or
such other system then in use or, if such Common Shares are not so reported on
the over-the-counter market or such other system, the closing price of such
Common Shares as reported on the New York Stock Exchange Composite Tape, or if
Common Shares are not listed or admitted to trading on the New York Stock
Exchange, as reported on the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New York Stock
Exchange, or, if the Common Shares are not listed or admitted to trading on the
New York Stock Exchange, as reported on the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Shares are listed or admitted to trading
or, if the Common Shares are not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Shares as
selected by the Board.
(b) VESTING OF OPTIONS. Options granted under this Plan shall vest and
become exercisable in three consecutive 33-1/3% increments on the date of each
successive Annual Meeting following the Date of Grant of such Option and for so
long as such Optionee is a member of the Board as a Director.
(c) MANNER OF EXERCISE. Any vested and exercisable Option shall be
exercised by the holder thereof by giving written notice, signed by such holder,
to the Company stating the number of Common Shares with respect to which the
Option is exercisable and to which it is being exercised, accompanied by payment
in full of the applicable aggregate Exercise Price. Payment may be made in cash
or in Common Shares, valued at the fair market value per share on the date of
exercise, which shall be determined in accordance with SECTION 4(a) hereof. If
the Company shall have a class of its Common Shares registered pursuant to
Section 12 of the 1934 Act, unless the Board determines otherwise, an option
holder may also make payment at the time of exercise of an option for such class
of Common Shares by delivering to the Company a properly executed exercise
notice together with irrevocable instructions to a broker approved by the
Company that upon such broker's sale of shares with respect to which such option
is exercised, it is to deliver promptly to the Company the amount of sale
proceeds necessary to satisfy the option exercise price. No Option may be
exercised with respect to any fractional share and cash shall be paid in lieu of
fractional shares. As promptly as practicable following the receipt of a notice
hereunder, the Company shall issue a stock
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<PAGE>
certificate registered in the name of the Optionee exercising such Option,
representing the number of Common Shares issued to such Optionee upon exercise
of the Option.
(d) TERMINATION OR EXPIRATION. Each Option shall expire on the earlier of
the tenth anniversary of the Date of Grant or six months after the date the
Optionee ceases to be a director of the Company.
(e) TRANSFERABILITY. Neither the Option nor any interest therein may be
sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred
in any manner other than by will or the laws of descent and distribution.
During the recipient's lifetime, except as set forth in the preceding sentence,
an Option may only be exercised by the Optionee or the Optionee's guardian or
legal representative.
(f) PAYMENT OF WITHHOLDING TAXES. If the Company is obligated by law to
withhold an amount on account of any federal, state or local tax imposed as a
result of the exercise of the Option (such amount shall be referred to herein as
the "WITHHOLDING LIABILITY"), the Optionee shall, on the first date upon which
the Company becomes obligated to pay the Withholding Liability to the
appropriate taxing authority, pay the Withholding Liability to the Company in
full in cash or by check.
(g) STOCK EXCHANGE REQUIREMENTS AND APPLICABLE LAWS. Notwithstanding
anything to the contrary in this Plan, no Common Shares purchased upon exercise
of an Option, and no certificate representing all or any part of such shares,
shall be issued or delivered if (i) such shares have not been admitted to
listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (ii) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company. It is the Company's intent that this
Plan comply in all respects with Rule 16b-3 (together with any successor rule or
statute, "RULE 16b-3") of the Securities Exchange Act of 1934, as amended, and
any successor rule or statute (the "ACT"), and any regulations promulgated
thereunder. If any provision of this Plan is later found not to be in
compliance with Rule 16b-3, such provision shall be deemed null and void. All
grants and exercises of Options under this Plan shall be executed in accordance
with the requirements of Section 16 of the Act and any regulations promulgated
thereunder.
(h) STOCK OPTION AGREEMENT. Each grant of an Option under this Plan shall
be evidenced by an agreement duly executed on behalf of the Company and the
Optionee, dated as of the applicable Date of Grant. Each such agreement shall
set forth the number of Common Shares subject to the Option, the Exercise Price
and the date upon which the Option or portions thereof become exercisable and
shall incorporate by reference the terms and conditions of this Plan.
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<PAGE>
SECTION 5. STOCK SUBJECT TO PLAN.
(a) The maximum number of Common Shares that may be issued pursuant to all
Options granted under this Plan is 100,000, subject to adjustment as provided in
Section 7 hereof (such maximum number, as so adjusted, shall be referred to
herein as the "SHARE LIMITATION").
(b) Notwithstanding Sections 4(a) and (b) of this Plan, no Option shall be
granted under this Plan unless, on the Date of Grant, the sum of (i) the maximum
number of Common Shares issuable at any time pursuant to such Option, plus (ii)
the number of Common Shares that have previously been issued pursuant to the
exercise of Options granted under this Plan, plus (iii) the maximum number of
Common Shares that may be issued at any time thereafter pursuant to the exercise
of Options granted under this Plan that are outstanding on such date, does not
exceed the Share Limitation.
SECTION 6. DURATION OF PLAN.
(a) No Options shall be granted under this Plan after December 31, 2008.
Although Common Shares may be issued after December 31, 2008 pursuant to Options
granted prior to such date, no Common Shares shall be issued under this Plan
after December 31, 2018.
SECTION 7. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION.
If the outstanding securities of the class then subject to this Plan are
increased, decreased, changed into or exchanged for a different number or kind
of shares of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split, upon
proper authorization of the Board of Directors, an appropriate and proportionate
adjustment shall be made in (a) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Options
theretofore granted under this Plan, (b) the maximum number and type of shares
or other securities that may be issued pursuant to Options thereafter granted
under this Plan, and (c) the purchase price of the shares or other securities
that may be issued pursuant to Options theretofore granted under this Plan.
SECTION 8. AMENDMENT AND TERMINATION OF PLAN.
The Board may amend or terminate this Plan at any time and in any manner.
However, (a) no such amendment or termination shall deprive the recipient of any
Option theretofore granted under this Plan, without the consent of such
recipient, of any of his or her rights thereunder or with respect thereto, and
(b) no such amendment shall be effective without the approval of the
stockholders of the Company, if stockholder approval of the amendment is then
required pursuant to Rule 16b-3 under the Act, or the applicable rules of any
securities exchange or system.
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<PAGE>
SECTION 9. BUSINESS COMBINATIONS.
In the event that, while any Options are outstanding under this Plan, there
shall occur (a) a merger or consolidation of the Company with or into another
Corporation in which the Company shall not be the surviving Corporation (for
purposes of this Section 9, the Company shall not be deemed the surviving
corporation in any such transaction if, as the result thereof, it becomes a
wholly-owned subsidiary of another Corporation), (b) a dissolution of the
Company, (c) a transfer of all or substantially all of the assets or shares of
stock of the Company in one transaction or a series of related transactions to
one or more other persons or entities, (d) if any "person" or "group" as those
terms are used in Sections 13(d) and 14(d) of the Act, other than Excluded
Persons, becomes the "beneficial owner" (as defined in Rule 13d-3 of the Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding securities, or (e)
during any period of two consecutive years commencing on or after March 1, 1999,
individuals who at the beginning of the period constituted the Board cease for
any reason to constitute at least a majority, unless the election of each
director who was not a director at the beginning of the period has been approved
in advance by directors representing at least two-thirds (2/3) of the directors
then in office who were directors at the beginning of the period, then, with
respect to each Option outstanding immediately prior to the consummation of such
transaction, and without the necessity of any action by the Board, each such
Option shall terminate as of the effective date of such transaction, but each
holder of an outstanding Option shall be entitled, immediately prior to the
effective date of such transaction, to purchase the number of shares that he or
she would otherwise have been entitled to purchase during the entire remaining
term of the Option. The unexercised portion of any Option shall be deemed
cancelled and terminated as of the effective date of such transaction. The term
"EXCLUDED PERSONS" means each of Peter Schaeffer, John J. Moores, Charles E.
Noell III, Norris van den Berg and JMI Equity Fund, L.P., and any person, entity
or group under the control of any of them or a trustee or other fiduciary
holding securities under an employee benefit plan of the Company.
SECTION 10. EFFECTIVE DATE OF PLAN.
This Plan shall be effective as of February 1, 1999; provided, however,
that no Common Shares shall be issued under this Plan until it has been
approved, directly or indirectly, by the affirmative votes of the holders of a
majority of the securities of the Company present, or represented, and entitled
to vote in accordance with the laws of the State of Delaware.
SECTION 11. NO RIGHTS AS STOCKHOLDER AND RIGHTS OF DIRECTORS.
Neither the recipient of an Option under this Plan nor an Optionee's
successor or successors in interest shall have rights as a stockholder of the
Company with respect to any Common Shares subject to an Option granted to such
person until the date of issuance of a stock certificate for such Common Shares.
Neither this Plan, nor the granting of an Option hereunder, nor any other action
taken pursuant to this Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that a
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<PAGE>
Director has a right to continue as a Director for any period of time or at any
particular rate of compensation.
SECTION 12. GOVERNING LAW.
This Plan and all rights and obligations under this Plan shall be construed
in accordance with and governed by the laws of the State of Delaware.
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<PAGE>
DISTRIBUTOR AGREEMENT
by and between
PEREGRINE/BRIDGE TRANSFER CORPORATION
and
NEON SYSTEMS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Article 2 License Grant . . . . . . . . . . . . . . . . . . . . . . . . . 2
Article 3 Pricing and Payment . . . . . . . . . . . . . . . . . . . . . . 4
Article 4 Order, delivery and Acceptance. . . . . . . . . . . . . . . . . 4
Article 5 Representations and Warranties of Licensee. . . . . . . . . . . 5
Article 6 Representations and Warranties of Licensor. . . . . . . . . . . 6
Article 7 Covenants of Licensee . . . . . . . . . . . . . . . . . . . . . 6
Article 8 Covenants of Licensor . . . . . . . . . . . . . . . . . . . . . 9
Article 9 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 10 Agreement Not to Compete, Confidentiality . . . . . . . . . . . 12
Article 11 Audits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Article 12 Limited Warranties. . . . . . . . . . . . . . . . . . . . . . . 14
Article 13 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Article 14 Term and Termination. . . . . . . . . . . . . . . . . . . . . . 16
Article 15 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
EXHIBITS
Exhibit A List of Products
Exhibit B The Territory
Exhibit C Sublicense Agreement
Exhibit D Agreement for Trial
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DISTRIBUTOR AGREEMENT
DISTRIBUTOR AGREEMENT (the "Agreement") is made as of the 1st day of
January, 1996 by and between Peregrine/Bridge Transfer Corporation, a
Delaware corporation (the "Licensor"), and Neon Systems, Inc., a Delaware
corporation (the "Licensee").
WHEREAS, Licensor is engaged in the development, support and licensing of
certain computer software products, including without limitation the computer
software products fisted in EXHIBIT A to this Agreement; and
WHEREAS, Licensee desires to obtain from Licensor, and Licensor desires to grant
to Licensee, the right to market and sublicense the Licensed Products (as
defined herein) in accordance with the terms and conditions set forth in this
Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants set
forth in this Agreement and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
ARTICLE 1
DEFINITIONS
1.1 "Customer" means a person or entity that has acquired, or has indicated its
interest in acquiring from Licensee, or from a Redistributor if so
specified herein, a non-exclusive and nontransferable Sublicense to use one
(1) or more of the Licensed Products.
1.2 "Documentation" means all visually readable materials published or made
available by Licensor during the term of this Agreement for use by
Customers in connection with the Licensed Products.
1.3 "Emergency Fix" means a temporary correction of a problem in a Licensed
Product reported by Licensee to Licensor that may take the form of a
written instruction or magnetic or optical media.
1.4 "Licensed Product" means any copy, or part thereof, of object code of the
software products listed on EXHIBIT A attached to this Agreement, as well
as any Upgrades or other material distributed to Licensee by Licensor in
connection with such software products.
1.5 "Master Copy" means the initial object code copy of each Licensed Product
and of any subsequent Upgrades or other derivations distributed to Licensee
by Licensor under this Agreement.
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1.6 "Redistributor" means any individual or entity that is granted a license by
Licensee to copy and sublicense one or more Licensed Products to Customers.
1.7 "Sublicense" means the sublicense agreement to be entered into by
Customers, the form of which is attached hereto as EXHIBIT C, or such form
as otherwise may be approved by Licensor pursuant to this Agreement.
1.8 "Sublicense Copy" means an object code copy of the Licensed Product that
Licensee licenses from Licensor and inventories for sublicensing to
Redistributors and Customers.
1.9 "Territory" means that geographic area specified in EXHIBIT B attached to
this Agreement.
1.10 "Upgrade" means any revision, adaptation or new version of a Licensed
Product which enhances a Licensed Product and which is offered by Licensor
to registered users of that Licensed Product as an "upgrade."
ARTICLE 2
LICENSE GRANT
Section 2.1 USE OF MASTER COPY. Licensor hereby grants to Licensee a non-
exclusive, worldwide right to use and reproduce the Master Copy of each Licensed
Product and the related Documentation during the term of this Agreement for
testing, demonstration to Redistributors. and Customers, support and
maintenance, if any, back-up and archive purposes.
Section 2.2 SUBLICENSING. Licensor hereby grants to Licensee an exclusive
in the Territory to (1) make Sublicense Copies and copies of the Documentation
to meet the demand of Redistributors and Customers and (2) market and sublicense
Sublicense Copies and copies of the Documentation, together with any copies of
promotional and other materials which Licensor may produce or obtain from time
to time to assist Licensee in marketing and sublicensing the Licensed Products
during the term of this Agreement by any one or more of the following means:
(a) TO A REDISTRIBUTOR: To a Redistributor pursuant to a Redistributor
Agreement containing substantially the same terms and conditions as
are set forth in this Agreement (subject to Section 2.5) and a
Sublicense with each Customer of Redistributor in accordance with
subsection 2.2(b); or
(b) TO CUSTOMERS: Pursuant to a Sublicense signed by the Customer.
Section 2.3 AGREEMENTS FOR TRIAL. Licensee may make available the Licensed
Products or Documentation to any Redistributor or Customer who wishes to test
the Licensed Products on a trial basis so long as such Redistributor or Customer
has entered into an Agreement For Trial with Licensee in the form attached to
this Agreement as EXHIBIT D.
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Section 2.4 MAINTENANCE AND SUPPORT AGREEMENTS. Licensee may make available
to Customers maintenance, support and upgrade services only under the terms
contained in the Sublicense or other written maintenance and support agreement
pertaining to such services.
Section 2.5 REVIEW OF ARRANGEMENTS. Licensee shall not enter into any
agreement referred to in this Article 2 with any Redistributor or Customer until
each such agreement has been submitted to and approved by Licensor. Within five
(5) business days after its receipt of any such agreement, Licensor shall notify
Licensee whether it approves or disapproves of the agreement and, if it
disapproves of the agreement, Licensor shall provide written notice of the
reasons therefor, including any changes that would require to approve of the
agreement. If Licensor fails to notify Licensee of its approval or disapproval
of any such agreement within such period of time, the agreement shall be deemed
to be approved by Licensor.
Section 2.6 TERMS OF AGREEMENTS. Licensee shall ensure that the terms of any
Redistributor Agreement and, to the extent a Sublicense must be modified to
comply with applicable law, any Sublicense executed in connection with the
Licensed Products do not:
(a) Diminish or limit any of the rights of Licensor in the Licensed
Products or Documentation;
(b) Diminish or limit the enforceability of the proprietary rights of
Licensor in and to the Licensed Products or Documentation;
(c) Convey any rights of ownership in the Licensed Products or
Documentation to any individual or entity other than Licensor, except
for the license rights granted in accordance with the terms of this
Agreement;
(d) Permit the use or duplication of the Licensed Products or
Documentation, except as specifically provided in this Agreement or in
the Sublicense; or
(e) Permit disclosure of proprietary information regarding the Licensed
Products or Documentation.
Section 2.7 NATURE OF GRANT. Licensee shall not have any rights of ownership
or other proprietary rights in the Licensed Products or any Documentation by
virtue of this Agreement, except for the license grants set forth herein.
Section 2.8 TRADEMARKS AND COPYRIGHT. Licensor hereby grants to Licensee a
non-exclusive right to use the trademarks, service marks, trade names,
copyrights, logos and designations (collectively, the "Marks") relating to the
Licensed Products or the Documentation during the term of this Agreement in the
marketing by Licensee of the Licensed Products, provided that such Marks clearly
indicate Licensor as the owner of the Marks whenever the Licensed Product or
Documentation is first mentioned in any written material referencing the
Licensed Product and the proper symbol is used in a superscript following the
Marks. Licensor promptly shall provide
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<PAGE>
a list of all Marks held by Licensor that relate to the Licensed Products.
Upon reasonable written request by Licensor, Licensee shall provide Licensor
with samples of any use of the Marks of Licensor relating to the Licensed
Products, including any documentation and object code copies of the Licensed
Products that Licensee sublicenses to Redistributors and Customers.
ARTICLE 3
PRICING AND PAYMENT
Section 3.1 FEES TO LICENSOR.
(a) Licensee shall pay to Licensor for each Licensed Product licensed to a
Redistributor or a Customer a licensee fee equal to 50% of all
revenues received (without deduction for value added tax, if any, but
excluding any revenues for maintenance and support or upgrade
services, which revenues are covered in paragraph (b) below) by
Licensee under the Redistributor Agreement or Sublicense applicable
to such Licensed Product.
(b) Licensee shall pay to Licensor for maintenance and support and upgrade
services provided under the applicable Sublicense or other written
maintenance and support agreement with or approved by Licensee for
each of the Licensed Products a fee equal to 50% of all revenues
received (without deduction for value added tax, if any) by Licensee
from a Redistributor or Customer relating to maintenance and support
services or services for Upgrades or upgrades of systems for such
Licensed Product.
Section 3.2 TERMS OF PAYMENT. All fees due to Licensor under this Agreement
shall be paid in U.S. Dollars. Fees due to Licensor from invoices rendered by
Licensee during the first year of the term hereof will be payable one hundred
and twenty (120) days after the date of the Licensee's invoice to a
Redistributor or Customer, as the case may be. Fees due to Licensor from
invoices rendered on or after the first day of the thirteenth (13th) month
through and including the last day of the eighteenth (18th) month of the term
hereof will be payable ninety (90) days after the date of such invoice. Fees
due to Licensor from invoices rendered thereafter will be payable sixty (60)
days after the date of such invoice. Any amount that is not paid when due will
bear simple interest from the date such amount is due until the date payment is
made at a rate equal to 10% per annum.
ARTICLE 4
ORDER, DELIVERY AND ACCEPTANCE
Section 4.1 ORDER AND DELIVERY. Licensee shall deliver to Licensor product
orders (or other documents of similar purpose and effect) in writing that are
signed by an authorized representative of Licensee and that list the quantity,
product name, number, version, license fee and
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<PAGE>
proposed delivery date for such order. Licensor shall ship Licensed Products
and Documentation in accordance with Licensee's product orders received and
accepted by Licensor. Licensor shall ship Licensed Products and
Documentation F.O.B. Licensor's place of business. Licensee shall be
responsible for all customs fees and other costs and expenses arising in
connection with the transactions contemplated by this Agreement, including
costs and expenses related to packing and shipping the Licensed Products and
Documentation and any freight and insurance charges, and Licensor may require
Licensee to pay for such costs and expenses in advance of shipment of any
Licensed Products or Documentation. Licensor shall not be liable to Licensee
for delays in shipments due to causes beyond Licensor's reasonable control.
Licensor reserves the right to reject any product order, to cancel any
product orders placed by Licensee and accepted by Licensor and to refuse or
delay shipment thereof if Licensee fails to make any payments as provided in
this Agreement or otherwise continues to fail to comply with the terms and
conditions of this Agreement for thirty (30) days after delivery of written
notice of such failure.
Section 4.2 TIME FOR ACCEPTANCE. Licensee shall accept or reject the
Licensed Products or Documentation within a ten (10) day evaluation period after
receipt of such Licensed Product and the related Documentation by Licensee. If
Licensee fails to give Licensor written notice of its rejection of such Licensed
Products or Documentation within such ten (10) day evaluation period or Licensee
ships such Licensed Products or Documentation to a Redistributor or Customer,
then such Licensed Products and Documentation will be deemed to be accepted by
Licensee.
Section 4.3 REJECTION. If Licensee rejects any Licensed Product in
accordance with Section 4.2 because such Licensed Product fails to conform to
the Documentation relating to such Licensed Product, Licensee shall notify
Licensor promptly in writing to that effect and return all copies of such
Licensed Product to Licensor with a certification by an authorized
representative of Licensee that all copies have been returned to Licensor or
have been destroyed and Licensor shall refund to Licensee the amount paid by
Licensee to Licensor for such Licensed Products.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LICENSEE
Section 5.1 AUTHORITY. Licensee represents and warrants that it is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and that it is duly qualified to transact business and
is in good standing in each jurisdiction in which such qualification is required
by applicable law, except where the failure to be so qualified would not have a
material adverse effect on Licensee or the assets of Licensee. Licensee
represents and warrants that it has all requisite power and authority to execute
this Agreement and to consummate the transactions contemplated hereby and that
this Agreement has been duly executed and delivered by Licensee and constitutes
a valid and binding obligation of Licensee enforceable in accordance with its
terms.
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<PAGE>
Section 5.2 ABILITY TO PERFORM. Licensee represents and warrants that it has
sufficient facilities, resources and personnel to adequately perform its
obligations under this Agreement and that no existing arrangement, contractual
or otherwise, will cause Licensee to breach the terms of this Agreement or
prevent Licensee from fulfilling its obligations under this Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF LICENSOR
Section 6.1 AUTHORITY. Licensor represents and warrants that it is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and that it is duly qualified to transact business and
is in good standing in each jurisdiction in which such qualification is required
by applicable law, except where the failure to be so qualified would not have a
material adverse effect on Licensor or the assets of Licensor. Licensor
represents and warrants that it has all requisite power and authority to execute
this Agreement and to consummate the transactions contemplated hereby and that
this Agreement has been duly executed and delivered by Licensor and constitutes
a valid and binding obligation of Licensor enforceable in accordance with its
terms.
Section 6.2 TITLE TO LICENSED PRODUCTS. Licensor represents and warrants
that it possesses all right, title and interest in and to the Licensed Products
and the Documentation and that the use of each of the Licensed Products and the
Documentation by Licensee, a Redistributor or a Customer will not in any way
constitute an infringement or other violation of any copyright, trade secret,
trademark, patent or other intellectual property fights or any proprietary
information or nondisclosure or other rights of any third party. Licensor
represents and warrants that no existing arrangement, contractual or otherwise,
will cause Licensor to breach the terms of this Agreement or prevent Licensor
from fulfilling its obligations under this Agreement.
ARTICLE 7
COVENANTS OF LICENSEE
Section 7.1 DUTIES OF LICENSEE. Licensee shall be solely responsible for the
proper advertising, demonstration, shipment, export and collection of payment
relating to the Licensed Products and Documentation in the Territory. The
duties of Licensee include without limitation the following:
(a) Advertising the Licensed Product in appropriate media, contacting and
developing Customers and prospective Redistributors by telephone and
otherwise, providing information concerning Licensed Products to
Customers and prospective Redistributors and advising such Customers
and prospective Redistributors on the selection and use of the
Licensed Products.
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(b) Complying with Licensee's warranty obligations as set forth in its
agreements with Redistributors and Customers.
(c) Sending at Licensee's expense qualified and appropriate personnel of
Licensee to participate in training sessions, which shall be conducted
by Licensor from time to time without charge to Licensee for the
benefit of Licensee and Licensee's personnel.
(d) Obligating each Redistributor to keep complete and accurate records of
such Redistributor's Customers, leads to prospective Customers, the
number and type of Licensed Products licensed by such Redistributor
and such related operating and financial data as Licensor reasonably
may request from time to time for the sole purpose of monitoring the
Licensed Products.
Section 7.2 DOCUMENTATION. Licensee shall represent accurately and
completely the Licensed Products to Customers as to quality, function, purpose
and compatibility in accordance with the Documentation whenever the Licensed
Products are referenced, demonstrated or advertised. Licensee shall obtain
prior written approval from Licensor for all materials other than the
Documentation to be used by Licensee in connection with trials, demonstrations
and agreements relating to the Licensed Products, and such approval shall not be
unreasonably withheld or delayed by Licensor. Licensee shall give Licensor and
any licensors of Licensor appropriate credit for the authorship of the Licensed
Products and Documentation at any seminar, trade show or other presentation of
the Licensed Products.
Section 7.3 EXPORTING AND SHIPMENT. Licensee shall obtain prior written
approval from Licensor and any required export licenses from the United States
Department of Commerce, Office of Export Administration or other applicable
domestic or foreign governmental agency before exporting any Licensed Product or
Documentation from the United States. Licensee agrees and covenants to comply
fully with all applicable laws, rules and regulations, and to adopt such
policies and procedures in connection with, the exporting of the Licensed
Products and Documentation as may be required thereby. Each party to this
Agreement shall cooperate fully with the other party to this Agreement and any
governmental authorities by giving consents or information or providing or
executing such documents as reasonably may be required to comply fully with such
laws, rules or regulations existing now or in the future.
Section 7.4 TAXES AND TARIFFS.
(a) Licensee shall pay any and all taxes (other than taxes on Licensor's
net income), tariffs, import and export duties or other fees imposed
or assessed in connection with the transactions contemplated by this
Agreement, including the delivery of Licensed Products and
Documentation to Licensee and the shipment of Licensed Products from
Licensee to a Redistributor or Customer.
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(b) in the event that Licensee is required by law to withhold any form of
tax, tariff or duty from any amount payable to Licensor under this
Agreement, then Licensee shall provide Licensor with copies of all
documentation required in connection with such withholdings and shall
provide to Licensor all assistance requested by Licensor in applying
for relief from such withholding obligations and in substantiating
corresponding tax, duty or tariff credits or deductions which may be
available to Licensor with respect to such withholding under
applicable law.
Section 7.5 BOOKS AND RECORDS. Licensee shall keep proper records and books
of account concerning the reproduction and sublicensing of the Licensed Products
that are adequate to determine the amount of fees owed to Licensor and Licensee
shall preserve such records and books in a safe place for a period of five (5)
years following termination of this Agreement.
Section 7.6 MONTHLY REPORT. On or prior to the fifteenth (15th) day of each
calendar month Licensee shall deliver to Licensor a written report certified as
true and correct by an authorized office of Licensee stating (a) each Agreement
for Trial entered into by Licensee during the previous calendar month, together
with the expected revenues, if any, to Licensee under each such agreement, (b)
each Sublicense entered into by Licensee during the previous calendar month,
together with the expected revenues to Licensee for each such Sublicense, (c)
each Redistributor Agreement entered into by Licensee during the previous
calendar month, together with the expected revenues to Licensee for each such
agreement, and (d) a list of invoices, together with the dollar amounts thereof,
sent by Licensee to each Redistributor and Customer during the previous calendar
month.
Section 7.7 FINANCIAL STATEMENTS. Licensee shall provide (but shall not be
obligated to do so more frequently than twice annually) to Licensor financial
statements, credit ratings or other evidence of Licensee's financial condition
promptly upon written request of Licensor.
Section 7.8 REPLACEMENTS. Licensee shall honor any proper refund or
replacement requests received for the Licensed Products from Redistributors
pursuant to the applicable Redistributor Agreement or from Customers pursuant to
a Sublicense. Upon receipt of any such properly returned Licensed Products,
Licensor shall refund to Licensee the amount paid by Licensee to Licensor for
such Licensed Products. Licensee shall instruct Redistributors and Customers to
direct all refund requests directly to Licensee rather than Licensor.
Section 7.9 MODIFICATIONS. Licensee shall not make any modifications to or
derivations of the Licensed Products without the prior written consent of
Licensor, except in the case of an Emergency Fix. Licensee shall not reverse
engineer or otherwise attempt to reproduce the source code of any Licensed
Product. In the event that Licensee makes any modification, alteration or
enhancement to the Licensed Product or Documentation (including but not limited
to an Emergency Fix), such modification, alteration or enhancement, including
all intellectual property rights thereto, will be and remain the sole and
exclusive property of Licensor. Any suggestions or changes desired by Licensee
to the Licensed Product or Documentation shall be made by
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Licensee in writing to Licensor and, if incorporated into the Licensed
Product or Documentation, shall be the property of Licensor.
Section 7.10 COPYRIGHT AND OTHER PROPRIETARY NOTICES. Licensee shall ensure
that the copyright, trademark and any other proprietary notices of Licensor or
other legends contained in or on any copies of the Licensed Products or
Documentation remain in or on the original Licensed Product or Documentation and
any copies of such product or documentation reproduced by Licensee. The
existence of any copyright, trademark or other proprietary notices in or on the
Licensed Product or Documentation shall not be construed as a publication of the
Licensed Product or Documentation.
Section 7.11 NO ENCUMBRANCES. Licensee shall not engage in the lease,
transfer, rental or loan of the Licensed Products or Documentation and Licensee
shall not allow the Licensed Products or Documentation to become encumbered by
any means.
Section 7.12 NO INCONSISTENT WARRANTIES. Licensee shall not, and shall
obligate Redistributors not to, make or pass on to Customers any warranty or
representation on behalf of Licensor inconsistent with or in addition to the
limited warranty contained in the Sublicense.
Section 7.13 DISPUTES BETWEEN LICENSEE AND CUSTOMERS. Licensee shall notify
Licensor promptly concerning any threatened legal proceedings between Licensee
on the one hand and a Redistributor or a Customer on the other hand and of any
legal notices served on, or legal actions commenced against, Licensee regarding
the Licensed Products or Documentation which might affect Licensor. Licensee
shall not institute proceedings or enter into a compromise with any third party
with whom it is in dispute concerning the Licensed Products or Documentation
without the prior written consent of a duly authorized officer of Licensor,
which consent shall not be unreasonably withheld or delayed by Licensor.
Section 7.14 TRANSLATION. Licensee shall not translate any portion of the
Licensed Products, including any Documentation, into any other language without
the prior written permission of Licensor.
Section 7.15 INTELLECTUAL PROPERTY REGISTRATION. Without the prior written
consent of Licensor, Licensee shall not register, apply for registration or in
any other way attempt to obtain any intellectual property rights relating to any
Licensed Product, any Documentation or any part thereof or take any action that
materially and adversely affects such rights held by Licensor.
ARTICLE 8
COVENANTS OF LICENSOR
Section 8.1 Licensor shall be solely responsible for delivering to Licensee a
Master Copy of each Licensed Product and Documentation and for the maintenance
and support of the
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Sublicense Copies and Documentation used by any Redistributors and Customers.
The duties of Licensor include the following:
(a) Delivering a Master Copy of each Licensed Product and Documentation,
including any Upgrades as they become available, to permit Licensee to
(1) make Sublicense Copies and copies of the Documentation to meet the
demand of Redistributors and Customers and (2) market and license
Sublicense Copies and copies of the Documentation, together with the
copies of promotional and other materials which Licensor may produce
from time to time in order to assist Licensee in marketing and
sublicensing the Licensed Products during the term of this Agreement.
(b) Employing a sufficient number of skilled technicians experienced in
the computing industry and familiar with the Licensed Products and
Documentation to provide adequate technical support and assistance to
all Redistributors and Customers.
(c) Providing competent instruction to Redistributors and Customers
regarding the use and installation of the Licensed Products.
(d) Providing information, including by means of telephone support, to
Redistributors and Customers as to the proper procedures and persons
to contact to enable the proper installation and operation of the
Licensed Products and providing responsive answers to questions and
problems regarding the use and operation of the Licensed Products.
(e) Providing technical assistance in supporting the Licensed Products and
correcting any errors in the Licensed Products on an ongoing basis.
(f) Delivering to Licensee sample copies of all Licensor's marketing and
licensing materials relating to the Licensed Products in use in the
United States of America for copying and distribution in the Territory
at Licensee's expense.
Section 8.2 REGISTRATION FOR TRADEMARKS AND COPYRIGHTS. Licensor shall use
its best efforts to register in its name all Marks relating to the Licensed
Products in the Territory and Licensor shall bear all costs of such registration
and the maintenance and enforcement of all such rights and shall notify Licensee
from time to time of all successful and unsuccessful registrations.
ARTICLE 9
INDEMNIFICATION
Section 9.1 INDEMNIFICATION OF LICENSOR. Licensee hereby agrees to defend
and indemnify Licensor and Licensor's officers, directors, employees,
stockholders, agents and representatives
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against, and agrees to hold them harmless from, any loss, liability, claim,
damage or expense (including reasonable legal fees and expenses incurred
therein or in enforcing the indemnity), as incurred, for or on account of or
arising from or in connection with or otherwise with respect to any breach of
any representation, warranty or covenant of Licensee contained in this
Agreement or any document delivered in connection herewith.
Section 9.2 INDEMNIFICATION OF LICENSEE. Licensor hereby agrees to defend
and indemnify Licensee and Licensee's officers, directors, employees,
stockholders, agents and representatives against, and agrees to hold them
harmless from, any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses incurred therein or in enforcing the
indemnity), as incurred, for or on account of or arising from or in connection
with or otherwise with respect to any breach of any representation, warranty or
covenant of Licensor contained in this Agreement or any document delivered in
connection herewith.
Section 9.3 INDEMNIFICATION PROCEDURE. Promptly after acquiring knowledge of
any loss, action, suit, investigation, proceeding, demand, assessment, audit,
judgment or claim against Licensor or Licensee, or as to which Licensor or
Licensee may be liable, a party entitled hereunder to be indemnified shall give
written notice thereof to the party obligated hereunder to provide
indemnification. The indemnifying party at its own expense promptly shall
defend, contest or otherwise protect against any damage, loss, deficiency,
liability, claim, encumbrance, penalty, cost, expense, action, suit,
investigation, proceeding, demand, assessment, audit, judgment or claim made by
a third party against which such indemnifying party has agreed to indemnify any
indemnified party, and each indemnifying party shall receive from the
indemnified party all necessary and reasonable cooperation in said defense,
including without limitation the services of employees of the indemnified party
who are familiar with the transactions out of which any such damage, loss,
deficiency, liability, claim, encumbrance, penalty, cost, expense, action, suit,
investigation, proceeding, demand, assessment, audit, judgment or claim may have
arisen. The indemnified party shall have the right to control the defense of
any such third party proceeding unless it is relieved of its liability hereunder
with respect to such defense by the indemnified party. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of the indemnified
party's counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by the
indemnifying party or (ii) such indemnified party shall have been advised by
counsel hat there is a conflict of interest or issue conflict involved in the
representation by counsel employed by the indemnifying party in the defense of
such action on behalf of the indemnified party or that there may be one or more
legal defenses available to such indemnified party which are not available to
the indemnifying party (in which case the indemnifying party shall not have the
fight to assume the defense of such action on behalf of such indemnified party,
it being understood, however, that the indemnifying party shall not be liable,
in connection with any one such action or separate but substantially similar or
related actions in the same Jurisdiction arising out of the same general
allegations or circumstances, for the
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reasonable fees and expenses of more than one separate firm of attorneys for
the indemnified party, which firm shall be designated in writing by the
indemnified party). The indemnifying party shall have the right, at its
option and unless so relieved, to compromise, at its own expense by its own
counsel, any such matter involving the asserted liability to a third party of
the indemnified party. In the event that the indemnifying party shall
undertake to compromise any such asserted liability, the indemnifying party
shall notify the indemnified party promptly of its intention to do so. In
the event that an indemnifying party after written notice from an indemnified
party fails to take timely action to defend any such damage, loss,
deficiency, liability, claimed encumbrance, penalty, cost, expense, action,
suit, investigation, proceeding, demand, assessment, audit, judgment or
claimed the indemnified party shall have the right to defend the same by
counsel of its own choosing but at the cost and expense of the indemnifying
party. In the event that the indemnified party defends such an asserted
liability, it shall not compromise any such asserted liability without the
written consent of the indemnifying party, such consent not to be
unreasonably withheld or delayed.
Section 9.4 FURTHER REMEDIES FOR INFRINGEMENT. If Licensee is prevented from
its normal use of any Licensed Product or Documentation by injunction or court
order arising from, relating to or in connection with any alleged or actual
infringement on the intellectual property rights of a third party relating to
any Licensed Product or Documentation, then Licensor at its option and in
addition to the other remedies contained in this Agreement and at no expense,
loss or damage to Licensee shall (a) replace such Licensed Product or
Documentation free of any such infringement, (b) modify such Licensed Product or
Documentation so that it is free of any such infringement or (c) procure for the
benefit of Licensee, whether by license or other release of claim of
infringement, the fight to make Sublicense Copies and copies of the
Documentation to meet the demand of Redistributors and Customers and to market
and sublicense Sublicense Copies and copies of the Documentation.
ARTICLE 10
AGREEMENT NOT TO COMPETE, CONFIDENTIALITY
Section 10.1 NONCOMPETITION. Each of Licensor and Licensee understands and
acknowledges that Licensor shall be entitled to protect and preserve the going
concern value of Licensor's business to the extent permitted by law and that
Licensor would not have entered into this Agreement absent the provisions of
this Section 10.1 and, therefore, each of Licensor and Licensee agrees that
during the term of this Agreement Licensee shall not engage in, represent in any
way or be connected with directly or indirectly any business competing with the
Licensed Products.
Section 10.2 CONFIDENTIAL INFORMATION. Licensee understands and agrees that
the Licensed Products and any related information marked "Confidential"
constitute valuable intellectual property and trade secrets of Licensor and
embody substantial creative efforts and confidential information, ideas and
expressions belonging to Licensor. Licensor understands and agrees that
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any reports supplied pursuant to this Agreement by Licensee to Licensor
relating to the Licensed Products contain proprietary information of
Licensee. The Licensed Products and related information and such reports are
referred to collectively in this Agreement as the "Confidential Information."
Each party to this Agreement shall observe at all times complete
confidentiality with regard to the Confidential Information of the other
party to this Agreement held by such party and shall not permit or authorize
access to or disclosure of any such Confidential Information to any other
person or entity other than such party's employees and consultants who have
executed confidentiality agreements with terms substantially similar to this
Agreement. This Section 10.2 will not apply to any Confidential Information
that is required to be disclosed by applicable law or any Confidential
Information that becomes (a) public other than by virtue of a breach of this
Section 10.2 or (b) available to such party from another source (other than
any independent contractor engaged by such party to audit pursuant to this
Agreement the records of the other party hereto) that is not subject to a
confidentiality agreement with the other party hereto of which such party at
that time is aware.
Section 10.3 UNAUTHORIZED USE. Each party to this Agreement shall notify the
other party to this Agreement promptly in writing of the existence of any
circumstances surrounding any unauthorized knowledge, possession or use of the
Confidential Information by any person or entity other than the parties to this
Agreement and each of their authorized employees and consultants.
Section 10.4 REMEDY. Notwithstanding any other provision of this Agreement,
each of the parties to this Agreement understands and agrees that the remedy of
indemnity payments pursuant to this Agreement and other remedies at law would be
inadequate in the case of any breach of the covenants contained in this Article
10 and each party to this Agreement agrees that the other party to this
Agreement shall be entitled to equitable relief, including the remedy of
specific performance, without posting of bond or other security, with respect to
any breach or attempted breach of such covenants.
ARTICLE 11
AUDITS
Section 11.1 AUDITS. During the term of this Agreement and the five (5) year
period immediately following termination of this Agreement, Licensor will have
the right, at its own expense, to audit and examine Licensees records concerning
either (a) the reproduction and sublicensing of the Licensed Products and the
resulting fees due to Licensor or (b) compliance by Licensee with its
obligations as to confidentiality under this Agreement. During the term of this
Agreement and the five (5) year period immediately following termination of this
Agreement, Licensee will have the right, at its own expense, to audit and
examine Licensor's records concerning compliance by Licensor with its
obligations as to confidentiality under this Agreement. Any such audit shall be
conducted during normal business hours, upon at least three business days prior
written notification to the party to be audited stating the purpose of the audit
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and in such a manner so as to not unreasonably interfere with such party's
business operations. The auditing party shall keep any and all information
derived from any audits confidential. Such information is deemed to be
"Confidential Information" within the meaning of Article 10. In relation to
such information, the parties to this Agreement are subject to the obligations
and remedies set forth in Article 10. The auditing party shall not use such
information for any purpose other than the purpose of the audit as stated in
such party's written notification for such audit. If an audit of Licensee's
records and books of account reveals that Licensee has underpaid the fees due
under this Agreement to Licensor for the period under audit, Licensee shall pay
to Licensor promptly the amount of the underpayment. If the amount of
underpayment for the period under audit exceeds five percent (5%) of the total
amount owed during such period, Licensee shall reimburse Licensor for all costs
and expenses incurred by Licensor in connection with performing the audit.
ARTICLE 12
LIMITED WARRANTIES
Section 12.1 NO DEFECTS. For twelve (12) months after delivery of the Master
Copy of each Licensed Product to Licensee, Licensor warrants that the media in
which the Licensed Products are stored shall be free from defects in materials
and workmanship, assuming normal use. Licensee may return any defective media
to Licensor for replacement free of charge during such twelve (12) month period.
Section 12.2 PERFORMANCE. For twelve (12) months after delivery of any
Licensed Product to a Customer, whether Customer receives such Licensed Product
from Licensee or a Redistributor, Licensor warrants that each Licensed Product
will perform as described in the applicable Documentation. If Licensee or any
Redistributor or Customer discovers any errors or discrepancies in the Licensed
Products from the Documentation during the twelve (12) month warranty period,
Licensee shall notify Licensor promptly in writing of such error or discrepancy
in sufficient detail to enable Licensor to recreate the error or discrepancy.
If the error or discrepancy is found by Licensee prior to the expiration of the
ten (10) day evaluation period set forth in Section 4.2, such evaluation period
shall be extended ten (10) days from the date of receipt by Licensee of the
corrected Licensed Product from Licensor.
Section 12.3 DUTIES UNDER WARRANTY. If Licensee or any Redistributor or
Customer discovers any error in any Licensed Product or discrepancy in any
Licensed Product from the Documentation that results in a material loss of
performance in the Licensed Product within the twelve (12) month warranty
period, then Licensor shall provide Licensee with the correction or method of
resolving such error or discrepancy provided that Licensor shall not be
responsible for any error or discrepancy caused by failure to use the Licensed
Products as specified in the Documentation or any modifications made to any
Licensed Product by or on behalf of a party other than Licensor. If such error
or discrepancy is not resolved within thirty (30) days after Licensee's
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written notice to Licensor, then Licensee as its sole remedy may (a) extend
the correction period to a date which is agreeable to Licensor and Licensee
or (b) return all copies of the Licensed Products to Licensor with a
certification by an authorized representative of Licensee that all copies
have been returned to Licensor or have been destroyed and that Licensee has
not retained any copies thereof and Licensor shall refund to Licensee the
amount paid by Licensee to Licensor for such Licensed Products. Licensee
shall pay for all services rendered by Licensor in connection with the
Licensed Products or Documentation that are not covered or at that time are
no longer covered by the warranty described in this Agreement.
Section 12.4 EXCLUSIVE REMEDIES. THE REMEDIES SPECIFIED ABOVE SHALL BE THE
SOLE AND EXCLUSIVE REMEDIES OF LICENSEE REGARDING THE LICENSED PRODUCTS.
LICENSOR SPECIFICALLY DISCLAIMS ANY AND ALL OTHER WARRANTIES OF ANY KIND,
EXPRESS, RAPLIED OR STATUTORY, INCLUDING ANY WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. LICENSOR SPECIFICALLY MAKES NO
REPRESENTATIONS REGARDING THE SUITABILITY OF THE LICENSED PRODUCTS FOR THE
REQUIREMENTS OF ANY REDISTRIBUTOR. OR CUSTOMER CONCERNING CAPACITY,
INTERCONNECTIVITY, EXPANDABILITY OR PERFORMANCE.
ARTICLE 13
LIABILITY
Section 13.1 LIMIT OF LIABILITY. Licensor's total liability to Licensee under
any provision of this Agreement shall be limited to the amount actually paid by
Licensee to Licensor for the Licensed Product giving rise to the liability. The
existence of claims or suits against more than one Licensed Product shall not
enlarge or extend the limit. The parties to this Agreement acknowledge that
each of them relied upon the inclusion of this limitation in consideration of
entering into this Agreement. IN NO EVENT SHALL A PARTY TO THIS AGREEMENT BE
LIABLE TO THE OTHER PARTY TO THIS AGREEMENT FOR ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE USE, OR INABILITY TO USE,
THE LICENSED PRODUCTS OR ARISING OUT OF THIS AGREEMENT, INCLUDING BUT NOT LMTED
TO LOSS OF PROFIT OR OTHER MONETARY LOSS, LOSS OR INTERRUPTION OF DATA OR
CONTUTER TIME, ALTERATION OR ERRONEOUS TRANSNUSSION OF DATA OR PROGRAM ERRORS,
EVEN IF SUCH PARTY IS ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.
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ARTICLE 14
TERM AND TERMINATION
Section 14.1 TERM. This Agreement shall be effective until the earlier of (a)
its termination in accordance with the provisions of this Article 14 or (b) the
date that is two (2) years after the date of this Agreement; provided, however,
that this Agreement will renew automatically for successive terms of one (1)
year each unless a party to this Agreement delivers written notice of
termination to the other party to this Agreement at least sixty (60) days prior
to the end of the original or any renewal term or the parties to this Agreement
do not agree in writing to the Quota Amount referred to in subsection 14.2(b)(1)
for any one (1) year renewal term at least sixty (60) days prior to the
commencement of such term.
Section 14.2 TERMINATION.
(a) Either party to this Agreement may terminate this Agreement:
(1) Immediately upon written notice if the other party to this Agreement
becomes insolvent, is the subject of a petition in bankruptcy that is
not resolved within thirty (30) days, admits in writing its inability
to pay its debts, makes an assignment for the benefit of creditors,
ceases doing business or attempts an unauthorized assignment of this
Agreement; or
(2) Immediately upon written notice if the other party to this Agreement
performance of any obligation under this Agreement, including failure
to promptly pay any amount due hereunder, and fails to cure such
default within thirty (30) days after delivery of written notice
specifying the default (with any termination as a result of Licensee's
failure to pay amounts due under this Agreement resulting in the
acceleration of Licensee's obligation to pay all sums due to Licensor
under this Agreement).
(b) Licensor may terminate this Agreement:
(1) Upon ninety (90) days prior written notice if Licensee does not enter
into Sublicenses and other agreements relating to the Licensed
Products with Redistributors and Customers that result in fees payable
to Licensor hereunder in an aggregate amount equal to or greater than
the Quota Amount for any year during the term hereof. As used herein,
the term "Quota Amount" means $50,000 for each of the first and second
years of the original term of this Agreement and an amount agreed to
in writing by the parties hereto in respect of any subsequent one year
renewal term (provided that such amount equals or exceeds $50,000).
If Licensor fails to deliver notice of termination pursuant to this
subsection 14.2(b)(1) within six (6) months after the end of the term
to which such termination relates, Licensor will be deemed to have
waived such termination right in respect of such term (but not in
respect of subsequent terms); or
(2) Upon thirty (30) days prior written notice if Licensee enters into an
agreement or other arrangement relating to the merger of Licensee with
another entity, the acquisition of the majority of Licensee's issued
and outstanding capital stock or the acquisition of substantially all
of the assets of Licensee.
Section 14.3 DUTIES UPON TERMINATION. Upon the termination or expiration of
the term of this Agreement, the parties shall have the following rights and
obligations:
(a) Within five (5) days of written demand by Licensor to Licensee,
Licensee shall return or destroy all copies of the Licensed Products
and any materials associated with the Licensed Products in Licensee's
possession or control, except that Licensee may retain sufficient
copies of the Master Copy of each Licensed Product in object code form
to enable Licensee to meet its maintenance and support obligations to
its Customers, if any.
(b) Licensee immediately shall cease any use, reproduction, sublicensing
or distribution of the Licensed Products or the Documentation.
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(c) Within five (5) days of Licensor's written request, Licensee shall
certify in a writing reasonably acceptable to Licensor that except as
set forth in this Agreement all copies of the Licensed Products and
related material have been delivered to Licensor, destroyed or
rendered unusable.
(d) Licensee shall not use any Licensed Product or Documentation as part
of any other product that Licensee may use, sublicense or distribute
and Licensee shall cease any use of the Marks associated with the
Licensed Products or Documentation.
(e) All valid Redistributor Agreements and Sublicenses by and between
Licensee and any Redistributors and Customers will remain and continue
in full force and effect for the remainder of their respective terms,
and at Licensor's option Licensee shall assign to Licensor its rights
in such agreements with respect to the Licensed Products or
Documentation; provided that if Licensor fails to provide reasonable
support to any Redistributor or Customer, Licensee may support such
Redistributor or Customer without payment of fees to Licensor.
(f) Licensee promptly shall account for and pay to Licensor all amounts
due and owing pursuant to the terms of this Agreement and provide
Licensor with all outstanding reports due under this Agreement.
(g) Licensee immediately shall cease holding itself out as having any
connection with any Licensed Product or Licensor, unless Licensee at
that time has a connection with Licensor by reason other than this
Agreement.
(h) Licensee shall report to Licensor in reasonable detail the status of
all negotiations with prospective Redistributors and Customers or
leads to prospective Redistributors and Customers and all services
which Licensee is obligated to provide to any Redistributors or
Customers.
Section 14.4 RIGHTS NOT EXHAUSTIVE. The fights and remedies of Licensor
included in this Article 14 shall not be exclusive and are in addition to any
other rights and remedies provided by law or equity.
Section 14.5 SURVIVAL. The provisions of Articles 9, 10 and 11, Section 7.5
and this Section 14.5 and all obligations of Licensee to pay any amounts to
Licensor under this Agreement will survive the termination of this Agreement.
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ARTICLE 15
GENERAL
Section 15.1 NATURE OF RELATIONSHIP. The relationship existing between
Licensee and Licensor is one of an independent contractor, and this Agreement
shall not be construed as creating a partnership, joint venture, agency
relationship or as granting a franchise under federal or any state law. Each of
Licensee and its officers, employees or other representatives shall not enter
into or attempt to enter into any obligation on behalf of Licensor. Licensee
shall not make any representations to any Redistributors or Customers with
respect to the Licensed Products and Documentation, including without limitation
representations as to any warranty, covenant or other terms or conditions
relating to licensing of the Licensed Products, unless such representations are
made (a) in strict accordance with this Agreement or (b) with the prior written
consent of Licensor.
Section 15.2 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed delivered (i) when delivered if delivered
personally or by overnight courier or telecopier with proof of delivery or (ii)
three (3) days after such communication is deposited in the United States mail
with postage prepaid, if delivered, if mailed by registered or certified mail
(return receipt requested) to the parties to this Agreement at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Licensor, to
Peregrine/Bridge Transfer Corporation
14141 Southwest Freeway, Suite 6200
Sugar Land, Texas 77478
Attn: President
and
(b) if to Licensee, to
Neon Systems, Inc.
14141 Southwest Freeway, Suite 6200
Sugar Land, Texas 77478
Attn: President
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Section 15.3 INTERPRETATION. When a reference is made in this Agreement to an
Article, Section, subsection or Exhibit, such reference shall be to an Article,
Section, subsection or Exhibit of this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are
used in this Agreement, such term shall be deemed to be followed by the words
"without limitation." All accounting terms not defined in this Agreement shall
have the meanings determined by generally accepted accounting principles.
Section 15.4 COUNTERPARTS This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties to this Agreement and delivered to the other parties to this
Agreement, it being understood that all such parties need not sign the same
counterpart. For purposes hereof, delivery shall be deemed effective upon
exchange of signed copies of this Agreement by facsimile, provided that
originally signed counterparts of this Agreement are transmitted promptly to the
other parties hereto.
Section 15.5 ENTIRE AGREEMENT, THIRD PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein) (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties hereto with respect to the subject matter
hereof and (b) is not intended to confer upon any person (including any
Redistributor or Customer) other than the parties hereto any rights or remedies
hereunder, except as provided in Article 9.
Section 15.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE SIATE OF TEXAS.
Section 15.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other party to this Agreement;
provided, however, that Licensor may assign this Agreement to a subsidiary or
entity controlling, controlled by or under common control with Licensor.
Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be to this Agreement and their respective
successors and permitted assigns.
Section 15.8 SEVERABILITY. If any provision of this Agreement, or any portion
of any provision hereof, shall be deemed invalid or unenforceable pursuant to a
final determination of any court of competent jurisdiction or as a result of
future legislative action, such determination or action shall be construed so as
not to affect the validity or enforceability hereof and shall not affect the
validity or effect of any other portion hereof
Section 15.9 AMENDMENT. This Agreement may be amended only by a written
instrument duly signed by each of the parties hereto.
19
<PAGE>
Section 15.10 WAIVER. Any of the terms, covenants, representations, warranties
or conditions of this Agreement may be waived only by a written instrument
signed by the party to this Agreement waiving compliance. No waiver by any
party to this Agreement of any condition or breach of any term, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be construed as a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or of the breach of any other term, covenant, representation or
warranty set forth in this Agreement.
IN WITNESS WBEREOF, the parties hereto have executed this Agreement as of the
date first above written.
LICENSOR:
PEREGRINE/BRIDGE TRANSFER
By: /s/ Charles E Noell
----------------------------------
Name: Charles E Noell
--------------------------------
Title: General Partner
-------------------------------
LICENSEE:
NEON SYSTEMS, INC.
By: /s/ F. Joseph Backer
----------------------------------
Name: F. Joseph Backer
--------------------------------
Title: CEO
-------------------------------
20
<PAGE>
EXHIBIT B
THE TERRITORY
The Territory included is worldwide.
21
<PAGE>
EXHIBIT C
FORM OF SUBLICENSE
[Form follows.]
22
<PAGE>
EXHIBIT D
FORM OF AGREEMENT FOR TRIAL
[Form follows.]
23
<PAGE>
Exhibit 10.6
TEXACO INC.
INFORMATION TECHNOLOGY DEPARTMENT
MISCELLANEOUS WORK AGREEMENT
Agreement No. 1991/9 July 1, 1991
Agreement between NEON SYSTEMS. INC. with offices located at 6464 Savoy Drive,
Suite 439B, Houston, Texas 77036 (hereinafter called Contractor) and Texaco Inc.
with offices located at 6464 Savoy Drive, Houston, Texas 77036 (hereinafter
called Company).
TERM OF AGREEMENT:
This agreement shall commence on the date given above and shall continue until
terminated by either party with thirty days prior written notice. In the event
of any termination, Company's rights pursuant to the paragraph entitled LICENSE
RIGHTS shall continue and Contractor's obligations pursuant to the paragraphs
entitled INDEMNIFICATION, PROPRIETARY INFORMATION and HOLD HARMLESS shall
continue.
DESCRIPTION OF WORK:
1. To develop an application interface which will allow applications
running on a computer in an IBM System 370 or an IBM System 390 environment
where DB2 software is not present to issue SQL queries to DB2 software running
on a different computer which is also operating in the IBM System 370 or IBM
System 390 environment.
2. To develop an application interface which will allow applications
running on a computer in an IBM System 370 or an IBM System 390 environment to
extract data from relational databases operating on computers which function in
an operating environment other than IBM System 370 or IBM System 390.
3. To develop an application interface to allow computers operating in an
environment other than IBM System 370 or IBM System 390 to access data, with
client side static SQL, in a DB2 application running in an IBM System 370 or an
IBM System 390 environment.
4. To develop an application interface that will allow client systems
(such as, but not limited to, UNIX systems, IBM and IBM-compatible personal
computers, Apple Macintosh and
<PAGE>
others) to access IMS running on host platforms by using TCP/IP, LU6.2 or other
communication protocols.
LOCATION OF WORK AND WORKING ARRANGEMENTS:
Contractor shall perform the work both in its own offices and on Company
premises, as required by the nature of the work. Company shall provide
Contractor with access to some of the Company's underutilized data-processing
resources, including the following:
- Up to 4 building passes to permit free access by Contractor's employees
to Company's offices at 6464 Savoy Drive.
- Up to 4 "PROFS IDs" to permit Contractor's employees to communicate with
Company's employees on Company's PROFS system.
- Access to Company's "IBM Link" system.
- Use of up to 4 RSB PhoneMail box extensions to facilitate Company's
employees leaving messages for Contractor's employees.
- Up to 4 "LOGON Ids with dial-in privileges" to permit Contractor's
employees to access underutilized data-processing resources on Company's
"TULD" computer system.
- Permission to attend computer industry meetings (e.g., "GUIDE" and
"SHARE") as contractors to Company where such attendance by contractors is
allowed by the bylaws of the sponsoring organizations.
Contractor's use of Company facilities shall be limited to furtherance of its
obligations under this Agreement. Company reserves the right to charge, and
Contractor agrees to pay any such charge, for any usage by Contractor of Company
facilities which are not in furtherance of this Agreement.
AGREEMENT PRICE
Contractor shall perform the work at no cost to Company.
CONTRACTOR/COMPANY RELATIONSHIP
It is expressly understood and agreed that under no circumstances is the
Contractor to be considered the Company's employee or agent, and the Contractor
shall be an independent Contractor at all
2
<PAGE>
times during the performance of the work hereunder.
PROPRIETARY INFORMATION
During the term of this agreement, Contractor and/or Company may disclose
proprietary information to the other party. Neither Contractor nor Company
shall disclose proprietary information belonging to the other party to others or
use such information other than for the purposes of this agreement. However,
neither party shall be required to keep proprietary any information which is, or
becomes, publicly available, is already in that party's possession, or is
rightfully obtained from third parties.
RIGHTS IN DATA
All ideas, concepts, know-how and techniques created in the course of
Contractor's work hereunder shall be the property of Contractor, except that
Company shall have the right to use such ideas, concepts, know-how and
techniques in its own operations.
HOLD HARMLESS
The Contractor agrees to indemnify and hold the Company harmless from any and
all claims, demands, causes of action, and liability arising out of injury or
death to the person or damage to the property of, or any loss or expense
incurred by, the Contractor which arises out of or pursuant to the performance
of this agreement.
The Contractor agrees to indemnify and hold the Company harmless from any and
all claims, demands, causes of action, and liability arising out of injuries or
death to persons or injury, loss, expense, or damage to property caused by
Contractor during the performance of this agreement.
Contractor agrees that it and its employees are performing services as
independent contractors and accepts liability and responsibility for any
federal, state or, local employment taxes imposed. Contractor further agrees to
indemnify and hold the Company harmless against all claims, taxes, penalties,
interest, and costs which may be assessed against Company under any law, or rule
or regulation thereunder with respect to Contractor or its employees.
OWNERSHIP
It is specifically agreed between the parties that Contractor shall own of all
rights in the software or other products developed by Contractor pursuant to
this Agreement.
3
<PAGE>
LICENSE RIGHTS
It is specifically agreed that Contractor hereby grants to Company a worldwide,
perpetual, royalty free, paid-up license to use, copy, modify, and/or make
derivative copies of any software or other products developed or first reduced
to practice pursuant to this Agreement (PRODUCTS). For purposes of the license
granted hereunder, company shall include Texaco Inc., its subsidiaries and
affiliates, in which it owns directly or indirectly a 50% or greater interest,
and any parent of Texaco whether now in existence or later occurring.
Contractor, on an ongoing and timely basis, shall deliver to Company source code
and object code versions of, as well as supporting documentation for, the
Products.
MAINTENANCE
Contractor agrees to maintain the Products provided to Company pursuant to the
terms of this Agreement. Such maintenance shall include bug fixes, workarounds,
patches, updates, modifications, revised versions or new versions of the
Products. Such maintenance shall be provided at no cost to Company: 1) during
the term of this Agreement; 2) following the expiration of this Agreement if
Company continues to provide Contractor with access to Company's computing
resources for the purposes of enhancing or maintaining the Products and/or
developing other software products; or 3) for so long as Contractor markets all
or any of the Products. In the event that Contractor sells or otherwise
transfers the ownership of the Products or marketing rights to the products to
another company (hereinafter called Successor) at a time where Company is
receiving free maintenance as provided hereunder, the sales or transfer
agreement shall provide that Company shall receive free maintenance for so long
as all or any of the products are being marketed. In no event shall Company be
required to provide any resources to Successor.
INDEMNIFICATION
In the event that any action or proceeding, including an action or claim for
infringement of any United States or foreign letters of patent or copyright, is
brought by a third party against Company based upon use or possession of the
Products provided by Contractor, Contractor agrees at it's own cost and expense
to defend, indemnify and hold company harmless in respect to such action or
preceding and to promptly pay or reimburse Company for any losses, costs,
damages, obligations, judgements and fees suffered or incurred by company as a
result of such action or preceding. Company shall have the right, at it's own
expense and with counsel of it's own choice, to participate in the defense of
any such suit or action.
4
<PAGE>
AGREED:
TEXACO INC. Neon Systems, Inc.
By: /s/ Beverly W. Childs By: /s/ Peter Schaeffer
----------------------------------- -----------------------------
Name: Beverly W. Childs Name: Peter Schaeffer
-----------------------------------
Title: Director of Technology Support Title: President
-----------------------------------
Date: 12/20/91 Date: 12/20/91
----------------------------------- -----------------------------
5
<PAGE>
AMENDMENT A
The following is added to and made a part of the certain Miscellaneous Work
Agreement No. 1991/9 (Agreement) between Texaco Inc. (Company) and Neon Systems,
Inc. (Contractor). To the extent of any conflicts between the terms of this
Amendment A and the terms of the Agreement, this Amendment A shall control.
1. Section entitled LOCATION OF WORK AND WORKING ARRANGEMENTS. Following the
first bullet point at the top of page two add: "Said building passes to
provide 24 hours per day, 7 day per week access to the Company's offices at
6464 Savoy Drive, including access to Company's high speed print facilities
at 6464 Savoy Drive.
AGREED TO AND ACCEPTED.
TEXACO INC. Neon Systems, Inc.
By: /s/ Beverly W. Childs By: /s/ Peter Schaeffer
------------------------------ ----------------------------------
Name: Beverly W. Childs Name: Peter Schaeffer
------------------------------ ----------------------------------
Title: Director Technology Support Title: President
------------------------------ ----------------------------------
Date: 1/28/92 Date: 1/28/92
------------------------------ ----------------------------------
<PAGE>
AMENDMENT B
The following is added to and made a part of that certain MISCELLANEOUS WORK
AGREEMENT NO. 1991/9 (AGREEMENT) between TEXACO INC. (COMPANY) and NEON SYSTEMS,
INC. (CONTRACTOR). To the extent of any conflicts between the terms of the
Agreement and the terms of this Amendment B, the terms of this Amendment B shall
control.
1. Add a new section entitled BUILDING ACCESS
"Contractor will be permitted to bring visitors or guests onto Company's
facility at 6464 Savoy Drive. Said access shall be granted on a 24 hour
per day, seven day per week basis. Contractor shall be solely liable for
the conduct and safety of said visitors or guests while on Company
premises. Contractor shall take all reasonable steps to insure that such
guests or visitors do not have access to Company's confidential or
proprietary information. Any such guest or visitor shall sign such forms
as Company requires prior to being granted access to Company's facility.
Such guests and visitors shall be treated as employees of Contractor for
purposes of the HOLD HARMLESS clause of the Agreement.
AGREED TO AND ACCEPTED.
TEXACO INC. Neon Systems, Inc.
By: /s/ Beverly W. Childs By: /s/ Peter Schaeffer
----------------------------------- -----------------------------
Name: Beverly W. Childs Name: Peter Schaeffer
----------------------------------- -----------------------------
Title: Director of Technology Support Title: President
----------------------------------- -----------------------------
Date: 5/28/92 Date: 5/28/92
----------------------------------- -----------------------------
<PAGE>
AMENDMENT C
The following is added to and made a part-of that certain MISCELLANEOUS WORK
AGREEMENT NO. 1991/9 (AGREEMENT) between TEXACO INC. (COMPANY) and NEON SYSTEMS,
INC. (CONTRACTOR). To the extent of any conflicts between the terms of the
Agreement and the terms of this Amendment C, the terms of this Amendment C shall
control.
1. Add the following new section entitled TELEPHONE USAGE:
"Effective December 1, 1992 Contractor agrees to reimburse Company for any
long distance telephone charges, except for charges for long distance calls
made on Company's TEXNET system, incurred by Contractor personnel while on
Company premises or using company facilities. Company shall be responsible
for costs for local telephone calls made from Company's telephone
facilities and for costs associated with company's premise telephone
facilities. Nothing contained herein shall require Company to modify its
current telephone facilities."
AGREED TO AND ACCEPTED.
TEXACO INC. Neon Systems, Inc.
By: /s/ Beverly W. Childs By: /s/ Peter Schaeffer
----------------------------------- -----------------------------
Name: Beverly W. Childs Name: Peter Schaeffer
----------------------------------- -----------------------------
Title: Director of Technology Support Title: President
----------------------------------- -----------------------------
Date: 11/30/92 Date: 11/30/92
----------------------------------- -----------------------------
<PAGE>
AMENDMENT D
The following is added to and made a part or that certain MISCELLANEOUS WORK
AGREEMENT NO. 1991/9 (AGREEMENT) between TEXACO INC. (COMPANY) and NEON SYSTEMS,
INC. (CONTRACTOR). To the extent of any conflicts between the terms of this
Amendment D and the terms of the Agreement, the terms of this Amendment D shall
control.
1. Effective January 1, 1995 this Agreement will be assigned from Texaco Inc.
to Texaco Group Inc. The right to use Products developed pursuant to this
Agreement set forth in the section entitled "LICENSE RIGHTS" shall not be
diminished as a result of this assignment.
2. DESCRIPTION OF WORK
Add: "5. To develop a set of products to facilitate Client/Server
connectivity to non-mainframe database, including but not limited to
Oracle, Sybase, Informix, DB2/6000, and DB2/2. These products will include
a client ODBC driver and a host based server component. The overall
architecture will be the same as the existing Shadow Direct product but
designed to access different database environments than those accessed by
Shadow Direct."
Add: "6. To develop a set of applications to allow Web Client access to
data residing in database products such as, but not limited to, DB2 (all
cpu operating systems and platforms), IMS, Oracle and Sybase. To allow
existing and future Shadow Servers to serve Web Client as well as ODBC
clients."
3. LOCATION OF WORK AND WORKING ARRANGEMENTS
At the end of the section add: "Contractor will be entitled to an
additional 20 LOGON ID's with dial-in privileges. Company reserves the
right to charge Contractor the fair-market value of these additional
services. Contractor acknowledges that Company provided office space and
equipment will not be available after December 1, 1995. Contractor shall
vacate all Company provided office space no later than December 1, 1995."
AGREED TO AND ACCEPTED.
TEXACO INC. Neon Systems, Inc.
By: /s/ E. McDonald By: /s/ F. Joseph Backer
------------------------------ ----------------------------------
Name: E. McDonald Name: F. Joseph Backer
------------------------------ ----------------------------------
Title: Chief Architect Title: CEO
------------------------------ ----------------------------------
Date: 9/7/95 Date: 8/29/95
------------------------------ ----------------------------------
<PAGE>
Exhibit 10.7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SERIES A STOCK PURCHASE AGREEMENT BETWEEN
NEON SYSTEMS, INC.,
JMI EQUITY FUND, L.P.
AND
PETER SCHAEFFER
DATED AS OF MAY 19, 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I THE PREFERRED SHARES. . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.01 Issuance, Sale and Delivery of the Preferred
Shares . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.02 Closing. . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . .1
Section 2.01 Organization, Qualifications and Corporate
Power. . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2.02 Authorization of Agreements, Etc . . . . . . . . . . . .2
Section 2.03 Validity . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.04 Authorized Capital Stock . . . . . . . . . . . . . . . .3
Section 2.05 Financial Statements . . . . . . . . . . . . . . . . . .3
Section 2.06 Events Subsequent to the Date of the Balance
Sheet. . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 2.07 Litigation; Compliance with Law. . . . . . . . . . . . .4
Section 2.08 Proprietary Information of Third Parties . . . . . . . .5
Section 2.09 Patents, Trademarks, Etc . . . . . . . . . . . . . . . .5
Section 2.10 Title to Properties. . . . . . . . . . . . . . . . . . .6
Section 2.11 Leasehold Interests. . . . . . . . . . . . . . . . . . .6
Section 2.12 Insurance. . . . . . . . . . . . . . . . . . . . . . . .6
Section 2.13 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 2.14 Other Agreements . . . . . . . . . . . . . . . . . . . .8
Section 2.15 Loans and Advances . . . . . . . . . . . . . . . . . . 10
Section 2.16 Assumptions, Guaranties, Etc. of Indebtedness of
Other Persons. . . . . . . . . . . . . . . . . . . . . 10
Section 2.17 Significant Customers and Suppliers. . . . . . . . . . 10
Section 2.18 Governmental Approvals . . . . . . . . . . . . . . . . 10
Section 2.19 Disclosure . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.20 Offering of the Preferred Shares . . . . . . . . . . . 11
Section 2.21 Brokers. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.22 Officers . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.23 Transactions With Affiliates . . . . . . . . . . . . . 11
Section 2.24 Employees. . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.25 Environmental Protection . . . . . . . . . . . . . . . 11
Section 2.26 Employee Benefit Plans . . . . . . . . . . . . . . . . 12
Section 2.27 Foreign Corrupt Practices Act. . . . . . . . . . . . . 13
Section 2.28 Federal Reserve Regulations. . . . . . . . . . . . . . 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . 13
ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. . . . . . . . . . . . 14
Section 4.01 Opinion of Company's Counsel . . . . . . . . . . . . . 14
Section 4.02 Representations and Warranties to be True and
Correct. . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.03 Performance. . . . . . . . . . . . . . . . . . . . . . 17
Section 4.04 All Proceedings to be Satisfactory . . . . . . . . . . 17
Section 4.05 Supporting Documents . . . . . . . . . . . . . . . . . 17
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
Section 4.06 Merger . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.07 Registration Rights Agreement. . . . . . . . . . . . . 18
Section 4.08 Stock Restriction Agreement. . . . . . . . . . . . . . 18
Section 4.09 Stockholders Agreement . . . . . . . . . . . . . . . . 18
Section 4.10 Charter. . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.11 Employee and Consultant Agreements . . . . . . . . . . 18
Section 4.12 Agreement with the Founder . . . . . . . . . . . . . . 19
Section 4.13 Election of Directors. . . . . . . . . . . . . . . . . 19
Section 4.14 Preemptive Rights. . . . . . . . . . . . . . . . . . . 19
Section 4.15 Fees of Purchasers' Counsel. . . . . . . . . . . . . . 19
ARTICLE V COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.01 Reporting Requirements . . . . . . . . . . . . . . . . 19
Section 5.02 Reserve for Conversion Shares. . . . . . . . . . . . . 21
Section 5.03 Corporate Existence and Business . . . . . . . . . . . 21
Section 5.04 Properties, Business and Insurance . . . . . . . . . . 21
Section 5.05 Inspection, Consultation and Advice. . . . . . . . . . 22
Section 5.06 Expenses of Directors. . . . . . . . . . . . . . . . . 22
Section 5.07 Use of Proceeds. . . . . . . . . . . . . . . . . . . . 22
Section 5.08 Board of Directors Meetings. . . . . . . . . . . . . . 22
Section 5.09 By-laws. . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.10 New Developments; Nondisclosure and Developments
Agreements; Non-Competition Agreements . . . . . . . . 22
Section 5.11 Compliance with Laws . . . . . . . . . . . . . . . . . 23
Section 5.12 Keeping of Records and Books of Account. . . . . . . . 23
Section 5.13 Payment of Taxes and Trade Debt. . . . . . . . . . . . 23
Section 5.14 U.S. Real Property Interest Statement. . . . . . . . . 23
Section 5.15 Rule 144A Information. . . . . . . . . . . . . . . . . 23
Section 5.16 Compensation Committee . . . . . . . . . . . . . . . . 24
Section 5.17 Compliance with ERISA. . . . . . . . . . . . . . . . . 24
Section 5.18 Annual Budget. . . . . . . . . . . . . . . . . . . . . 24
Section 5.19 Negative Covenants of the Company. . . . . . . . . . . 25
ARTICLE VI RIGHT OF FIRST REFUSAL. . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.01 Right of First Refusal . . . . . . . . . . . . . . . . 29
Section 6.02 Notice of Acceptance . . . . . . . . . . . . . . . . . 30
Section 6.03 Exception. . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.01 Expenses . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.03 Brokerage. . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.04 Parties in Interest. . . . . . . . . . . . . . . . . . 31
Section 7.06 Governing Law. . . . . . . . . . . . . . . . . . . . . 32
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
Section 7.07 Entire Agreement . . . . . . . . . . . . . . . . . . . 32
Section 7.08 Counterparts . . . . . . . . . . . . . . . . . . . . . 32
Section 7.09 Amendments . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.10 Severability . . . . . . . . . . . . . . . . . . . . . 32
Section 7.11 Titles and Subtitles . . . . . . . . . . . . . . . . . 32
Section 7.12 Certain Defined Terms. . . . . . . . . . . . . . . . . 32
</TABLE>
Schedule I To Series A Stock Purchase Agreement (Disclosure Schedule)
Schedule II Security Holders
Schedule III
(a) and (b) To Series a Stock Purchase Agreement (Agreements)
Schedule IV Financial Projections and Other Estimates
Exhibit A Registration Rights Agreement
Exhibit B Stock Restriction Agreement
Exhibit C Stockholders Agreement
Exhibit D Certificate of Incorporation of Neon Systems, Inc.
Exhibit E Employee Nondisclosure and Developments Agreement
Exhibit F Employee Nondisclosure Developments and Noncompetition Agreement
iii
<PAGE>
SERIES A STOCK PURCHASE AGREEMENT
This SERIES A STOCK PURCHASE AGREEMENT, dated as of May 19, 1993 (the
"Agreement"), by and between NEON Systems, Inc., a Delaware corporation (the
"Company"), JMI Equity Fund, L.P., a Delaware limited partnership (the
"Purchaser") and Peter Schaeffer (the "Founder"):
WITNESSETH:
WHEREAS, the Company wishes to issue and sell to the Purchaser an aggregate
of 500,000 shares (the "Preferred Shares") of the authorized but unissued Series
A Convertible Preferred Stock, par value $.01 per share, of the Company (the
"Preferred Stock"); and
WHEREAS, the Purchaser wishes to purchase the Preferred Shares upon the
terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of these premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.01 ISSUANCE, SALE AND DELIVERY OF THE PREFERRED SHARES. The
Company agrees to issue and sell to the Purchaser, and the Purchaser hereby
agrees to purchase from the Company, 500,000 shares of the Company's Series A
Convertible Preferred Stock for the aggregate purchase price of $1,000,000 or
$2.00 per share.
SECTION 1.02 CLOSING. The closing of the sale of the Preferred Shares
(the Closing) shall take place at the offices of Testa, Hurwitz & Thibeault,
Exchange Place, 53 State Street, Boston, Massachusetts 02109, at 10:00 a.m.,
Boston time, on May 19, 1993, or at such other location, date and time as may be
agreed upon between the Purchaser and the Company (such date and time being
called the "Closing Date"). At the Closing the Company shall issue and deliver
to the Purchaser a stock certificate or certificates in definitive form,
registered in the name of the Purchaser (or its nominee), representing the
Preferred Shares being purchased by the Purchaser at the Closing against payment
of the full purchase price therefor by check payable to the order of the
Company, wire transfer to the account of the Company or any combination thereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and the Founder, jointly and severally, represent and warrant
to the purchaser that, except as set forth in the Disclosure Schedule attached
as SCHEDULE I:
1
<PAGE>
SECTION 2.01 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is fully
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification. The Company has the corporate power
and authority (i) to own and hold its properties and to carry on its business as
now conducted and as proposed to be conducted, (ii) to execute, deliver and
perform this Agreement, the Registration Rights Agreement with the Purchaser in
the form attached as Exhibit A (the "Registration Rights Agreement"), the Stock
Restriction Agreement with the Purchaser and the other parties thereto named in
Section 4.08, in the form attached as Exhibit B (the "Stock Restriction
Agreement") and the Stockholders Agreement between the Company, the Purchaser
and the other parties thereto named in Section 4.09, in the form attached as
Exhibit C (the "Stockholders Agreement"), (iii) to issue, sell and deliver the
Preferred Shares, and (iv) to issue and deliver the shares of Common Stock of
the Company issuable upon conversion of the Preferred Shares (the "Conversion
Shares").
(b) The Company does not (i) own of record or beneficially, directly
or indirectly, (A) any shares of capital stock or securities convertible into
capital stock of any other corporation or (B) any participating interest in any
partnership, joint venture or other non-corporate business enterprise or (ii)
control, directly or indirectly, any other entity.
SECTION 2.02 AUTHORIZATION OF AGREEMENTS, ETC.
(a) The execution and delivery by the Company of this Agreement, the
Registration Rights Agreement, the Stock Restriction Agreement and the
Stockholders Agreement, the performance by the Company of its obligations
hereunder and thereunder, the issuance, sale and delivery of the Preferred
Shares and the issuance and delivery of the Conversion Shares have been duly
authorized by all requisite corporate action and will not violate any provision
of law, any order of any court or other agency of government, the Certificate of
Incorporation of the Company, as amended (the "Charter"), or the By-laws of the
Company, as amended, or any provision of any indenture, agreement or other
instrument to which the Company or any of its property or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge, restriction, claim
or encumbrance of any nature whatsoever upon any of the property or assets of
the Company. To the Company's knowledge, no provision of the Stock Restriction
Agreement violates, conflicts with, results in a breach of or constitutes (with
due notice or lapse of time or both) a default by any other party under any
other indenture, agreement or instrument.
(b) The Preferred Shares have been duly authorized and, when issued
in accordance with this Agreement, will be validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership thereof and
will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company. The Conversion Shares have been
duly authorized and reserved for issuance upon conversion of the Preferred
Shares and, when so issued, will be validly issued, fully paid and nonassessable
with
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no personal liability attaching to the ownership thereof and will be free and
clear of all liens, charges, restrictions, claims and encumbrances imposed by or
through the Company. Neither the issuance, sale or delivery of the Preferred
Shares nor the issuance or delivery of the Conversion Shares is subject to any
preemptive right of stockholders of the Company or to any right of first refusal
or other right in favor of any person.
SECTION 2.03 VALIDITY. This Agreement has been duly executed and
delivered By-the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The Registration
Rights Agreement, the Stock Restriction Agreement and the Stockholders
Agreement, when executed and delivered in accordance with this Agreement, will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms.
SECTION 2.04 AUTHORIZED CAPITAL STOCK. The authorized capital stock of
the Company consists of (i) 500,000 shares of preferred stock, par value $.01
per share, of which 500,000 shares have been designated Series A Convertible
Preferred Stock and (ii) 1,000,000 shares of Common Stock. Immediately prior to
the Closing, 400,000 shares of Common Stock will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof and no shares of preferred stock will have been issued.
The stockholders of record and holders of subscriptions, warrants, options,
convertible securities, and other rights (contingent or other) to purchase or
otherwise acquire equity securities of the Company, and the number of shares of
Common Stock and the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each, are as set forth in
the attached Schedule II. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of the Company are as set forth in the Charter, a
copy of which is attached as Exhibit D, and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable and in accordance with all applicable laws. Except as
set forth in the attached Schedule II, (i) no person owns of record or is known
to the Company to own beneficially any share of Common Stock, (ii) no
subscription, warrant, option, convertible security, or other right (contingent
or other) to purchase or otherwise acquire equity securities of the Company is
authorized or outstanding and (iii) there is no commitment by the Company to
issue shares, subscriptions, warrants, options, convertible securities, or other
such rights or to distribute to holders of any of its equity securities any
evidence of indebtedness or asset. Except as provided for in the Charter or as
set forth in the attached Schedule II, the Company has no obligation (contigent
or other) to purchase, redeem or otherwise acquire any of its equity securities
or any interest therein or to pay any dividend or make any other distribution in
respect thereof. Except for the Stock Restriction Agreement and the
Stockholders Agreement, to the Company's knowledge there are no voting trusts or
agreements, stockholders, agreements, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to any securities
of the Company (whether or not the Company is a party thereto). All of the
outstanding securities of the Company were issued in compliance with all
applicable Federal and state securities laws.
SECTION 2.05 FINANCIAL STATEMENTS. The Company has furnished to the
Purchaser its unaudited balance sheet as of March 31, 1993 (the "Balance Sheet")
and the related unaudited statements of income, stockholders, equity and cash
flows of the Company for the three months
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ended March 31, 1993. All such financial statements fairly present the
financial position of the Company as of March 31, 1993, and the results of its
operations and cash flows for the three months ended March 31, 1993. Since the
date of the Balance Sheet, (i) there has been no change in the assets,
liabilities or financial condition of the Company from that reflected in the
Balance Sheet except for changes in the ordinary course of business which in the
aggregate have not been materially adverse and (ii) none of the business,
prospects, financial condition, operations, property or affairs of the Company
have been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
SECTION 2.06 EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET. Since
the date of the Balance Sheet, the Company has not (i) issued any stock, bond
or other corporate security, (ii) borrowed any amount or incurred or become
subject to any liability (absolute, accrued or contingent), except current
liabilities incurred and liabilities under contracts entered into in the
ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown on the Balance Sheet and
current liabilities incurred since the date of the Balance Sheet in the ordinary
course of business, (iv) declared or made any payment or distribution to
stockholders or purchased or redeemed any share of its capital stock or other
security, (v) mortgaged, pledged, encumbered or subjected to lien any of its
assets, tangible or intangible, other than liens of current real property taxes
not yet due and payable, (vi) sold, assigned or transferred any of its tangible
assets except in the ordinary course of business, or cancelled any debt or
claim, (vii) sold, assigned, transferred or granted any exclusive license with
respect to any patent, trademark, trade name, service mark, copyright, trade
secret or other intangible asset, (viii) suffered any loss of property or waived
any right of substantial value whether or not in the ordinary course of
business, (ix) made any change in officer compensation except in the ordinary
course of business and consistent with past practice, (x) made any material
change in the manner of business or operations of the Company, (xi) entered into
any transaction except in the ordinary course of business or as otherwise
contemplated hereby or (xii) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
SECTION 2.07 LITIGATION; COMPLIANCE WITH LAW. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the Company's knowledge,
threatened against or affecting the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Company pending under collective bargaining
agreements or otherwise or (iii) governmental inquiry pending or, to the
Company's knowledge, threatened against or affecting the Company (including
without limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit), and there is no basis for any of the foregoing.
The Company has not received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its business, prospects,
financial condition, operations, property or affairs. The Company is not in
default with respect to any order, writ, injunction or decree known to or served
upon the Company of any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. There is no action or suit by the Company pending or
threatened against others. The Company has complied with all laws, rules,
regulations and orders applicable to its business,
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operations, properties, assets, products and services, the Company has all
necessary permits, licenses and other authorizations required to conduct its
business as conducted and as proposed to be conducted, and the Company has been
operating its business pursuant to and in compliance with the terms of all such
permits, licenses and other authorizations. There is no existing law, rule,
regulation or order, and the Company after due inquiry is not aware of any
proposed law, rule, regulation or order, whether Federal, state, county or
local, which would prohibit or restric the Company from, or otherwise materially
adversely affect the Company in, conducting its business in any jurisdiction in
which it is now conducting business or in which it proposes to conduct business.
SECTION 2.08 PROPRIETARY INFORMATION OF THIRD PARTIES. To the Company's
Knowledge, no third party has claimed or has reason to claim that any person
employed by or affiliated with the Company has (a) violated or may be violating
any of the terms or conditions of his employment, non-competition or
non-disclosure agreement with such third party or any other agreement or
restrictive covenant relating to the right of any such person to be employed by
the Company because of the nature of the business conducted or to be conducted
by the Company or relating to the ownership or use of intellectual property
rights, trade secrets or proprietary information of others, (b) disclosed or may
be disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the
Company's knowledge, no person employed by or affiliated with the Company has
employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the Company's
knowledge, no person employed by or affiliated with the Company has violated any
confidential relationship which such person may have had with any third party,
in connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Company, and the Company has no reason to believe there will be any such
employment or violation. To the Company's knowledge, none of the execution or
delivery of this Agreement, or the carrying on of the business of the Company as
officers, employees or agents by any officer, director or key employee of the
Company, or the conduct or proposed conduct of the business of the Company, will
conflict with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument under which any
such person is obligated.
SECTION 2.09 PATENTS, TRADEMARKS, ETC. Set forth in Schedule I is a list
and brief description of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names, copyrights and copyright registrations, and all
applications for such which are in the process of being prepared, owned by or
registered in the name of the Company, or of which the Company is a licensor or
licensee or in which the Company has any right, and in each case a brief
description of the nature of such right. The Company owns or possesses adequate
licenses or other rights to use all patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, trade names,
copyrights, copyright registrations, manufacturing processes, formulae, trade
secrets, customer lists and know how (collectively, "Intellectual Property")
necessary or desirable to the conduct of its business as conducted and as
proposed to be
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conducted, and no claim is pending or, to the Company's knowledge, threatened to
the effect that the operations of the Company infringe upon or conflict with the
asserted rights of any other person under any Intellectual Property, and there
is no basis for any such claim (whether or not pending or threatened). No claim
is pending or threatened to the effect that any such Intellectual Property owned
or licensed by the Company, or which the Company otherwise has the right to use,
is invalid or unenforceable by the Company, and there is no basis for any such
claim (whether or not pending or threatened). All prior art known to the
Company which may be or may have been pertinent to the examination of any United
States patent or patent application listed in Schedule I has been cited to the
United States Patent and Trademark office. To the Company's knowledge, all
technical information developed by and belonging to the Company which has not
been patented has been kept confidential. The Company has not granted or
assigned to any other person or entity any right to manufacture, have
manufactured, assemble or sell the products or proposed products or to provide
the services or proposed services of the Company.
SECTION 2.10 TITLE TO PROPERTIES. The Company has good, clear and
marketable title to the properties and assets reflected on the Balance Sheet or
acquired by it since the date of the Balance Sheet (other than properties and
assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets are free and clear of
mortgages, pledges, security interests, liens, charges, claims, restrictions and
other encumbrances (including without limitation, easements and licenses),
except for liens for current taxes not yet due and payable and minor
imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Company.
SECTION 2.11 LEASEHOLD INTERESTS. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement, duly authorized and entered into, without
any default of the Company thereunder and, to the Company's knowledge, without
any default thereunder of any other party thereto. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute a
default or event of default by the Company under any such lease or agreement or,
to the Company's knowledge, by any other party thereto.
SECTION 2.12 INSURANCE. The Company holds valid policies covering all of
the insurance required to be maintained by it under Section 5.04.
SECTION 2.13 TAXES. The term "taxes" as used herein means all federal,
state, local, foreign and other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service, service
use, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs duties, or other taxes, fees,
assessments or other governmental charges of any kind whatever, together with
any interest and any penalties, additions to tax or additional amounts with
respect thereto, and the term "tax" means any one of the foregoing taxes. The
term "returns" as used herein, means all returns, declarations, reports,
statements and other documents required to be filed in respect of taxes, and
"return" means any one of the foregoing returns. The term "Code" means the
Internal Revenue Code of 1986, as amended. All citations to the Code, or to the
Treasury regulations
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promulgated thereunder, shall include any amendments or any substitute or
successor provisions thereto.
The Company has filed all returns required to be filed by it and has paid
all taxes shown to be due on such returns, as well as all other taxes which have
become due or payable, including without limitation, all taxes which it is
obligated to withhold for amounts owing to employees, creditors and third
parties. All taxes with respect to which the Company has become obligated
pursuant to elections made by it in accordance with generally accepted
practice have been paid and adequate reserves have been established for all
taxes accrued but not yet payable. No issues have been raised (and are
currently pending) by any taxing authority in connection with any of the
returns. No waivers of statutes of limitation with respect to any of the
returns have been given by or requested from the Company. All deficiencies
asserted or assessments made as a result of any examinations have been fully
paid, or are fully reflected as a liability in the financial statements of the
Company, or are being contested and an adequate reserve therefor has been
established and is fully reflected in the financial statements of the Company.
There are no liens for taxes (other than for current taxes not yet due and
payable) upon the assets of the Company. All material elections with respect to
taxes affecting the Company, as of the date hereof, are set forth in the
financial statements of the Company, or are set forth in Schedule I. After the
date hereof, no election with respect to taxes will be made without the written
consent of the Purchaser. The Company is not a party to any agreement,
contract, arrangement or plan that has resulted or would result, separately or
in the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 28OG of the Code. The Company does not have and has not had
a permanent establishment in any foreign country, as defined in any applicable
tax treaty or convention between the United States of America and such foreign
country.
The Company and the shareholders have made a valid election for the Company to
be treated as an I'S corporation," as that term is defined in Section 1361(a) of
the Code, and at all times after such election the Company has qualified as an S
corporation. To the Company's knowledge, each of the shareholders has timely
filed all federal tax returns with respect to S corporation taxes required to be
filed through the date hereof, and paid all S corporation taxes required to be
paid with respect to such filed tax returns. There has not been any audit of
any tax return filed by the Company or, to the Company's knowledge, by any
shareholder with respect to, or which may relate to, such S corporation tax
liabilities; no such audit of the Company or, to the Company's knowledge, any
shareholder is in progress and neither the Company nor, to the Company's
knowledge, any shareholder has been notified by any tax authority that any such
audit is contemplated or pending. The Company shall prepare and timely file, in
a manner consistent with prior years, all returns required to be filed on or
before the Closing Date, and the Company shall timely pay any taxes and
estimated taxes required to be paid by the Company (including without limitation
pursuant to Section 6655 of the Code) after the date hereof. All transfer,
excise or other taxes payable to any jurisdiction (in the United States and
outside the United States) by reason of the sale and transfer of the Preferred
Shares pursuant to this Agreement shall be paid or provided for by the Company.
The Company shall not take any action that would make, or would result in, the S
corporation election of the Company becoming ineffective, except for the
transfer of the Preferred Shares at the Closing. All returns of the Company for
any period ending on or before the Closing Date shall be agreed upon prior to
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filing by the Purchaser and the Company. Any amounts distributed to each
shareholder to pay the Short Tax Year Liability are not part of the purchase
price for the Preferred Shares or part of any amounts received pursuant to any
employment agreements or noncompetition agreements entere into in connection
with the acquisition of the Preferred Shares. Notwithstanding anything to the
contrary contained in this Agreement, the provisions of this Section 2.13 shall
survive until the applicable statutes of limitations with respect to any taxes
contemplated hereby shall have expired.
SECTION 2.14 OTHER AGREEMENTS. Except as set forth in the attached
Schedule III(A), the Company is not a party to or otherwise bound by any written
or oral contract or instrument or other restriction which individually or in the
aggregate could materially adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company. Except as set forth
in the attached Schedule III(B), the Company is not a party to or otherwise
bound by any written or oral:
(a) distributor, dealer, manufacturer's representative or sales
agency contract or agreement which is not terminable on less than ninety (90)
days' notice without cost or other liability to the Company (except for
contracts which, in the aggregate, are not material to the business of the
Company);
(b) sales contract which entitles any customer to a rebate or right
of set-off, to return any product to the Company after acceptance thereof or to
delay the acceptance thereof, or which varies in any material respect from the
Company's standard form contracts;
(c) contract with any labor union (and, to the Company's knowledge,
no organizational effort is being made with respect to any of its employees);
(d) contract or other commitment with any supplier containing any
provision permitting any party other than the Company to renegotiate the price
or other terms, or containing any pay-back or other similar provision, upon the
occurrence of a failure by the Company to meet its obligations under the
contract when due or the occurrence of any other event;
(e) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(f) contract for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company, except normal severance
arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, contract or understanding
pursuant to which benefits are provided to any employee of the Company (other
than group insurance plans applicable to employees generally);
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(h) agreement or indenture relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a lien or security interest
on, any asset of the Company;
(i) guaranty of any obligation for borrowed money or otherwise;
(j) voting trust or agreement, stockholders, agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of the Company, other than the Stockholders
Agreement;
(k) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company has advanced or agreed
to advance money or has agreed to lease any property as lessee or lessor;
(l) agreement or obligation (contingent or otherwise) to issue, sell
or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities;
(m) assignment, license or other agreement with respect to any form
of intangible property;
(n) agreement under which it has granted any person any registration
rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its right to
compete with any person in any respect;
(p) other contract or group of related contracts with the same party
involving more than $10,000 or continuing over a period of more than six months
from the date or dates thereof (including renewals or extensions optional with
another party), which contract or group of contracts is not terminable by the
Company without penalty upon notice of thirty (30) days or less, but excluding
any contract or group of contracts with a customer of the Company for the sale,
lease or rental of the Company's products or services if such contract or group
of contracts was entered into by the Company in the ordinary course of business;
or
(q) other contract, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the Securities and Exchange
Commission (the "Commission") as an exhibit to a registration statement on Form
S-1 if the Company were registering securities under the Securities Act of 1933,
as amended (the "Securities Act").
The Company and, to the Company's knowledge, each other party thereto have in
all material respects performed all the obligations required to be performed by
them to date (or each non-performing party has received a valid, enforceable and
irrevocable written waiver with respect to its non-performance), have received
no notice of default and are not in default (with due notice or lapse of time or
both) under any lease, agreement or contract now in effect to which the Company
is a party or by which it or its property may be bound. The Company has no
present expectation or intention of not fully performing all its obligations
under each such lease, contract or other agreement, and the Company has no
knowledge of any breach or anticipated breach by
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the other party to any contract or commitment to which the Company is a party.
The Company is in full compliance with all of the terms and provisions of its
Charter and By-laws, as amended.
SECTION 2.15 LOANS AND ADVANCES. The Company does not have any
outstanding loans or advances to any person and is not obligated to make any
such loans or advances, except, in each case, for advances to employees of the
Company in respect of reimbursable business expenses anticipated to be incurred
by them in connection with their performance of services for the Company.
SECTION 2.16 ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS OF OTHER
PERSONS. The Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
SECTION 2.17 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or supplier
which was significant to the Company during the period covered by the financial
statements referred to in Section 2.04 or which has been significant to the
Company thereafter, has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
SECTION 2.18 GOVERNMENTAL APPROVALS. Subject to the accuracy of the
representations and warranties of the Purchaser set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement, the Stock Restriction
Agreement or the Stockholders Agreement, the issuance, sale and delivery of the
Preferred Shares or, upon conversion thereof, the issuance and delivery of the
Conversion Shares, other than (i) filings pursuant to state securities laws (all
of which filings have been made by the Company, other than those which are
required to be made after the Closing and which will be duly made on a timely
basis) in connection with the sale of the Preferred Shares and (ii) with respect
to the Registration Rights Agreement, the registration of the shares covered
thereby with the Commission and filings pursuant to state securities laws.
SECTION 2.19 DISCLOSURE. Neither this Agreement nor any Schedule or
Exhibit to this Agreement contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no fact which the Company has not disclosed to the Purchaser in writing
and of which the Company is aware which materially and adversely affects or
could materially and adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company.
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SECTION 2.20 OFFERING OF THE PREFERRED SHARES. Neither the Company nor
any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Shares or any
security of the Company similar to the Preferred Shares has offered the
Preferred Shares or any such similar security for sale to, or solicited any
offer to buy the Preferred Shares or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its behalf has taken
or will take any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under circumstances which might
require the integration of such security with Preferred Shares under the
Securities Act or the rules and regulations of the Commission thereunder), in
either case so as to subject the offering, issuance or sale of the Preferred
Shares to the registration provisions of the Securities Act.
SECTION 2.21 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22 OFFICERS. Set forth in Schedule I is a list of the names of
the officers of the Company, together with the title or job classification of
each such person and the total compensation anticipated to be paid to each such
person by the Company in 1992. None of such. persons has an employment
agreement or understanding, whether oral or written, with the Company, which is
not terminable on notice by the Company without cost or other liability to the
Company.
SECTION 2.23 TRANSACTIONS WITH AFFILIATES. No director, officer,
employee or stockholder of the Company, or member of the family of any such
person, or any corporation, partnership, trust or other entity in which any such
person, or any member of the family of any such person, has a substantial
interest or is an officer, director, trustee, partner or holder of more than 5%
of the outstanding capital stock thereof, is a party to any transaction with the
Company, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm.
SECTION 2.24 EMPLOYEES. Each of the officers of the Company, each key
employee and each other employee now employed by the Company who has access to
confidential information of the Company has executed an Employee Nondisclosure
and Developments Agreement substantially in the form of Exhibit E (collectively,
the "Employee Nondisclosure and Developments Agreements"), and such agreements
are in full force and effect. No officer or key employee of the Company has
advised the Company (orally or in writing) that he intends to terminate
employment with the Company. The Company has complied in all material respects
with all applicable laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and the payment of Social Security and other taxes, and with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
SECTION 2.25 ENVIRONMENTAL PROTECTION. The Company has not caused or
allowed, or contracted with any party for, the generation, use, transportation,
treatment, storage or disposal
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of any Hazardous Substances (as defined below) in connection with the operation
of its business or otherwise. The Company, the operation of its business, and
any real property that the Company owns, leases or otherwise occupies or uses
(the "Premises") are in compliance with all applicable Environmental Laws (as
defined below) and orders or directives of any governmental authorities having
jurisdiction under such Environmental Laws, including, without limitation, any
Environmental Laws or orders or directives with respect to any cleanup or
remediation of any release or threat of release of Hazardous Substances. The
Company has not received any citation, directive, letter or other communication,
written or oral, or any notice of any proceeding, claim or lawsuit, from any
person arising out of the ownership or occupation of the Premises, or the
conduct of its operations, and the Company is not aware of any basis therefor.
The Company has obtained and is maintaining in full force and effect all
necessary permits, licenses and approvals required by all Environmental Laws
applicable to the Premises and the business operations conducted thereon
(including operations conducted by tenants on the Premises), and is in
compliance with all such permits, licenses and approvals. The Company has not
caused or allowed a release, or a threat of release, of any Hazardous Substance
unto, at or near the Premises, and, to the Company's knowledge, neither the
Premises nor any property at or near the Premises has ever been subject to a
release, or a threat of release, of any Hazardous Substance. For the purposes
of this Agreement, the term "Environmental Laws" shall mean any Federal, state
or local law or ordinance or regulation pertaining to the protection of human
health or the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601,
et seq., the Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
Sections 11001, et seq., and the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901, et. seq. For purposes of this Agreement, the term
"Hazardous Substances" shall include oil and petroleum products, asbestos,
polychlorinated biphenyls, urea formaldehyde and any other materials classified
as hazardous or toxic under any Environmental Laws.
SECTION 2.26 EMPLOYEE BENEFIT PLANS. Except as listed in Schedule I,
neither the Company nor any entity required to be aggregated with the Company
under Sections 414(b), (c), (m) or (n) of the Code sponsors, maintains, has any
obligation to contribute to, has any liability under, or is otherwise a party
to, any plan, fund, program, policy, arrangement or contract, whether formal or
informal, which is in the nature of (i) an employee pension benefit plan (as
defined in Section 3(2) of ERISA) or (ii) an employee welfare benefit plan (as
defined in Section 3(l) of ERISA) (collectively, "Benefit Plans"). With respect
to each Benefit Plan listed in Schedule I, to the extent applicable:
(a) Each such Benefit Plan has been maintained and operated in all
material respects in compliance with its terms and with all applicable
provisions of ERISA, the Code and all regulations, rulings and other authority
issued thereunder;
(b) All contributions required by law to have been made under each
such Benefit Plan (without regard to any waivers granted under Section 412 of
the Code) to any fund or trust established thereunder or in connection therewith
have been made by the due date thereof;
(c) Each such Benefit Plan intended to qualify under Section 401(a)
of the Code is the subject of a favorable unrevoked determination letter issued
by the Internal Revenue
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Service as to its qualified status under the Code, which determination letter
may still be relied upon as to such tax qualified status, and no circumstances
have occurred that would adversely affect the tax qualified status of any such
Benefit Plan;
(d) The actuarial present value of all accrued benefits under each
such Benefit Plan subject to Title IV of ERISA did not, as of the latest
valuation date of such Benefit Plan, exceed the then current value of the assets
of such Benefit Plan allocable to such accrued benefits, all as based upon the
actuarial assumptions and methods currently used for such Benefit Plan;
(e) None of such Benefit Plans that are "employee welfare benefit
plans" as defined in Section 3(l) of ERISA provides for continuing benefits or
coverage for any participant or beneficiary of a participant after such
participant's termination of employment; and
(f) Neither the Company nor any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 4001 of ERISA has, or at any time has had, any obligation to contribute
to any "multiemployer plan" as defined in Section 3(37) of ERISA.
SECTION 2.27 FOREIGN CORRUPT PRACTICES ACT. The Company has not taken
any action which would cause it to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any rules and regulations thereunder. To
the Company's knowledge after due inquiry, there is not now, and there has never
been, any employment by the Company of, or beneficial ownership in the Company
by, any governmental or political official in any country in the world.
SECTION 2.28 FEDERAL RESERVE REGULATIONS. The Company is not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin securities (within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System), and no part of the proceeds of the sale of the
Preferred Shares will be used to purchase or carry any margin security or to
extend credit to others for the purpose of purchasing or carrying any margin
security or in any other manner which would involve a violation of any of the
regulations of the Board of Governors of the Federal Reserve System.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Preferred Shares;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
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(c) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management and to obtain any
additional information necessary to verify the accuracy of the information
furnished to it concerning the business, management and financial affairs of the
Company;
(d) the Preferred Shares being purchased by it are being acquired for
its own account for the purpose of investment and not with a view to or for sale
in connection with any distribution thereof;
(e) it understands that (i) the Preferred Shares and the Conversion
Shares have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration, (iii) the Preferred Shares and the Conversion Shares will
bear a legend to such effect and (iv) the Company will make a notation on its
transfer books to such effect; and
(f) if it sells any Preferred Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary steps to
perfect the exemption from registration provided thereby, including (i)
obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon with
respect to such resale.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser to purchase and pay for the Preferred
Shares being purchased by it at the Closing are, at its option, subject to the
satisfaction, on or before the Closing, of the following conditions. All
documents referred to in this Article IV shall be satisfactory in form and
substance to the Purchaser.
SECTION 4.01 OPINION OF COMPANY'S COUNSEL. The Purchaser shall have
received from Curtis E. Sahakian, counsel for the Company, an opinion dated the
Closing Date, in form and substance satisfactory to the Purchaser, to the effect
that:
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation. The
Company is duly licensed or qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business transacted by it or the character of the properties owned or leased
by it requires such licensing or qualification. The Company has the corporate
power and authority to own and hold its properties and to carry on its business
as currently conducted and as proposed to be conducted. The Company has the
corporate power and authority to execute, deliver and perform this Agreement,
the Registration Rights Agreement, the Stock Restriction Agreement and the
Stockholders Agreement, to issue, sell and deliver the Preferred Shares and,
upon conversion thereof, to issue and deliver the Conversion Shares.
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(b) This Agreement, the Registration Rights Agreement, the Stock
Restriction Agreement and the Stockholders Agreement have been duly
authorized, executed and delivered by the Company and constitute the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms (subject, as to enforcement of remedies, to the
discretion of courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally), except that such counsel need not express any opinion as
to the validity or enforceability of the indemnification and contribution
provisions of the Registration Rights Agreement.
(c) The execution and delivery by the Company of this Agreement, the
Registration Rights Agreement, the Stock Restriction Agreement and the
Stockholders Agreement, the performance by the Company of its obligations
hereunder and thereunder, the issuance, sale and delivery of the Preferred
Shares and, upon conversion thereof, the issuance and delivery of the Conversion
Shares, will not violate any provision of law, the Charter or By-laws, as
amended, of the Company, any order of any court or other agency of government or
any indenture, agreement or other instrument known to such counsel to which the
Company or any of its property or assets is bound, or conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or encumbrance of
any nature whatsoever upon any of the property or assets of the Company. In
rendering the foregoing opinion, such counsel may assume full disclosure to the
Purchaser of all material facts and, with respect to performance by the Company
of its obligations under the Registration Rights Agreement, may assume
compliance by the Company at such time with the registration requirements of the
Securities Act and with applicable state securities laws and may disclaim any
opinion as to the validity or enforceability of the indemnification and
contribution provisions of the Registration Rights Agreement.
(d) The authorized capital stock of the Company consists of (i)
500,000 shares of preferred stock, of which 500,000 shares have been designated
Series A Convertible Preferred Stock, and (ii) 1,000,000 shares of Common Stock.
Immediately prior to the Closing, 400,000 shares of Common Stock will be validly
issued, and fully paid and nonassessable with no personal liability attaching to
the ownership thereof and no shares of preferred stock will have been issued.
Immediately prior to the Closing, the stockholders of record and holders of
record of subscriptions, warrants, options, convertible securities, and other
rights (contingent or other) to purchase or otherwise acquire equity securities
of the Company, and the number of shares of Common Stock and the number of such
subscriptions, warrants, options, convertible securities, and other such rights
held by each, will be as set forth in Schedule II. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
each class or series of authorized capital stock of the Company are as set forth
in the Charter, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws (subject, as to enforcement, to the
discretion of courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally). Except as set forth in Schedule II, to the knowledge of
such counsel, immediately prior to the Closing no subscription, warrant, option,
convertible security, or other right (contingent or other) to purchase or
acquire equity securities of the Company will be authorized or outstanding and
there
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will be no commitment by the Company to issue shares, subscriptions, warrants,
options, convertible securities, or other such rights or to distribute to
holders of any of its equity securities any evidence of indebtedness or asset.
Except asset forth in Schedule II or as provided for in the Charter, to the
knowledge of such counsel the Company has no obligation (contingent or other) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
(e) The Preferred Shares and the Conversion Shares have been duly
authorized. The issuance, sale and delivery of the Preferred Shares and the
issuance and delivery of the Conversion Shares upon conversion of the Preferred
Shares have been duly authorized by all required corporate action; the Preferred
Shares have been validly issued and are fully paid and nonassessable with no
personal liability attaching to the ownership thereof and, to the knowledge of
such counsel, are free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company; and the Conversion Shares have
been duly reserved for issuance upon conversion of the Preferred Shares and,
when so issued, will be validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and, to the knowledge of
such counsel, will be free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company. Neither the issuance, sale
or delivery of the Preferred Shares nor the issuance or delivery of the
Conversion Shares is subject to any preemptive right of stockholders of the
Company arising under law or the Charter or By-laws of the Company, each as
amended, or, to the knowledge of such counsel, to any contractual right of first
refusal or other right in favor of any person.
(f) Except as described in Schedule I, to the knowledge of such
counsel there is no (A) action, suit, claim, proceeding or investigation pending
or threatened against or affecting the Company, at law or in equity, or before
or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, (B)
arbitration proceeding relating to the Company pending under collective
bargaining agreements or (C) governmental inquiry pending or threatened against
or affecting the Company (including, without limitation, any inquiry as to the
qualification of the Company to hold or receive any license or permit). To the
knowledge of such counsel, the Company is not in default with respect to any
order, writ, injunction or decree known to such counsel of any court or of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
(g) To the knowledge of such counsel, no third party has claimed that
any person employed by or affiliated with the Company has violated or may be
violating any of the terms or conditions of his employment, non-competition or
nondisclosure agreement with such third party or any other agreement or
restrictive covenant relating to the right of any such person to be employed by
the Company because of the nature of the business conducted or to be conducted
by the Company or relating to the ownership or use of intellectual property
rights, trade secrets or proprietary information of others, or disclosed or may
be disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees.
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(h) Assuming the accuracy of (a) the representations and warranties
of the Purchaser set forth in Article III and (b) the representations and
warranties of the Company set forth in Sections 2.20 and 2.21, no registration
or filing with, and no consent or approval of, or other action by any Federal,
state or other governmental agency or instrumentality is or will be necessary
for the valid execution, delivery and performance by the Company of this
Agreement, the Registration Rights Agreement, the Stock Restriction Agreement
and the Stockholders Agreement, the issuance, sale and delivery of the Preferred
Shares or, upon conversion thereof, the issuance and delivery of the Conversion
Shares, other than filings pursuant to state securities laws (all of which
filings, other than those which are required to be made after the Closing, have
been made by the Company). In rendering the foregoing opinion with respect to
performance by the Company of its obligations under the Registration Rights
Agreement, such counsel may assume compliance by the Company at such time with
the registration requirements of the Securities Act and with applicable state
securities laws and may disclaim any opinion as to the validity or
enforceability of the indemnification and contribution provisions of the
Registration Rights Agreement.
(i) All of the outstanding shares of Common Stock have been issued in
compliance with the registration requirements of the Securities Act and all
applicable state securities laws.
SECTION 4.02 REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Company contained in Article II shall be
true, complete and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date,
and the President and Chief Financial Officer of the Company shall have
certified to such effect to the Purchaser in writing.
SECTION 4.03 PERFORMANCE. The Company shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing Date, and the President and Chief Financial
Officer of the Company shall have certified to the Purchaser in writing to such
effect and to the further effect that all of the conditions set forth in this
Article IV have been satisfied.
SECTION 4.04 ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchaser, and the Purchaser shall have received all
such counterpart originals or certified or other copies of such documents as
they reasonably may request.
SECTION 4.05 SUPPORTING DOCUMENTS. The Purchaser and its counsel shall
have received copies of the following documents:
(a) (i) the Charter, certified as of a recent date by the Secretary
of State of the State of Delaware, and (ii) a certificate of said Secretary
dated as of a recent date as to the due incorporation and good standing of the
Company, the payment of all franchise taxes by the Company and listing all
documents of the Company on file with said Secretary;
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(b) a certificate of the Secretary or an Assistant Secretary of the
Company dated the Closing Date and certifying: (i) that attached thereto is a
true and complete copy of the By-laws of the Company as in effect on the date of
such certification; (ii) that attached thereto is a true and complete copy of
all resolutions adopted by the Board of Directors or the stockholders of the
Company authorizing the execution, delivery and performance of this Agreement,
the Registration Rights Agreement, the Stock Restriction Agreement and the
Stockholders Agreement, the issuance, sale and delivery of the Preferred Shares
and the reservation, issuance and delivery of the Conversion Shares, and that
all such resolutions are in full force and effect and are all the resolutions
adopted in connection with the transactions contemplated by this Agreement, the
Registration Rights Agreement, the Stock Restriction Agreement and the
Stockholders Agreement; (iii) that the Charter has not been amended since the
date of the last amendment referred to in the certificate delivered pursuant to
clause (a)(ii) above; (iv) that attached thereto are true and accurate specimens
of the certificates representing the Company's Preferred Shares and Common
Stock; and (v) to the incumbency and specimen signature of each officer of the
Company executing this Agreement, the Registration Rights Agreement, the Stock
Restriction Agreement or the Stockholders Agreement, the stock certificates
representing the Preferred Shares and any certificate or instrument furnished
pursuant hereto, and a certification by another officer of the Company as to the
incumbency and signature of the officer signing the certificate referred to in
this clause (b); and
(c) such additional supporting documents and other information with
respect to the operations and affairs of the Company as the Purchaser or its
counsel reasonably may request.
SECTION 4.06 MERGER. The merger of NEON Systems, Inc., an Illinois
corporation, with and into the Company (the "Merger") shall have been
consummated.
SECTION 4.07 REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed and delivered the Registration Rights Agreement.
SECTION 4.08 STOCK RESTRICTION AGREEMENT. The Stock Restriction
Agreement shall have been executed and delivered by the Company and the Founder.
SECTION 4.09 STOCKHOLDERS AGREEMENT. The Company and the Founder shall
have executed and delivered the Stockholders Agreement to the Purchaser.
SECTION 4.10 CHARTER. The Charter shall read in its entirety as set
forth in EXHIBIT D.
SECTION 4.11 EMPLOYEE AND CONSULTANT AGREEMENTS. Copies of the Employee
and Consultant Nondisclosure and Developments Agreements in the form attached as
Exhibit E shall have been signed by each of the Company's employees and
consultants and delivered to counsel for the Purchaser.
SECTION 4.12 AGREEMENT WITH THE FOUNDER. The Founder shall have entered
into the Nondisclosure, Developments and Noncompetition Agreement in the form
attached as EXHIBIT F with the Company, and a copy thereof shall have been
delivered to counsel for the Purchaser.
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SECTION 4.13 ELECTION OF DIRECTORS. The number of directors constituting
the entire Board of Directors shall have been fixed at five (5) and the
following persons shall have been elected as the directors and shall each hold
such position as of the Closing Date: John J. Moores as a director elected
solely by the holders of the Preferred Stock, voting as a class, and Peter
Schaeffer as a director elected by the holders of the Common Stock. The Board
of Directors shall have created a Compensation Committee, which shall include at
least one director elected solely by the holders of the Preferred Stock (a "JMI
Director") and one director elected solely by the holders of the Common Stock.
SECTION 4.14 PREEMPTIVE RIGHTS. All stockholders of the Company having
any preemptive, first refusal or other rights with respect to the issuance of
the Preferred Shares or the Conversion Shares shall have irrevocably waived the
same in writing.
SECTION 4.15 FEES OF PURCHASERS' COUNSEL. The Company shall have paid in
accordance with Section 7.01 the fees and disbursements of Purchaser's counsel
invoiced at the Closing.
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.01 REPORTING REQUIREMENTS. Until the consummation of a firm
commitment underwritten public offering of the Company's securities, the Company
will furnish the following to (a) the Purchaser and (b) so long as the Founder
holds at least 250,000 shares of the Company's Common Stock, the Founder:
(a) ANNUAL REPORTS. As soon as available and in any event within
ninety (90) days after the end of each fiscal year of the Company, audited
consolidated and consolidating balance sheets of the Company as of the end of
such fiscal year and the related audited consolidated and consolidating
statements of income, stockholders' equity and cash flows for the fiscal year
then ended, prepared in accordance with generally accepted accounting principles
consistently applied and certified by a firm of independent public accountants
of recognized national standing selected by the Board of Directors of the
Company and approved by the Purchaser;
(b) QUARTERLY REPORTS. As soon as available and in any event within
forty-five (45) days after the end of each fiscal quarter in each fiscal year,
consolidated and consolidating balance sheets of the Company and the related
consolidated and consolidating statements of income, stockholders, equity and
cash flows, unaudited but prepared in accordance with generally accepted
accounting principles consistently applied and certified by the Treasurer of the
Company, such balance sheet to be as of the end of such fiscal quarter and such
statements of income, stockholders, equity and cash flows to be for such fiscal
quarter and for the period from the beginning of the fiscal year to the end of
such fiscal quarter, in each case with comparative statements for the
corresponding period in the prior fiscal year;
(c) MONTHLY REPORTS. As soon as available and in any event within
thirty (30) days after the end of each month in each fiscal year, consolidated
and consolidating balance
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sheet of the Company and the related consolidated and consolidating statements
of income, stockholders' equity and cash flows, unaudited but prepared in
accordance with generally accepted accounting principles consistently applied
and certified by the Treasurer of the Company, such balance sheet to be as of
the end of such month and such statements of income, stockholders' equity and
cash flows to be for such month and for the period from the beginning of the
fiscal year to the end of such month, in each case with comparative statements
for the prior fiscal year; PROVIDED, HOWEVER, that the Company's obligations
under this Section 5.01(c) shall terminate upon the completion of a firm
commitment underwritten public offering of the Company's securities;
(d) CERTIFICATE OF TREASURER. At the time of delivery of each annual
financial statement pursuant to Section 5.01(a), a certificate executed by the
Treasurer of the Company stating that such officer has caused this Agreement and
the Preferred Stock to be reviewed and has no knowledge of any default by the
Company in the performance or observance of any of the provisions of this
Agreement or the Preferred Stock or, if such officer has such knowledge,
specifying such default and the nature thereof;
(e) MANAGEMENT REPORT. At the time of delivery of each monthly
statement pursuant to Section 5.01(c), a management narrative report explaining
all significant variances from forecasts and all significant current
developments in staffing, marketing, sales and operations;
(f) BUDGETS-AND OPERATING PLAN. As soon as available and in any
event no later than ten (10) days after its approval by the Board of Directors
of the Company, the Budget (as defined in Section 5.18), and, promptly after
their approval by the Board of Directors of the Company, any revisions to any of
the foregoing;
(g) AUDIT REPORTS. Promptly following receipt by the Company, each
audit response letter, accountant's management letter and other written report
submitted to the Company by its independent public accountants in connection
with an annual or interim audit or review of the books of the Company;
(h) LEGAL PROCEEDINGS. Promptly after the commencement thereof,
notice of all actions, suits, claims, proceedings, investigations and inquiries
of the type described in Section 2.07 that could materially adversely affect the
Company;
(i) OTHER REPORTS. Promptly upon publishing, sending, making
available or filing the same, all press releases, reports and financial
statements that the Company publishes to the public, sends or makes available to
its stockholders or directors or files with the Commission;
(j) PROSPECTIVE FINANCINGS. Promptly, fully and in detail, all
information concerning any discussions, offers or contracts relating to possible
financing of any nature for the Company not in the ordinary course of business,
whether initiated by the Company or any other person;
(k) NOTICE OF ADVERSE CHANGES. Promptly after the occurrence thereof
and in any event within ten (10) business days after each occurrence, notice of
any material adverse
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change in the business, assets, Intellectual Property, management, operations or
financial condition of the Company taken as a whole; and
(l) OTHER INFORMATION. Promptly, from time to time, such other
information regarding the business, prospects, financial condition, operations,
property or affairs of the Company as the Purchaser reasonably may request.
SECTION 5.02 RESERVE FOR CONVERSION SHARES. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of the Preferred
Shares and otherwise complying with the terms of this Agreement, such number of
its duly authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Preferred Shares from time to time outstanding or otherwise to
comply with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of the Preferred Shares or otherwise to comply with the terms of
this Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Preferred Shares.
SECTION 5.03 CORPORATE EXISTENCE AND BUSINESS. The Company and any
subsidiary shall maintain full force and effect its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of its business and operations
or the ownership or lease of its properties. The Company shall preserve and
maintain all licenses and other rights to use patents, processes, licenses,
trademarks, trade names or copyrights owned or possessed by it and deemed by the
Company to be material to the conduct of its business.
SECTION 5.04 PROPERTIES, BUSINESS AND INSURANCE. The Company and any
subsidiary shall maintain, with financially sound and reputable insurers, valid
policies of workers' compensation insurance and of insurance against such
casualties and contingencies and of such types and in such amounts as is
customary for companies similarly situated, including insurance against loss,
damage, fire, theft, public liability and other risks, and which is deemed by
the Company to be sufficient. The Company shall also maintain in effect a "key
person" life insurance policy, payable to the Company, on the life of Peter
Schaeffer (for so long as he remains an employee of the Company), in the amount
of $1,000,000 (or the maximum lower amount as to which he is insurable). The
Company shall not cause or permit any assignment or change in beneficiary and
shall not borrow against any such policy. If requested by the Purchaser, the
Company will add one designee of the Purchaser as a notice party for such policy
and shall request that the issuer of such policy provide the designee with
twenty (20) days' notice before the policy is terminated (for failure to pay
premiums or otherwise) or assigned or before any change is made in the
beneficiary thereof.
SECTION 5.05 INSPECTION, CONSULTATION AND ADVICE. The Company and any
subsidiary shall permit the Purchaser and the Founder and such persons as each
may designate, at the
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Purchaser's or the Founder's expense, as the case may be, to visit and inspect
any of the properties of the Company, examine its books and take copies and
extracts therefrom, discuss the affairs, finances and accounts of the Company
with its directors, officers, employees and public accountants (and the Company
hereby authorizes said accountants to discuss with the Purchaser and the
Founder, as the case may be, and such designees such affairs, finances and
accounts), and consult with and advise the management of the Company as to the
affairs, finances and accounts of the Company, all at reasonable times and upon
reasonable notice. At such time as the Founder no longer holds at least 250,000
shares of the Company's Common Stock, this Section 5.05 shall no longer apply to
the Founder.
SECTION 5.06 EXPENSES OF DIRECTORS. The Company shall promptly reimburse
in full, each director of the Company who is not an employee of the Company, for
all of his reasonable out-of-pocket expenses incurred in attending each meeting
of the Board of Directors of the Company or any committee thereof.
SECTION 5.07 USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Preferred Shares for working capital and for other general
corporate purposes.
SECTION 5.08 BOARD OF DIRECTORS MEETINGS. The Company shall use its best
efforts to ensure that meetings of its Board of Directors are held at least once
every month.
SECTION 5.09 BY-LAWS. The Company shall at all times cause its Bylaws to
provide that, (a) unless otherwise required by the laws of the State of
Delaware, (i) any director or (ii) any holder or holders of at least 25% of the
outstanding shares of Preferred Stock, shall have the right to call a meeting of
the Board of Directors or stockholders, (b) the number of directors fixed in
accordance therewith shall in no event conflict with any of the terms or
provisions of the Preferred Stock as set forth in the Charter and (c) a quorum
for a meeting of the Board of Directors, or any committee thereof of which a
director elected by the holders of the Preferred Stock is a member, shall
require the attendance of the directors) elected solely by the holders of the
Preferred Stock. The Company shall at all times maintain provisions in its
By-laws and/or Charter indemnifying all directors against liability and
absolving all directors from liability to the Company and its stockholders to
the maximum extent permitted under the laws of the State of Delaware and shall
expressly provide therein for the advancement of expenses to indemnified
directors.
SECTION 5.10 NEW DEVELOPMENTS; NONDISCLOSURE AND DEVELOPMENTS AGREEMENTS;
NON-COMPETITION AGREEMENTS. The Company shall cause all Intellectual Property
created, conceived, first reduced to practice or suggested by Company employees
and consultants to be fully documented in accordance with the best prevailing
appropriate industrial professional standards. Where possible and appropriate,
the Company shall file and prosecute United States and foreign patent
applications and pursue appropriate copyright procedures relating to and
protecting such developments on behalf of the Company. The Company shall obtain
a Nondisclosure and Developments Agreement in substantially the form of EXHIBIT
E (which may be modified from time to time by the Board of Directors) from (1)
all future officers and employees and (2) all present and future consultants who
will have access to confidential information of the Company, upon their
employments or retention by the Company.
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SECTION 5.11 COMPLIANCE WITH LAWS. The Company and any subsidiary shall
comply with all applicable laws, rules, regulations and orders, noncompliance
with which could materially adversely affect its business or condition,
financial or otherwise.
SECTION 5.12 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company and
any subsidiary shall keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
SECTION 5.13 PAYMENT OF TAXES AND TRADE DEBT. The Company and any
subsidiary shall pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income, profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of the Company, provided that the Company shall not be
required to pay any such tax, assessment, charge, levy or claim which is being
contested in good faith and by appropriate proceedings if the Company shall have
set aside on its books adequate reserves with respect thereto. The Company
shall pay, when due, or in conformity with customary trade terms, all lease
obligations, all trade debt, and all other indebtedness incident to the
operations of the Company, except pursuant to a policy of deferral adopted by
the Board of Directors (with the approval of all of the directors elected solely
by the holders of the Preferred Stock) and except such obligations as are being
contested in good faith and by proper proceedings if the Company shall have set
aside on its books adequate reserves with respect thereto.
SECTION 5.14 U.S. REAL PROPERTY INTEREST STATEMENT. Upon a written
request by the Purchaser, the Company shall provide the Purchaser with a written
statement informing the Purchaser whether the Purchaser's interest in the
Company constitutes a U.S. real property interest. The Company's determination
shall comply with the requirements of Treasury Regulation Section 1.897-2(h)(1)
or any successor regulation, and the Company shall provide timely notice to the
Internal Revenue Service, in accordance with and to the extent required by
Treasury Regulation Section 1.897-2(h)(2) or any successor regulation, that such
statement has been made. The Company's written statement to the Purchaser shall
be delivered to Purchaser within ten (10) days of the Purchaser's written
request therefor. The Company's obligation to furnish a written statement
pursuant to this Section 5.14 shall continue notwithstanding the fact that a
class of the Company's stock may be regularly traded on an established
securities market.
SECTION 5.15 RULE 144A INFORMATION. The Company shall, at all times
during which it is neither subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange
Act, provide in writing, upon the written request of the Purchaser or a
prospective buyer of Preferred Shares from the Purchaser, all information
required by Rule 144A(d)(4)(i) under the Securities Act ("Rule 144A
Information"). The Company also shall, upon the written request of the
Purchaser, cooperate with and assist the Purchaser or any member of the National
Association of Securities Dealers, Inc. PORTAL system in applying to designate
and thereafter maintain the eligibility of the Preferred Shares for trading
through PORTAL. The Company's obligations under this Section 5.15 shall at all
times be contingent upon the Purchaser
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obtaining from the prospective buyer of Preferred Shares a written agreement to
take all reasonable precautions to safeguard the Rule 144A Information from
disclosure to anyone other than a person who will assist such buyer in
evaluating the purchase of any Preferred Shares.
SECTION 5.16 COMPENSATION COMMITTEE. The Company shall, by amending its
By-laws or otherwise, establish and maintain a Compensation Committee of the
Board of Directors, which shall include at least one JMI Director and one
director elected solely by the holders of the Common Stock. No increases in the
salaries of its officer-level management employees, and no capital stock of the
Company shall be issued or granted to, any director, officer or employee of, or
any consultant or adviser to, the Company, without the approval of the
Compensation Committee, which shall include the approval of the JMI Director.
No employee stock option plan, employee stock purchase plan, employee restricted
stock plan, pension plan, deferred compensation plan or other employee benefit
plan shall be established without the approval of the Compensation Committee,
including all of the directors elected solely by the holders of the Preferred
Stock who are members thereof.
SECTION 5.17 COMPLIANCE WITH ERISA. The Company and any subsidiary shall
comply with all minimum funding requirements applicable to any pension, employee
benefit plans or employee contribution plans which are subject to ERISA or to
the Code, and comply in all other material respects with the provisions of ERISA
and the Code, and the rules and regulations thereunder, which are applicable to
any such plan. The Company will not permit any event or condition to exist
which could permit any such plan to be terminated under circumstances which
would cause the lien provided for in Section 4068 of ERISA to attach to the
assets of the Company.
SECTION 5.18 ANNUAL BUDGET. At least sixty (60) days prior to the
beginning each fiscal year, the Company shall prepare, and submit to the Board
of Directors of the Company for its approval, a proposed budget setting forth
income statement, cash flow and balance sheet information for the Company for
the next fiscal year, all itemized in reasonable detail and presented on a
monthly basis. Such budget shall be accepted as the budget for such fiscal year
when it has been approved by the Board of Directors of the Company (which
approval shall include the approval of the JMI Director) (as so approved, the
"Budget"). The Budget shall be reviewed by the Company periodically. All
changes therein and all material deviations therefrom which are proposed to be
made by the Company shall be resubmitted to the Board of Directors of the
Company in advance and shall be accepted when approved by the Board of Directors
of the Company (which approval shall include the approval of the JMI Director),
and the Company shall not make any changes or material deviations to or from the
Budget without such prior approval.
SECTION 5.19 NEGATIVE COVENANTS OF THE COMPANY. For so long as any of
the Preferred Shares are outstanding and unless it shall have received the
written consent or written waiver of the holders of at least seventy-five
percent (75%) of the outstanding shares of the Preferred Stock, the Company
shall comply with and observe the following negative covenants and provisions,
and shall cause each subsidiary to comply with and observe such of the following
covenants and provisions, as if the subsidiary were the Company, from and after
the time the subsidiary becomes a subsidiary:
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(a) RESTRICTIVE AGREEMENTS PROHIBITED. The Company shall not become
a party to any agreement which by its terms restricts the Company's performance
of this Agreement, the Registration Rights Agreement, the Stock Restriction
Agreement, the Stockholders Agreement or the Charter.
(b) TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement, the Company shall not enter into any transaction
with (i) any director, officer, employee or holder of more than 5% of the
outstanding capital stock of any class or series of capital stock of the
Company, (ii) member of the family of any such person, or (iii) any corporation,
partnership, trust or other entity in which any such person, or member of the
family of any such person, is a director, officer, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof, except for transactions
in the ordinary course of business and on terms no less favorable to the Company
than it would obtain in a transaction between unrelated parties.
(c) COMPENSATION. The Company shall not during any calendar year pay
to its management compensation (including salary and bonus) an amount which is
in excess of that compensation customarily paid to management in companies of
similar size, of similar maturity, and in similar businesses.
(d) PERFORMANCE OF CONTRACTS. The Company shall not amend, modify,
terminate, waive or otherwise alter, in whole or in part, any of the
Nondisclosure and Developments Agreements or the Non-Competition Agreements.
(e) CREATION OF SUBSIDIARIES. The Company shall not create or
organize any subsidiaries.
(f) CHANGE IN NATURE OF BUSINESS. The Company shall not make any
material change in the nature of its business as carried on at the date hereof.
(g) TRANSFERS OF TECHNOLOGY. The Company shall not transfer, sell,
dispose of, assign, encumber, pledge, mortgage, lease, license or grant to any
person, nor surrender or abandon, any ownership or interest in, or material
rights relating to, any of its technology or other Intellectual Property which
is material to the Company's operations, assets, business or financial
condition; provided, however, that this Section 5.02(g) shall not apply to
licenses of technology or Intellectual Property pursuant to sales to end users
made in the ordinary course of business of the Company.
(h) DISTRIBUTIONS. The Company shall not declare or pay any
dividends, purchase, redeem, retire, or otherwise acquire for value any of its
capital stock (or rights, options or warrants to purchase such shares) now or
hereafter outstanding, return any capital to its stockholders as such, or make
any distribution of assets to its stockholders as such (such transactions being
hereinafter referred to as "Distributions"); provided, however, that nothing
herein contained shall prevent the Company, upon obtaining the approval of a
majority of the then present members of the Board of Directors (including the
approval of all of the directors elected solely by the holders of the Preferred
Stock) from repurchasing any stock of an officer, director, consultant or
employee subject to a stock repurchase, stock restriction or similar
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agreement under which the Company has the right or obligation to repurchase such
shares in the event of termination of employment or termination of consulting
arrangement with the Company, if in the case of any such transaction the
Distribution can be made in compliance with the other terms of this Agreement.
(i) ISSUANCE OF EQUITY SECURITIES. The Company shall not authorize
or issue, or obligate itself to issue, any additional shares or capital stock of
the Company of any class (including options, warrants or other rights to
purchase securities); provided, however, that the provisions of this Section
5.02(i) shall not apply to the issuance of: (A) the Conversion Shares; or (B) up
to 100,000 shares (appropriately adjusted to reflect stock splits, stock
dividends, combinations of shares, recapitalizations and the like with respect
to the Common Stock) of Common Stock or options or warrants exercisable
therefor, issued on or after the date hereof to directors, officers, employees
or consultants of the Company pursuant to any qualified or nonqualified stock
option plan or agreement, employee stock ownership plan, employee benefit plan,
stock purchase agreement, stock plan, stock restriction agreement, consulting
agreement or such other options, arrangements, agreements or plans relating to
the issuance or grant of equity securities approved by the Compensation
Committee (including all of the directors elected solely by the holders of the
Preferred Stock serving on the Compensation Committee).
(j) VESTING OF RESERVED EMPLOYEE SHARES. The Company shall not grant
after the date of this Agreement to any of its directors, officers, employees or
consultants options or other rights to purchase Reserved Employee Shares in an
amount exceeding in the aggregate 100,000 shares (appropriately adjusted to
reflect stock splits, stock dividends, combinations of shares, recapitalizations
and the like with respect to the Common Stock), which shares may not become
exercisable or vest, as the case may be, (i) prior to the first anniversary of
the date of grant and (ii) at a rate in excess of 20% per annum from the date of
such grant.
(k) INDEBTEDNESS. The Company shall not incur, create, assume or
permit to exist any indebtedness for borrowed money or advances other than:
(i) Current liabilities (as disclosed in the Balance Sheet),
other than for money borrowed, which are incurred in the ordinary course of
business, provided such current liabilities do not result in the Company's
failure to comply with all of the provisions of Article V hereof; and
(ii) Additional indebtedness approved by a majority of the
members of the Board of Directors then in office, including the JMI
Director.
(l) ASSUMPTIONS OR GUARANTIES OF INDEBTEDNESS OF OTHER PERSONS. The
Company shall not assume, guarantee, endorse or otherwise become directly or
contingently liable on (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise to assure the
creditor against loss) any indebtedness of any other person, except for
guaranties by endorsement of negotiable instruments for deposit or collection in
the ordinary course of business.
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(m) LIENS. The Company shall not create, incur, assume or suffer to
exist, any mortgage, deed of trust, pledge, lien, security interest or other
charge or encumbrance (including the lien or retained security title of a
conditional vendor) of any nature, upon or with respect to any of its
properties, now owned or hereinafter acquired, or assign or otherwise convey any
right to receive income, except that the foregoing restrictions shall not apply
to mortgages, deeds of trust, pledges, liens, security interests or other
charges or encumbrances:
(i) for taxes, assessments or governmental charges or levies
on property of the Company if the same shall not at the time be delinquent
or thereafter can be paid without penalty, or are being contested in good
faith and by appropriate proceedings;
(ii) imposed by law, such as carriers', warehousemen's and
mechanics, liens and other similar liens arising in the ordinary course of
business;
(iii) arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(iv) securing the performance of bids, tenders, contracts
(other than for the repayment of money borrowed), statutory obligations and
surety bonds;
(v) in the nature of zoning restrictions, easements and
rights or restrictions of record on the use of real property which do not
materially detract from its value or impair its use;
(vi) arising by operation of law in favor of the owner or
sublessor of leased premises and confined to the property rented;
(vii) arising from any litigation or proceeding which is being
contested in good faith by appropriate proceedings, PROVIDED, HOWEVER, that
no execution or levy has been made; and
(viii) to secure indebtedness permitted by Section 5.02(k).
(n) LEASE OBLIGATIONS. The Company shall not create, incur, assume
or suffer to exist, any obligations as lessee for the rental or hire of real or
personal property in connection with any sale and leaseback transaction; or
become obligated to pay any rent for real property or personal property under
any lease with an original term, including any lessor options to renew or
extend, of more than three years if the aggregate of consolidated fixed annual
rent which would be payable in any fiscal year by the Company under all such
leases would exceed existing annualized lease obligations in the amount of
$10,000, or such additional amount as shall be approved by a majority of the
members of the Board of Directors then in office, including all of the directors
elected solely by the holders of the Preferred Stock.
(o) MERGERS, SALE OF ASSETS, ETC. The Company shall not merge or
consolidate with any person, dissolve, or sell, assign, lease or otherwise
dispose of or voluntarily part with the control of (whether in one transaction
or in a series of transactions) a material
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portion of its assets (whether now owned or hereinafter acquired) or sell,
assign or otherwise dispose of (whether in one transaction or in a series of
transactions) any of its accounts receivable (whether now in existence or
hereinafter created) at a discount or with recourse, to any person; provided,
however, that this Section 5.02(o) shall not apply to (i) sales or other
dispositions of assets in the ordinary course of business representing no more
than ten percent (10%) of the then book value of the Company's total assets and
(ii) merger of any person into the Company, or other acquisition by the Company
of such person, so long as the Company is the surviving entity, such merger or
acquisition does not result in the violation of any of the provisions of this
Agreement and no such violation exists at the time of such merger or
acquisition.
(p) INVESTMENTS IN OTHER PERSONS. The Company shall not make any
loan or advance to any person, or purchase or otherwise acquire the capital
stock, assets comprising the business of, obligations of, or any interest in,
any person, except:
(i) investments by the Company in evidence of indebtedness
issued or fully guaranteed by the United States of America and having a
maturity of not more than one year from the date of acquisition;
(ii) investments by the Company in certificates of deposit,
notes, acceptances and repurchase agreements having a maturity of not more
than one year from the date of acquisition issued by a bank organized in
the United States having capital, surplus and undivided profits of at least
$100,000,000 and whose parent holding company has long-term debt rated Aal
or higher, and whose commercial paper (if rated) is rated Prime 1, by
Moody's Investors Service, Inc.; and
(iii) investments by the Company in the highest-rated
commercial paper having a maturity of not more than one year from the date
of acquisition.
(iv) investments by the Company in money market fund shares,
or in money market accounts full insured by the Federal Deposit Insurance
Corporation and sponsored by banks, provided that the investments consist
principally of the types of investments described in clauses (i), (ii) or
(iii) of this Section 5.02(p).
(q) CAPITAL EXPENDITURES. The Company shall not make or enter into,
incur or assume any binding commitments for any capital expenditures for any
item contained in the Budget which exceeds the amount budgeted for that item;
(i) Make or enter into, incur or assume any binding
commitments for any capital expenditures for any item contained in the
Budget which exceeds the amount budgeted for that item;
(ii) Make or enter into, incur or assume any binding
commitments for any capital expenditures for items not provided for in the
Budget; and
(iii) Make or enter into, incur or assume any binding
commitments for any expenditures in excess of $10,000 for any single
expenditures
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(r) LITIGATION. The Company shall not institute, terminate or sell
any litigation, administrative proceeding, arbitration or other legal proceeding
with any third party where the amount in controversy exceeds $10,000.
(s) AMENDMENTS. The Company shall not amend its Charter or By-laws.
(t) CERTAIN CONTRACTS. The Company shall not enter into any
arrangements, contracts or agreements, whether written or oral, that are not in
the ordinary course of its business.
ARTICLE VI
RIGHT OF FIRST REFUSAL
SECTION 6.01 RIGHT OF FIRST REFUSAL. The Company shall not issue, sell
or exchange, agree or obligate itself to issue, sell or exchange, or reserve or
set aside for issuance, sale or exchange, any (i) shares of Common Stock, (ii)
any other equity security of the Company, including without limitation, shares
of the Preferred Stock, (iii) any debt security of the Company (other than a
bank line of credit with no equity feature) including without limitation, any
debt security which by its terms is convertible into or exchangeable for any
equity security of the Company, (iv) any security of the Company that is a
combination of debt and equity, or (v) any option, warrant or other right to
subscribe for, purchase or otherwise acquire any such equity security or any
such debt security of the Company, unless in each case the Company shall have
first offered to sell such securities (the "Offered Securities") to the
Purchaser and the Founder as follows: The Company shall offer to sell to each
Purchaser and the Founder (a) that portion of the Offered Securities as the
number of shares of Common Stock (including all shares of capital stock
convertible into Common Stock, on a fully-diluted basis) then held by such
Purchaser or the Founder, as the case may be, bears to the total number of
shares of Common Stock (including all shares of capital stock convertible into
Common Stock, on a fully-diluted basis) held by the Purchaser (the "Basic
Amount"), and (b) such additional portion of the Offered Securities as such
Purchaser or the Founder, as the case may be, shall indicate it will purchase
should the other Purchaser and/or the Founder subscribe for less than their
Basic Amounts (the "Undersubscription Amount"), at a price and on such other
terms as shall have been specified by the Company in writing delivered to such
Purchaser or the Founder, as the case may be, (the "Offer"), which Offer by its
terms shall remain open and irrevocable for a period of thirty (30) days from
receipt of the offer. The Company shall be free at any time prior to ninety
(90) days after the date of its notice of offer to the Purchaser and the
Founder, to offer and sell to any third party or parties the number of such
securities not agreed to be purchased by the Purchaser and the Founder, at a
price and on payment terms no less favorable to the Company than those specified
in such notice of offer to the Purchaser and the Founder. If such third party
sale or sales are not consummated within such ninety (90) day period, however,
the Company shall not sell such securities as shall not have been purchased
within such period without again complying with this Section 6.01.
SECTION 6.02 NOTICE OF ACCEPTANCE. Notice of the Purchaser or the
Founder's intention to accept, in whole or in part, any Offer made pursuant to
Section 6.01 shall be evidenced by a writing signed by the Purchaser or the
Founder, as the case may be, and delivered to
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the Company prior to the end of the 30-day period of such offer, setting forth
such of the Purchaser's or the Founder's Basic Amount as the Purchaser or the
Founder, as the case may be, elects to purchase and, if the Purchaser or the
Founder shall elect to purchase all of its Basic Amount, such Undersubscription
Amount as such Purchaser or the Founder, as the case may be, shall elect to
purchase (the "Notice of Acceptance"). If the Basic Amounts subscribed for by
the Purchaser and the Founder are less than the total Offered Securities, then
the Purchaser and the Founder who has set forth Undersubscription Amounts in its
Notice of Acceptance shall be entitled to purchase, in addition to the Basic
Amounts subscribed for, all Undersubscription Amounts it has subscribed for;
provided, however, that should the Undersubscription Amounts subscribed for
exceed the difference between the Offered Securities and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), the Purchaser or the
Founder who has subscribed for any Undersubscription Amount shall be entitled to
purchase only that portion of the Available Undersubscription Amount as the
Undersubscription Amount subscribed for by such Purchaser or the Founder, as the
case may be, bears to the total Undersubscription Amounts subscribed for by the
Purchaser and the Founder, subject to rounding by the Board of Directors to the
extent it reasonably deems necessary.
SECTION 6.03 EXCEPTION. The rights of the Purchaser and the Founder
under this Article VI shall not apply to securities issued (A) upon conversion
of any of the Preferred Shares, (B) as a stock dividend or upon any subdivision
of shares of Common Stock, provided that the securities issued pursuant to such
stock dividend or subdivision are limited to additional shares of Common Stock,
(C) pursuant to subscriptions, warrants, options, convertible securities, or
other rights which are listed in SCHEDULE II as being outstanding on the Closing
Date, (D) solely in consideration for the acquisition (whether by merger or
otherwise) by the Company of all or substantially all of the stock or assets of
any other entity, (E) pursuant to a firm commitment underwritten public
offering, (F) pursuant to the exercise of options to purchase Common Stock
granted to employees of the Company, not to exceed in the aggregate 100,000
shares (appropriately adjusted to reflect stock splits, stock dividends,
combinations of shares, recapitalizations and the like with respect to the
Common Stock), less the number of shares (as so adjusted) issued pursuant to
options outstanding on the date of this Agreement and listed in SCHEDULE II
pursuant to clause (C) above (the shares exempted by this clause (F) being
hereinafter referred to as the "Reserved Employee Shares"), and (G) upon the
exercise of any right which was not itself issued in violation of the terms of
Section 6.02.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 EXPENSES. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated; PROVIDED, HOWEVER, that, if consummated, the
Company shall pay the fees and disbursements of the Purchaser's counsel, Testa,
Hurwitz & Thibeault, in connection with such transactions. In addition, the
Company shall pay the reasonable fees and disbursements of legal counsel,
independent public accountants, consultants and other experts retained by the
Purchaser in connection with any amendment, waiver, consent or enforcement of
this Agreement.
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SECTION 7.02 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein or in the Registration Rights
Agreement, the Stock Restriction Agreement, the Stockholders Agreement, or any
certificate or instrument delivered to the Purchaser pursuant to or in
connection with this Agreement, the Registration Rights Agreement, the Stock
Restriction Agreement or the Stockholders Agreement, shall survive the execution
and delivery of this Agreement, the Registration Rights Agreement, the Stock
Restriction Agreement and the Stockholders Agreement, the issuance, sale and
delivery of the Preferred Shares, and the issuance and delivery of the
Conversion Shares, and all statements contained in any certificate or other
instrument delivered by the Company hereunder or thereunder or in connection
herewith or therewith shall be deemed to constitute representations and
warranties made by the Company. The representations and warranties of the
Purchaser made in Article III hereof shall survive the execution and delivery of
this Agreement, the issuance, sale and delivery of the Preferred Shares, and the
issuance and delivery of the Conversion Shares.
SECTION 7.03 BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 7.04 PARTIES IN INTEREST. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefiting the Purchaser shall inure to the benefit of any and all subsequent
holders from time to time of the Preferred Shares or the Conversion Shares.
SECTION 7.05 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
electronic facsimile transmission, telecopier or telex, addressed as follows:
(a) if to the Company, at 6464 Savoy Drive, Suite 4140, Houston,
Texas 77036, Attention: President, with a copy to Curtis E. Sahakian, Esq., 4843
Howard St., Skokie, Illinois, 60077; and
(b) if to the Purchaser, at 14141 Southwest Freeway, Suite 6200,
Sugar Land, Texas 77478, Attention: Charles E. Noell, with a copy to Testa,
Hurwitz & Thibeault, Exchange Place, 53 State Street, Boston, Massachusetts
02109, Attention: Mark H. Burnett;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 7.06 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE AS TO MATTERS WITHIN THE SCOPE THEREOF AND AS TO ALL OTHER
MATTERS SHALL BE
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GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF THE CONFLICTS OF LAWS THEREOF.
SECTION 7.07 ENTIRE AGREEMENT. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto
are hereby incorporated herein by reference.
SECTION 7.08 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 7.09 AMENDMENTS. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least two-thirds of the outstanding shares of
Common Stock issued or issuable upon conversion of the Preferred Shares.
SECTION 7.10 SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 7.11 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.
SECTION 7.12 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "Company" shall include NEON Systems, Inc., a Delaware
corporation, and its predecessor, an Illinois corporation.
(b) "person" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government agency or
any agency or political subdivision thereof, or other entity.
(c) "subsidiary" shall mean, as to the Company, any corporation of
which more than 50% of the outstanding stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by the Company, or
by one or more of its subsidiaries, or by the Company and one or more of its
subsidiaries.
(d) "to the knowledge" shall be interpreted to mean that the Company
has made due inquiry relating to the particular subject involved.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES TO FOLLOW]
32
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
NEON SYSTENS, INC.
By: /s/ Peter Schaeffer
-----------------------------------
Peter Schaeffer
President
JMI EQUITY FUND
By: JMI Partners, L.P.
Its General Partner
By: /s/ Charles E. Noell
-----------------------------------
Charles E. Noell
A General Partner
/s/ Peter Schaeffer
---------------------------------------------
Peter Schaeffer
33
<PAGE>
SCHEDULE I
DISCLOSURE SCHEDULE
1
<PAGE>
5/19/93
SCHEDULE I
TO SERIES A STOCK PURCHASE AGREEMENT
(DISCLOSURE SCHEDULE)
Notwithstanding anything to the contrary, (a) each and every portion of the
information and material contained in this Schedule and all other schedules to
the Series A Stock Purchase Agreement (herein referred to as the "Stock Purchase
Agreement") shall be deemed to constitute exceptions to each and every
representation, warranty and certification set out in the Stock Purchase
Agreement, and (b) this Schedule and all other schedules to the Stock Purchase
Agreement shall be deemed to make express reference to each and every
representation, warranty and certification set out in the Stock Purchase
Agreement, and (c) all other schedules to the Stock Purchase Agreement shall be
deemed to be incorporated by reference into this Schedule.
All documents and agreements (including all information contained therein)
incorporated by reference into this schedule shall be deemed to be a part of
this schedule and all references to this Schedule shall be deemed to refer to
them as well as this Schedule. Any and all conflicts between the Stock Purchase
Agreement and any of the said documents or agreements shall be deemed to have
been excepted from every representation, warranty and certification set out in
the Stock Purchase Agreement.
1. OTHER SCHEDULES TO THE AGREEMENT. All other Schedules to the Stock
Purchase Agreement are hereby incorporated by reference into this Schedule
1.
2. CORPORATE RECORD BOOK. The Certified Corporate Record Book is hereby
incorporated by reference into the Schedule I. The "Certified Corporate
Record Book" is a binder of the following documents that have been or will
be certified by Peter Schaeffer prior to closing as containing true and
correct copies of the following documents:
(a) Neon Systems, Inc.'s Articles of Incorporation.
(b) Neon Systems, Inc. Pre-incorporation Subscription.
(c) Assignment of Incorporator's Subscription Rights to Purchase Shares of
Neon Systems, Inc.
(d) Acceptance of Assignment of Incorporator's Subscription Rights to
Purchase Shares of Neon Systems, Inc.
(e) Record of Informal Action By the Sole Shareholder of Neon Systems, Inc
Taken July 19, 1991 Relating to Incorporation.
2
<PAGE>
(f) Record of Informal Action By the Sole Director of Systems, Inc. Taken
July 19, 1991 Relating to Incorporation.
(g) The Bylaws of Neon Systems, Inc., an Illinois corporation, immediately
prior to its merger into Neon Systems, Inc., a Delaware corporation.
(h) Record Of Informal Action by the Sole Shareholder of Neon Systems,
Inc. Taken July 19, 1991.
(i) Record Of Informal Action by the Sole Director of Neon Systems, Inc.
Taken July 19, 1991.
(j) Neon Systems, Inc. 1991 Stock Option Plan.
(k) Record of Informal Action by the Sole Shareholder of Neon Systems,
Inc. Taken November 13, 1992 In Lieu Of Annual Meeting.
(1) Record Of Informal Action by the Sole Director of Neon Systems, Inc.
Taken November 13, 1992 In Lieu Of Directors Meeting.
(m) Record Of Informal Action by the Sole Director of Neon Systems, Inc.
Taken November 13, 1992 (relating to borrowings from Peter Schaeffer).
(n) Record Of Informal Action by the Sole Director of Neon Systems, Inc.
Taken November 13, 1992 (relating to qualifying to do business in Texas).
3. CERTIFIED BINDER OF NEON AGREEMENTS. The Certified Binder of Neon
Agreements is hereby incorporated by reference into the Schedule 1. The
"Certified Binder of Neon Agreements" is a binder of the following
documents and agreements that have been or will be certified by Peter
Schaeffer prior to Closing as containing true and correct copies of the
following documents and agreements:
(a) The following documents relating to the "reseller" relationship
between and among Neon Systems, Inc., the Cambridge Technology Group, and the
open Environment Corporation:
(i) The November 10, 1992 letter of intent relating to the
Cambridge Technology Group and the Open Environment
Corporation.
(ii) The related letter of September 24 1992 from Spinnaker
Software Corporation to Open Environment Corporation dated
September 24, 1992.
(iii) The related 14 page fax message dated October 23, 1992 from
Alex Shah of the Cambridge Technology Group to Peter Schaeffer
which contains a copy of a Software Reseller Agreement between
the Open Environment Corporation and VZ Corp.
3
<PAGE>
(iv) Confidential Information Agreement between Hitachi Data
Systems and the Company signed by Hitachi Data Systems on
August 21, 1992.
(b) The following documents related to the Communications Solutions, Inc.
transaction involving the exchange of a license issued by Neon Systems, Inc in
exchange for equity in Communications Solutions, Inc.
(i) The Communications Solutions, Inc. Shareholders' Agreement
including Schedule 1 (Listing of current CSI shareholders),
Schedule 2.2 (Promissory Note), Schedule 2.4 (Joinder
Agreement), Exhibit 4.2 (Certificate of Agreed Value),
Schedule 5.1 (Pre-approved Sales of Equity), Schedule 6.1
(Escrow Agreements), Exhibit 7.4 (Irrevocable Proxy), Schedule
8.1 (Subscription Agreement), and Exhibit 8.4 (Confidentiality
Agreement) dated June 19, 1992, signed by Communications
Solutions, Inc., Neon Systems, Inc. and the other parties
thereto.
(ii) The First Addendum to the Communications Solutions, Inc.
Shareholders' Agreement dated June 19, 1992, signed by
Communications Solutions, Inc., Neon Systems, Inc. and the
other parties thereto.
(iii) A "reseller" agreement between Communication Solutions, Inc.,
and Neon Systems, Inc. (file oemlic5.csi) that has not been
signed by either Communications Solutions, Inc. or Neon
Systems, Inc. The parties have not yet agreed on the
schedules A, B, and E have not yet been agreed to.
The Communications Solutions, Inc. Shareholders' Agreement,
the First Addendum to it, and the "reseller" agreement were
all intended to be executed and performed as part of a single
transaction. As of April 15, 1993 the shares of stock in
Communications Solutions, Inc. to which Neon Systems, Inc. is
entitled have not been issued. As of April 15, 1993 the
software that Neon is obligated to deliver to Communications
Solutions, Inc. has not been delivered. Neon Systems, Inc.
has no reason to believe that the transaction will not
eventually close though the schedules A, B, and E to the
"reseller" agreement have not yet been agreed to.
(c) The following letters between Peter Schaeffer as President of the
Company and Thomas Glover acting on behalf of Thomas Glover and Associates, Inc.
and a Mutual Nondisclosure Agreement between the Company and Tom Glover
Associates, Inc.:
(i) A letter dated June 1, 1992 from Peter Schaeffer as President
of the Company to Thomas Glover of TGA (Thomas Glover and
Associates, Inc.) confirming and clarifying an agreement under
which the Company is to pay TGA a 15% commission on the sales
of the Company's products that are initiated and closed by
TGA.
4
<PAGE>
(ii) A letter dated May 12, 1992 from Thomas Glover of Thomas
Glover Associates, Inc. to the Company discussing commission
rates for sales of licenses of Neon products.
(iii) A letter dated July 20, 1992 from Thomas Glover of TGA to
Peter Schaeffer as President of the Company discussing sales
activities related to MCI and U.S. Customs.
(iv) A letter dated February 10, 1992 from Peter Schaeffer as
President of the Company to Thomas Glover .of TGA.
(v) Mutual Nondisclosure Agreement between the Company and Tom
Glover Associates, Inc. dated March 4, 1992
(d) Mutual Nondisclosure agreement between Neon Systems, Inc. and Bill
MacDonald of Hertfordshire England dated May 14, 1992, a letter dated May 20,
1992 from Bill MacDonald to the Company, and a letter dated September 8, 1992
authorizing Bill MacDonald to sell licenses to use the Company's software.
(e) A "reseller" agreement signed by Neon Systems, Inc and Neon Nordic
Systems AB. The agreement is a single undated faxed page. It refers to itself
as an "interim solution that can be used until finalized distribution agreements
have been drafted." The agreement is undated though the fax contains the
inscription 11192 06/02 15:0211 in its header.
(f) Texaco Inc. Information Technology Department Miscellaneous Work
Agreement signed by Texaco Inc. on December 20, 1991, and by the Company on
December 20, 1991., as well as:
(i) Amendment A to the Texaco Inc. Information Technology
Department Miscellaneous Work Agreement signed by Texaco Inc.
on January 28, 1992 and by the Company on January 28, 1992.
(ii) Amendment B to the Texaco Inc. Information Technology
Department Miscellaneous Work Agreement signed by Texaco Inc.
on May 28, 1992 and by the Company on May 28, 1992.
(iii) Amendment C to the Texaco Inc. Information Technology
Department Miscellaneous Work Agreement signed by Texaco Inc.
on November 30, 1992 and by the Company on December 1, 1992.
(g) Two "Neon Systems, Inc. Confirmation of Proprietary Rights and
Confidential Information" agreements signed by Robert Ernens of France in July
of 1992.
5
<PAGE>
(h) The following agreements relating to Peter Schaeffer:
(i) A 9 page fax from Jodi Powel of the Legent Corporation Legal
department with a copy of the signed Confidentiality and
Invention Agreement between Peter Schaeffer and MVS Software,
Inc. signed by Peter Schaeffer on June 1, 1988 and by XVS
Software, Inc. on June 2, 1988.
(ii) Affirmation of Confidentiality and Invention Agreement signed
by Peter Schaeffer. The Affirmation agreement was signed by
Peter Schaeffer on April 12, 1990 pursuant to a Plan and
Agreement of Reorganization dated March 8, 1990 by and among
Coal Systems International, Inc. and KVS Software, Inc. Peter
Schaeffer was an employee of MVS Software, Inc. and
subsequently became an employee of Goal Systems International,
Inc.
(iii) MVS Securityholders Competition Restriction Agreement between
Goal Systems International, Inc. and Peter Schaeffer dated
April 12, 1990 and signed by both Peter Schaeffer and Goal
Systems International, Inc.
(iv) A Special Termination Agreement and General Release between
Peter Schaeffer and Legent Corporation signed by Peter
Schaeffer on October 7, 1992.
(i) Agreement between Goal Systems International Inc. on one hand and Neon
Systems, Inc. and Peter Schaeffer on the other hand dated January 8, 1992 as
well as an addendum to the agreement of even date. The agreement and addendum
relate to the licensing of certain software by Goal Systems International, Inc
to Neon Systems, Inc. for use in the development of, and incorporation in,
software developed by Neon Systems, Inc.
(j) The following letters and messages relating to a certain proposed
transaction between the Company and Mission Critical Software, Inc:
(i) A letter dated January 9, 1992 from Mission Critical
Software, Inc. to Goal Systems International, Inc.
(ii) copies of various electronic nail messages relating to
negotiations between and among Neon Systems, Inc., Mission
Critical Software, Inc., and Goal Systems International Inc.
(iii) Copy of a cover letter from Michael Mozenter, General Counsel
of Goal Systems International, Inc. dated July 24, 1992 to
Louis Woodhill of Mission C&O Critical Software, Inc. ("MCS")
and Peter Schaeffer together with the attached proposed draft
of a Technology Exchange Agreement between the Company, MCS,
James R. Woodhill, and Peter Schaeffer.
6
<PAGE>
(k) Three letters relating to Earl Hodil:
(i) A letter dated June 3, 1991 to Earl Hodil in which Peter
Schaeffer made an offer of employment to Mr. Earl Hodil.
(ii) A letter dated October 16, 1991, to Earl Hodil in which Peter
Schaeffer made a commitment to issue 2% of the shares of Neon
Systems, Inc., an Illinois corporation, to Mr. Hodil.
(iii) A letter dated October 13, 1992, from Earl Hodil as president
of EDH Software, Inc. in which he disclaims any rights to any
stock or stock options in the Company and otherwise terminates
his subcontractor relationship with the Company.
(1) Three documents relating to Mr. Jeff Lin:
(i) A written note dated November 11, 1993 describing a stock
option the that Company was proposing to issue to Jeff Lin.
(ii) A typed version of the above said note dated November 11, 1993
describing a stock option the that Company was proposing to
issue to Jeff Lin.
(iii) An unexecuted draft of a stock option proposed by Mr. Lin's
attorney to function a the definitive agreement setting forth
all the rights with respect to the above said stock option.
(m) Proprietary Rights Agreements of identified employees and
subcontractors:
<TABLE>
<CAPTION>
Name Of Date Signed By
Employee Or Subcontractor Employee Or Subcontractor
------------------------ -------------------------
<S> <C>
- Sue Ellen Strapp August 3, 1992
- Omri Gazitt September 31, 1992
- Nettie Kalogeras October 14, 1992
- Nettie Kalogeras October 14, 1992 (2nd version)
</TABLE>
(n) Mutual Nondisclosure Agreements with identified subcontractors:
<TABLE>
<CAPTION>
Name of Subcontractor Date Of Agreement
--------------------- -----------------
<S> <C>
- Steve Wiesel March 16, 1992
- Neal Milsted May 1, 1992
</TABLE>
7
<PAGE>
4. EMPLOYEES AND SUBCONTRACTORS.
(a) The following is a list of all current and past Neon Systems, Inc.
employees and subcontractors:
<TABLE>
<CAPTION>
NAME TITLE EMPLOYEE OR SUBCONTRACTOR
- --------------------------------------------------------------------------
<S> <C> <C>
Sue Ellen Strapp Administrative Assistant Employee
Nettie Kalogeras Sale Employee
Steve Wiesel Programmer/Developer Employee
Omri Gazitt Programmer/Developer Employee
EDH Software, Inc. Ex-subcontractor
Jeff Lin Texaco Employee
Neal Milsted Ex-subcontractor
Peter Schaeffer President Subcontractor
Robert Ernens Distributor
Kathy Hill Marketeer Subcontractor
Clayton Whisnant Employee
- --------------------------------------------------------------------------
</TABLE>
(b) The Exhibit E nondisclosure and development agreement has been signed
by all current employees and subcontractors of Neon except the following:
- Kathy Hill
- Jeff Lin
- Peter Schaeffer
(Delete and initial all employees and subcontractors above who have signed the
Exhibit E nondisclosure and development agreement.)
(c) Independent distributors such as Robert Ernens and Bill MacDonald are
not deemed to be subcontractors.
5. SHAREHOLDERS OF RECORD. immediately prior to the merger of Neon Systems,
Inc., an Illinois corporation, into Neon Systems, Inc., a Delaware
corporation, Peter Schaeffer was the sole shareholder of Neon Systems,
Inc., an Illinois corporation.
6. AUDITED FINANCIAL STATEMENTS. Neon Systems has no audited financial
statements. The only financial statements furnished to the Purchaser are
the following:
(a) Neon Systems Financial Statements for the Year ended 1992.
(b) Compilation by Peter M. Rub, CPA, of the balance sheet-cash basis of
Neon Systems, Inc. as of December 31, 1991 and the related income statement-cash
basis for the seven months then ended in accordance with the standards
established by the American Institute of Certified Public Accountants, including
the cover letter on the letter head of Peter M. Rub, CPA.
8
<PAGE>
As of May 15, 1993 Neon Systems, Inc., an Illinois corporation had accounts
payables of approximately $45,000 to $50,000 including approximately $800 of IRS
payroll deductions that had not been deposited. These payables do not include
any fees which must be paid to Testa, Hurwitz & Thibeault at the Closing.
7. PROPRIETARY INFORMATION OF THIRD PARTIES. The (a) Confidentiality and
Invention Agreement between Peter Schaeffer and MVS Software, Inc., (b)
Affirmation of Confidentiality and Invention Agreement, (c) MVS
Securityholders Competition Restriction Agreement between Goal Systems
International, Inc. and Peter Schaeffer dated April 12, and (d) Agreement
between Coal Systems International Inc. on one hand and Neon Systems, Inc.
and Peter Schaeffer on the other hand dated January 8, 1992 as well as an
addendum to the agreement of even date may be subject to differing
interpretations, the application of which can vary substantially depending
on the relevant facts.
These facts may include: (a) the dates of Peter Schaeffer's employment by
MVS Software, Inc., Goal Systems International, Inc., Legent Corporation, and
Neon Systems, Inc., a Delaware corporation, and (b) the nature of the work Peter
Schaeffer did for MVS Software, Inc., Goal Systems International, Inc. and Neon
Systems, Inc.
- From October 15, 1985 to April 12, 1990 Peter Schaeffer was an
employee of MVS Software, Inc. and worked for MVS Software, Inc. on
the following:
- OPS/MVS
- From April 12, 1990 to July 31, 1992 Peter Schaeffer was an employee
of Goal Systems International, Inc. and worked for Goal Systems
International, Inc. on the following:
- OPS/MVS
- RUNTRAC
- (Note Peter Schaeffer's employment was only half time from July 15,
1991 to December 15, 1991, and quarter time from December 15, 1991 to
July 31, 1992.)
- From July 15, 1991 to present Peter Schaeffer has been employed by
Neon Systems, Inc. and has worked for Neon Systems, Inc. on the
following:
- Shadow for DB2
- Shadow for IMS
- Shadow Gateway for DB2
- RPC/MVS
In the event of a dispute, the provision in the agreement between Goal
Systems International Inc. on one hand and Neon Systems, Inc. and
Peter Schaeffer on the other hand which permits "a reasonable period
of time not to exceed nine (9) months
9
<PAGE>
to discontinue use of the disputed source code and to develop
replacement source code" may not provide sufficient time to develop
replacement source code.
8. PATENTS, TRADEMARKS, ETC. Neon Systems, Inc. has no domestic or foreign
patents, patent rights, patent applications, service marks, service mark
applications, tradenames, copyrights or copyright registrations, or any
applications therefore except as follows:
(a) Neon has not filed copyright registrations for any of its software.
The following is a list of Neon's software:
- Shadow for DB2
- Shadow for IMS
- Shadow Gateway for DB2
- RPC/NVS
(b) The name of Neon Systems, Inc. is not registered. While Neon Systems,
Inc. does not believe there is a likelihood of confusion between its name and
any other marks or tradenames, there can be no assurance that such confusion has
not or will not occur. There were prior uses of "Neon" by other companies when
Neon Systems, Inc. began using the name, including use by some companies
relating to the computer industry. These include, but are not limited to "Neon
Software, Inc." of Lafayette California (415/283-9771); "Neon," (a programming
language) from Kriya Systems, Inc. of Chicago; "Neon," (an inventory service
provided by computer) from Nekoosa Papers, Inc. of Port Edwards, Wisconsin;
"Neon Information Systems" of New York, New York; "Neon Systems" (as this is
merely a state filing, no goods or services are listed) by Craig E. Effress of
St. Paul, Minnesota; "Neon" (as this is merely a state filing, no goods or
services are listed) by Neon Consultants, Inc., 3051 East 14th Avenue, Columbus,
Ohio 43219. Neon Systems, Inc. has not received from any other party any
communications, complaints or allegations that its name violates the rights of
such party.
(c) Neon Systems, Inc. has filed a trademark application for "RPC/MVS"
with the U.S. Commissioner of Patents and Trademarks (the "PTO") . The
application was received by the PTO on December 17, 1992 and assigned a case
number of 74 340904. The PTO responded to the application on March 26, 1993 and
is declining to register the mark for a number of reasons including
Descriptiveness, Method-of-Use, and Identification of Goods. The PTO did not
raise any issue of infringement of prior marks owned by others. The Company has
6 months from March 26 to respond to the PTO. There can be no assurance that
the PTO can be convinced to modify its position on application or accept an
amended application. The Company does not intend to take any further actions,
if any, with respect to this application until after the Closing.
While Neon Systems, Inc. does not believe that its use of its "RPC/MVS"
mark infringes any other mark or that its use of the mark will create a
likelihood of confusion with any other mark or name owned by another party,
there can be no assurance that it does not or will not. There were prior uses
of names and marks incorporating "RPC" and "MVS" by other companies when Neon
Systems, Inc. began using the mark, including use by some companies relating to
the computer industry. These include, but are not limited to Noblenet, Inc.
("EZ RPC"), Sisro ("MVS-MS"), MVS Software, Inc. ("OPS/MVS"), and Netwise, Inc
("Netwise RPC Tool").
10
<PAGE>
(d) Neon Systems, Inc. has filed a trademark application for "SHADOW" with
the US. Commissioner of Patents and Trademarks (the "PTO"). The application was
received by the U.S. Commissioner of Patents and Trademarks on November 27, 1992
and assigned a case number of 74 335216. The PTO responded to the application
on March 29, 1993 and is declining to register the mark for a number of reasons
including Failure to Function as a Mark, Identification of Goods, and Specimens.
The PTO did not raise any issue of infringement of prior marks owned by others.
The Company has 6 months from March 29 to respond to the PTO. There can be no
assurance that the PTO can be convinced to modify its position on application or
accept an amended application. The Company does not intend to take any further
actions, if any, with respect to this application until after the Closing.
While Neon Systems, Inc. does not believe that its use of its "SHADOW" mark
infringes any other mark or that its use of the mark will create a likelihood of
confusion with any other mark or name owned by another party, there can be no
assurance that it does not or will not. There were prior uses of names and
marks similar to "SHADOW" by other companies when Neon Systems, Inc. began using
the mark, including use by some companies relating to the computer industry.
These include, but are not limited to, use by Advanced Systems Concepts, Inc.,
by BMC Software ("ICS/Shadow"), by Gizmo Technologies, and by The Software Link,
Inc. ("PC-Shadow").
(e) Neon uses reasonable efforts to maintain its software as a trade
secret though it does provide to prospective licensees, without the benefit of
written or oral agreements but in a manner consistent with general industry
practice: product information, product demonstrations, and evaluation copies of
its software.
9. MATERIAL ELECTIONS WITH-RESPECT TO TAXES. All material elections with
respect to taxes affecting the Company as of April 15, 1992 are as follows:
- Cash Basis Taxpayer
- Subchapter S Election
- R&D has been expensed
- Organizational Costs Have Been Amortized
10. INSURANCE POLICIES. Neon Systems, Inc., has only the following insurance
policies in effect:
- Medical Insurance (Pacific Mutual #13085)
- Long Term Disability & Life Insurance (Guardian)
11. OFFICERS OF THE COMPANY. The following is a list of the names of the
officers of Neon Systems, Inc., together with the title and job
classification of each such person and the total compensation anticipated
to be paid to such person in 1993:
- Peter Schaeffer is the President, Secretary, Assistant Secretary and
Treasurer. His total compensation anticipated to be paid in 1993 is
unknown.
11
<PAGE>
- Curtis E. Sahakian is the Assistant Secretary. His total compensation
anticipated to be paid in 1993 is unknown.
12. GOAL AGREEMENT. As provided for in Section 29 of the First Addendum to the
Agreement between Goal Systems International Inc. on one hand and Neon
Systems, Inc. and Peter Schaeffer on the other hand dated January 8. 1992
The Company has from time to time provided Goal Systems International, Inc.
with Shadow Source, provided however, the Company is uncertain whether or
not the shadow Source was accompanied with a cover letter, The Shadow
Source was sent in envelopes that were identified with a logo and return
address indicating there were sent by the Company. The Company has never
received from Goal Systems International, Inc. any notification that it
believes any portion of the Shadow Source was written by Peter Schaeffer in
his capacity as an employee of Goal Systems International, Inc.
13. RIGHT OF SAHAKIAN TO REPRESENT SCHAEFFER IN EVENT OF CONFLICT. The
Company, Peter Schaeffer, and Curtis Sahakian have agreed that as a
condition to Mr. Sahakian providing legal services to the Company, if at
some future time there arises a conflict between the interests of the
Company and Mr. Schaeffer, Mr. Sahakian may elect to represent Mr.
Schaeffer in such matter and the Company waives any right it may have to
prevent Mr. Sahakian from undertaking such representation. For instance,
Mr. Sahakian may advise Mr. Schaeffer, in his capacity as President of the
Company, with respect to this Agreement. At some subsequent time Mr.
Schaeffer may leave the Company and then get into a personal dispute with
the company over this Agreement. In such event Mr. Sahakian shall be free
to represent Mr. Schaeffer in such dispute.
14. ATTACHMENTS. The following attachments are attached hereto and hereby
incorporated herein:
- Copy of application (less specimens) to PTO for the 11RPC/M-VS11
trademark received by the PTO on December 17, 1992 and PTO response
dated March 26, 1993 excluding copyrighted articles attached to the
response.
- Copy of application (less specimens) to PTO for the "SHADOW" trademark
received by the PTO on November 27, 1992 and PTO response dated March
29, 1993.
12
<PAGE>
SCHEDULE II
SECURITY HOLDERS
13
<PAGE>
5/19/93
SCHEDULE II
TO SERIES A STOCK PURCHASE AGREEMENT
(SECURITY HOLDERS)
Notwithstanding anything to the contrary, (a) each and every portion of the
information and material contained in this Schedule and all other schedules to
the Series A Stock Purchase Agreement (herein referred to as the "Stock Purchase
Agreement") shall be deemed to constitute exceptions to each and every
representation, warranty and certification set out in the Stock Purchase
Agreement, and (b) this Schedule and all other schedules to the Stock Purchase
Agreement shall be deemed to make express reference to each and every
representation, warranty and certification set out in the Stock Purchase
Agreement, and (c) all other schedules to the Stock Purchase Agreement shall be
deemed to be incorporated by reference into this Schedule.
All documents and agreements (including all information contained therein)
incorporated by reference into this schedule shall be deemed to be a part of
this schedule and all references to this Schedule shall be deemed to refer to
them as well as this Schedule. Any and all conflicts between the Stock Purchase
Agreement and any of the said documents or agreements shall be deemed to have
been excepted from every representation, warranty and certification set out in
the Stock Purchase Agreement.
1. The only holder of any stock or equity in Neon Systems, Inc., an
Illinois corporation, immediately prior to its merger into Neon Systems, Inc., a
Delaware corporation was Peter Schaeffer, provided however:
Peter Schaeffer stated as intent to issue an option to purchase shares
of stock of Neon Systems, Inc., an Illinois corporation, to Curtis E.
Sahakian. The statement of intent was without any consideration and
did not contain any indication of the size of the option or its
exercise price. Mr. Sahakian has waived any and all rights to any
such option.
2. The Certified Binder of Neon Agreements is hereby incorporated by
reference into this Schedule II.
(a) The Certified Binder of Neon Agreements contains an Agreement
between Goal Systems International Inc. on one hand and Neon Systems, Inc. and
Peter Schaeffer on the other hand dated January 8, 1992 as well as an addendum
to the agreement of even date. The agreement and addendum relate to the
licensing of certain software by Goal Systems International, Inc to Neon
Systems, Inc. for use in the development of, and incorporation in, software
developed by Neon Systems, Inc. It provides Goal Systems International, Inc.
with certain rights relating to the Neon Systems, Inc. board of directors, the
sale of Neon Systems, Inc.
14
<PAGE>
(b) The Certified Binder of Neon Agreements contains:
(i) A letter dated June 3, 1991 to Earl Hodil in which Peter
Schaeffer made an offer of employment to Mr. Earl Hodil.
(ii) A letter dated October 16, 1991, to Earl Hodil in which
Peter Schaeffer made a commitment to issue 2% of the
shares of Neon Systems, Inc., an Illinois corporation,
to Mr. Hodil.
(iii) A letter dated October 13, 1992, from Earl Hodil as
president of EDH Software, Inc. in which he disclaims
any rights to any stock or stock options in the Company
and otherwise terminates his subcontractor relationship
with the Company.
(c) The Certified Binder of Neon Agreements contains three documents
relating to Mr. Jeffery Lin:
(i) A written note dated November 11, 1993 describing a stock
option the that Company was proposing to issue to Jeffery
Lin.
(ii) A typed version of the above said note dated November 11,
1993 describing a stock option the that Company was
proposing to issue to Jeffery Lin.
(iii) An unexecuted draft of a stock option proposed by Mr.
Lin's attorney to function a the definitive agreement
setting forth all the rights with respect to the above
said stock option.
(d) Mr. Jeffery Lin has been granted an option to purchase 17,393
common shares under the Company's 1993 Stock Plan.
15
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SCHEDULE III(A) AND (B)
AGREEMENTS
16
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5/19/93
SCHEDULE III(a) AND (b)
TO SERIES A STOCK PURCHASE AGREEMENT
(AGREEMENTS)
Notwithstanding anything to the contrary, (a) each and every portion of the
information and material contained in this Schedule and all other schedules to
the Series A Stock Purchase Agreement (herein referred to as the "Stock Purchase
Agreement") shall be deemed to constitute exceptions to each and every
representation, warranty and certification set out in the Stock Purchase
Agreement, and (b) this Schedule and all other schedules to the Stock Purchase
Agreement shall be deemed to make express reference to each and every
representation, warranty and certification set out in the Stock Purchase
Agreement, and (c) all other schedules to the Stock Purchase Agreement shall be
deemed to be incorporated by reference into this Schedule.
All documents and agreements (including all information contained therein)
incorporated by reference into this schedule shall be deemed to be a part of
this schedule and all references to this Schedule shall be deemed to refer to
them as well as this Schedule. Any and all conflicts between the Stock Purchase
Agreement and any of the said documents or agreements shall be deemed to have
been excepted from every representation, warranty and certification set out in
the Stock Purchase Agreement.
1. CERTIFIED BINDER OF NEON AGREEMENTS. The Certified Binder of Neon
Agreements is hereby incorporated by reference into this schedule to the Series
A Stock Purchase Agreement.
2. OUTSTANDING UNPAID SALARIES DUE TO PETER. The total compensation paid
to Peter Schaeffer by Neon Systems, Inc as of April 15, 1993 is $0.00. There has
never been any formal action to set a specific salary for Peter Schaeffer.
3. OUTSTANDING DEPT OWED BY NEON TO PETER. As of May 13, 1993 Peter
Schaeffer has lent $425,722.72 to Neon Systems, Inc. There has never been any
formal action to set a specific interest rate on the loan though the loan is due
and payable on demand.
17
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SCHEDULE IV
FINANCIAL PROJECTIONS AND OTHER ESTIMATES
18
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EXHIBIT A
1
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement dated as of May 19, 1993 (the
"Agreement") by and between NEON Systems, Inc., a Delaware corporation (the
"Company"), JMI Equity Fund, L.P., a Delaware limited partnership (the
"Purchaser") and Peter Schaeffer (the "Founder"):
WITNESSETH:
WHEREAS, pursuant to the terms of a-Series A Stock Purchase Agreement dated
the date hereof between the Company and the Purchaser (the "Purchase
Agreement"), the Purchaser is acquiring an aggregate of 500,000 shares (the
"Preferred Shares") of Series A Convertible Preferred Stock, par value $.01 per
share (the "Preferred Stock"), of the Company; and
WHEREAS, it is a condition to the obligations of the Purchaser under the
Purchase Agreement that this Agreement be entered into by the parties hereto,
and the parties desire to enter into this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of these premises and the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the common stock, par value $.01 per share,
of the Company, as constituted as of the date of this Agreement.
"CONVERSION SHARES" shall mean shares of Common Stock issued issuable
upon conversion of the Preferred Shares, and any shares of capital stock
received in respect thereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"FOUNDER SHARES" shall mean the 400,000 shares of Common Stock held by
the Founder on the date hereof.
"INITIAL PUBLIC OFFERING" shall mean the first underwritten public
offering of Common Stock of the Company registered under the Securities Act with
the Commission on Form S-1, Form S-18 or their then equivalents.
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"REGISTRATION EXPENSES" shall mean all expenses incurred in connection
with a registration statement, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, costs of insurance, and
fees and disbursements of one counsel for the sellers of Restricted Stock, but
excluding any Selling Expenses.
"RESTRICTED STOCK" shall mean (1) the Conversion Shares, excluding
Conversion Shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and disposed of
in accordance with the registration statement covering them or (b) publicly sold
pursuant to Rule 144 under the Securities Act and (2) except for Sections 4 and
6, the Founder Shares, excluding Founder Shares which have been (a) registered
under the Securities Act pursuant to an effective registration statement filed
thereunder and disposed of in accordance with the registration statement
covering them or (b) publicly sold pursuant to Rule 144 under the Securities
Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Restricted Stock which are incurred in
connection with a registration statement.
2. RESTRICTIVE LEGEND. Each certificate representing Preferred Shares,
Conversion Shares or Founder Shares shall, except as otherwise provided in this
Section 2 or in Section 3, be stamped or otherwise imprinted with a legend
substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES
LAWS, OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS
OF THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS.
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault
shall be satisfactory) the securities being sold thereby may be sold without
registration under the Securities Act.
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3. NOTICE OF PROPOSED TRANSFER.
(a) Prior to any proposed transfer of any Preferred Shares,
Conversion Shares or Founder Shares (other than under the circumstances
described in Sections 4, 5 or 6), the holder thereof shall give written notice
to the Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and, if requested by the Company,
shall be accompanied by an opinion of counsel satisfactory to the Company (it
being agreed that Testa, Hurwitz & Thibeault shall be satisfactory) to the
effect that the proposed transfer may be effected without registration under the
Securities Act, whereupon the holder of such stock shall be entitled to transfer
such stock in accordance with the terms of its notice; provided, however, that
no such opinion of counsel shall be required for a transfer to one or more
partners of the transferor (in the case of a transferor that is a partnership)
or to a parent corporation, subsidiary corporation or to a corporation which is
under common control with a transferor (in the case of a transferor that is a
corporation).
(b) Each certificate for Preferred Shares, Conversion Shares or
Founder Shares transferred as provided in this Section 3 shall bear the legend
set forth in Section 2, except that such certificate shall not bear such legend
if (i) such transfer is in accordance with the provisions of Rule 144 or Rule
144A under the Securities Act (or any other rule permitting public sale without
registration under the Securities Act) or (ii) the opinion of counsel referred
to above is to the further effect that the transferee and any subsequent
transferee (other than an affiliate of the Company) would be entitled to
transfer such securities in a public sale without registration under the
Securities Act. The restrictions provided for in this Section 3 shall not apply
to securities which are not required to bear the legend prescribed by Section 2
in accordance with the provisions of Section 2.
4. REQUIRED REGISTRATION.
(a) At any time after the Company's Initial Public Offering, one or
more holders of Restricted Stock constituting at least 40% of the total shares
of Restricted Stock then outstanding may request the Company to register under
the Securities Act all or any portion of the shares of Restricted Stock held by
such requesting holder or holders for sale in the manner specified in such
notice, ' provided that the shares of Restricted Stock for which registration
has been requested shall constitute at least 20% of the total shares of
Restricted Stock originally issued if such holder or holders shall request the
registration of less than all shares of Restricted Stock then held by such
holder or holders (or any lesser percentage if the reasonably anticipated
aggregate price to the public of such public offering would exceed $2,000,000).
For purposes of this Section 4 and Sections 5, 6, 13(a) and 13(d), the term
"Restricted Stock" shall be deemed to include the number of shares of Restricted
Stock which would be issuable to a holder of Preferred Shares upon conversion of
all shares of Preferred Stock held by such holder at such time; provided,
however, that the only securities which the Company shall be required to
register pursuant hereto shall be shares of Common Stock; and provided further
that, in any underwritten public offering contemplated by this Section 4 or
Sections 5 and 6, the holders of Preferred Shares shall be entitled to sell such
Preferred Shares to the underwriters for conversion and sale (in such public
offering) of the shares of Common Stock issued upon conversion thereof.
4
<PAGE>
(b) Notwithstanding anything to the contrary contained in this
Section 4, no request may be made under this Section 4 within 90 days after the
effective date of a registration statement filed by the Company covering a firm
commitment underwritten public offering in which the holders of Restricted Stock
shall have been entitled to join pursuant to Sections 5 or 6 and in which there
shall have been effectively registered all shares of Restricted Stock as to
which registration shall have been requested.
(c) Further notwithstanding anything to the contrary contained in
this Section 4, if the Company shall furnish to the holders of Restricted Stock
requesting any registration pursuant to this Section 4 a certificate signed by
the President of the Company stating that, in the judgment of the Board of
Directors of the Company, it would be detrimental to the Company or its
shareholders for a registration statement to be filed in the near future, the
Company's obligation to effect such a registration shall be deferred for a
period not to exceed 90 days from the date of receipt by the Company of such
holders, request.
(d) Following receipt of any notice under this Section 4, the Company
shall immediately notify all holders of Restricted Stock from whom notice has
not been received, and such holders shall be entitled within 30 days thereafter
to request the Company to include in the requested registration all or any
portion of their shares of Restricted Stock. The Company shall use its best
efforts to register under the Securities Act, for public sale in accordance with
the method of disposition specified in the notice from requesting holders, the
number of shares of Restricted Stock specified in such notice (and in all
notices received by the Company from other holders within 30 days after the
giving of such notice by the Company). If such method of disposition shall be
an underwritten public offering, the holders of a majority of the shares of
Restricted Stock to be sold in such offering may designate the managing
underwriter of such offering, subject to the approval of the Company, which
approval shall not be unreasonably withheld or delayed.
(e) The Company shall be obligated to register Restricted Stock
pursuant to this Section 4, on only two (2) occasions; Provided, however, that
such obligation shall be deemed satisfied only when a registration statement
covering all shares of Restricted Stock specified in notices received as
aforesaid, for sale in accordance with the method of disposition specified by
the requesting holders shall have become effective and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto.
(f) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, except as and to the extent that, in
the opinion of the managing underwriter (if such method of disposition shall be
an underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold.
(g) Except for registration statements on Forms S-4, S-8 or any
successor forms thereto, and unless the Company has previously given the notice
referred to in Section 5, the Company will not file with the Commission any
other registration statement with respect to
5
<PAGE>
its Common Stock, whether for its own account or that of other stockholders,
from the date of receipt of a notice from requesting holders pursuant to this
Section 4 until the completion of the period of distribution of the registration
contemplated thereby.
5. INCIDENTAL REGISTRATION.
(a) If the Company at any time (other than pursuant to Section 4 or
Section 6) proposes to register any of its securities under the Securities Act
for sale to the public, whether for its own account or for the account of other
security holders or both (except with respect to registration statements on
Forms S-4, S-8 or any successor forms thereto), each such time it will give
written notice to all holders of outstanding Restricted Stock of its intention
so to do. Upon the written request of any such holder, received by the Company
within 30 days after the giving of any such notice by the Company, to register
any of its Restricted Stock (which request shall state the intended method of
disposition thereof), the Company will use its best efforts to cause the
Restricted Stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent required to permit the sale or
other disposition by the holder (in accordance with its written request) of such
Restricted Stock so registered.
(b) If any registration pursuant to this Section 5 shall be, in whole
or in part, an underwritten public offering of Common Stock, the number of
shares of Restricted Stock to be included in such an underwriting may be reduced
as follows: first from the Founder Shares, and then pro rata among the other
requesting holders based upon the number of shares of Restricted Stock owned by
such holders if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; provided, however, that such
number of shares of Restricted Stock shall not be reduced if any shares are to
be included in such underwriting for the account of any person other than the
Company or requesting holders of Restricted Stock, and provided further that in
no event shall less than one-third of the total number of shares of Common Stock
to be included in such an underwriting be made available for shares of
Restricted Stock.
(c) Notwithstanding the foregoing provisions of this Section 5, the
Company may withdraw any registration statement referred to in this Section 5
without thereby incurring any liability to the holders of Restricted Stock.
6. REGISTRATION ON FORM S-3.
(a) If at any time (i) a holder or holders of Restricted Stock
request that the Company file a registration-statement on Form S-3 or any
successor thereto for a public offering of all or any portion of the shares of
Restricted Stock held by such requesting holder or holders, the reasonably
anticipated aggregate price to the public of which would exceed $500,000, and
(ii) the Company is a registrant entitled to use Form S-3 or any successor
thereto to register such shares, then the Company shall use its best efforts to
register under the Securities Act on Form S-3 or any successor thereto, for
public sale in accordance with the method of disposition specified in such
notice, the number of shares of Restricted Stock specified in such notice.
6
<PAGE>
(b) Whenever the Company is required by this Section 6 to use its
best efforts to effect the registration of Restricted Stock, each of the
procedures and requirements of Section 4 (including but not limited to the
requirement that the Company notify all holders of Restricted Stock from whom
notice has not been received and provide them with the opportunity to
participate in the offering) shall apply to such registration; provided,
however, that there shall be no limitation on the number of registrations on
Form S-3 which may be requested and obtained under this Section 6; and provided
further that the requirements contained in the first sentence of Section 4(a)
shall not apply to any registration on Form S-3 which may be requested and
obtained under this Section 6.
7. OBLIGATIONS OF THE COMPANY. If and whenever the Company is required
by the provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided), except that the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended for a period not to
exceed 90 days in any 24-month period if there exists at the time material
nonpublic information relating to the Company which, in the reasonable opinion
of the Company, should not be disclosed;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 7(a) and comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such registration statement in accordance with the sellers' intended method
of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request;
PROVIDED, HOWEVER, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
7
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(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has' knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock is delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters and to such seller,
stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements contained therein) and (C) to such other
effects as reasonably may be requested by counsel for the underwriters or by
such seller or its counsel, and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
and
(h) make available for inspection by each seller of Restricted Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
For purposes of Sections 4(f), 7(a) and 7(b), the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
8
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the earlier of the sale of all Restricted Stock covered thereby and 90 days
after the effective date thereof.
8. OBLIGATIONS OF SELLING SHAREHOLDERS. In connection with each
registration hereunder, the sellers of Restricted Stock will furnish to the
Company in writing such information with respect to themselves and the proposed
distribution by them as reasonably shall be necessary to assure compliance with
federal and applicable state securities laws.
9. CERTAIN UNDERWRITING MATTERS. In connection with each registration
pursuant to Sections 4, 5 or 6 covering an underwritten public offering, the
Company and each seller agree to enter into a written agreement with the
managing underwriter selected in the manner herein provided in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
10. EXPENSES.
(a) The Company will pay all Registration Expenses in connection with
each registration statement under Sections 4, 5 and 6, including the
Registration Expenses of the
Purchaser and the Founder.
(b) All Selling Expenses in connection with each registration
statement under Sections 4, 5 or 6 shall be borne by the participating sellers
in proportion to the number of shares sold by each, or by such participating
sellers other than the Company (except to the extent the Company shall be a
seller) as they may agree.
11. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, the Company will and
hereby does indemnify and hold harmless each seller of such Restricted Stock
thereunder, each underwriter of such Restricted Stock thereunder and each other
person, if any, who controls such seller or underwriter within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Restricted Stock was
registered under the Securities Act pursuant to Sections 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
such seller, each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement
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or omission or alleged omission so made in conformity with information furnished
by any such seller, any such underwriter or any such controlling person in
writing specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each other seller of
Restricted Stock, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
other seller, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Restricted Stock was registered
under the Securities Act pursuant to Sections 4, 5 or 6, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such officer, director, other seller, underwriter and controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, frnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus, and
provided further that the liability of each seller hereunder shall not apply to
amounts paid in settlement without such seller's prior written consent. Not in
limitation of the foregoing, it is hereby understood and agreed that the
indemnification obligations of any seller hereunder pursuant to any underwriting
agreement entered into in connection herewith shall be limited to the
obligations contained in this Section 11(b).
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 11 and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11 if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11 for any legal expenses subsequently
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incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select a separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
expenses and fees of such separate counsel nd other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 11 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 11 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
11; then, and in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
12. CHANGES IN COMMON STOCK OR PREFERRED STOCK. If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
13. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
after 90 days after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
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(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon request
a written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Restricted Stock without
registration.
14. TRANSFERABILITY OF REGISTRATION RIGHTS. The rights conferred herein
on the holders of Preferred Shares or Conversion Shares shall only inure to the
benefit of a transferee of Preferred Shares or Conversion Shares if (i) there is
transferred to such transferee at least 10,000 of the Preferred Shares or
Conversion Shares or (ii) such transferee is a partner of the transferor (in the
case of a transferor that is a partnership) or such transferee is a shareholder,
parent corporation, subsidiary corporation or a corporation which is under
common control with a transferor (in the case of a transferor that is a
corporation).
15. "MARKET STAND-OFF" AGREEMENT. If requested in writing by the
underwriters for the Company's Initial Public Offering, each holder of
Restricted Stock who is a party to this Agreement shall agree not to sell
publicly any shares of Restricted Stock or any other shares of Common Stock
(other than shares of Restricted Stock or other shares of Common Stock being
registered in such offering), without the consent of such underwriters, for a
period of not more than 90 days following the effective date of the registration
statement relating to such offering; PROVIDED, HOWEVER, that all persons
entitled to registration rig respect to shares of Common Stock whether or not
they are parties to this Agreement, all other persons selling shares of Common
Stock in such offering and all executive officers and directors of the Company
shall also have agreed not to sell publicly their Common Stock under the
circumstances and pursuant to the terms set forth in this Section 15.
16. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Purchaser as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Certificate of Incorporation or By-laws of the Company or any
provision of any indenture, agreement or other instrument to which it or any or
its properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
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17. MISCELLANEOUS.
(a) BINDING EFFECT; ASSIGNMENT. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto (including without limitation transferees of any Preferred Shares
or Conversion Shares), whether so expressed or not.
(b) NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be mailed by certified or
registered mail, return receipt requested, postage prepaid, or telexed, in the
case of non-U.S. residents, addressed as follows:
- if to the Company or any other party hereto, at the address
of such party set forth in the Purchase Agreement;
- if to any subsequent holder of Preferred Shares or
Restricted Stock, to it at such address as may have been
furnished to the Company in writing by such holder;
in any case, at such other address or addresses as shall have been furnished in
writing to the Company (in the case of a holder of Preferred Shares or
Restricted Stock) or to the holders of Preferred Shares or Restricted Stock (in
the case of the Company) in accordance with the provisions of this paragraph.
(c) NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
(d) AMENDMENTS, WAIVERS AND CONSENTS. This Agreement may not be
amended or modified, and no provision hereof may be waived, without the written
consent of the Company and the holders of at least a majority of the outstanding
shares of Restricted Stock.
(e) TERMINATION. The obligations of the Company to register shares
of Restricted Stock under Sections 4, 5 or 6 shall terminate on the tenth
anniversary of the completion of an underwritten public offering of shares of
Common Stock in which the net proceeds to the Company shall be at least
$10,000,000.
(f) LIMITATION ON GRANT OF OTHER REGISTRATION RIGHTS. The Company
shall not grant any registration rights more favorable than any of those
contained herein, so long as any of the registration rights under this Agreement
remains in effect.
(g) SEVERABILITY. If any provision of this Agreement shall be held
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such
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provision and shall not in any manner affect or render illegal, invalid or
unenforceable any other provision of this Agreement, and this Agreement shall be
carried out as if any such illegal, invalid or unenforceable provision were not
contained herein.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE AS TO MATTERS WITHIN THE SCOPE THEREOF AND AS TO ALL OTHER MATTERS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF THE CONFLICTS OF LAWS THEREOF.
(i) INJUNCTIVE RELIEF. The Company recognizes that the rights of the
Purchasers under this Agreement are unique and, accordingly, the Purchasers
shall, in addition to such other remedies as may be available to them at law or
in equity, have the right to enforce their rights hereunder by actions for
injunctive relief and specific performance to the extent permitted by law. This
Agreement is not intended to limit or abridge any rights of the Purchasers which
may exist apart from this Agreement.
(j) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[The Remainder of This Page Intentionally Left Blank.]
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
NEON SYSTEMS, INC.
By:_____________________________
Peter Schaeffer
President
Address: 6464 Savoy Drive
Suite 4141
Houston, Texas 77063
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.
Its General Partner
By:_____________________________
Charles E. Noell
A General Partner
Address: 14141 Southwest Freeway
Suite 6200
Sugar Land, Texas 77478
_____________________________________
Peter Schaeffer
Address:_____________________________
_____________________________
15
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EXHIBIT B
1
<PAGE>
EXHIBIT B
STOCK RESTRICTION AGREEMENT
This Stock Restriction Agreement dated as of May 19, 1993 (the "AGREEMENT")
by and among NEON Systems, Inc., a Delaware corporation (the "COMPANY"), Peter
Schaeffer (the "STOCKHOLDER"), and JMI Equity Fund, L.P., a Delaware limited
partnership ("JMI"):
WITNESSETH:
WHEREAS, the Stockholder is the holder of an aggregate of __________ shares
of Common Stock, par value $.01 per share, of the Company (the "COMMON STOCK");
WHEREAS, pursuant to the terms of a Series A Stock Purchase Agreement dated
the date hereof between the Company and JMI (the "PURCHASE AGREEMENT"), JMI is
acquiring an aggregate of 500,000 shares (the "PREFERRED SHARES") of Series A
Convertible Preferred Stock, par value $.01 per share (the "PREFERRED STOCK"),
of the Company; and
WHEREAS, it is a condition to the obligations of JMI under the Purchase
Agreement that this Agreement be entered into by the parties hereto, and the
parties desire to enter into this Agreement and to be bound by the provisions
hereof;
NOW, THEREFORE, in consideration of these premises and the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "INVESTOR" or "INVESTORS" shall mean and include JMI, (ii) any
partner, shareholder or affiliate of JMI who is a subsequent owner of the
Preferred Shares and (iii) any other subsequent owner of the Preferred Shares to
whom JMI shall transfer its rights hereunder pursuant to Section 6;
(b) "OFFER" shall have the meaning set forth in Section 3(a).
(c) "OFFERED SHARES" shall have the meaning set forth in Section
3(a).
(d) "PRO RATA FRACTION" shall mean the amount of Offered Shares that
each Investor is entitled to purchase under Section 3(b).
(e) "PROPOSED TRANSFEREE" shall have the meaning set forth in Section
3(a).
(f) "PURCHASER" shall have the meaning set forth in Section 4.
2
<PAGE>
(g) "SHARES" shall mean and include all shares of Stock now owned or
hereafter acquired by either (i) the Stockholder or (ii) any Investor. For
purposes of Sections 3, 4 and 10, all of the Stock which an Investor has the
right to acquire from the Company upon the conversion, exercise or exchange of
any of the securities of the Company then owned by such Investor shall be deemed
to be Shares then owned by such Investor.
(h) "STOCK" shall mean and include all shares of Common Stock, and
all other securities of the Company which may be issued in exchange for or in
respect of shares of Common Stock (whether by way of stock split, stock
dividend, combination, reclassification, reorganization, or any other means).
2. PROHIBITED TRANSFERS. The Stockholder shall not sell, assign,
transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose of all or
any of his Shares except to the Company or as expressly provided in this
Agreement. Notwithstanding the foregoing, the Stockholder may transfer all or
any of his Shares (i) by way of gift to any member of his family or to any trust
for the benefit of any such family member or the Stockholder, provided that any
such transferee shall agree in writing with the Company and the Investor, as a
condition to such transfer, to be bound by all of the provisions of this
Agreement to the same extent as if such transferee were the Stockholder, or (ii)
by will or the laws of descent and distribution, in which event each such
transferee shall be bound by all of the provisions of this Agreement to the same
extent as if such transferee were the Stockholder. As used herein, the word
"family" shall include any spouse, lineal ancestor or descendant, brother or
sister.
3A. RIGHT OF FIRST REFUSAL ON DISPOSITIONS.
(a) If at any time the Stockholder desires to sell for cash all or
any part of his Shares pursuant to a bona fide offer from a third party (the
"PROPOSED TRANSFEREE"), the Stockholder shall submit a written offer (the
"OFFER") to sell such Shares (the "OFFERED SHARES") to the Investors on terms
and conditions, including price, not less favorable to the Investors than those
on which the Stockholder proposes to sell such Offered Shares to the Proposed
Transferee. The Offer shall disclose the identity of the Proposed Transferee,
the Offered Shares proposed to be sold, the total number of Shares owned by the
Stockholder, the terms and conditions, including price, of the proposed sale,
and any other material facts relating to the proposed sale. The offer shall
further state that the Investors may acquire, in accordance with the provisions
of this Agreement, all or any portion of the Offered Shares for the price and
upon the other terms and conditions, including deferred payment (if applicable),
set forth therein.
(b) Each Investor shall have the absolute right to purchase that
number of Offered Shares as shall be equal to the number of Offered Shares
multiplied by a fraction (the "PRO RATA FRACTION"), the numerator of which shall
be the number of Shares' then owned by such Investor and the denominator of
which shall be the aggregate number of Shares then owned by all of the
Investors.
(c) Each Investor shall have a right of oversubscription such that if
any Investor fails to accept the Offer as to its Pro Rata Fraction, the other
Investors shall, among them,' have the right to purchase up to the balance of
the Offered Shares not so purchased. Such
3
<PAGE>
right of oversubscription may be exercised by an Investor by accepting the offer
as to more than its Pro Rata Fraction. If, as a result thereof, such
oversubscriptions exceed the total number of Offered Shares available in respect
of such oversubscription privilege, the oversubscribing Investors shall be cut
back with respect to their oversubscriptions on a pro rata basis in accordance
with their respective Pro Rata Fractions or as they may otherwise agree among
themselves.
(d) If an Investor desires to purchase all or any part of the Offered
Shares, said Investor shall communicate in writing its election to purchase to
the Stockholder, which communication shall state the number of Offered Shares
said Investor desires to purchase and shall be given to the Stockholder in
accordance with Section 10 below within thirty (30) days of the date the Offer
was made. Such communication shall, when taken in conjunction with the Offer,
be deemed to constitute a valid, legally binding and enforceable agreement for
the sale and purchase of such Offered Shares (subject to the aforesaid
limitations as to an Investor's right to purchase more than its Pro Rata
Fraction). Sales of the Offered Shares to be sold to purchasing Investor
pursuant to this Section 3A shall be made at the offices of the Company on the
45th day following the date the Offer was made (or if such 45th day is not a
business day, then on the next succeeding business day). Such sales shall be
effected by the Stockholder's delivery to each purchasing Investor of a
certificate or certificates evidencing the Offered Shares to be purchased by it,
duly endorsed for transfer to such purchasing Investor, against payment to the
Stockholder of the purchase price therefor by such purchasing Investor.
(e) If the Investors do not purchase all of the Offered Shares, the
Offered Shares not so purchased may be sold by the Stockholder at any time
within ninety (90) days after the date the Offer was made, subject to the
provisions of Section 4. Any such sale shall be to the Proposed Transferee, at
not less than the price and upon other terms and conditions, if any, not more
favorable to the Proposed Transferee than those specified in the Offer. Any
Offered Shares not sold within such 90-day period shall continue to be subject
to the requirements of a prior offer pursuant to this Section 3A. If Offered
Shares are sold pursuant to this Section 3A to any purchaser who is not a party
to this Agreement, the Offered Shares so sold shall no longer be subject to this
Agreement.
(f) The Investors' right of first refusal provided in this Section 3A
shall not apply with respect to sales of Shares to the Company.
3B. RIGHT OF FIRST REFUSAL ON DISPOSITIONS.
(a) If at any time the Investors desire to sell for cash all or any
part of his Shares pursuant to a bona fide offer from a third party (the
"PROPOSED TRANSFEREE"), the Investors shall submit a written offer (the "OFFER")
to sell such Shares (the "OFFERED SHARES") to the Stockholder on terms and
conditions, including price, not less favorable to the Stockholder than those on
which the Investors propose to sell such Offered Shares to the Proposed
Transferee. The Offer shall disclose the identity of the Proposed Transferee,
the Offered Shares proposed to be sold, the total number of Shares owned by the
Investors, the terms and conditions, including price, of the proposed sale, and
any other material facts relating to the proposed sale. The Offer shall further
state that the Stockholder may acquire, in accordance with the provisions of
this
4
<PAGE>
Agreement, all or any portion of the Offered Shares for the price and upon the
other terms and conditions, including deferred payment (if applicable), set
forth therein.
(b) Each Stockholder shall have the absolute right to purchase that
number of Offered Shares as shall be equal to the number of Offered Shares
multiplied by a fraction (the "PRO RATA FRACTION"), the numerator of which shall
be the number of Shares then owned by such Stockholder and the denominator of
which shall be the aggregate number of Shares then owned by all of the
Stockholders.
(c) Each Stockholder shall have a right of oversubscription such that
if any Stockholder fails to accept the Offer as to its Pro Rata Fraction, the
other Stockholders shall, among them, have the right to purchase up to the
balance of the Offered Shares not so purchased. Such right of oversubscription
may be exercised by a Stockholder by accepting the Offer as to more than its Pro
Rata Fraction. If, as a result thereof, such oversubscriptions exceed the total
number of Offered Shares available in respect of such oversubscription
privilege, the oversubscribing Stockholders shall be cut back with respect to
their oversubscriptions on a pro rata basis in accordance with their respective
Pro Rata Fractions or as they may otherwise agree among themselves.
(d) If a Stockholder desires to purchase all or any part of the
Offered Shares, said Stockholder shall communicate in writing its election to
purchase to the Investors, which communication shall state the number of Offered
Shares said Stockholder desires to purchase and shall be given to the Investors
in accordance with Section 10 below within thirty (30) days of the date the
Offer was made. Such communication shall, when taken in conjunction with the
Offer, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale and purchase of such Offered Shares (subject to the
aforesaid limitations as to a Stockholder's right to purchase more than its Pro
Rata Fraction). Sales of the Offered Shares to be sold to purchasing
Stockholder pursuant to this Section 3B shall be made at the offices of the
Company on the 45th day following the date the Offer was made (or if such 45th
day is not a business day, then on the next succeeding business day). 'Such
sales shall be effected by the Investors' delivery to each purchasing
Stockholder of a certificate or certificates evidencing the Offered Shares to be
purchased by it, duly endorsed for transfer to such purchasing Stockholder,
against payment to the Investors of the purchase price therefor by such
purchasing Stockholder.
(e) If the Stockholder does not purchase all of the Offered Shares,
the Offered Shares not so purchased may be sold by the Investors at any time
within ninety (90) days after the date the Offer was made, subject to the
provisions of Section 4. Any such sale shall be to the Proposed Transferee, at
not less than the price and upon other terms and conditions, if any, not more
favorable to the Proposed Transferee than those specified in the Offer. Any
Offered Shares not sold within such 90-day period shall continue to be subject
to the requirements of a prior offer pursuant to this Section 3B. If Offered
Shares are sold pursuant to this Section 3B to any purchaser who is not a party
to this Agreement, the Offered Shares so sold shall no longer be subject to this
Agreement.
(f) The Stockholder's right of first refusal provided in this Section
3B shall not apply with respect to sales of Shares to the Company.
5
<PAGE>
4. RIGHT OF PARTICIPATION IN SALES.
(a) If at any time the Stockholder desires to sell for cash all or
any part of the Shares owned by him to any person or entity other than one or
more of the Investors (the "NON-INVESTOR PURCHASER"), each of the Stockholders
shall have the right to sell to the Non-Investor Purchaser, as a condition to
such sale by the Stockholder, at the same price per share and on the same terms
and conditions as involved in such sale by the Stockholder, the same percentage
of the Shares owned by such Investor as the Shares to be sold by the Stockholder
to the Non-Investor Purchaser represents with respect to the Shares owned by the
Stockholder immediately prior to the sale of any of his Shares to the
Non-Investor Purchaser.
(b) Each Investor wishing to so participate in any sale under this
Section 4 shall notify the Stockholder in writing of such intention as soon as
practicable after such Investor's receipt of the Offer made pursuant to Section
3, and in any event within twenty (20) days after the date the Offer was made.
Such notification shall be given to such Stockholder in accordance with Section
10.
(c) The Stockholder and each participating Investor shall sell to the
Non-Investor Purchaser all, or at the option of the Non-Investor Purchaser, any
part of the Shares proposed to be sold by them at not less than the price and
upon other terms and conditions, if any, not more favorable to the Non-Investor
Purchaser than those in the offer provided by the Stockholder under Section 3;
PROVIDED, HOWEVER, that any purchase of less than all of such Shares by the
Non-Investor Purchaser shall be made from the Stockholder and each participating
Investor pro rata based upon the relative amount of the Shares that the
Stockholder and each participating Investor is otherwise entitled to sell
pursuant to Section 4(a).
(d) Any Shares sold by the Stockholder or a participating Investor
pursuant to this Section 4 shall no longer be subject to this Agreement.
(e) The Investor's right to participate in sales pursuant to this
Section 4 shall not apply with respect to sales of Shares to the Company.
5. TERM. This Agreement shall terminate upon the earlier of (a) the date
of the consummation of the first firm commitment underwritten public offering
pursuant to an effective registration statement on Form S-1 (or its then
equivalent) under the Securities Act of 1933, as amended, pursuant to which the
net proceeds to the Company amount to at least $10,000,000 or (b) the seventh
anniversary of the date of this Agreement.
6. FAILURE TO DELIVER SHARES. If the Stockholder becomes obligated to
sell any Shares to an Investor under this Agreement and fails to deliver such
Shares in accordance with the terms of this Agreement, such Investor may, at its
option, in addition to all other remedies it may have, send to the Stockholder
the purchase price for such Shares as is herein specified. Thereupon, the
Company upon written notice to the Stockholder, (a) shall cancel on its books
the certificate or certificates representing the Shares to be sold and (b) shall
issue, in lieu thereof, in the name of
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<PAGE>
such Investor a new certificate or certificates representing such Shares, and
thereupon all of the Stockholder's rights in and to such Shares shall terminate.
7. PUT RIGHT. In the event of any sale, transfer, assignment or other
disposition of any capital stock of the Company by a Stockholder in violation of
any provision of this Agreement, each Investor shall each have the right to
elect to cause such Stockholder to purchase, and such Stockholder shall be
obligated to purchase, from such Investor, at the same price per share and on
the same terms and conditions as involved in such sale by the Stockholder, such
number of shares of capital stock (calculated on a fully-diluted basis) equal to
the number of shares sold by such Stockholder multiplied by a fraction, the
numerator of which is the aggregate number of shares of capital stock owned by
any particular Investor desiring to sell shares to such Stockholder under this
Section 8 (calculated on a fully-diluted basis) and the denominator of which is
the sum of all shares of capital stock owned by all Investors desiring to sell
shares to such Stockholder under this Section 8 (calculated on a fully-diluted
basis).
8. TRANSFER OF RIGHTS. Rights conferred herein on JMI shall only inure
to the benefit of a transferee of Preferred Shares if (a) the transferee is a
partner, shareholder or affiliate of JMI or (b) JMI assigns its rights hereunder
to any other transferee by a written instrument pursuant to which such
transferee agrees to be bound by the terms of this Agreement.
9. SPECIFIC ENFORCEMENT. The Stockholder expressly agrees that each
Investor and the Company will be irreparably damaged if this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by the Stockholder, any Investor
and the Company shall, in addition to all other remedies, each be entitled to a
temporary or permanent injunction, without showing any actual damage, and/or a
decree for specific performance, in accordance with the provisions hereof.
10. LEGEND. Each certificate evidencing any of the Shares shall bear a
legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER AND MAY NOT BE SOLD, EXCHANGED,.TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH AND
SUBJECT TO ALL THE TERMS AND CONDITIONS OF A CERTAIN STOCK RESTRICTION
AGREEMENT BY AND AMONG THE COMPANY, THE HOLDER OF THIS CERTIFICATE AND
CERTAIN OTHER STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH THE COMPANY
WILL FURNISH TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND
WITHOUT CHARGE.
11. NOTICES. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery, on the date of postmark if mailed by
certified or registered mail, return receipt requested, or on the date sent by
telecopier or telex to the party being notified at his or its address specified
on the applicable signature page hereto or such other address as the addressee
may subsequently notify the other parties of in writing.
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12. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provisions hereof may be waived, modified,
amended or terminated except by a written agreement signed by the parties
hereto; PROVIDED, HOWEVER, that Investors owning at least two-thirds of the
Shares owned by all Investors may effect any such waiver, modification,
amendment or termination on behalf of all of the Investors. To the extent any
term or other provision of any other indenture, agreement or instrument by which
any party hereto is bound conflicts with this Agreement, this Agreement shall
have precedence over such conflicting term or provisions.
13. GOVERNING LAW; SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE AS TO MATTERS WITHIN THE SCOPE THEREOF
AND AS TO ALL OTHER MATTERS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
THE CONFLICTS OF LAWS THEREOF. THIS AGREEMENT SHALL BE BINDING UPON THE HEIRS,
PERSONAL REPRESENTATIVES, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS OF
THE PARTIES.
14. WAIVERS. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
15. SEVERABILITY. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
16. CAPTIONS. Captions are for convenience only and are not deemed to be
part of this Agreement.
17. CONTINUATION OF EMPLOYMENT. Nothing in this Agreement shall create
an obligation on the Company or any Investor to continue the Stockholder's
employment with the Company.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
NEON SYSTEMS, INC.
By:___________________________________
Peter Schaeffer
President
Address: 6464 Savoy Drive
Suite 4141
Houston, Texas 77063
_______________________________________
Peter Schaeffer
Address:_______________________________
_______________________________________
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.
Its General Partner
By:______________________________
Charles E. Noell
A General Partner
Address: 14141 Southwest Freeway
Suite 6200
Sugar Land, Texas 77478
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EXHIBIT C
1
<PAGE>
EXHIBIT C
STOCKHOLDERS AGREEMENT
This Stockholders Agreement dated as of May 19, 1993 (the "AGREEMENT") by
and among NEON Systems, Inc., a Delaware corporation (the "COMPANY"), JMI Equity
Fund, L.P., a Delaware limited partnership (the "PURCHASER"), and Peter
Schaeffer (the "STOCKHOLDER"):
WITNESSETH:
WHEREAS, the Stockholder owns certain outstanding shares of the Common
Stock, par value $.01 per share (the "COMMON STOCK"), of the Company;
WHEREAS, pursuant to the Series A Stock Purchase Agreement of even date
herewith (the "PURCHASE AGREEMENT"), the Purchaser is purchasing on the Closing
Date (as defined in the Purchase Agreement) an aggregate of 500,000 shares (the
"PREFERRED SHARES") of Series A Convertible Preferred Stock, par value $.01 per
share (the "PREFERRED STOCK"), of the Company; and
WHEREAS, the Purchaser and the Stockholder wish to provide for certain tax
and other matters and for their continuing representation on the Board of
Directors of the Company in the manner set forth below;
NOW THEREFORE, in consideration of these premises and the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. S CORPORATION STATUS.
(a) The term "TAXES" as used herein means all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs duties, or other taxes, fees, assessments or
other governmental charges of any kind whatever, together with any interest and
any penalties, additions to tax or additional amounts with respect thereto, and
the term "TAX" means any one of the foregoing taxes. The term "RETURNS" as used
herein, means all returns, declarations, reports, statements and other documents
required to be filed in respect of taxes, and "RETURN" means any one of the
foregoing returns.
(b) The Stockholder, represents and warrants to the Purchaser that:
(i) the Company and its stockholders, including the Stockholder, have made a
valid election for the Company to be treated as an "S corporation," as that term
is defined in Section 1361(a) of the Internal Revenue Code of 1986, as amended
(the "CODE"), and at all times after such election the Company has qualified as
an S corporation; (ii) the Stockholder has timely filed all returns with respect
to S corporation taxes required to be filed through the date hereof, and paid
all taxes
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required to be paid with respect to such filed returns; (iii) there has not been
any audit of any return filed by the Stockholder with respect to, or which may
relate to, such S corporation tax liabilities; and (iv) no such audit of the
Stockholder is in progress and the Stockholder has not been notified by any tax
authority that any such audit is contemplated or pending..
c) The Stockholder shall not take any action that would make, or
would result in, the S corporation election of the Company becoming ineffective,
except for the transfer of the Preferred Shares at the Closing. The Stockholder
shall prepare and timely file, in a manner consistent with prior years, when due
all returns with respect to the short tax year from January 1, 1992 to and
including the Closing Date and shall timely pay any taxes and estimated taxes,
required to be paid by such Stockholder (including without limitation pursuant
to Section 6655 of the Code) after the date hereof.
(d) If it is determined, either (i) by a finding or order in
connection with any government or judicial audit or proceeding to which any
stockholder of the Company., including the Stockholder, is a party or (ii) by
the Company's independent public accountants that the Company's S corporation
election pursuant to Section 1362 of the Code was not validly in effect for any
period after such election was purportedly made, the Stockholder shall promptly
remit to the Company in cash, any tax liability (including any penalties,
additions to tax or interest assessed with respect thereto) of the Company in
connection with any taxes which may be imposed on the Company as a result of
such invalid election.
(e) Notwithstanding anything to the contrary contained in this
Agreement, the provisions of this Section 1 shall survive until the applicable
statutes of limitations with respect to any taxes contemplated hereby shall have
expired.
2. VOTING OF SHARES. In any and all elections of directors of the
Company (whether at a meeting or by written consent in lieu of a meeting), the
Purchaser and the Stockholder shall vote or cause to be voted all Shares (as
defined below) owned by him, or over which he has voting control, and otherwise
use his or its respective best efforts, so as to fix the number of directors of
the Company at five (5) and to elect (i) up to two (2) members designated by the
Purchaser, who shall be elected by the holders of the Preferred Shares, (ii) up
to two (2) members designated by the Stockholder, who shall be elected by the
holders of the Common Stock, and (iii) one (1) member designated jointly by the
Purchaser and the Stockholder, who shall not be an affiliate of the Purchaser or
of the Stockholder and who shall be elected by the holders of the Preferred
Stock and the Common Stock, voting together as a single class (the "INDEPENDENT
NOMINEE"). "SHARES" shall mean and include any and all shares of Common Stock
and/or shares of capital stock of the Company, by whatever name called, which
carry voting rights (including voting rights which arise by reason of default)
and shall include any shares now owned or subsequently acquired by the Purchaser
or the Stockholder, however acquired, including without limitation stock splits
and stock dividends.
3. TERMINATION. This Agreement shall terminate in its entirety on the
earliest of (a) the seventh anniversary of the date of this Agreement, or (b)
the closing of the Company's initial public offering of shares of Common Stock
pursuant to an effective registration statement under
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the Securities Act of 1933, as amended (the "Act"), resulting in at least
$10,000,000 of net proceeds to the Company.
4. NO REVOCATION. The voting agreements contained herein are coupled
with an interest and may not be revoked, except by written consent of the
Purchaser and the Stockholder.
5. INDEMNIFICATION. In the event that any director elected pursuant to
Section 2 of this Agreement shall be made or threatened to be made a party to
any action, suit or proceeding with respect to which he may be entitled to
indemnification by the Company pursuant to its certificate of incorporation or
bylaws, or otherwise, he shall be entitled to be represented in such action,
suit or proceeding by counsel of his choice and the reasonable expenses of such
representation shall be reimbursed by the Company to the extent provided in or
authorized by said certificate of incorporation or by-laws. The Purchaser and
the Stockholder shall not take any action to amend any provisions of the
certificate of incorporation or by by-laws of the Company relating to
indemnification of directors, as presently in effect, without the prior written
consent of the Purchaser and the Stockholder.
6. RESTRICTIVE LEGEND. All certificates representing Shares owned or
hereafter acquired by the Stockholder or any transferee of the Stockholder bound
by this Agreement shall have affixed thereto a legend substantially in the
following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN VOTING AGREEMENTS AS SET FORTH IN A STOCKHOLDERS AGREEMENT BY
AND AMONG THE REGISTERED OWNER OF THIS CERTIFICATE, THE COMPANY AND
CERTAIN OTHER STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE OFFICERS OF THE SECRETARY OF THE
COMPANY.
7. SUCCESSORS AND ASSIGNS. This Agreement and the rights and obligations
of the Purchaser hereunder may be assigned by the Purchaser to any person or
entity to which Shares are transferred by the Purchaser, and such transferee
shall be deemed a "Purchaser" for purposes of this Agreement; PROVIDED that the
transferee provides prior written notice of such assignment to the Company.
Notwithstanding the foregoing, the Purchaser shall remain subject to the terms
and conditions of this Agreement with respect to any Preferred Shares owned by
the Purchaser following any such transfer.
8. GENERAL.
(a) SEVERABILITY. The provisions of this Agreement are severable, so
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
(b) SPECIFIC PERFORMANCE. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, the
Purchaser shall be entitled
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to specific performance of the agreements and obligations of the Company and the
Stockholder hereunder and to such other injunctive or other equitable relief as
may be granted by a court of competent jurisdiction.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE AS TO MATTERS WITHIN THE SCOPE THEREOF AND AS TO ALL OTHER MATTERS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF THE CONFLICTS OF LAWS THEREOF.
(d) NOTICES. All notices, requests, consents, and communications
under this Agreement shall be in writing and other shall be delivered by hand or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid:
- If to the Company, at 6464 Savoy Drive, Suite 4140, Houston,
Texas 77036, Attention: President, or at such other address
or addresses as may have been furnished in writing by the
Company to the Purchaser, with a copy to Curtis E. Sahakian,
Esq., 4843 Howard Street, Skokie, Illinois 60077; or
- If to the Purchaser, at 14141 Southwest Freeway, Suite 6200,
Sugar Land, Texas 77478, Attention: Charles E. Noell, or at
such address or addresses as may have been furnished to the
Company in writing by the Purchaser, with a copy to Mark H.
Burnett, Esq., Testa, Hurwitz & Thibeault, 53 State Street,
Boston, Massachusetts 02109; or
- If to the Stockholder at such address or addresses as may
have been furnished to the Company in writing by such
Stockholder.
Notices provided in accordance with this Section 9 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(e) COMPLETE AGREEMENT; AMENDMENTS. This Agreement constitutes the
full and complete agreement of the parties hereto with respect to the subject
matter hereof. No amendment, modification or termination of any provision of
this Agreement shall be valid unless in writing and signed by the Company, the
Purchaser and the holders of a majority, by voting power, of the Shares then
held by all Stockholders.
(f) PRONOUNS. Whenever the content may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute one Agreement binding on all the
parties hereto.
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(h) CAPTIONS. Captions of sections have been added only for
convenience and shall not be deemed to be a part of this Agreement.
(i) DEFINITION OF COMPANY. As used in this Agreement the term the
"Company" shall include NEON Systems, Inc., a Delaware corporation, and its
predecessor, an Illinois corporation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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NEON SYSTEMS, INC.
By:_____________________________
Peter Schaeffer
President
Address: 6464 Savoy Drive
Suite 4141
Houston, Texas 77063
_________________________________
Peter Schaeffer
Address:_________________________
_________________________
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.
Its General Partner
By:_________________________
Charles E. Noell
A General Partner
Address: 14141 Southwest Freeway
Suite 6200
Sugar Land, Texas 77478
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EXHIBIT D
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EXHIBIT D
CERTIFICATE OF INCORPORATION
OF NEON SYSTEMS, INC.
FIRST. The name of the Corporation is Neon Systems, Inc.
SECOND. The address of its registered office in the State of Delaware is
32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent,
Delaware 19901. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
THIRD. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The aggregate number of shares of capital stock which the
Corporation shall be authorized to issue is 1,500,000, of which:
(a) 1,000,000 shares shall be Common Stock, par value $.01 per share (the
"COMMON STOCK"); and
(b) 500,000 shares shall be Preferred Stock, par value $.01 per share.
The following is a statement of the designations, preferences, voting
powers, qualifications, special or relative rights and privileges. in respect of
the authorized capital stock of the Corporation:
I. PREFERRED STOCK
1. DESIQNATIONS. All of the 500,000 authorized shares of the
Corporations Preferred Stock shall be designated "Series A Convertible Preferred
Stock" (the "PREFERRED STOCK").
2. VOTING.
A. GENERAL. Except as may be otherwise provided in this certificate
of incorporation or by law, the Preferred Stock shall vote together with all
other classes and series of stock of the Corporation as a single class on all
actions to be taken by the stockholders of the Corporation. Each share of
Preferred Stock shall entitle the holder thereof to such number of votes per
share on each such action as shall equal the number of shares of Common Stock
(including fractions of a share) into which each share of Preferred Stock is
then convertible.
B. BOARD SIZE. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Preferred Stock, given in writing or by vote at a meeting,
with all series of Preferred Stock consenting or
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voting (as the case may be) together as a single class, increase the maximum
number of directors constituting the Board of Directors to a number in excess of
five.
C. BOARD SEATS. The holders of the Preferred Stock, voting as a
separate class, shall be entitled to elect up to two (2) directors of the
Corporation. The holders of the Common Stock, voting as a separate class, shall
be entitled to elect up to two (2) directors of the Corporation. The holders of
the Preferred Stock and the Common Stock, voting together as a single class,
shall be entitled to elect one (1) director of the Corporation. Notwithstanding
the anything to the contrary in this certificate of incorporation, if the
Corporation fails or refuses, for any reason or for no reason, to redeem on the
Redemption Date (as defined in paragraph 7) all of the then outstanding shares
of Preferred Stock in accordance with the terms and provisions of paragraph 7,
the holders of the Preferred Stock, voting as a separate class, shall be
entitled to elect up to four (4) directors of the Corporation, and the holders
of the Common Stock, voting as a separate class, shall be entitled to elect one
(1) director of the Corporation. At any meeting (or by written consent in lieu
thereof) held for the purpose of electing directors, the presence in person or
by proxy (or the written consent) of the holders of a majority of the shares of
Preferred Stock then outstanding shall constitute a quorum of the Preferred
Stock for the election of directors to be elected solely by the holders of the
Preferred Stock, and the presence in person or by proxy (or the written consent)
of the holders of a majority of the shares of Common Stock then outstanding
shall constitute a quorum of the Common Stock for the election of directors to
be elected solely by the holders of the Common Stock. A vacancy in any
directorship elected solely by the holders of the Preferred Stock or Common
Stock shall be filled only by vote or written consent of the holders of the
Preferred Stock or Common Stock, respectively. A vacancy in the directorship
elected jointly by the holders of the Preferred Stock and the Common Stock shall
be filled only by vote or written consent of te Preferred Stock and the Common
Stock, as provided above. Any director elected solely by the holders of the
Preferred Stock or Common Stock may be removed, with or without cause, only by
the holders of a majority of the then outstanding shares of the Preferred Stock
or Common Stock, respectively.
3. DIVIDENDS. The holders of the Preferred Stock shall be entitled to
receive, out of funds legally available therefor, when and if declared by the
Board of Directors, cumulative and accruing dividends (the "ACCRUING DIVIDENDS")
at the annual rate of $.16 per share; PROVIDED, HOWEVER, that if the Corporation
fails or refuses, for any reason or for no reason, to redeem on the Redemption
Date (as defined in paragraph 7) all of the then outstanding shares of Preferred
Stock in accordance with the terms and provisions of paragraph 7, the Accruing
Dividend on the Preferred Stock shall immediately increase to the annual rate of
$.32 per share. Accruing Dividends shall accrue from day to day on each share
of Preferred Stock from the date of original issuance of such share, whether or
not earned or declared, and until paid or forfeited as provided in this
certificate of incorporation; provided, however, that, except as provided in
paragraph 4 or 7, the Corporation shall be under no obligation to pay such
Accruing Dividends unless so declared by a vote of the Board of Directors. No
Accruing Dividend will be paid with respect to any shares of Preferred Stock
unless an Accruing Dividend is paid with respect to all shares of Preferred
Stock.
4. LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, each holder of shares of
Preferred Stock shall be entitled,
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before any distribution or payment is made upon any stock ranking on liquidation
junior to the Preferred Stock, to be paid for each share of Preferred Stock held
by such holder an amount equal to the greater of (i) the Original Issuance Price
(as hereinafter defined) for the Preferred Stock so held, plus an amount equal
to all Accruing Dividends unpaid thereon (whether or not declared) and any other
dividends declared but unpaid thereon, computed to the date payment thereof is
made available, or (ii) such amount per share as would have been payable had
each such share been converted to Common Stock pursuant to paragraph 6
immediately prior to such liquidation, dissolution or winding up, and the
holders of the Preferred Stock shall not be entitled to any further payment
(such amount payable with respect to one share of Preferred Stock
being-sometimes referred to as the "LIQUIDATION PAYMENT" and with respect to all
shares of Preferred Stock being sometimes referred to as the "LIQUIDATION
PAYMENTS"). The "ORIGINAL ISSUANCE PRICE" for the Preferred Stock shall be
$2.00 per share. It upon such liquidation, dissolution or winding up of the
Corporation, the assets to be distributed among the holders of the Preferred
Stock shall be insufficient to permit payment to the holders of the Preferred
Stock of the amount distributable as aforesaid, then the entire assets of the
Corporation to be so distributed shall be distributed ratably among the holders
of the Preferred Stock. Upon any such liquidation, dissolution or winding up of
the Corporation, after the holders of the Preferred Stock shall have been paid
in full the amounts to which they shall be entitled, the remaining net assets of
the Corporation may be distributed to the holders of stock ranking on
liquidation junior to the Preferred Stock. Written notice of such liquidation,
dissolution or winding up, stating a payment date, the amount of the Liquidation
Payments and the place where said Liquidation Payments shall be payable, shall
be delivered in person, mailed by certified or registered mail, return receipt
requested, or sent by facsimile, telecopier or telex, not less than 20 days
prior to the payment date stated therein, to the holders of record of the
Preferred Stock, such notice to be addressed to each such holder at its address
as shown by the records of the Corporation. ' The consolidation or merger of
the Corporation into or with-any other entity or entities which results in the
exchange of outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by any such entity
or affiliate thereof (other than a merger solely to reincorporate the
Corporation in a different jurisdiction), the reorganization or reclassification
of the capital stock of the Corporation, and the sale, transfer or other
disposition by the Corporation of all or substantially all its assets, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of the provisions of this paragraph 4; PROVIDED, HOWEVER, that each
holder of shares of Preferred Stock shall have the right to elect the benefits
of paragraph 6F in lieu of receiving Liquidation Payments pursuant to this
paragraph 4. For purposes hereof, the Common Stock shall rank on liquidation
junior to the Preferred Stock.
5. RESTRICTIONS. At any time when shares of Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by this
certificate of incorporation, and in addition to any other vote required by law
or this certificate of incorporation, without the approval of the holders of at
least two-thirds of the then outstanding shares of Preferred Stock, given in
writing or by vote at a meeting, with all series of Preferred Stock consenting
or voting (as the case may be) together as a single class, the Corporation will
not:
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A. Amend, alter or repeal this certificate of incorporation or the
Corporation's by-laws;
B. Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of stock other than the
Preferred Stock, except for (i) dividends or other distributions payable on the
Common Stock solely in the form of additional shares of Common Stock; and (ii)
the purchase of shares of Common Stock from former employees of the Corporation
who acquired such shares directly from the Corporation, if each such purchase is
made pursuant to contractual rights held by the Corporation relating to the
termination of employment of such former employee and the purchase price does
not exceed the original issue price paid by such former employee to the
Corporation for such shares;
C. Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the Preferred Stock as
to the distribution of assets on the liquidation, dissolution or winding up of
the Corporation, or increase the authorized amount of the Preferred Stock or
increase the authorized amount of any additional class or series of shares of
stock unless the same ranks junior to the Preferred Stock as to the distribution
of assets on the liquidation, dissolution or winding up of the Corporation, or
create or authorize any obligation or security convertible into shares of
Preferred Stock or into shares of any other class or series of stock unless the
same ranks junior to the Preferred Stock as to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, whether any such
creation, authorization or increase shall be by means of amendment to this
certificate of incorporation or by . merger, consolidation or otherwise;
D. Redeem or otherwise acquire any shares of Preferred Stock except
as expressly authorized in paragraph 7 or pursuant to a purchase offer made pro
rata to all holders of the shares of Preferred Stock on the basis of the
aggregate number of outstanding shares of Preferred Stock then held by each such
holder;
E. Amend, alter or repeal the designations or the powers,
preferences or rights, privileges or restrictions of the Preferred Stock; or
F. Consent to any liquidation, dissolution of winding up of the
Corporation, or consolidate or merge into or with any other entity or entities
or sell, lease, abandon, transfer or otherwise dispose of all or substantially
all of its assets.
6. CONVERSIONS. The holders of shares of Preferred Stock shall have the
following conversion rights:
A. RIGHT TO CONVERT. Subject to the terms and conditions of this
paragraph 6, the holder of any share or shares of Preferred Stock shall have the
right, at its option at any time, to convert any such shares of Preferred Stock
(except that upon any liquidation of the Corporation the right of conversion
shall terminate at the close of business on the business day fixed for payment
of the amount distributable on the Preferred Stock) into such number of fully
paid and nonassessable shares of Common Stock as is obtained by (i) multiplying
the number of shares of Preferred Stock so to be converted by the Original
Issuance Price for such shares of
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Preferred Stock and (ii) dividing the result by the conversion price of $2.00
per share or, in case an adjustment of such price has taken place pursuant to
the further provisions of this paragraph 6, then by the conversion price as last
adjusted and in effect at the date any share or shares of Series A Convertible
Preferred Stock are surrendered for conversion (such price, or such price as
last adjusted, being referred to as the "CONVERSION PRICE"). Such rights of
conversion shall be exercised by the holder thereof by giving written notice
that the holder elects to convert a stated number of shares of Preferred Stock
into Common Stock and by surrender of a certificate or certificates for the
shares so to be converted to the Corporation at its principal office (or such
other office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the Preferred Stock) at any time during its
usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued.
B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly
after the receipt of the written notice referred to in subparagraph 6A and
surrender of the certificate or certificates for the share or shares of
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Preferred Stock. To the extent permitted by law, such conversion
shall be deemed to have been effected and the applicable Conversion Price shall
be determined as of the close of business on the date on which such written
notice shall have been received by the Corporation and the certificate or
certificates for such share or shares shall have been surrendered as aforesaid,
and at such time the rights of the holder of such share or shares of Preferred
Stock shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby.
C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No fractional
shares shall be issued upon conversion of the Preferred Stock into Common Stock
and no payment or adjustment shall be made upon any conversion on account of any
cash dividends on the Common Stock issued upon such conversion. At the time of
each conversion, the Corporation shall pay in cash an amount equal to all
dividends, excluding Accruing Dividends, accrued and unpaid on the shares of
Preferred Stock surrendered for conversion to the date upon which such
conversion is deemed to take place as provided in subparagraph 6B. In case the
number of shares of Preferred Stock represented by the certificate or
certificates surrendered pursuant to subparagraph 6A exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this subparagraph 6C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Preferred Stock for conversion an amount in cash equal
to the current market price of such fractional share as determined in good faith
by the Board of Directors of the Corporation.
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D. ADJUSTMENT OF PRICE UPON ISSUANCE OF COMMON STOCK. Except as
provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraphs 6D(l) through 6D(7), deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the Conversion Price in effect immediately prior to the time of such
issue or sale, then, forthwith upon such issue or sale, the Conversion Price
shall be reduced to the price determined by dividing (i) an amount equal to the
sum of (a) the number of shares of Common Stock outstanding immediately prior to
such issue or sale multiplied by the then existing Conversion Price and (b) the
consideration, if any, received by the Corporation upon such issue or sale, by
(ii) the total number of shares of Common Stock outstanding immediately after
such issue or sale.
For purposes of this subparagraph 6D, the following subparagraphs
6D(l) to 6D(7) shall also be applicable:
(l) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable
for Common Stock (such warrants, rights or options being called
"OPTIONS" and such convertible or exchangeable stock or securities
being called "CONVERTIBLE SECURITIES") whether or not such Options or
the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus
the minimum aggregate amount of additional consideration payable to
the Corporation upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the
Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such options shall be deemed
to have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding. Except
as otherwise provided in subparagraph 6D(3), no adjustment of the
Conversion Price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such Options
or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
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(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert any such
Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount received or
receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Conversion Price
in effect immediately prior to the time of such issue or sale, then
the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be
deemed to have been issued for such price per share as of the date of
the issue or sale of such Convertible Securities and thereafter shall
be deemed to be outstanding, PROVIDED that (a) except as otherwise
provided in subparagraph 6D(3), no adjustment of the Conversion Price
shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities and (b) if any
such issue or sale of such Convertible Securities is made upon
exercise of any Options to purchase any such Convertible Securities
for which adjustments of the Conversion Price have been or are to be
made pursuant to other provisions of this subparagraph 6D, no further
adjustment of the Conversion Price shall be made by reason of such
issue or sale.
(3) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if the purchase
price provided for in any option referred to in subparagraph 6D(l),
the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph
6D(l) or 6D(2), or the rate at which Convertible Securities referred
to in subparagraph 6D(l) or 6D(2) are convertible into or exchangeable
for Common Stock shall change at any time (including, but not limited
to, changes under or by reason of provisions designed to protect
against dilution), the Conversion Price in effect at the time of such
event shall forthwith be readjusted to the Conversion Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold, but only if as a result of
such adjustment the Conversion Price then in effect hereunder is
thereby reduced; and on the termination of any such Option or 'any
such right to convert or exchange such Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be increased
to the Conversion Price which would have been in effect at the time of
such termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such termination, never been
issued.
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(4) STOCK DIVIDENDS. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
(5) CONSIDERATION FOR STOCK. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration
as determined in good faith by the Board of Directors of the
Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any Options shall be
issued in connection with the issue and sale of other securities of
the Corporation, together comprising one integral transaction in which
no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for such
consideration as determined in good faith by the Board of Directors of
the Corporation.
(6) RECORD DATE. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock, options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
5hares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(7) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Corporation, and the disposition of any
such shares shall be considered an issue or sale of Common Stock for
the purpose of this subparagraph 6D.
E. CERTAIN ISSUES OF COMMON STOCK EXCEPTED. Anything herein to the
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance from and after
the date of filing of this certificate of incorporation of up to an aggregate of
100,000 shares (appropriately adjusted to reflect the occurrence of any event
described in subparagraph 6F) of Common Stock to directors, officers,
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employees or consultants of the Corporation in connection with their service as
directors of the Corporation, their employment by the Corporation or their
retention as consultants by the Corporation, plus such number of shares of
Common Stock which are repurchased by the Corporation from such persons after
such date pursuant to contractual rights held by the Corporation and at
repurchase prices not exceeding the respective original purchase prices paid by
such persons to the Corporation therefor.
F. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased. In the case of any such subdivision, no further
adjustment shall be made pursuant to subparagraph 6D(4) by reason thereof.
G. REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Preferred Stock shall thereupon have the right to receive, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore receivable upon the conversion of such
share or shares of Preferred Stock, such shares of stock, securities or assets
as may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
H. FAILURE TO REDEEM. If the Corporation fails, for any reason or
for no reason, to redeem on any Redemption Date (as defined in paragraph 7) all
of the shares of Preferred Stock required to be redeemed on such Redemption Date
in accordance with the terms and conditions of paragraph 7, the Conversion Price
then in effect shall be immediately reduced to an amount equal to 90% thereof.
Thereafter, until such redemption has been made in full in accordance with such
terms and conditions, the Conversion Price shall be further reduced on the 90th
day following such Redemption Date and at the end of each 90-day period
thereafter to an amount equal to 90% of the Conversion Price in effect
immediately prior to each such reduction.
I. NOTICE OF ADJUSTMENT. Upon any adjustment of the Conversion
Price, then and in each such case the Corporation shall give written notice
thereof, by delivery in person, certified or registered mail, return receipt
requested, telecopier or telex, addressed to each holder of shares of Preferred
Stock at the address of such holder as shown on the books of
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the Corporation, which notice shall state the Conversion Price resulting from
such adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
J. OTHER NOTICES. In case at any time:
(1) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(2) the Corporation shall offer for subscription PRO RATA to the
holders of its Common Stock any additional shares of stock of any
class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into another entity
or entities, or a sale, lease, abandonment, transfer or other
disposition of all or substantially all of the assets of the
Corporation; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Preferred Stock at the address
of such holder as shown on the books of the Corporation, (a) at least 20 days,
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, at
least 20 days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up, as the case may be.
K. STOCK TO BE RESERVED. The Corporation will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Preferred Stock as herein provided, such number
of shares of Common Stock as shall then be issuable upon the conversion of all
outstanding shares of Preferred Stock. The Corporation covenants that all
shares of Common Stock which shall be so issued shall be duly and validly issued
and fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, and, without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time take all
such action as may be requisite to assure that the par value per share of the
Common Stock is at all times equal to or less than the
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Conversion Price in effect at the time. The Corporation will take all such
action as may be necessary to assure that all such shares of Common Stock may be
so issued without violation of any applicable law or regulation, or of any
requirement of any national securities exchange upon which the Common Stock may
be listed. The Corporation will not take any action which results in any
adjustment of the Conversion Price if the total number of shares of Common Stock
issued and issuable after such action upon conversion of the Preferred Stock
would exceed the total number of shares of Common Stock then authorized by this
certificate of incorporation.
L. NO REISSUANCE OF PREFERRED STOCK. Shares of Preferred Stock
which are converted into shares of Common Stock as provided herein shall not be
reissued.
M. ISSUE TAX. The issuance of certificates for shares of Common
Stock upon conversion of shares of Preferred Stock shall be made without charge
to the holders thereof for any issuance tax in respect thereof, provided that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the holder of the Preferred Stock which is being
converted.
N. CLOSING OF BOOKS. The Corporation will at no time close its
'transfer books against the transfer of any Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Preferred
Stock in any manner which interferes with the timely conversion of such
Preferred Stock, except as may otherwise be required to comply with applicable
securities laws.
0. DEFINITION OF COMMON STOCK. As used in this paragraph 6, the
term "COMMON STOCK" small mean and include the Corporation's authorized Common
Stock, par value $.0l per share, as constituted on the date of filing of this
certificate of incorporation, and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall neither be limited to
a fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends nor entitled to a preference in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation; PROVIDED that the shares of Common Stock receivable upon
conversion of shares of Preferred Stock shall include only shares designated as
Common Stock of the Corporation on the date of filing of this instrument, or in
case of any reorganization or reclassification of the outstanding shares
thereof, the stock, securities or assets provided for in subparagraph 6G.
P. MANDATORY CONVERSION. If at any time the Corporation shall
effect a firm commitment underwritten public offering of shares of Common Stock
in which the aggregate net proceeds to the Corporation shall be at least
$10,000,000 and the price paid by the public for such shares shall be at least
$4.00 per share (appropriately adjusted to reflect the occurrences of any event
described in subparagraph 6F), then effective immediately prior to the closing
of the sale of such shares by the Corporation pursuant to such public offering,
all outstanding shares of Preferred Stock shall automatically convert to shares
of Common Stock on the basis set forth in this paragraph 6. Holders of shares of
Preferred Stock so converted may deliver to the Corporation at its principal
office (or such other office or agency of the Corporation as the Corporation may
designate by notice in writing to such holders) during its usual business hours,
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the certificate or certificates for the shares so converted. As promptly as
practicable thereafter, the corporation shall issue and deliver to such holder a
certificate or certificates for the number of whole shares of Common Stock to
which such holder is entitled, together with any cash dividends and payment in
lieu of fractional shares to which such holder may be entitled pursuant to
subparagraph 6C. Until such time as a holder of shares of Preferred Stock shall
surrender his or its certificates therefor as provided above, such certificates
shall be deemed to represent the shares of Common Stock to which such holder
shall be entitled upon the surrender thereof.
7. REDEMPTION. The shares of Preferred Stock shall be redeemed as
follows:
A. MANDATORY REDEMPTION. On April ___, 2000 (the "Redemption
Date"), the Corporation shall redeem from each holder of shares of Preferred
Stock, all of the shares of Preferred Stock held by such holder on the
Redemption Date.
B. REDEMPTION PRICE AND PAYMENT. The Preferred Stock to be redeemed
on the Redemption Date shall be redeemed by paying for each share in cash an
amount equal to the Original Purchase Price for such shares of Preferred Stock,
plus an amount equal to all Accruing Dividends unpaid thereon (whether or not
declared) and any other dividends declared but unpaid thereon, computed to the
Redemption Date (such amount being referred to as the "Redemption Price"). Such
payment shall be made in full on the Redemption Date to the holders entitled
thereto.
C. REDEMPTION MECHANICS. At least 20 but not more than 30 days
prior to the Redemption Date, written notice (the "Redemption Notice") shall be
given by the Corporation by delivery in person, certified or registered mail,
return receipt requested, facsimile, telecopier or telex, to each holder of
record at the close of business on the business day next preceding the day on
which the Redemption Notice is given) of shares of Preferred Stock notifying
such holder of the redemption and specifying the Redemption Price, the
Redemption Date and the place where said Redemption Price shall be payable. The
Redemption Notice shall be addressed to each holder at his address as shown by
the records of the Corporation. From and after the close of business on the
Redemption Date, unless there shall have been a default in the payment of the
Redemption Price, all rights of holders of shares of Preferred Stock (except the
right to receive the Redemption Price) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. If the
funds of the corporation legally available for redemption of shares of Preferred
Stock on the Redemption Date are insufficient to redeem the total number of
outstanding shares of Preferred Stock, the holders of shares of Preferred Stock
shall share ratably in any funds legally available for redemption of such shares
according to the respective amounts which would be payable with respect to the
full number of shares owned by them if all such outstanding shares were redeemed
in full. The shares of Preferred Stock not redeemed shall remain outstanding
and entitled to all rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of such shares of Preferred Stock, such funds will be used, at
the end of the next succeeding fiscal quarter, to redeem the balance of such
shares, or such portion thereof for which funds are then egally available, on
the basis set forth above.
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D. REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any shares
of Preferred Stock deemed pursuant to this paragraph 7 or otherwise acquired by
the Corporation in any manner whatsoever shall be cancelled and shall not under
any circumstances be reissued; and the Corporation may from time to time take
such appropriate corporate action as may be necessary to reduce accordingly the
number of authorized shares of Preferred Stock.
8. AMENDMENTS. No provision of these terms of the Preferred Stock may be
amended, modified or waived without the written consent or affirmative vote of
the holders of at least two-thirds of the then outstanding shares of Preferred
Stock, voting as class.
II. COMMON STOCK
1. PRIORITY. All preferences, voting powers, relative, participating,
optional or other special rights and privileges, and qualifications, limitations
or restrictions of the Common Stock are expressly made subject to and
subordinate to those that may be fixed with respect to the Preferred Stock.
2. VOTING RIGHTS. Each holder of record of Common Stock shall be
entitled to one vote for each share of Common Stock standing in his name on the
books of the Corporation. Except as otherwise provided by this certificate of
incorporation or by law, the holders of Common Stock and the holders of the
Preferred Stock shall vote together as a single class on all matters as to which
the Common Stock is entitled to vote.
3. DIVIDENDS. Subject to provisions of law, this certificate of
incorporation, and the rights of the Preferred Stock, the holders of Common
Stock shall be entitled to receive dividends out of funds legally available
therefor at such times and in such amounts as the Board of Directors may
determine in their sole discretion.
4. LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the payment or provision
for payment of all debts and liabilities of the Corporation and all preferential
amounts to which the holders of the Preferred Stock are entitled with respect to
the distribution of assets in liquidation, the holders of Common Stock shall be
entitled to share ratably in the remaining assets of the Corporation available
for distribution.
FIFTH. The corporation is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:
A. The board of directors of the Corporation is expressly authorized
to adopt, amend or repeal the by-laws of the Corporation.
B. Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
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C. The books of the Corporation may be kept at such place within or
without the State of Delaware as the by-laws of the Corporation may provide or
as may be designated from time to time by the board of directors of the
Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH. Each person who is or was or had agreed to become a director,
officer, employee or agent of the corporation, or who is or was serving or who
had agreed to serve at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including the heirs, executors, administrators or estate of
such person), shall be indemnified by the corporation to the full extent
permitted by the General Corporation Law of the State of Delaware or any other
applicable laws as presently or hereafter in effect. Without limiting the
generality or the effect of the foregoing, the corporation may enter into one or
more agreements with any person which provide for indemnification greater or
different than that provided in this Article Eighth. Any repeal or modification
of this Article Eighth shall not adversely affect any right or protection
existing hereunder immediately prior to such repeal or modification.
NINTH. To the full extent permitted by the General Corporation Law of the
State of Delaware or any other applicable laws as presently or hereafter in
effect, no director of the corporation shall be personally liable to the
corporation or its stockholders for or with respect to any acts or omissions in
the performance of his duties as a director of the corporation. Any repeal or
modification of this Article Ninth shall not adversely affect any right or
protection of a director of the corporation existing hereunder immediately prior
to such repeal or modification.
TENTH. The Corporation reserves the right to amend or repeal any
provision contained in this certificate of incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
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ELEVENTH. The name and mailing address of the sole incorporator is as
follows:
Cheryl J. Tate
Testa, Hurwitz & Thibeault
53 State Street
Boston, Massachusetts 02109
I, THE UNDERSIGNED, being the sole incorporator hereinabove named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this _______ day of May, 1993.
________________________________________
Cheryl J. Tate
Sole Incorporator
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EXHIBIT E
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EXHIBIT E
EMPLOYEE NONDISCLOSURE AND DEVELOPMENTS AGREEMENT
In consideration and as a condition of my employment or continued
employment by NEON Systems, Inc. (the "Company"), I hereby agree with the
Company as follows:
1. I will not at any time, whether during or after the termination of my
employment, reveal to any person or entity any of the trade secrets or
confidential information concerning the organization, business or finances of
the Company or of any third party which the Company is under an obligation to
keep confidential (including but not limited to trade secrets or confidential
information respecting inventions, products, designs, methods, know-how,
techniques, systems, processes, software programs, works of authorship, customer
lists, projects, plans and proposals), except as may be required in the ordinary
course of performing my duties as an employee of the Company, and I shall keep
secret all matters entrusted to me and shall not use or attempt to use any such
information in any manner which may injure or cause loss or may be calculated to
injure or cause loss whether directly or indirectly to the Company.
Further, I agree that during my employment I shall not make, use or permit
to be used any notes, memoranda, reports, lists, records, drawings, sketches,
specifications, software programs data, documentation or other materials of any
nature relating to any matter within the scope of the business of the Company or
concerning any of its dealings or affairs otherwise than for the benefit of the
Company. I further agree that I shall not, after the termination of my
employment, use or permit to be used any such notes, memoranda, reports, lists,
records, drawings, sketches, specifications, software programs, data,
documentation or other materials, it being agreed that all of the foregoing
shall be and remain the sole and exclusive property of the Company and that
immediately upon the termination of my employment I shall deliver all of the
foregoing, and all copies thereof, to the Company, at its main office.
2. If at any time or times during my employment, I shall (either alone or
with others) make, conceive, discover or reduce to practice any invention,
modification, discovery, design, development, improvement, process, software
program, work of authorship, documentation, formula, data, technique, know-how,
secret or intellectual property right whatsoever or any interest therein
(whether or not patentable or registrable under copyright or similar statutes or
subject to analogous protection) (herein called "Developments") that (a) relates
to the business of the Company or any customer of or supplier to the Company or
any of the products or services being developed, manufactured or sold by the
Company or which may be used in relation therewith, (b) results from tasks
assigned me by the Company or (c) results from the use of premises or personal
property (whether tangible or intangible) owned, leased or contracted for by the
Company, such Developments and the benefits thereof shall immediately become the
sole and absolute property of the Company and its assigns, and I shall promptly
disclose to the Company (or any persons designated by it) each such Development
and hereby assign any rights I may have or acquire in the Developments and
benefits and/or rights resulting therefrom to the Company and its assigns
without further compensation and shall communicate, without cost or
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delay, and without publishing the same, all available information relating
thereto (with all necessary plans and models) to the Company.
Upon disclosure of each Development to the Company, I will, during my
employment and at any time thereafter, at the request and cost of the Company,
sign, execute, make and do all such deeds, documents, acts and things as the
Company and its duly authorized agents may reasonably require:
(a) to apply for, obtain and vest in the name of the Company alone
(unless the Company otherwise directs) letters patent, copyrights or other
analogous protection in any country throughout the world and when so
obtained or vested to renew and restore the same; and
(b) to defend any opposition proceedings in respect of such
applications and any opposition proceedings or petitions or applications
for revocation of such letters patent, copyright or other analogous
protection.
In the event the Company is unable, after reasonable effort, to secure my
signature on any letters patent, copyright or other analogous protection
relating to a Development, whether because of my physical or mental incapacity
or for any other reason whatsoever, I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and in my behalf and stead to execute and file any
such application or applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent, copyright or other
analogous protection thereon with the same legal force and effect as if executed
by me.
3. I agree that any breach of this Agreement by me will cause irreparable
damage to the Company and that in the event of such breach the Company shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of my
obligations hereunder.
4. I understand that this Agreement does not create an obligation on the
Company or any other person or entity to continue my employment.
5. I represent that the Developments identified in the pages, if any,
attached hereto comprise all the unpatented and uncopyrighted Developments which
I have made or conceived prior to my employment by the Company, which
Developments are excluded from this Agreement. I understand that it is only
necessary to list the title and purpose of such Developments but not details
thereof.
I further represent that my performance of all of the terms of this
Agreement and as an employee of the Company does not and will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not
entered into, and I agree I will not enter into, any agreement either written or
oral in conflict herewith.
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6. Any waiver by the Company of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
7. I hereby agree that each provision herein shall be treated as a
separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity, subject or
otherwise so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting or reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
8. my obligations under this Agreement shall survive the termination of
my employment regardless of the manner of such termination and shall be binding
upon my heirs, executors, administrators and legal representatives.
9. The term "Company" shall include NEON Systems, Inc. and any of its
subsidiaries, subdivisions or affiliates. The Company shall have the right to
assign this Agreement to its successors and assigns, and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by said
successors or assigns.
10. This Agreement shall be governed by and construed in accordance with
the laws of Texas.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as a sealed
instrument as of May _____, 1993.
______________________________
Signature
______________________________
Name - Please Print
______________________________
Address
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EXHIBIT F
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EXHIBIT F
EMPLOYEE NONDISCLOSURE, DEVELOPMENTS
AND NONCOMPETITION AGREEMENT
AGREEMENT, dated as of May ____, 1993 (the "Agreement"), by and between
NEON Systems, Inc., a Delaware corporation (the "Company") and Peter Schaeffer
(the "Employee").
WHEREAS, the Company is entering into a Series A Stock Purchase Agreement
with JMI Equity Fund, L.P. (the "Purchaser") and the Employee on the date hereof
pursuant to which the Purchaser shall purchase shares of Series A Convertible
Preferred Stock of the Company;
WHEREAS, the Purchaser is making the foregoing investment in the Com any,
in large part, based upon Schaeffer's programming abilities and skills; and
WHEREAS, in consideration of the investment by the Purchaser in the Company
and in order to induce the Purchaser to make such investment, the parties have
agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. The Employee will not at any time, whether during or after the
termination of his employment, reveal to any person or entity any of the trade
secrets or confidential information concerning the organization, business or
finances of the Company or of any third party which the Company is under an
obligation to keep confidential (including but not limited to trade secrets or
confidential information respecting inventions, products, designs, methods,
know-how, techniques, systems, processes, software programs, works of
authorship, customer lists, projects, plans and proposals), except as may be
required in the ordinary course of performing his duties as an employee of the
Company, and the Employee shall keep secret all matters entrusted to him and
shall not use or attempt to use any such information in any manner which may
injure or cause loss or may be calculated to injure or cause loss whether
directly or indirectly to the Company.
Further, the Employee agrees that during his employment he shall not make,
use or permit to be used any notes, memoranda, reports, lists, records,
drawings, sketches, specifications, software programs, data, documentation or
other materials of any nature relating to any matter within the scope of the
business of the Company or concerning any of its dealings or affairs otherwise
than for the benefit of the Company. The Employee further agrees that he shall
not, after the termination of his
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employment, use or permit to be used any such notes, memoranda, reports, lists,
records, drawings, sketches, specifications, software programs, data,
documentation or other materials, it being agreed that all of the foregoing
shall be and remain the sole and exclusive property of the Company and that
immediately upon the termination of his employment the Employee shall deliver
all of the foregoing, and all copies thereof, to the Company, at its main
office.
2. The Employee will not, whether during his relationship with the
Company as a director, officer, employee, consultant or agent or for a
three-year period thereafter (such three-year period referred to as the
"Restricted Period"), either alone or as a partner, officer, director,
consultant, agent, employee or stockholder of any corporation, partnership,
association, joint venture or other commercial enterprise (i) engage in any
business or other commercial activity which is competitive with the products and
services being designed, conceived, marketed, distributed or developed by the
Company (the "Competitive Activities") or (ii) engage in designing or
programming of computer software (the "Programming Activities"). The foregoing
prohibition shall apply in the geographical area of the United States (including
its possessions and territories) in which the Company conducts its business.
The foregoing prohibition shall not prevent employment or engagement by any
company or business organization, so long as such employment or engagement does
not involve Competitive Activities or Programming Activities. Ownership of less
than one percent (1%) of the outstanding shares of a company whose stock in
publicly traded shall not be a violation of this provision.
If at any time or times, whether during the Employee's employment or during
the Restricted Period, the Employee is offered employment or an engagement that
involves Competitive Activities or Programming Activities, which would be
effective prior to the expiration of the Restricted Period, the Employee will
promptly notify the Company in writing, which notice to the Company shall
describe the offeror and the specific terms of such offered employment or
engagement. Within ten (10) business days of receiving such notice, the Company
shall notify the Employee whether he may accept such offered employment or
engagement. If the Company notifies the Employee that he is prohibited from
accepting such employment, then the Company shall be obligated to pay him the
Option Amount (defined below) on a monthly basis for so long as the Employee
refrains from engaging in such activities (subject to the further provisions of
this Section 2). The "Option Amount" shall be equal to the Employee's monthly
base salary at the time his relationship with the Company terminated.
Notwithstanding anything herein to the contrary, to the extent that the Company
has notified the Employee that he may not accept employment pursuant to the
terms of this Section 2 and he accepts other employment, which is not prohibited
by this Section 2, then the Option Amount shall be reduced to an amount equal to
the difference between the Option Amount and the monthly salary the Employee
earns from such other employment. The Employee agrees to use diligent efforts
to find employment that does not involve Competitive Activities or Programming
Activities, and to promptly notify the Company if he accepts any employment
during the Restricted Period.
3. During the Restricted Period, the Employee shall not, directly or
indirectly, either for himself or for any other corporation, partnership,
association, joint venture or other business organization, solicit or discuss
with any employee or customer of the Company the employment or other business
relationship of such Company employee or customer with any corporation,
partnership, association, joint venture or other business organization other
than for the Company,
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nor recruit, attempt to recruit, hire or attempt to hire any such Company
employee or customer other than for the Company.
4. If at any time or times, whether during his employment or during the
Restricted Period, the Employee shall (either alone or with others) make,
conceive, discover or reduce to practice any invention, modification, discovery,
design, development, improvement, process, software program, work of authorship,
documentation, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection, and whether or not it relates to the business of the Company (herein
called "Developments"), such Developments and the benefits thereof shall
immediately become the sole and absolute property of the Company and its
assigns, and the Employee shall promptly disclose to the Company (or any persons
designated by it) each such Development and hereby assign any rights he may have
or acquire in the Developments and benefits and/or rights resulting therefrom to
the Company and its assigns without further compensation and shall communicate,
without cost or delay, and without publishing the same, all available
information relating thereto (with all necessary plans and models) to the
Company.
Upon disclosure of each Development to the Company, the Employee will,
during his employment and at any time thereafter, at the request and cost of the
Company, sign, execute, make and do all such deeds, documents, acts and things
as the Company and its duly authorized agents may reasonably require:
(a) to apply for, obtain and vest in the name of the Company alone (unless
the Company otherwise directs) letters patent, copyrights or other analogous
protection in any country throughout the world and when so obtained or vested to
renew and restore the same; and
(b) to defend any opposition proceedings in respect of such applications
and any opposition proceedings or petitions or applications for revocation of
such letters patent, copyright or other analogous protection.
In the event the Company is unable, after reasonable effort, to secure his
signature on any letters patent, copyright or other analogous protection
relating to a Development, whether because of his physical or mental incapacity
or for any other reason whatsoever, the Employee hereby irrevocably designate
and appoint the Company and its duly authorized officers and agents as his agent
and attorney-in-fact, to act for and in his behalf and stead to execute and file
any such application or applications and to do all other lawfully permitted acts
to further the prosecution and issuance of letters patent, copyright or other
analogous protection thereon with the same legal force and effect as if executed
by the Employee.
5. The Employee agrees that any breach of this Agreement by him will
cause irreparable damage to the Company and that in the event of such
breach the Company shall have, in addition to any and all remedies of law, the
right to an injunction, specific performance or other equitable relief to
prevent the violation of his obligations hereunder.
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6. The Employee understands that this Agreement does not create an
obligation on the Company or any other person or entity to continue his
employment.
7. The Employee represents that the Developments identified in the pages,
if any, attached hereto comprise all the unpatented and uncopyrighted
Developments which the Employee has made or conceived prior to his employment by
the Company, which Developments are excluded from this Agreement. The Employee
understands that it is only necessary to list the title and purpose of such
Developments but not details thereof.
The Employee further represents that his performance of all of the terms of
this Agreement and as an employee of the Company does not and will not breach
any agreement to keep in confidence proprietary information acquired by him in
confidence or in trust prior to his employment by the Company. The Employee has
not entered into, and the Employee agrees he will not enter into, any agreement
either written or oral in conflict herewith.
8. Any waiver by the Company of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
9. The Employee hereby agrees that each provision herein shall be treated
as a separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity, subject or
otherwise so as to be unenforceable at law, such provision or provisions shall
be construed by the appropriate judicial body by limiting or reducing it or
them, so as to be enforceable to the maximum extent compatible with the
applicable law as it shall then appear.
10. The Employee's obligations under this Agreement shall survive the
termination of his employment regardless of the manner of such termination and
shall be binding upon his heirs, executors, administrators and legal
representatives.
11. The term "Company" shall include NEON Systems, Inc. and any of its
subsidiaries, subdivisions or affiliates. The Company shall have the right to
assign this Agreement to its successors and assigns, and all covenants and
agreements hereunder shall inure to the benefit of and be enforceable by said
successors or assigns.
12. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
13. All notices and other communications hereunder shall be in writing and
shall be delivered in person, mailed by certified or registered mail, return
receipt requested, or sent by electronic facsimile transmission, telecopier or
telex, addressed as follows:
(a) if to the Company, at 6464 Savoy Drive, Suite 4141, Houston,
Texas 77036, Attention: President, with copies to JMI Equity Fund, L.P., 14141
Southwest Freeway,
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Suite 6200, Sugar Land, Texas 77478, Attention: Charles E. Noell, and Testa,
Hurwitz & Thibeault, Exchange Place, 53 State Street, Boston, Massachusetts
02109, Attention: Mark H. Burnett; and
(b) if to Peter Schaeffer, at
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the date first above written.
______________________________________
Peter Schaeffer
NEON SYSTEMS, INC.
By:___________________________________
Title:________________________________
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Exhibit 10.8
SECURED CONVERTIBLE PROMISSORY
NOTE PURCHASE AGREEMENT
NEON Systems, Inc., a Delaware corporation (the "Company") and JMI Equity
Fund, L.P., a Delaware limited partnership (the "Investor") hereby agree as set
forth below. All capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to such terms in the Stock Purchase Agreement.
1. THE NOTES. The Company has authorized the issuance and sale, in
accordance with the terms hereof, of the Company's Secured Convertible
Promissory Note (the "Note") in the Original aggregate principal amount of Three
Hundred Thousand Dollars ($300,000) payable to the Investor on March 29, 1994
(the "Payment Date"). The Note will be substantially in the form set forth in
EXHIBIT A hereto.
2. THE CLOSING. The Company agrees to issue and sell to the Investor,
and, subject to and in reliance upon the representations, warranties, terms and
conditions contained herein, the Investor agrees to purchase the Note. Such
purchase and sale shall take place at a closing (the "Closing") to be held at
10:00 a.m. eastern time on September 29, 1994 at the offices of Testa, Hurwitz
& Thibeault, Exchange Place, 53 State Street, Boston, Massachusetts 02109 (or
such other place and time as shall be mutually agreed upon).
(a) The Closing shall be subject to the execution of this Agreement
by the Company and the Investor.
(b) The Closing shall further be subject to the execution of a
Security Agreement, substantially in the form attached as EXHIBIT B hereto
(the "Security Agreement"), by the Company and the Investor, and the
Financing Statements (Forms UCC-1), in the form attached as EXHIBIT C
hereto (the "Financing Statements), by the Company.
3. CONVERSION. At any time after the Payment Date, and until such time
as any amount of principal or accrued interest remains outstanding and payable
to the Investor pursuant to the Note, a holder of the Note may, at its option
and discretion, elect to convert all of the unpaid principal of, and all accrued
but unpaid interest on, such Note into shares (the "Note Shares") of the
Company's Series A Convertible Preferred Stock, $.01 par value ("Existing
Preferred") at a conversion price of $2.00 per share (the "Existing Preferred
Price") (such price subject to adjustment for stock splits, stock dividends and
the like) upon written notice of such election to the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants that, as of the Closing:
(a) The Company is a duly organized and validly existing corporation
under the laws of the State of Delaware and, except in the State of
Delaware, is duly licensed or qualified to transact business as a foreign
corporation and is in good standing in each
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jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing
or qualification.
(b) Except for the authorization and issuance of (i) the Note Shares
and (ii) shares of the Company's Common Stock issuable upon conversion of
the Note Shares (the "Conversion Shares") (all such securities now or
hereafter reserved or required to be reserved pursuant to (i) or (ii) above
being hereinafter referred to as "Reserved Shares"), the Company has taken
or will take all corporate action required to make all the obligations of
the Company reflected in the provisions of this Agreement, the Note and the
Security Agreement and, the valid and enforceable obligations they purport
to be.
(c) Except as otherwise indicated in paragraph 5(b) above, the
issuance of the Note, the Note Shares and the Conversion Shares will not
require any further corporate action and will not be subject to preemptive
rights of any present or future stockholders of the Company which have not
been waived in writing.
(d) Neither the authorization, execution and delivery of this
Agreement and the Security Agreement, nor the issuance and delivery of the
Note, the Note Shares and the Conversion Shares, has constituted or
resulted in, nor will constitute or result in, a default or violation of
any law or regulation applicable to the Company or any term or provision of
the Company's Certificate of Incorporation or By-laws, both as amended, or
any agreement or instrument by which it is bound or to which its properties
or assets are subject.
(e) Except as set forth on SCHEDULE 2, the representations and
warranties of the Company set forth in the Series A Convertible Preferred
Stock Purchase Agreement of the Company dated May 19, 1993 (the "Stock
Purchase Agreement") are true, complete and correct on and as of the date
hereof with the same effect as though such representations and warranties
had been made on and as of the date hereof.
(f) The Company has good and merchantable title to all of its assets
now carried on its books, free of any material mortgages, pledges, liens,
security interest or other encumbrances (other than mechanics', workmens'
and other liens arising by operation of law). The Company owns or has a
valid right to use the patents, patent rights, licenses, trademarks,
trademark rights, trade names or trade name rights or franchises,
copyrights, inventions and intellectual property rights being used to
conduct its business as now operated. The Company has no obligation to
compensate any person or entity for the use of any such patents.
5. COVENANTS OF THE COMPANY.
(a) Promptly after the execution and delivery of this Agreement and
in no event any later than ten (10) days from the date hereof, the Company
shall make full payment of all franchise taxes due to the State of Delaware
and shall ensure that the Company is in good standing in the State of
Delaware.
(b) Promptly after the execution and delivery of this Agreement and
in no event later than thirty (30) days from the date hereof, the Company
shall cause its Certificate of Incorporation to be amended so as to
increase the number of the Company's authorized
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but unissued shares, and shall reserve an adequate number of such shares,
in order to provide for the issuance of the Note Shares and Conversion
Shares.
(c) For so long as the Note is outstanding, the Company covenants not
to issue any of its current or future authorized but unissued Reserved
Shares without the unanimous written consent of the Investor of their
Designees on the board of directors of the Company (the "Board
Representatives"), except upon the conversion of the Notes in accordance
with their terms. Further, the Company shall reserve an adequate number of
Reserved Shares for conversion of the Notes and conversion of the Note
Shares, free of any preemptive rights of any present or future stockholders
of the Company, whether or not such securities are currently authorized.
(d) The Company shall keep the collateral for the Note free and clear
of all liens, encumbrances and security interests other than as permitted
in the Security Agreement.
(e) To the extent shares of Existing Preferred shall ultimately be
issued as Note Shares, such shares shall have identical contractual rights
(including, but not limited to, registration rights and rights of first
refusal) as those provided with respect to shares of Existing Preferred
pursuant to the Stock Purchase Agreement and any such Note Shares shall be
deemed to be entitled to the rights, and subject to the obligations, of the
Preferred Shares as set forth in the Registration Rights Agreement, the
Stock Restriction Agreement and the Stockholders Agreement. The Company
shall cause its Certificate of Incorporation and any agreement applicable
to such equity securities to be amended to achieve this result.
6. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. The Investor hereby
reaffirms its respective representations and warranties contained in Article III
of the Stock Purchase Agreement as the same shall apply to such Investor's
purchase of the Note hereunder.
7. WAIVER AND CONSENT. The Investor further agrees (i) to waive the
provisions of Article VI of the Purchase Agreement; and (ii) to consent,
pursuant to paragraph 5 of the Company's Certificate of Incorporation, in each
case to the issuance of the securities upon the terms and conditions hereof.
8. AMENDMENTS, WAIVERS, ETC. Neither this Agreement nor the Note, nor
any term hereof or thereof may be amended, waived, discharged or terminated
except by a written instrument signed by the Investor expressly referring to
this Agreement and to the provisions and instruments so modified or limited.
9. CHOICE OF LAW. It is the intention of the parties that the internal
laws, and not the laws of conflicts, of the State of Delaware should govern the
enforceability and validity of this Agreement, the construction of its terms and
the interpretation of the rights and duties of the parties pursuant to the
relationships among them contemplated herein, whether or not such rights and
duties arise directly under this Agreement.
10. LEGAL FEES. The Company agrees to pay at the Closing and thereafter
on demand the fees and out-of-pocket expenses of Testa, Hurwitz & Thibeault,
counsel to the investor, with respect to the transactions contemplated herein.
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11. PARTIES IN INTEREST. The terms and provisions of this Agreement shall
be binding upon and inure to the benefit of, and be enforceable by, the
respective successors and assigns of the parties hereto. This Agreement shall
not run to the benefit of or be enforceable by any person other than a party to
this Agreement and its successors and assigns.
12. HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience and reference only and do not
constitute a part of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Secured Convertible
Promissory Note Purchase Agreement as of the 29th day of September, 1994.
COMPANY:
NEON SYSTEMS, INC.
By: /s/ F. Joseph Backer
---------------------------------------
Title: President
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INVESTOR:
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P., its general partner
By: /s/ Charles E. Noell
----------------------------------
Charles E. Noell,
a general partner
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SCHEDULE 2
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
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LIST OF EXHIBITS
Exhibit A -- Form of Note
Exhibit B -- Form of Security Agreement
Exhibit C -- Form of Financing Statements
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EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE PROMISSORY NOTE
$300,000 September __, 1994
FOR VALUE RECEIVED, the undersigned, NEON Systems, Inc., a Delaware
corporation (the "Maker"), hereby promises to pay to JMI Equity Fund, L.P. (the
"Investor"), or order, the principal sum of Three Hundred Thousand Dollars
($300,000), together with interest on the outstanding principal balance until
paid in full, at the rate of eight percent (8%) per annum. All computations of
interest under this Note shall be made on the basis of a year of 365/366 days
and the actual days elapsed (including the first but excluding the last day)
occurring in the period.
Any amount overdue under this Note shall bear interest at a rate of twelve
percent (12%) per annum. In the event that any interest rate provided for
herein shall be determined to be unlawful, such interest rate shall be computed
at the highest rate permitted by applicable law. Any payment by the Maker of
any interest amount in excess of that permitted by law shall be considered a
mistake, with the excess being applied to the principal of this Note without any
prepayment premium or penalty.
The entire outstanding principal balance of this Note, and all accrued and
unpaid interest thereon, shall be due and payable in full on March ____, 1994
(the "Payment Date"). The entire outstanding principal balance of this Note,
and all accrued and unpaid interest thereon, may be payable, in whole or in
part, from time to time, without any prepayment premium or penalty.
Notwithstanding anything to the contrary set forth herein, in the event that all
principal and accrued interest hereunder is not paid in full on or before the
Payment Date, any such payment after the Payment Date shall only be payable upon
thirty (30) days prior written notice by the Maker to the Investor, in which
event the Investor, upon receipt of such notice and prior to the expiration of
such thirty days, may, at its option and discretion, elect to convert any or all
of the principal and interest accrued hereunder into shares of the Maker's
Series A Convertible Preferred Stock pursuant to the Purchase Agreement (as
hereinafter defined).
This Note is a Secured Convertible Promissory Note, issued by the Maker
pursuant to and entitled to the benefits of a certain Secured Convertible
Promissory Note Purchase
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Agreement, dated as of September ____, 1994 by and between the Maker and the
Investor (as the same may be amended from time to time, hereinafter referred to
as the "Purchase Agreement"). The holder of this Note is entitled to the
benefits of the Purchase Agreement and the Security Agreement (as defined in the
Purchase Agreement) and to the benefits of any other security now or hereafter
granted. Pursuant to the terms of the Purchase Agreement, this Note may be
convertible into shares of Series A Convertible Preferred Stock of the Maker.
Neither this reference to such Purchase Agreement nor any provision thereof
shall affect or impair the absolute and any provision thereof shall affect or
impair the absolute and unconditional obligation of the Maker to pay the
principal of this Note and any interest accrued thereon as provided herein.
This Note is secured by certain assets of the Maker pursuant to the terms
of a Security Agreement dated as of September 29, 1994 by and between the Maker
and the Investor. Upon the occurrence of any Default, as defined in the
Security Agreement, which Default remains uncured for a period of 30 days
following notice of such default from the registered holder of the Note, the
holder hereof may declare any or all obligations or liabilities of the Maker to
such holder (including the unpaid principal hereunder and any interest due
thereon), immediately due and payable without presentment, demand, protest or
notice.
All payments made by the Maker of principal and interest on this Note shall
be made in immediately available funds to the holder.
The Maker hereby promises to pay all of the holder's reasonable costs and
expenses of collection, including without limitation reasonable attorneys' fees
(too the extent permitted by applicable law), disbursements, appraiser's fees
and court costs in the event collection procedures are commenced by the holder
hereof.
Every maker, endorser and guarantor hereof, or of the indebtedness
evidenced hereby, expressly waives presentment, demand, protest, notice of
dishonor, notice of non-payment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in collection,
and the benefit of any exemption under the homestead exemption law, if any, or
any other exemption under the homestead exemption law, if any, or any other
exemption or insolvency laws, and consents that the holder (i) may release or
surrender, exchange or substitute any real estate or personal property, or both,
or other collateral security now or hereafter held as security for the payment
of this Note, and (ii) may extend the time for payment or otherwise modify the
terms of payment of any part or the whole of the debt evidenced hereby.
The holder may, at its option, provided this Note has been declared due and
payable, demand, sue, or collect or make any compromise or settlement it deems
desirable with reference to any rights or property securing the obligations
evidenced hereby. The holder shall not have any duty as to collection or
protection of such security or the income therefrom or as to the preservation of
any rights with respect thereto.
No delay or omission of the holder in exercising any right or remedy
hereunder shall constitute a waiver of any such right or remedy. A waiver on
one occasion shall not operate as a bar to or waiver of any such right or remedy
on any future occasion.
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This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed on the
day and year first above written.
NEON SYSTEMS, INC.
By:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
ATTEST:
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
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EXHIBIT B
SECURITY AGREEMENT
NEON SYSTEMS, INC., a Delaware corporation, with its principal place of
business at 6464 Savoy Drive, Suite 4140, Houston, Texas 77036 (the "Debtor"),
subject to the terms and conditions hereof, hereby assigns, mortgages, pledges,
transfers and grants a continuing security interest to JMI Equity Fund, L.P., a
Delaware limited partnership (the "Secured Party"), in all of the Debtor's
properties and assets of every kind, nature and description, real or personal or
mixed, tangible or intangible, wherever located, and whether now owned or
hereafter acquired, including without limitation:
(i) All of the Debtor's inventory, meaning all goods, wares,
merchandise, raw materials, supplies, work in process, finished goods,
and other personal property of every description held for sale or
lease or furnished or to be furnished under any contract of service,
and all goods which are in transit, and all returned, repossessed and
rejected goods of the foregoing description, and any other tangible
personal property held by the Debtor for processing, sale or other
business purpose or to be used or consumed in the Debtor's business;
(ii) All machinery, equipment, furniture, office equipment and
supplies, plant equipment, tools, dies, molds, fixtures and leasehold
improvements of Debtor, of every kind and description, wherever
located and including all additions, improvements, accessions and
substitutions thereto;
(iii) All accounts, accounts receivable and notes receivable of
the Debtor, whether now existing or hereafter arising, as well as all
right, title and interest of the Debtor in the goods which have given
rise thereto, including the rights or reclamation and of stoppage in
transit, all other rights to the payment of money (including without
limitation, tax refunds);
(iv) All contracts and contract rights of the Debtor, now
existing or hereafter arising, under contracts to sell or lease goods
or render services;
(v) All insurance proceeds, whether arising out of any of the
foregoing or otherwise;
(vi) All notes, bills, drafts, acceptances, choses in action,
chattel paper, instruments, and any other forms of obligations and
receivables and rights to payments for credit extended and for goods
sold or leased or services rendered, whether or not earned by
performance, documents, books and records and rights in and to the
name and all goodwill and all other general intangibles of the
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Debtor, including all customer lists, causes of action, judgments,
rights to performance, licenses, permits, copyrights, trademarks,
trade secrets, patents, patent rights, proprietary processes, software
and related documentation, blueprints, drawings, designs, diagrams,
plans, reports, charts, catalogs, manuals, technical data and any and
all concepts or ideas in any manner related to the design,
development, manufacture, sale, marketing, lease or use of any or all
goods produced or sold or leased or services rendered by the Debtor in
its business;
(vii) All collateral and all guaranties for, and all products,
proceeds, substitutions, and accessions of, any of the foregoing
property.
The property described above shall hereafter be collectively referred to as
the "Collateral."
The Collateral is pledged, assigned, mortgaged and transferred and a
security interest therein is granted to the Secured Party as security for
payment of that certain Secured Convertible Promissory Note (the "Note") of even
date herewith payable to the Secured Party in the aggregate principal amount of
Three Hundred Thousand Dollars ($300,000.00) pursuant to that certain Secured
Convertible Promissory Note Purchase Agreement of even date herewith by and
between Debtor and the Secured Party (the "Purchase Agreement"), all interest
thereon and obligations of the Debtor to the Secured Party, whether now existing
or hereafter arising (hereinafter collectively referred to as the
"Obligations").
1. AGREEMENTS AS TO COLLATERAL. Debtor agrees with the Secured Party
with respect to the particular kinds of Collateral as follows:
(a) DEBTOR AS OWNER OF COLLATERAL. The Debtor will at all times be
the lawful owner of the Collateral free and clear of all liens, charges,
claims, encumbrances and security interests, other than the security
interest hereby granted to the Secured Party or other security interests
hereinafter expressly approved in writing by the Secured Party. All
Collateral is located at Debtor's address shown at the beginning of the
Agreement. Debtor will promptly notify the Secured Party of any change in
the location of such Collateral, including any changes in the location of
any Collateral situated outside the State of Texas.
(b) LOCATION OF RECORDS. The office where Debtor keeps its records
concerning the Collateral will be located at the address shown at the
beginning of this Agreement. The Debtor will not remove said records to
another location without prior written notice to the Secured Party.
(c) COLLECTION OF ACCOUNTS. Except as herein otherwise provided upon
a Default, the Debtor is authorized to collect all accounts receivable and
notes receivable.
(d) COLLECTION UPON DEFAULT. Upon any Default, the Debtor agrees to
deliver to the Secured Party all checks, drafts, notes and other
instruments representing its accounts receivables upon request therefor by
the Secured Party.
11
<PAGE>
2. MISCELLANEOUS AGREEMENTS.
(a) INSPECTION RIGHTS. Debtor will at all reasonable times and from
time to time allow the Secured party, by or through any of their officers,
agents, employees, attorneys or accountants, to examine and inspect and
make extracts from the Debtor's books and other records, and to arrange,
upon prior written notice to the Debtor, for verification of accounts,
under reasonable procedures, directly with account debtors or by other
methods.
(b) REGISTRATION OF INTELLECTUAL PROPERTY. Debtor will not cause the
registration of any of its Intellectual Property (as defined in the
Purchase Agreement) with any federal or state agency, unless the Company
has provided the Investors with twenty (20) days prior written notice
thereof.
(c) EXECUTION OF FINANCING STATEMENTS. Debtor will join with the
Secured party in executing appropriate financing statements under the
Uniform Commercial Code and will at all times and from time to time, at the
request of the Secured party, do, make, execute and deliver all such
additional and further acts, things, deeds, assurances, instruments and
financing statements as the Secured Party may require, to vest more
completely and assure to the Secured party its rights hereunder in or to
the Collateral, including without limitation, the preparation, execution
and delivery of (i) any additional financing statements and security
agreements extending to any Collateral which is, or may subsequently become
located outside the State of Washington, and (ii) any other documents or
instruments which the Secured party shall reasonably require or request in
connection with the continued perfection of the Secured party's security
interest in any of the Collateral, including without limiting any and all
filings with the United States Copyright Office or the United States patent
and Trademark Office. The Debtor hereby appoints the Secured Party as its
authorized agent and attorney-in-fact to execute and file appropriate
financing statements, continuation statements and termination statements in
each and every jurisdiction in which the Collateral is or may be located,
now or in the future. The Secured Party agrees that upon satisfaction in
full of the obligations, Secured Party will execute all documents necessary
to effect a complete release of the security interest granted hereby.
(d) SECURED PARTY'S RIGHTS TO PROTECT COLLATERAL. The Secured Party
shall be under no obligation to take steps necessary to preserve its rights
in any Collateral against other parties but may do so at its option and at
the expense of the Debtor. At its option and upon prior written notice to
the Debtor, the Secured Party may discharge any taxes, liens, security
interest or other encumbrances to which any Collateral is at any time
subject, an may, upon the failure of the Debtor so to do, purchase
insurance on any Collateral and pay for the preservation thereof, and the
Debtor agrees to reimburse the Secured Party on demand for any payments
made or expenses incurred by the Secured party pursuant to the foregoing
authorization. The Secured Party may, at any time after default hereunder,
take control of any proceeds of Collateral to which the Secured Party is
entitled hereunder or under applicable law.
12
<PAGE>
3. REPRESENTATIONS.
The Debtor warrants and represents that the Collateral will not be subject
to any security interest having priority over the security interest granted
hereunder. The Debtor further warrants and represents that the grant of this
security interest is not prohibited by, or in violation of, any pre-existing
obligation of the Debtor.
4. RIGHTS AND REMEDIES ON DEFAULT.
Upon the failure by Debtor to pay the Obligations in accordance with their
terms (a "Default"), and at any time thereafter, the Secured Party shall have
the rights and remedies of a secured party under the Uniform Commercial Code of
any applicable state law in addition to the rights and remedies provided herein
or in any other instrument or agreement provided herein or in any other
instrument or agreement executed by Debtor. Wherever notification with respect
to the sale or other disposition of Collateral is required by law, such
notification of the time and place of public sale, or of the date after which a
private sale or other disposition of the time and place of public sale, or of
the date after which a private sale or other intended disposition is to be
made, shall be deemed reasonable if given at least ten (10) business days before
the time of such public sale, or the date after which any such private sale or
other intended disposition is to be made, as the case may be. Expenses of
retaking, holding, preparing for sale, selling or the like with respect to the
Collateral, shall include the Secured Party's reasonable attorneys' fees and
related legal expenses.
5. GENERAL INTANGIBLES AND NAMES.
Upon the failure by Debtor to pay the Obligations when they become due on
demand and at any time thereafter, on request of the Secured Party, the Debtor
shall execute and deliver to the Secured Party any and all instruments as may be
required to further vest in the Secured Party the right to the Collateral.
6. WAIVER OF DEMAND.
DEBTOR WAIVES ANY AND ALL RIGHTS THAT IT MAY HAVE TO NOTICE OF JUDICIAL
HEARING IN ADVANCE OF THE ENFORCEMENT OF ANY OF THE SECURED PARTY'S RIGHTS
HEREUNDER, INCLUDING, WITHOUT LIMITATION, THE SECURED PARTY'S RIGHTS FOLLOWING A
FAILURE BY DEBTOR TO PAY THE OBLGIATIONS ON DEMAND TO TAKE IMMEDIATE POSSESSION
OF THE COLLATERAL AND EXERCISE ITS RIGHTS WITH RESPECT THERETO. With respect
both to the Obligations and the Collateral, Debtor assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of any collateral, to the addition or release
of any party or person primarily or secondarily liable, to the acceptance of
partial payment thereon and the settlement, compromising, adjusting or discharge
of any thereof, all in such manner and at such time or times as the Secured
party may deem advisable.
7. WAIVERS, AMENDMENTS. Any conditions or restriction hereinabove
imposed with respect to the Debtor may be waived, modified or suspended by the
Secured Party but only on the Secured Party consent in writing and only as so
expressed in such writing and not otherwise.
13
<PAGE>
The Secured party shall not be deemed to have waived any of its other rights
hereunder or under any other agreement, instrument or paper signed by Debtor
unless such waiver be in writing and signed by the Secured party. No delay or
omission on the apart of the Secured party in exercising any right shall operate
as a waiver of such right or any other right. A waiver on any one occasion
shall not be construed as a bar to, or waiver of, any right or remedy on any
future occasion. All the Secured party's rights and remedies, whether evidenced
hereby or by any other agreement, instrument or paper, shall be cumulative and
may be exercised separately or concurrently.
8. NOTICES. Any demand upon, or notice to, any part that the other party
may elect to give shall be effective (i) the third business day after dispatch
by United States first class mail, postage prepaid, (ii) the second business day
after dispatch by a reputable express overnight courier service, (iii) the third
business day after dispatch by United States registered or certified mail,
postage prepaid, or (iv) upon delivery in person, in each case addressed to the
Debtor at the address shown at the beginning of this Security Agreement and to
the Secured party at its address set forth below its signature or as modified by
any notice given after the date hereof.
9. MISCELLANEOUS. If any term or condition hereof shall be invalid or
unenforceable to any extent or in any application, then the remainder hereof
shall not be affected thereby, and each and every term and condition hereof
shall be valid and enforced to the fullest extent and in the broadest
application permitted by law. Whenever there are no Obligations outstanding
hereunder, the Debtor may then terminate this Agreement upon written notice to
the Secured party. Prior to such termination, this shall be a continuing
agreement in every respect. This Agreement and all rights and obligations
hereunder, including matters of construction, validity and performance, shall be
governed by the internal laws of the State of Delaware. This Agreement is
intended to take effect when signed by the Debtor and the Secured Party.
14
<PAGE>
IN WITNESS WHEREOF, this Security Agreement is executed as an instrument
under seal as of this ______ day of September, 1994, by each of the undersigned
Debtor and Secured Party.
DEBTOR:
NEON SYSTEMS,INC.
By:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Address:
---------------------------------------
SECURED PARTY
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.,
Its general partner
By:
----------------------------------
Charles E. Noell,
a general partner
15
<PAGE>
THIS FINANCIAL STATEMENT IS PRESENTED TO A
FILING OFFICER FOR FILING PURSUANT TO THE
UNIFORM COMMERCIAL CODE.
EXHIBIT C
- --------------------------------------------------------------------------------
/ / Check to request same
debtor search certificate
instruction
____.
- --------------------------------------------------------------------------------
Debtor (if personal) Last Name First Name M.I. Prefix Suffix
- --------------------------------------------------------------------------------
Mailing Address City State Zip Code
- --------------------------------------------------------------------------------
Additional Debtor (if First Name M.I. Prefix Suffix
personal) Last Name
- --------------------------------------------------------------------------------
Mailing Address City State Zip Code
- --------------------------------------------------------------------------------
Additional Debtor (if First Name M.I. Prefix Suffix
personal) Last Name
- --------------------------------------------------------------------------------
Mailing Address City State Zip Code
- --------------------------------------------------------------------------------
Secured party (if personal) First Name M.I.
Last Name
- --------------------------------------------------------------------------------
Mailing Address City State Zip Code
- --------------------------------------------------------------------------------
Assignee of Secured Party
(if any)
- --------------------------------------------------------------------------------
Mailing Address City State Zip Code
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
This Financing Statement covers the following types of items of property (if
collateral) is crops, futures, timber or minerals, read instruction ____.
- --------------------------------------------------------------------------------
Check only if applicable: / / Products of collateral are also covered
/ / This financing statement is to be filed for
record in the real estate records.
___ Number of additional sheets presented
- --------------------------------------------------------------------------------
Check appropriate box:
This financing statement is signed by the Secured Party instead of the Debtor
to Perfect a security interest in collateral in accordance with instruction
____ items.
/ / 1 / / 2 / / 3 / / 4 / / 5
- --------------------------------------------------------------------------------
Signature of Debtor(s) This space for use of
filing officer (date,
time, number, filing
officer)
- ----------------------------------------------------
- ----------------------------------------------------
Signature(s) of Secured Party(ies)
- ----------------------------------------------------
- ----------------------------------------------------
Mail copy to:
Name
Address
City
State
Zip
- --------------------------------------------------------------------------------
17
<PAGE>
EXHIBIT A TO FINANCING STATEMENT
DEBTOR: SECURED PARTY:
NEON Systems, Inc. JMI Equity Fund, L.P.
6464 Savoy Drive 14141 Southwest Freeway
Suite 4140 Sugar Land, TX 77478
Houston, TX 77036
I. DESCRIPTION OF COLLATERAL
This financing statement covers the types (or items) of property described
below, whether now owned or now due, or in which the Debtor has an interest, or
hereafter, at any time in the future acquired, arising or to become due, or in
which the Debtor obtains an interest, together with any and all additions
thereto and replacements and proceeds (including without limitation insurance
proceeds) thereof, substitutions therefor and accessions thereof or thereto:
(i) All of the Debtor's inventory, meaning all goods, wares,
merchandise, raw materials, supplies, work in process, finished goods,
and other personal property of every description held for sale or
lease or furnished or to be furnished under any contract of service,
and all goods which are in transit, and all returned, repossessed and
rejected goods of the foregoing description, and any other tangible
personal property held by the Debtor for processing, sale or other
business purpose or to be used or consumed in the Debtor's business;
(ii) All machinery, equipment, furniture, office equipment and
supplies, plant equipment, tools, dies, molds, fixtures and leasehold
improvements of Debtor, of every kind and description, wherever
located and including all additions, improvements, accessions and
substitutions thereto;
(iii) All accounts, accounts receivable and notes receivable of
the Debtor, whether now existing or hereafter arising, as well as all
right, title and interest of the Debtor in the goods which have given
rise thereto, including the rights of reclamation and of stoppage in
transit, all other rights to the payment of money (including without
limitation, tax refunds);
(iv) All contracts and contract rights of the Debtor, now
existing or hereafter arising, under contracts to sell or lease goods
or render services;
(v) All insurance proceeds, whether arising out of any of
the foregoing or otherwise;
(vi) All notes, bills, drafts, acceptances, choses in action,
chattel paper, instruments, and any other forms of obligations and
receivables and rights to payment for credit extended and for good
sold or leased or services rendered,
18
<PAGE>
whether or not earned by performance, documents, books and records and
rights in and to the name and all goodwill and all other general
intangibles of the Debtor, including all customer lists, causes of
action, judgments, rights to performance, licenses, permits,
copyrights, trademarks, trade secrets, patents, patent rights,
proprietary processes, software and related documentation, blueprints,
drawings, designs, diagrams, plans, reports, charts, catalogs,
manuals, technical data and any and all concepts or ideas in any
manner related to the design, development, manufacture, sale,
marketing, lease or use of any or all goods produced or sold or leased
or services rendered by the Debtor in its business;
(vii) All collateral and all guaranties for, and all products,
proceeds, substitutions, and accessions of, any of the foregoing
property.
19
<PAGE>
AMENDMENT NUMBER ONE
TO
SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT
AND
SECURED CONVERTIBLE PROMISSORY NOTE
NEON Systems, Inc. (the "Company") and JMI Equity Fund, L.P. (the
"Investor") hereby agree that the Secured Convertible Promissory Note Purchase
Agreement (the "Purchase Agreement") by and between the Investor and the Company
and the Company's Secured Convertible Promissory Note (the "Note"), each dated
as of September 29, 1994, be and hereby are amended such that the term "Payment
Date," as defined therein, shall mean December 31, 1997 in lieu of December 31,
1995.
In all other respects, the Purchase Agreement and the Note are hereby
ratified, confirmed and approved, and all terms thereof remain in full force and
effect.
This Amendment may be executed in any number of counterparts and by both
parties hereto in separate counterparts, with the same effect as if both parties
had signed the same document. All such counterparts shall be deemed an
original, shall be construed together and shall constitute the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
29th day of September, 1994.
COMPANY:
NEON SYSTEMS, INC.
By: /s/ F. Joseph Backer
---------------------------------------
Title: President
---------------------------------------
INVESTOR:
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.,
Its general partner
By: /s/ Charles E. Noell
----------------------------------
Charles E. Noell,
a general partner
20
<PAGE>
AMENDMENT NUMBER TWO
TO
SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT
NEON Systems, Inc. (the "Company") and JMI Equity Fund, L.P. (the
"Investor") hereby agree that the Secured Convertible Promissory Note Purchase
Agreement (the "Purchase Agreement") dated as of September 20, 1994 between the
Investor and the Company, as amended pursuant to that certain Amendment Number
One to Secured Convertible Promissory Note Purchase Agreement and Secured
Convertible Promissory Note dated as of March 30, 1995 by and between the
Company and the Investor, be and hereby is further amended such that Section 3
thereof shall read in its entirety as follows:
"3. CONVERSION. For so long as any amount of principal or accrued
interest remains outstanding and payable to the Investor pursuant to
the Note, a holder of the Note may at any time, or from time to time,
at its option and discretion, elect to convert all or any portion of
the unpaid principal of, and all or any portion of the accrued but
unpaid interest on, such Note into shares (the "Note Shares") of the
Company's Series A Convertible Preferred Stock, $.01 par value
("Existing Preferred") at a conversion price of $2.00 per share (the
"Existing Preferred") (such price being subject to adjustment for
stock splits, stock dividends and the like) upon written notice of
such election to the Company. In the event that the Investor elects
to convert a portion of the unpaid principal of the Note, or any
accrued interest thereon, as set forth above, the principal amount
outstanding under the Note at such time shall automatically be reduced
by an amount equal to the amount so converted."
In all other respects, the Purchase Agreement is hereby ratified, confirmed
and approved, and all terms thereof shall remain in full force and effect and
shall be binding upon the parties and their respective heirs, successors and
assignees.
This Amendment may be executed in any number of counterparts and by both
parties hereto in separate counterparts, with the same effect as if both parties
had signed the same document. All such counterparts shall be deemed an
original, shall be construed together and shall constitute the same instrument.
[Remainder of Page Intentionally Left Blank]
21
<PAGE>
COMPANY:
NEON SYSTEMS, INC.
By: /s/ F. Joseph Backer
---------------------------------------
Title: President
---------------------------------------
INVESTOR:
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.,
Its general partner
By: /s/ Charles E. Noell
----------------------------------
Charles E. Noell,
a general partner
22
<PAGE>
AMENDMENT NUMBER THREE
TO
SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT
AND
SECURED CONVERTIBLE PROMISSORY NOTE
NEON Systems, Inc. (the "Company") and JMI Equity Fund, L.P. (the
"Investor") hereby agree that the Secured Convertible Promissory Note Purchase
Agreement (the "Purchase Agreement") by and between the Investor and the Company
and the Company's Secured Convertible Promissory Note (the "Note"), each dated
as of September 29, 1994, each as amended to date, be and hereby are amended
such that the term "Payment Date," as defined therein, shall mean December 31,
1997 in lieu of December 31, 1995.
In all other respects, the Purchase Agreement and the Note are hereby
ratified, confirmed and approved, and all terms thereof remain in full force and
effect.
This Amendment may be executed in any number of counterparts and by both
parties hereto in separate counterparts, with the same effect as if both parties
had signed the same document. All such counterparts shall be deemed an
original, shall be construed together and shall constitute the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
22nd day of November, 1995.
COMPANY:
NEON SYSTEMS, INC.
By: /s/ F. Joseph Backer
---------------------------------------
Title: President
---------------------------------------
INVESTOR:
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.,
Its general partner
By: /s/ Charles E. Noell
----------------------------------
Charles E. Noell,
a general partner
23
<PAGE>
EXHIBIT 10.9
SECURED CONVERTIBLE PROMISSORY
NOTE PURCHASE AGREEMENT
NEON Systems, Inc., a Delaware corporation (the "Company"), and JMI Equity
Fund, L.P., a Delaware limited partnership (the "Investor"), hereby agree as set
forth below. All capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to such terms in the Stock Purchase Agreement.
1. THE NOTES. The Company has authorized the issuance and sale, in
accordance with the terms hereof, of the Company's Secured Convertible
Promissory Note (the "Note," together with that certain Secured Convertible
Promissory Note dated as of September 29, 1994 made by the Company and payable
to the Investor in the principal amount of Three Hundred Thousand Dollars
($300,000), being collectively referred to herein as the "Notes") in the
original aggregate principal amount of Three Hundred Fifty Thousand Dollars
($350,000) payable to the Investor on December 31, 1995 (the "Payment Date").
The Note will be substantially in the form set forth in EXHIBIT A hereto.
2. THE CLOSING. The Company agrees to issue and sell to the Investor,
and, subject to and in reliance upon the representations, warranties, terms and
conditions contained herein, the Investor agrees to purchase the Note. Such
purchase and sale shall take place at a closing (the "Closing") to be held at
10:00 a.m. eastern time on March 29, 1995 at the offices of Testa, Hurwitz &
Thibeault, Exchange Place, 53 State Street, Boston, Massachusetts 02109 (or such
other place and time as shall be mutually agreed upon).
(a) The Closing shall be subject to the execution of this
Agreement by the Company and the Investor.
(b) The Closing shall further be subject to the execution of a
Security Agreement, substantially in the form attached as EXHIBIT B hereto
(the "Security Agreement"), by the Company and the Investor, and the
Financing Statements (Forms UCC-1), in the form attached as EXHIBIT C
hereto (the "Financing Statements"), by the Company.
3. CONVERSION. For so long as any amount of principal or accrued
interest remains outstanding and payable to the Investor pursuant to the Note, a
holder of the Note may at any time, or from time to time, at its option and
discretion, elect to convert all or any portion of the unpaid principal of, and
all or any portion of the accrued but unpaid interest on, such Note into shares
(the "Note Shares") of the Company's Series A Convertible Preferred Stock, $.01
par value ("Existing Preferred") at a conversion price of $2.00 per share (the
"Existing Preferred Price") (such price being subject to adjustment for stock
splits, stock dividends and the like) upon written notice of such election to
the Company. In the event that the Investor elects to convert a portion of the
unpaid principal of the Note, or any accrued interest thereon, as set forth
above, the principal amount outstanding under the Note at such time shall
automatically be reduced by an amount equal to the amount so converted.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants that, as of the Closing:
(a) The Company is a duly organized and validly existing
corporation under the laws of the State of Delaware and, except in the
State of Delaware, is duly licensed or qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction in which
the nature of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or qualification.
(b) Except for the authorization and issuance of (i) the Note
Shares and (ii) shares of the Company's Common Stock issuable upon
conversion of the Note Shares (the "Conversion Shares") (all such
securities now or hereafter reserved or required to be reserved pursuant to
(i) or (ii) above being hereinafter referred to as "Reserved Shares"), the
Company has taken or will take all corporate action required to make all
the obligations of the Company reflected in the provisions of this
Agreement, the Note and the Security Agreement, and the valid and
enforceable obligations they purport to be.
(c) Except as otherwise indicated in paragraph 5(b) above, the
issuance of the Note, the Note Shares and the Conversion Shares will not
require any further corporate action and will not be subject to preemptive
rights of any present or future stockholders of the Company which have not
been waived in writing.
(d) Neither the authorization, execution and delivery of this
Agreement, the Security Agreement and the Financing Statements, nor the
issuance and delivery of the Note, the Note Shares and the Conversion
Shares, has constituted or resulted in, nor will constitute or result in, a
default or violation of any law or regulation applicable to the Company or
any term or provision of the Company's Certificate of Incorporation or
By-laws, both as amended, or any agreement or instrument by which it is
bound or to which its properties or assets are subject.
(e) Except as set forth on SCHEDULE 2, the representations and
warranties of the Company set forth in the Series A Convertible Preferred
Stock Purchase Agreement dated May 19, 1993 by and among the Company, the
Purchaser, and the Founder (each as defined therein) and the Secured
Convertible Promissory Note Purchase Agreement dated September 29, 1994 by
and between the Company and the Investor (the "Stock Purchase Agreement")
are true, complete and correct on and as of the date hereof with the same
effect as though such representations and warranties had been made on and
as of the date hereof.
(f) The Company has good and merchantable title to all of its
assets now carried on its books, free of any material mortgages, pledges,
liens, security interests or other encumbrances (other than mechanics',
workmens' and other liens arising by operation of law). The Company owns
or has a valid right to use the patents, patent rights, licenses,
trademarks, trademark rights, trade names or trade name rights or
franchises, copyrights, inventions and intellectual property rights being
used to conduct its business as now operated. The Company has no
obligation to compensate any person or entity for the use of any such
patents.
2
<PAGE>
5. COVENANTS OF THE COMPANY.
(a) Promptly after the execution and delivery of this Agreement
and in no event any later than twenty (20) days from the date hereof, the
Company shall make full payment of all franchise taxes due to the State of
Delaware and shall ensure that the Company is in good standing in the State
of Delaware.
(b) Promptly after the execution and delivery of this Agreement
and in no event later than thirty (30) days from the date hereof, the
Company shall cause its Certificate of Incorporation to be amended so as to
increase the number of the Company's authorized but unissued shares, and
shall reserve an adequate number of such shares, in order to provide for
the issuance of the Note Shares and Conversion Shares.
(c) For so long as any amounts remain outstanding under the Notes,
the Company covenants not to issue any of its current or future authorized
but unissued Reserved Shares without the unanimous written consent of the
Investor of their designees on the board of directors of the Company (the
"Board Representatives"), except upon the conversion of the Notes in
accordance with their terms. Further, the Company shall reserve an
adequate number of Reserved Shares for conversion of the Notes and
conversion of the Note Shares, free of any preemptive rights of any present
or future stockholders of the Company, whether or not such securities are
currently authorized.
(d) The Company shall keep the collateral for the Note free and
clear of all liens, encumbrances and security interests other than as
permitted in the Security Agreement.
(e) To the extent shares of Existing Preferred shall ultimately be
issued as Note Shares, such shares shall have identical contractual rights
(including, but not limited to, registration rights and rights of first
refusal) as those provided with respect to shares of Existing Preferred
pursuant to the Stock Purchase Agreement and any such Note Shares shall be
deemed to be entitled to the rights, and subject to the obligations, of the
Preferred Shares as set forth in the Registration Rights Agreement, the
Stock Restriction Agreement and the Stockholders Agreement. The Company
shall cause its Certificate of Incorporation and any agreement applicable
to such equity securities to be amended to achieve this result.
6. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. The Investor hereby
reaffirms its respective representations and warranties contained in Article III
of the Stock Purchase Agreement as the same shall apply to such Investor's
purchase of the Note hereunder.
7. WAIVER AND CONSENT. The Investor further agrees (i) to waive the
provisions of Article VI of the Purchase Agreement; and (ii) to consent,
pursuant to paragraph 5 of the Company's Certificate of Incorporation, in each
case to the issuance of the securities upon the terms and conditions hereof.
8. AMENDMENTS, WAIVERS, ETC. Neither this Agreement nor the Note, nor
any term hereof or thereof may be amended, waived, discharged or terminated
except by a written instrument signed by the Investor expressly referring to
this Agreement and to the provisions and instruments so modified or limited.
3
<PAGE>
9. CHOICE OF LAW. It is the intention of the parties that the internal
laws, and not the laws of conflicts, of the State of Delaware should govern the
enforceability and validity of this Agreement, the construction of its terms and
the interpretation of the rights and duties of the parties pursuant to the
relationships among them contemplated herein, whether or not such rights and
duties arise directly under this Agreement.
10. LEGAL FEES. The Company agrees to pay at the Closing and thereafter
on demand the fees and out-of-pocket expenses of Testa, Hurwitz & Thibeault,
counsel to the investor, with respect to the transactions contemplated herein.
11. PARTIES IN INTEREST. The terms and provisions of this Agreement shall
be binding upon and inure to the benefit of, and be enforceable by, the
respective successors and assigns of the parties hereto. This Agreement shall
not run to the benefit of or be enforceable by any person other than a party to
this Agreement and its successors and assigns.
12. HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience and reference only and do not
constitute a part of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Secured Convertible
Promissory Note Purchase Agreement as of the 30th day of March, 1995.
COMPANY:
NEON SYSTEMS, INC.
By: /s/ F. Joseph Backer
------------------------------------------
Title: President
---------------------------------------
INVESTOR:
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P., its general partner
By: /s/ Charles E. Noell
-------------------------------------
Charles E. Noell, a general partner
4
<PAGE>
SCHEDULE 2
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
5
<PAGE>
LIST OF EXHIBITS
Exhibit A -- Form of Note
Exhibit B -- Form of Security Agreement
Exhibit C -- Form of Financing Statements
6
<PAGE>
EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE PROMISSORY NOTE
$350,000 March __, 1995
FOR VALUE RECEIVED, the undersigned, NEON Systems, Inc., a Delaware
corporation (the "Maker"), hereby promises to pay to JMI Equity Fund, L.P. (the
"Investor"), or order, the principal sum of Three Hundred Fifty Thousand Dollars
($350,000), together with interest on the outstanding principal balance until
paid in full, at the rate of eight percent (8%) per annum. All computations of
interest under this Note shall be made on the basis of a year of 365/366 days
and the actual days elapsed (including the first but excluding the last day)
occurring in the period.
Any amount overdue under this Note shall bear interest at a rate of twelve
percent (12%) per annum. In the event that any interest rate provided for
herein shall be determined to be unlawful, such interest rate shall be computed
at the highest rate permitted by applicable law. Any payment by the Maker of
any interest amount in excess of that permitted by law shall be considered a
mistake, with the excess being applied to the principal of this Note without any
prepayment premium or penalty.
The entire outstanding principal balance of this Note, and all accrued and
unpaid interest thereon, shall be due and payable in full on _____, 199_ (the
"Payment Date"). The entire outstanding principal balance of this Note, and all
accrued and unpaid interest thereon, may be payable, in whole or in part, from
time to time, without any prepayment premium or penalty. Notwithstanding
anything to the contrary set forth herein, in the event that all principal and
accrued interest hereunder is not paid in full on or before the Payment Date,
any such payment after the Payment Date shall only be payable upon thirty (30)
days prior written notice by the Maker to the Investor, in which event the
Investor, upon receipt of such notice and prior to the expiration of such thirty
days, may, at its option and discretion, elect to convert any or all of the
principal and interest accrued hereunder into shares of the Maker's Series A
Convertible Preferred Stock pursuant to the Purchase Agreement (as hereinafter
defined).
This Note is a Secured Convertible Promissory Note, issued by the Maker
pursuant to and entitled to the benefits of a certain Secured Convertible
Promissory Note Purchase Agreement, dated as of ____, 199_ by and between the
Maker and the Investor (as the same may
7
<PAGE>
be amended from time to time, hereinafter referred to as the "Purchase
Agreement"). The holder of this Note is entitled to the benefits of the
Purchase Agreement and the Security Agreement (as defined in the Purchase
Agreement) and to the benefits of any other security now or hereafter
granted. Pursuant to the terms of the Purchase Agreement, this Note may be
convertible into shares of Series A Convertible Preferred Stock of the Maker.
Neither this reference to such Purchase Agreement nor any provision thereof
shall affect or impair the absolute and any provision thereof shall affect or
impair the absolute and unconditional obligation of the Maker to pay the
principal of this Note and any interest accrued thereon as provided herein.
This Note is secured by certain assets of the Maker pursuant to the terms
of a Security Agreement dated as of ________, 199_ by and between the Maker and
the Investor. Upon the occurrence of any Default, as defined in the Security
Agreement, which Default remains uncured for a period of 30 days following
notice of such default from the registered holder of the Note, the holder hereof
may declare any or all obligations or liabilities of the Maker to such holder
(including the unpaid principal hereunder and any interest due thereon),
immediately due and payable without presentment, demand, protest or notice.
All payments made by the Maker of principal and interest on this Note shall
be made in immediately available funds to the holder.
The Maker hereby promises to pay all of the holder's reasonable costs and
expenses of collection, including without limitation reasonable attorneys' fees
(too the extent permitted by applicable law), disbursements, appraiser's fees
and court costs in the event collection procedures are commenced by the holder
hereof.
Every maker, endorser and guarantor hereof, or of the indebtedness
evidenced hereby, expressly waives presentment, demand, protest, notice of
dishonor, notice of non-payment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in collection,
and the benefit of any exemption under the homestead exemption law, if any, or
any other exemption under the homestead exemption law, if any, or any other
exemption or insolvency laws, and consents that the holder (i) may release or
surrender, exchange or substitute any real estate or personal property, or both,
or other collateral security now or hereafter held as security for the payment
of this Note, and (ii) may extend the time for payment or otherwise modify the
terms of payment of any part or the whole of the debt evidenced hereby.
The holder may, at its option, provided this Note has been declared due and
payable, demand, sue, or collect or make any compromise or settlement it deems
desirable with reference to any rights or property securing the obligations
evidenced hereby. The holder shall not have any duty as to collection or
protection of such security or the income therefrom or as to the preservation of
any rights with respect thereto.
No delay or omission of the holder in exercising any right or remedy
hereunder shall constitute a waiver of any such right or remedy. A waiver on
one occasion shall not operate as a bar to or waiver of any such right or remedy
on any future occasion.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware.
8
<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to be executed on the
day and year first above written.
NEON SYSTEMS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
----------------------------------
ATTEST:
By:
--------------------------
Name:
-----------------------
Title:
----------------------
9
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
NEON SYSTEMS, INC., a Delaware corporation, with its principal place of
business at 6464 Savoy Drive, Suite 4140, Houston, Texas 77036 (the "Debtor"),
subject to the terms and conditions hereof, hereby assigns, mortgages, pledges,
transfers and grants a continuing security interest to JMI Equity Fund, L.P., a
Delaware limited partnership (the "Secured Party"), in all of the Debtor's
properties and assets of every kind, nature and description, real or personal or
mixed, tangible or intangible, wherever located, and whether now owned or
hereafter acquired, including without limitation:
(i) All of the Debtor's inventory, meaning all goods, wares,
merchandise, raw materials, supplies, work in process, finished goods, and
other personal property of every description held for sale or lease or
furnished or to be furnished under any contract of service, and all goods
which are in transit, and all returned, repossessed and rejected goods of
the foregoing description, and any other tangible personal property held by
the Debtor for processing, sale or other business purpose or to be used or
consumed in the Debtor's business;
(ii) All machinery, equipment, furniture, office equipment and
supplies, plant equipment, tools, dies, molds, fixtures and leasehold
improvements of Debtor, of every kind and description, wherever located and
including all additions, improvements, accessions and substitutions
thereto;
(iii) All accounts, accounts receivable and notes receivable of the
Debtor, whether now existing or hereafter arising, as well as all right,
title and interest of the Debtor in the goods which have given rise
thereto, including the rights or reclamation and of stoppage in transit,
all other rights to the payment of money (including without limitation, tax
refunds);
(iv) All contracts and contract rights of the Debtor, now existing
or hereafter arising, under contracts to sell or lease goods or render
services;
(v) All insurance proceeds, whether arising out of any of the
foregoing or otherwise;
(vi) All notes, bills, drafts, acceptances, choses in action,
chattel paper, instruments, and any other forms of obligations and
receivables and rights to payments for credit extended and for goods sold
or leased or services rendered, whether or not earned by performance,
documents, books and records and rights in and to the name and all goodwill
and all other general intangibles of the Debtor, including all customer
lists, causes of action, judgments, rights to performance, licenses,
permits, copyrights, trademarks, trade secrets, patents,
10
<PAGE>
patent rights, proprietary processes, software and related documentation,
blueprints, drawings, designs, diagrams, plans, reports, charts, catalogs,
manuals, technical data and any and all concepts or ideas in any manner
related to the design, development, manufacture, sale, marketing, lease
or use of any or all goods produced or sold or leased or services rendered
by the Debtor in its business;
(vii) All collateral and all guaranties for, and all products,
proceeds, substitutions, and accessions of, any of the foregoing property.
The property described above shall hereafter be collectively referred to as
the "Collateral."
The Collateral is pledged, assigned, mortgaged and transferred and a
security interest therein is granted to the Secured Party as security for
payment of that certain Secured Convertible Promissory Note (the "Note") of even
date herewith payable to the Secured Party in the aggregate principal amount of
Three Hundred Thousand Dollars ($300,000.00) pursuant to that certain Secured
Convertible Promissory Note Purchase Agreement of even date herewith by and
between Debtor and the Secured Party (the "Purchase Agreement"), all interest
thereon and obligations of the Debtor to the Secured Party, whether now existing
or hereafter arising (hereinafter collectively referred to as the
"Obligations").
1. AGREEMENTS AS TO COLLATERAL. Debtor agrees with the Secured Party
with respect to the particular kinds of Collateral as follows:
(a) DEBTOR AS OWNER OF COLLATERAL. The Debtor will at all times
be the lawful owner of the Collateral free and clear of all liens, charges,
claims, encumbrances and security interests, other than the security
interest hereby granted to the Secured Party or other security interests
hereinafter expressly approved in writing by the Secured Party. All
Collateral is located at Debtor's address shown at the beginning of the
Agreement. Debtor will promptly notify the Secured Party of any change in
the location of such Collateral, including any changes in the location of
any Collateral situated outside the State of Texas.
(b) LOCATION OF RECORDS. The office where Debtor keeps its
records concerning the Collateral will be located at the address shown at
the beginning of this Agreement. The Debtor will not remove said records
to another location without prior written notice to the Secured Party.
(c) COLLECTION OF ACCOUNTS. Except as herein otherwise provided
upon a Default, the Debtor is authorized to collect all accounts receivable
and notes receivable.
(d) COLLECTION UPON DEFAULT. Upon any Default, the Debtor agrees
to deliver to the Secured Party all checks, drafts, notes and other
instruments representing its accounts receivables upon request therefor by
the Secured Party.
2. MISCELLANEOUS AGREEMENTS.
11
<PAGE>
(a) INSPECTION RIGHTS. Debtor will at all reasonable times and
from time to time allow the Secured party, by or through any of their
officers, agents, employees, attorneys or accountants, to examine and
inspect and make extracts from the Debtor's books and other records, and to
arrange, upon prior written notice to the Debtor, for verification of
accounts, under reasonable procedures, directly with account debtors or by
other methods.
(b) REGISTRATION OF INTELLECTUAL PROPERTY. Debtor will not cause
the registration of any of its Intellectual Property (as defined in the
Purchase Agreement) with any federal or state agency, unless the Company
has provided the Investors with twenty (20) days prior written notice
thereof.
(c) EXECUTION OF FINANCING STATEMENTS. Debtor will join with the
Secured party in executing appropriate financing statements under the
Uniform Commercial Code and will at all times and from time to time, at the
request of the Secured party, do, make, execute and deliver all such
additional and further acts, things, deeds, assurances, instruments and
financing statements as the Secured Party may require, to vest more
completely and assure to the Secured party its rights hereunder in or to
the Collateral, including without limitation, the preparation, execution
and delivery of (i) any additional financing statements and security
agreements extending to any Collateral which is, or may subsequently become
located outside the State of Washington, and (ii) any other documents or
instruments which the Secured party shall reasonably require or request in
connection with the continued perfection of the Secured party's security
interest in any of the Collateral, including without limiting any and all
filings with the United States Copyright Office or the United States patent
and Trademark Office. The Debtor hereby appoints the Secured Party as its
authorized agent and attorney-in-fact to execute and file appropriate
financing statements, continuation statements and termination statements in
each and every jurisdiction in which the Collateral is or may be located,
now or in the future. The Secured Party agrees that upon satisfaction in
full of the obligations, Secured Party will execute all documents necessary
to effect a complete release of the security interest granted hereby.
(d) SECURED PARTY'S RIGHTS TO PROTECT COLLATERAL. The Secured
Party shall be under no obligation to take steps necessary to preserve its
rights in any Collateral against other parties but may do so at its option
and at the expense of the Debtor. At its option and upon prior written
notice to the Debtor, the Secured Party may discharge any taxes, liens,
security interest or other encumbrances to which any Collateral is at any
time subject, an may, upon the failure of the Debtor so to do, purchase
insurance on any Collateral and pay for the preservation thereof, and the
Debtor agrees to reimburse the Secured Party on demand for any payments
made or expenses incurred by the Secured party pursuant to the foregoing
authorization. The Secured Party may, at any time after default hereunder,
take control of any proceeds of Collateral to which the Secured Party is
entitled hereunder or under applicable law.
12
<PAGE>
3. REPRESENTATIONS.
The Debtor warrants and represents that the Collateral will not be subject
to any security interest having priority over the security interest granted
hereunder. The Debtor further warrants and represents that the grant of this
security interest is not prohibited by, or in violation of, any pre-existing
obligation of the Debtor.
4. RIGHTS AND REMEDIES ON DEFAULT.
Upon the failure by Debtor to pay the Obligations in accordance with their
terms (a "Default"), and at any time thereafter, the Secured Party shall have
the rights and remedies of a secured party under the Uniform Commercial Code of
any applicable state law in addition to the rights and remedies provided herein
or in any other instrument or agreement provided herein or in any other
instrument or agreement executed by Debtor. Wherever notification with respect
to the sale or other disposition of Collateral is required by law, such
notification of the time and place of public sale, or of the date after which a
private sale or other disposition of the time and place of public sale, or of
the date after which a private sale or other intended disposition is to be
made, shall be deemed reasonable if given at least ten (10) business days before
the time of such public sale, or the date after which any such private sale or
other intended disposition is to be made, as the case may be. Expenses of
retaking, holding, preparing for sale, selling or the like with respect to the
Collateral, shall include the Secured Party's reasonable attorneys' fees and
related legal expenses.
5. GENERAL INTANGIBLES AND NAMES.
Upon the failure by Debtor to pay the Obligations when they become due on
demand and at any time thereafter, on request of the Secured Party, the Debtor
shall execute and deliver to the Secured Party any and all instruments as may be
required to further vest in the Secured Party the right to the Collateral.
6. WAIVER OF DEMAND.
DEBTOR WAIVES ANY AND ALL RIGHTS THAT IT MAY HAVE TO NOTICE OF JUDICIAL
HEARING IN ADVANCE OF THE ENFORCEMENT OF ANY OF THE SECURED PARTY'S RIGHTS
HEREUNDER, INCLUDING, WITHOUT LIMITATION, THE SECURED PARTY'S RIGHTS FOLLOWING A
FAILURE BY DEBTOR TO PAY THE OBLGIATIONS ON DEMANDN TO TAKE IMMEDIATE POSSESSION
OF THE COLLATERAL AND EXERCISE ITS RIGHTS WITH RESPECT THERETO. With respect
both to the Obligations and the Collateral, Debtor assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of any collateral, to the addition or release
of any party or person primarily or secondarily liable, to the acceptance of
partial payment thereon and the settlement, compromising, adjusting or discharge
of any thereof, all in such manner and at such time or times as the Secured
party may deem advisable.
7. WAIVERS, AMENDMENTS. Any conditions or restriction hereinabove
imposed with respect to the Debtor may be waived, modified or suspended by the
Secured Party but only on the Secured Party consent in writing and only as so
expressed in such writing and not otherwise.
13
<PAGE>
The Secured party shall not be deemed to have waived any of its other rights
hereunder or under any other agreement, instrument or paper signed by Debtor
unless such waiver be in writing and signed by the Secured party. No delay
or omission on the apart of the Secured party in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to, or waiver of, any right or
remedy on any future occasion. All the Secured party's rights and remedies,
whether evidenced hereby or by any other agreement, instrument or paper,
shall be cumulative and may be exercised separately or concurrently.
8. NOTICES. Any demand upon, or notice to, any part that the other party
may elect to give shall be effective (i) the third business day after dispatch
by United States first class mail, postage prepaid, (ii) the second business day
after dispatch by a reputable express overnight courier service, (iii) the third
business day after dispatch by United States registered or certified mail,
postage prepaid, or (iv) upon delivery in person, in each case addressed to the
Debtor at the address shown at the beginning of this Security Agreement and to
the Secured party at its address set forth below its signature or as modified by
any notice given after the date hereof.
9. MISCELLANEOUS. If any term or condition hereof shall be invalid or
unenforceable to any extent or in any application, then the remainder hereof
shall not be affected thereby, and each and every term and condition hereof
shall be valid and enforced to the fullest extent and in the broadest
application permitted by law. Whenever there are no Obligations outstanding
hereunder, the Debtor may then terminate this Agreement upon written notice to
the Secured party. Prior to such termination, this shall be a continuing
agreement in every respect. This Agreement and all rights and obligations
hereunder, including matters of construction, validity and performance, shall be
governed by the internal laws of the State of Delaware. This Agreement is
intended to take effect when signed by the Debtor and the Secured Party.
14
<PAGE>
IN WITNESS WHEREOF, this Security Agreement is executed as an instrument
under seal as of this ______ day of __________, by each of the undersigned
Debtor and Secured Party.
DEBTOR:
NEON SYSTEMS,INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
------------------------------------
Address:
----------------------------------
SECURED PARTY
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.,
Its general partner
By:
---------------------------------
Charles E. Noell,
a general partner
15
<PAGE>
THIS FINANCIAL STATEMENT IS PRESENTED TO A
FILING OFFICER FOR FILING PURSUANT TO
THE UNIFORM COMMERCIAL CODE.
EXHIBIT C
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
/ / Check to request same
debtor search certificate
instruction ____.
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debtor (if personal) Last Name First Name M.I. Prefix Suffix
- --------------------------------------------------------------------------------------
Mailing Address City State Zip Code
- --------------------------------------------------------------------------------------
Additional Debtor (if First Name M.I. Prefix Suffix
personal) Last Name
- --------------------------------------------------------------------------------------
Mailing Address City State Zip Code
- --------------------------------------------------------------------------------------
Additional Debtor (if First Name M.I. Prefix Suffix
personal) Last Name
- --------------------------------------------------------------------------------------
Mailing Address City State Zip Code
- --------------------------------------------------------------------------------------
Secured party (if personal) First Name M.I.
Last Name
- --------------------------------------------------------------------------------------
Mailing Address City State Zip Code
- --------------------------------------------------------------------------------------
Assignee of Secured Party (if any)
- --------------------------------------------------------------------------------------
Mailing Address City State Zip Code
- --------------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------------
This Financing Statement covers the following types of items of property (if
collateral) is crops, futures, timber or minerals, read instruction ____.
- --------------------------------------------------------------------------------------
Check only if applicable: / / Products of collateral are also covered
/ / This financing statement is to be filed for
record in the real estate records.
___ Number of additional sheets presented
Check appropriate box:
This financing statement is signed by the Secured Party instead of the Debtor
to Perfect a security interest in collateral in accordance with instruction
____ items.
/ / 1 / / 2 / / 3 / / 4 / / 5
- --------------------------------------------------------------------------------------
Signature of Debtor(s) This space for use of
filing officer (date,
time, number, filing
officer)
- --------------------------------------------------
- --------------------------------------------------
- --------------------------------------------------
Signature(s) of Secured Party(ies)
- --------------------------------------------------
- --------------------------------------------------
Mail copy to:
Name
Address
City
State
Zip
- --------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
AMENDMENT NUMBER ONE
TO
SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT
AND
SECURED CONVERTIBLE PROMISSORY NOTE
NEON Systems, Inc. (the "Company") and JMI Equity Fund, L.P. (the
"Investor") hereby agree that the Secured Convertible Promissory Note Purchase
Agreement (the "Purchase Agreement") by and between the Investor and the Company
and the Company's Secured Convertible Promissory Note (the "Note"), each dated
as of March 30, 1995, be and hereby are amended such that the term "Payment
Date," as defined therein, shall mean December 31, 1997 in lieu of December 31,
1995.
In all other respects, the Purchase Agreement and the Note are hereby
ratified, confirmed and approved, and all terms thereof remain in full force and
effect.
This Amendment may be executed in any number of counterparts and by both
parties hereto in separate counterparts, with the same effect as if both parties
had signed the same document. All such counterparts shall be deemed an
original, shall be construed together and shall constitute the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
22nd day of November, 1995.
COMPANY:
NEON SYSTEMS, INC.
By: /s/ F. Joseph Backer
----------------------------------
Title: President
--------------------------------
INVESTOR:
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.,
Its general partner
By: /s/ Charles E. Noell
-----------------------------
Charles E. Noell,
a general partner
18
<PAGE>
Exhibit 10.10
SECURED CONVERTIBLE PROMISSORY
NOTE PURCHASE AGREEMENT
NEON Systems, Inc., a Delaware corporation (the "Company"), and JMI Equity
Fund, L.P., a Delaware limited partnership (the "Investor"), hereby agree as set
forth below. All capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to such terms in that certain Series A Stock Purchase
Agreement (the "Stock Purchase Agreement") dated May 19, 1993 by and between the
Company, the Investor and the Founder (as defined therein).
1. THE NOTES. The Company has authorized the issuance and sale, in
accordance with the terms hereof, of the Company's Secured Convertible
Promissory Note (the "Note," together with that certain Secured Convertible
Promissory Note dated as of September 29, 1994 made by the Company and payable
to the Investor in the principal amount of Three Hundred Thousand Dollars
($300,000) and that certain Secured Convertible Promissory Note dated as of
March 30, 1995 made by the Company and payable to the Investor in the principal
amount of Three Hundred Fifty Thousand Dollars ($350,000), being collectively
referred to herein as the "Notes") in the original aggregate principal amount of
Four Hundred Eighty Thousand Dollars ($480,000) payable to the Investor on
December 31, 1997 (the "Payment Date"). The Note will be substantially in the
form set forth in EXHIBIT A hereto.
2. THE CLOSING. The Company agrees to issue and sell to the Investor,
and, subject to and in reliance upon the representations, warranties, terms and
conditions contained herein, the Investor agrees to purchase the Note. Such
purchase and sale shall take place at a closing (the "Closing") to be held at
10:00 A.M. eastern time on November 22, 1995 at the offices of Testa, Hurwitz &
Thibeault, High Street Tower, 125 High Street, Boston, MA 02109 (or such other
place and time as shall be mutually agreed upon).
(a) The Closing shall be subject to the execution of this Agreement
by the Company and the Investor.
(b) The Closing shall further be subject to the execution of a
Security Agreement, substantially in the form attached as EXHIBIT B hereto (the
"Security Agreement"), by the Company and the Investor, and the Financing
Statements (Forms UCC-1), in the form attached as EXHIBIT C hereto (the
"Financing Statements"), by the Company.
3. CONVERSION. For so long as any amount of principal or accrued
interest remains outstanding and payable to the Investor pursuant to the Note, a
holder of the Note may at any time, or from time to time, at its option and
discretion, elect to convert all or any portion of the unpaid principal of, and
all or any portion of the accrued but unpaid interest on, such Note into shares
(the "Note Shares") of the Company's Series A Convertible Preferred Stock, $.01
par value ("Existing Preferred") of a conversion price of $2.00 per share (the
"Existing Preferred Price") (such price being subject to adjustment for stock
splits, stock dividends and the like) upon written notice of such election to
the Company. In the event that the Investor elects to
<PAGE>
convert a portion of the unpaid principal of the Note, or any accrued interest
thereon, as set forth above, the principal amount outstanding under the Note at
such time shall automatically be reduced by an amount equal to the amount so
converted.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants that, as of the Closing:
(a) The Company is a duly organized and validly existing corporation
under the laws of the State of Delaware and, except in the State of Delaware, is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification.
(b) Except for the authorization and issuance of (i) the Note Shares
and (ii) shares of the Company's Common Stock issuable upon conversion of the
Note Shares (the "Conversion Shares") (all such securities now or hereafter
reserved or required to be reserved pursuant to (i) or (ii) above being
hereinafter referred to as "Reserved Shares"), the Company has taken or will
take all corporate action required to make all the obligations of the Company
reflected in the provisions of this Agreement, the Note and the Security
Agreement and, the valid and enforceable obligations they purport to be.
(c) Except as otherwise indicated in paragraph 5(b) above, the
issuance of the Note, the Note Shares and the Conversion Shares will not require
any further corporate action and will not be subject to preemptive rights of any
present or future stockholders of the Company which have not been waived in
writing.
(d) Neither the authorization, execution and delivery of this
Agreement, the Security Agreement and the Financing Statements, nor the issuance
and delivery of the Note, the Note Shares and the Conversion Shares, has
constituted or resulted in, nor will constitute or result in, a default or
violation of any law or regulation applicable the Company or any term or
provision of the Company's Certificate of Incorporation or By-laws, both as
amended, or any agreement or instrument by which it is bound or to which its
properties or assets are subject.
(e) Except as set forth on SCHEDULE 2, the representations and
warranties of the Company set forth in each of (i) the Stock Purchase Agreement
(ii) the Secured Convertible Promissory Note Purchase Agreement dated September
29, 1994 by and between the Company and the Investor and (iii) the Secured
Convertible Promissory Note Purchase Agreement dated March 30, 1995 by and
between the Company and the Investor are true, complete and correct on and as of
the date hereof with the same effect as though such representations and
warranties had been made on and as of the date hereof.
(f) The Company has good and merchantable title to all of its assets
now carried on its books, free of any material mortgages, pledges, liens,
security interests or other encumbrances (other than mechanics', workmens' and
other liens arising by operation of law). The Company owns or has a valid right
to use the patents, patent rights, licenses, trademark rights, trade names or
trade name rights or franchises, copyrights, inventions and intellectual
<PAGE>
property rights being used to conduct its business as now operated. The Company
has no obligation to compensate any person or entity for the use of any such
patent.
5. COVENANTS OF THE COMPANY.
(a) Promptly after the execution and delivery of this Agreement and
in no event any later than twenty (20) days from the date hereof, the Company
shall make full payment of all franchise taxes due to the State of Delaware and
shall ensure that the Company is in good standing in the State of Delaware.
(b) Promptly after the execution and delivery of this Agreement and
in no event later than thirty (30) days from the date hereof, the Company shall
cause its Certificate of Incorporation to be amended so as to increase the
number of the Company's authorized but unissued shares, and shall reserve an
adequate number of such shares, in order to provide for the issuance of the Note
Shares and Conversion Shares.
(c) For so long as any amounts remain outstanding under the Notes,
the Company covenants not to issue any of its current or future authorized but
unissued Reserved Shares without the unanimous written consent of the Investor
or their designees on the board of directors of the Company (the "Board
Representatives"), except upon the conversion of the Notes in accordance with
their terms. Further, the Company shall reserve an adequate number of Reserved
Shares for conversion of the Notes and of the Note Shares, free of any
preemptive rights of any present or future stockholders of the Company, whether
or not such securities are currently authorized.
(d) The Company shall keep the collateral for the Note free and clear
of all liens, encumbrances and security interests other than as permitted in the
Security Agreement.
(e) To the extent shares of Existing Preferred shall ultimately be
issued as Note Shares, such shares shall have identical contractual rights
(including, but not limited to, registration rights and rights of first refusal)
as those provided with respect to shares of Existing Preferred pursuant to the
Stock Purchase Agreement and any such Note Shares shall be deemed to be entitled
to the rights, and subject to the obligations, of the Preferred Shares as set
forth in the Registration Rights Agreement, the Stock Restriction Agreement and
the Stockholders Agreement. The Company shall cause its Certificate of
Incorporation and any agreement applicable to such equity securities to be
amended to achieve this result.
6. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. The Investor hereby
reaffirms its respective representations and warranties contained in Article III
of the Stock Purchase Agreement as the same shall apply to such Investor's
purchase of the Note hereunder.
7. WAIVER AND CONSENT. The Investor further agrees (i) to waive the
provisions of Article VI of the Stock Purchase Agreement; and (ii) to consent,
pursuant to paragraph 5 of the Company's Certificate of Incorporation, in each
case to the issuance of the securities upon the terms and conditions hereof.
<PAGE>
8. AMENDMENTS, WAIVERS, ETC. Neither this Agreement nor the Note, nor
any term hereof or thereof may be amended, waived, discharged or terminated
except by a written instrument signed by the Investor expressly referred to this
Agreement and to the provisions and instruments so modified or limited.
9. CHOICE OF LAW. It is the intention of the parties that the internal
laws, and not the laws of conflicts, of the State of Delaware should govern the
enforceability and validity of this Agreement, the construction of its terms and
the interpretations of the rights and duties of the parties pursuant to the
relationships among them contemplated herein, whether or not such rights and
duties arise directly under this Agreement.
10. LEGAL FEES. The Company agrees to pay at the Closing and thereafter
on demand the fees and out-of-pocket expenses of Testa, Hurwitz & Thibeault,
counsel to the Investor, with respect to the transaction contemplated herein
11. PARTIES IN INTEREST. The terms and provisions of this Agreement shall
be binding upon and inure to the benefit of, and be enforceable by, the
respective successors and assigns of the parties hereto. This Agreement shall
not run to the benefit of or be enforceable by any person other than a party to
this Agreement and its successors and assigns.
12. HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience and reference only and do not
constitute a part of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties have signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Secured
Convertible Promissory Note Purchase Agreement as of the 22nd day of November
1995.
COMPANY:
NEON SYSTEMS, INC.
By: /s/ F. Joseph Backer
---------------------------------------
Title: President
---------------------------------------
INVESTOR:
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P., its general partner
By: /s/ Charles E. Noell
----------------------------------
Charles E. Noell,
a general partner
<PAGE>
SCHEDULE 2
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
<PAGE>
LIST OF EXHIBITS
Exhibit A - Form of Note.
Exhibit B - Form of Security Agreement
Exhibit C - Form of Financing Statements.
<PAGE>
EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE NOTE UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE PROMISSORY NOTE
$480,000.00 _____________, 1995
FOR VALUE RECEIVED, the undersigned, NEON Systems, Inc., a Delaware
corporation (the "Maker") hereby promises to pay to JMI Equity Fund, L.P. (the
"Investor"), or order, the principal sum of Four Hundred Eighty Thousand Dollars
(480,000), together with interest on the outstanding principal balance until
paid in full, at the rate of eight percent (8%) per annum. All computations of
interest under this Note shall be made on the basis of a year of 365/366 days
and the actual days elapsed (including the first but excluding the last day)
occurring in the period.
Any amount overdue under this Note shall bear interest at a rate of twelve
percent (12%) per annum. In the event that any interest rate provided for
herein shall be determined to be unlawful, such interest rate shall be computed
at the highest rate permitted by applicable law. Any payment by the Maker of
any interest amount in excess of that permitted by law shall be considered a
mistake, with the excess being applied to the principal of this Note without any
prepayment premium or penalty.
The entire outstanding principal balance of this Note, and all accrued and
unpaid interest thereon, shall be due and payable in full on ___________, ____
(the "Payment Date"). The entire outstanding principal balance of this Note,
and all accrued and unpaid interest thereon, may be payable, in whole or in
part, from time to time, without any prepayment premium or penalty.
Notwithstanding anything to the contrary set forth herein, in the event that all
principal and accrued interest hereunder is not paid in full on or before the
Payment Date, any such payment after the Payment Date shall only be payable upon
thirty (30) days prior written notice by the Maker to the Investor, in which
event the Investor, upon receipt of such notice and prior to the expiration of
such thirty days, may, at its option and discretion, elect to convert any or all
of the principal and interest accrued hereunder into shares of the Maker's
Series A Convertible Preferred Stock pursuant to the Purchase Agreement ( as
hereinafter defined).
This Note is a Secured Convertible Promissory Note, issued by the Maker
pursuant to and entitled to the benefits of a certain Secured Convertible
Promissory Note Purchase Agreement, dated as of ____________, ____ by and
between the Maker and the Investor (as the same may be amended from time to
time, hereinafter referred to as the "Purchase Agreement"). The holder of this
Note is entitled to the benefits of the Purchase Agreement and the Security
<PAGE>
Agreement (as defined in the Purchase Agreement) and to the benefits of any
other security now or hereafter granted. Pursuant to the terms of the Purchase
Agreement, this Note may be convertible into shares of Series A Convertible
Preferred Stock of the Maker. Neither this reference to such Purchase Agreement
nor any provision thereof shall affect or impair the absolute and unconditional
obligation of the Maker to pay the principal of this Note and any interest
accrued thereon as provided herein.
This Note is secured by certain assets of the Maker pursuant to the terms
of a Security Agreement dated as of September 29, 1994 by and between the Maker
and the Investor. Upon the occurrence of any Default, as defined in the
Security Agreement, which Default remains uncured for a period of 30 days
following notice of such default from the registered holder of the Note, the
holder hereof may declare any or all obligations or liabilities of the Maker to
such holder (including the unpaid principal hereunder and any interest due
thereon), immediately due and payable without presentment, demand, protest or
notice.
All payments made by the Maker of principal and interest on this Note shall
be made in immediately available funds to the holder.
The Maker hereby promises to pay all of the holder's reasonable costs and
expenses of collection, including without limitation reasonable attorneys' fees
(to the extent permitted by applicable law), disbursements, appraiser's fees and
court costs in the event collection procedures are commenced by the holder
hereof.
Every maker, endorser and guarantor hereof, or of the indebtedness
evidenced hereby, expressly waives presentment, demand, protest, notice of
dishonor, notice of non-payment, notice of maturity, notice of protest
presentment for the purpose of accelerating maturity, diligence in collection,
and the benefit of any exemption under the homestead exemption laws, if any, or
any other exemption or insolvency laws, and consents that the holder (i) may
release or surrender, exchange or substitute any real estate or personal
property, or both, or other collateral security now or hereafter held as
security for the payment of this Note, and (ii) may extend the time for payment
or otherwise modify the terms of payment of any part or the whole of the debt
evidenced hereby.
The holder may, at its option, provided this Note has been declared due and
payable, demand, sue, or collect or make any compromise or settlement it deems
desirable with reference to any rights or property securing the obligations
evidenced hereby. The holder shall not have any duty as to collection or
protection of such security or the income therefrom or as to the preservation of
any rights with respect thereto.
No delay or omission of the holder in exercising any right or remedy
hereunder shall constitute a waiver of any such right or remedy. A waiver on
one occasion shall not operate as a bar to or waiver of any such right or remedy
on any future occasion.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to be executed on the
day and year first above written.
NEON SYSTEM, INC.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
ATTEST:
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
NEON SYSTEMS, INC., a Delaware corporation, with its principal place of
business at 6464 Savoy Drive, Suite 4140, Houston, Texas 77036 (the "Debtor"),
subject to the terms and conditions hereof, hereby assigns, mortgages, pledges,
transfers and grants a continuing security interest to JMI Equity Fund, L.P., a
Delaware limited partnership (the "Secured Party"), in all of the Debtor's
properties and assets of every kind, nature and description, real or personal or
mixed, tangible or intangible, wherever located, and whether now owned or
hereafter acquired, including without limitation:
(i) all of the Debtor's inventory, meaning all goods, wares,
merchandise, raw materials, supplies, work in process,
finished goods, and other personal property of every
description held for sale or lease or furnished or to be
furnished under any contract of service, and all goods which
are in transit, and all returned, repossessed and rejected
goods of the foregoing description, and any other tangible
personal property held by the Debtor for processing, sale or
other business purpose or to be used or consumed in the
Debtor's business;
(ii) all machinery, equipment, furniture, office equipment and
supplies, plant equipment, tools, dies, molds, fixtures and
leasehold improvements of Debtor, of every kind and
description, wherever located and including all additions,
improvements, accessions and substitutions thereto;
(iii) all accounts, accounts receivable and notes receivable of
the Debtor, whether now existing or hereafter arising, as
well as all right, title and interest of the Debtor in the
goods which have given rise thereto, including the rights of
reclamation and of stoppage in transit, all other rights to
the payment of money (including without limitation, tax
refunds);
(iv) all contracts and contract rights of the Debtor, now
existing or hereafter arising, under contracts to sell or
lease goods or render services;
(v) all insurance proceeds, whether arising out of any of the
foregoing or otherwise;
(vi) all notes, bills, drafts, acceptances, choses in action,
chattel paper, instruments, and any other forms of
obligations and receivables and rights to payment for credit
extended and for goods sold or leased or services rendered,
whether or not earned by performance, documents, books and
<PAGE>
-2-
records and rights in and to the name and all goodwill and
all other general intangibles of the Debtor, including all
customer lists, causes of action, judgments, rights to
performance, licenses, permits, copyrights, trademarks,
trade secrets, patents, patent rights, proprietary
processes, software and related documentation, blueprints,
drawings, designs, diagrams, plans, reports, charts,
catalogs, manuals, technical data and any and all concepts
or ideas in any manner related to the design, development,
manufacture, sale, marketing, lease or use of any or all
goods produced or sold or leased or services rendered by the
Debtor in its business;
(vii) all collateral and all guaranties for, and all products,
proceeds, substitutions, and accessions of, any of the
foregoing property.
The property described above shall hereafter be collectively referred to as
the "Collateral."
The Collateral is pledged, assigned, mortgaged and transferred and a
security interest therein is granted to the Secured Party as security for
payment of that certain Secured Convertible Promissory Note (the "Note") of even
date herewith payable to the Secured Party in the aggregate principal amount of
Three Hundred Thousand Dollars ($300,000.00) pursuant to that certain Secured
Convertible Promissory Note Purchase Agreement of even date herewith by and
between Debtor and the Secured Party (the "Purchase Agreement"), all interest
thereon and all other obligations of the Debtor to the Secured Party, whether
now existing or hereafter arising (hereinafter collectively referred to as the
"Obligations").
1. AGREEMENTS AS TO COLLATERAL. Debtor agrees with the Secured Party
with respect to the particular kinds of Collateral as follows:
(a) DEBTOR AS OWNER OF COLLATERAL: The Debtor will at all times be
the lawful owner of the Collateral free and clear of all liens, charges, claims,
encumbrances and security interests, other than the security interest hereby
granted to the Secured Party or other security interests hereinafter expressly
approved in writing by the Secured Party. All collateral is located at Debtor's
address shown at the beginning of the Agreement. Debtor will promptly notify
the Secured Party of any change in the location of such Collateral, including
any changes in the location of any Collateral situated outside the State of
Texas.
(b) LOCATION OF RECORDS: The office where Debtor keeps its records
concerning the Collateral will be located at the address shown at the beginning
of this Agreement. The Debtor will not remove said records to another location
without prior written notice to the Secured Party.
(c) COLLECTION OF ACCOUNTS: Except as herein otherwise provided upon
a Default, the Debtor is authorized to collect all accounts receivable and notes
receivable.
<PAGE>
-3-
(d) COLLECTION UPON DEFAULT: Upon any Default, the Debtor agrees to
deliver to the Secured Party all checks, drafts, notes and other instruments
representing its accounts receivables upon request therefor by the Secured
Party.
2. MISCELLANEOUS AGREEMENTS.
(a) INSPECTION RIGHTS: Debtor will at all reasonable times and from
time to time allow the Secured Party, by or through any of their officers,
agents, employees, attorneys or accountants, to examine and inspect and make
extracts from the Debtor's books and other records, and to arrange, upon prior
written notice to the Debtor, for verification of accounts, under reasonable
procedures, directly with account debtors or by other methods.
(b) REGISTRATION OF INTELLECTUAL PROPERTY: Debtor will not cause the
registration of any of its Intellectual Property (as defined in the Purchase
Agreement) with any federal or state agency, unless the Company has provided the
Investors with twenty (20) days prior written notice thereof.
(c) EXECUTION OF FINANCING STATEMENTS: Debtor will join with the
Secured Party in executing appropriate financing statements under the Uniform
Commercial Code and will at all times and from time to time, at the request of
the Secured Party, do, make, execute and deliver all such additional and further
acts, things, deeds, assurances, instruments and financing statements as the
Secured Party may require, to vest more completely and assure to the Secured
Party its rights hereunder in or to the Collateral, including without
limitation, the preparation, execution and delivery of (i) any additional
financing statements and security agreements extending to any Collateral which
is, or may subsequently become located outside the State of Washington, and (ii)
any other documents or instruments which the Secured Party shall reasonably
require or request in connection with the continued perfection of the Secured
Party's security interest in any of the Collateral, including without limiting
any and all filings with the United States Copyright Office or the United States
Patent and Trademark Office. The Debtor hereby appoints the Secured Party as
its authorized agent and attorney-in-fact to execute and file appropriate
financing statements, continuation statements and termination statements in each
and every jurisdiction in which the Collateral is or may be located, now or in
the future. The Secured Party agrees that upon satisfaction in full of the
obligations, Secured Party will execute all documents necessary to effect a
complete release of security interest granted hereby.
(d) SECURED PARTY'S RIGHTS TO PROTECT COLLATERAL: The Secured Party
shall be under no obligation to take steps necessary to preserve its rights in
any Collateral against other parties but may do so at its option and at the
expense of the Debtor. At its option and upon prior written notice to the
Debtor, the Secured Party may discharge any taxes, liens, security interest or
other encumbrances to which any Collateral is at any time subject, and may, upon
the failure of the Debtor so to do, purchase insurance on any Collateral and pay
for the preservation thereof, and the Debtor agrees to reimburse the Secured
Party on demand for any payments made or expenses incurred by the Secured Party
pursuant to the foregoing authorization. The Secured Party may, at any time
after default hereunder, take control of any proceeds of Collateral to which the
Secured Party are entitled hereunder or under applicable law.
<PAGE>
-4-
3. REPRESENTATIONS.
The Debtor warrants and represents that the Collateral will not be subject
to any security interest having priority over the security interest granted
hereunder. The Debtor further warrants and represents that the grant of this
security interest is not prohibited by, or in violation of, any pre-existing
obligation of the Debtor.
4. RIGHTS AND REMEDIES ON DEFAULT.
Upon the failure by Debtor to pay the Obligations in accordance with their
terms (a "Default"), and at any time thereafter, the Secured Party shall have
the rights and remedies of a secured party under the Uniform Commercial Code of
any applicable state law in addition to the rights and remedies provided herein
or in any other instrument or agreement executed by Debtor. Wherever
notification with respect to the sale or other disposition of Collateral is
required by law, such notification of the time and place of public sale, or of
the date after which a private sale or other intended disposition is to be made,
shall be deemed reasonable if given at least ten (10) business days before the
time of such public sale, or the date after which any such private sale or other
intended disposition is to be made, as the case may be. Expenses of retaking,
holding, preparing for sale, selling or the like with respect to the Collateral,
shall include the Secured Party's reasonable attorneys' fees and related legal
expenses.
5. GENERAL INTANGIBLES AND NAMES.
Upon the failure of Debtor to pay the Obligations when they become due on
demand and at any time thereafter, on request of the Secured Party, the Debtor
shall execute and deliver to the Secured Party any and all instruments as may be
required to further vest in the Secured Party the right to the Collateral.
6. WAIVER OF DEMAND.
DEBTOR WAIVES ANY AND ALL RIGHTS THAT IT MAY HAVE TO NOTICE OF JUDICIAL
HEARING IN ADVANCE OF THE ENFORCEMENT OF ANY OF THE SECURED PARTY'S RIGHTS
HEREUNDER, INCLUDING, WIHTOUT LIMITATION, THE SECURED PARTY'S RIGHTS FOLLOWING A
FAILFURE BY DEBTOR TO PAY THE OBLIGATIONS ON DEMAND TO TAKE IMMEDIATE POSSESSION
OF THE COLLATERAL AND EXERCISE ITS RIGHTS WITH RESPECT THERETO. With respect
both to the Obligations and the Collateral, Debtor assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of any collateral, to the addition or release
of any party or person primarily or secondarily liable, to the acceptance of
partial payment thereon and the settlement, compromising, adjusting or discharge
of any thereof, all in such manner and at such time or times as the Secured
Party may deem advisable.
<PAGE>
-5-
7. WAIVERS, AMENDMENTS.
Any condition or restriction herein above imposed with respect to the
Debtor may be waived, modified or suspended by the Secured Party but only on the
Secured Party's consent in writing and only as so expressed in such writing and
not otherwise. The Secured Party shall not be deemed to have waived any of its
other rights hereunder or under any other agreement, instrument or paper signed
by Debtor unless such waiver be in writing and signed by the Secured Party. No
delay or omission on the part of the Secured Party in exercising any right shall
operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to, or waiver of, any right or remedy
on any future occasion. All the Secured Party's rights and remedies, whether
evidenced hereby or by any other agreement, instrument or paper, shall be
cumulative and may be exercised separately or concurrently.
8. NOTICES.
Any demand upon, or notice to, any party that the other party may elect to
give shall be effective (i) the third business day after dispatch by United
States first class mail, postage prepaid, (ii) the second business day after
dispatch by a reputable express overnight courier service, (iii) the third
business day after dispatch by United States registered or certified mail,
postage prepaid, or (iv) upon delivery in person, in each case addressed to the
Debtor at the address shown at the beginning of this Security Agreement and to
the Secured Party at its address set forth below its signature or as modified by
any notice given after the date hereof.
9. MISCELLANEOUS.
If any term or condition hereof shall be invalid or unenforceable to any
extent or in any application, then the remainder hereof shall not be affected
thereby, and each and every term and condition hereof shall be valid and
enforced to the fullest extent and in the broadest application permitted by law.
Whenever there are no Obligations outstanding hereunder, the Debtor may then
terminate this Agreement upon written notice to the Secured Party. Prior to
such termination, this shall be a continuing agreement in every respect. This
Agreement and all rights and obligations hereunder, including matters of
construction, validity and performance, shall be governed by the internal laws
of the State of Delaware. This Agreement is intended to take effect when signed
by the Debtor and the Secured Party.
<PAGE>
-6-
IN WITNESS WHEREOF, this Security Agreement is executed as an instrument
under seal as of this ___ day of September, 1994, by each of the undersigned
Debtor and Secured Party.
DEBTOR:
NEON SYSTEMS, INC.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
Address:
----------------------------------
SECURED PARTY
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.,
its general partner
By:
-----------------------------
Charles E. Noell,
a general partner
<PAGE>
<TABLE>
<CAPTION>
<S><C>
THIS FINANCING STATEMENT IS PRESENTD
TO A FILING OFFICER FOR FILING PURSUANT
TO THE UNIFORM COMMERCIAL CODE
EXHIBIT C
------------------------------------------
11. / / CHECK TO REQUEST SAME DEBTOR
SEARCH CERTIFICATE (INSTRUCTION ____)
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR (IF PERSONAL) LAST NAME FIRST NAME M.I. 1A. PREFIX 1B. SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1C. MAILING ADDRESS 1D. CITY, STATE 1.E ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR (IF PERSONAL) LAST NAME FIRST NAME M.I. 2A. PREFIX 2B. SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2C. MAILING ADDRESS 2D. CITY, STATE 2.E ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
3 ADDITIONAL DEBTOR (IF PERSONAL) LAST NAME FIRST NAME M.I. 3A. PREFIX 3B. SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3C. MAILING ADDRESS 3D. CITY, STATE 3.E ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
4. SECURED PARTY (IF PERSONAL) LAST NAME FIRST NAME M.I.
- ------------------------------------------------------------------------------------------------------------------------------------
4C. MAILING ADDRESS 4D. CITY, STATE 4.E ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) LAST NAME
- ------------------------------------------------------------------------------------------------------------------------------------
5C. MAILING ADDRESS 5D. CITY, STATE 4.E ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
6. This FINANCING STATMENT covers the following types of items or property. (If collateral is crops, fixtures, timber or
minerals, read instruction ______.)
- ------------------------------------------------------------------------------------------------------------------------------------
7. CHECK ONLY 7A. PRODUCTS OF 7B THIS FINANCING STTEMENT IS NUMBER OF ADDITIONAL
IF COLLATERAL ARE TO BE FILED FOR RECORD IN SHEETS
APPLICABLE / / ALSO COVERED / / THE REAL ESTATE RECORDS PRESENTED _____
- ------------------------------------------------------------------------------------------------------------------------------------
8. CHECK 8A THIS FINANCING STATEMENT IS SIGNED BY THE SECURED PARTY
APPROPRIATE INSTEAD OF THE DEBTOR TO PERFECT A SECURITY INTEREST IN
BOX COLLATERAL IN ACCORDANCE WITH INSTRUCTION ____ ITEM / / (1) / / (2) / / (3) / / (4) / / (5)
- ------------------------------------------------------------------------------------------------------------------------------------
9. SIGNATURE(S) THIS SPACE FOR USE OF FILING OFFICER
OF (DATE, TIME, NUMBER, FILING OFFICER)
DEBTOR(S)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
SIGNATURE(S)
OF
SECURED PARTY(IES)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
10. Fourth copy to:
[ ]
NAME
ADDRESS
CITY
STATE
ZIP
[ ]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AMENDMENT NUMBER ONE
TO
SECURED CONVERTIBLE PROMISSORY NOTE PURCHASE AGREEMENT
AND
SECURED CONVERTIBLE PROMISSORY NOTE
NEON Systems, Inc. (the "Company") and JMI Equity Fund, L.P. (the
"Investor") hereby agree that the Secured Convertible Promissory Note Purchase
Agreement (the "Purchase Agreement") by and between the Investor and the Company
and the Company's Secured Convertible Promissory Note (the "Note"), such dated
as of November 22, 1995), be and hereby are amended such that the term "Payment
Date," as defined therein, shall mean December 31, 1997 in lieu of December 31,
1995.
In all other respects, the Purchase Agreement and the Note are hereby
ratified, confirmed and approved, and all terms thereof remain in full force and
effect.
This Amendment may be executed in any number of counterparts and by both
parties hereto in separate counterparts, with the same effect as if both parties
had signed the same document. All such counterparts shall be deemed an
original, shall be construed together and shall constitute the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
22nd day of November, 1995.
COMPANY:
NEON SYSTEMS, INC.
By: /s/ F. Joseph Backer
----------------------------------
Title: President
----------------------------------
INVESTOR:
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P., its
general partner
By: /s/ Charles E. Noell,
-----------------------------
Charles E. Noell,
a general partner
<PAGE>
Exhibit 10.11
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLE SATISFACTORY TO THE MAKER THAT SUCH
REGISTRATION OS NOT REQUIRED.
SECURED PROMISSORY NOTE
$1,049,100.78 March 31, 1997
FOR VALUE RECEIVED, the undersigned, NEON Systems, Inc., a Delaware
corporation (the "Maker"), hereby promises to pay to JMI Equity Fund, L.P. (the
"Investor"), or order, the principal sum of One Million Forty-nine Thousand One
Hundred and 78/100s Dollars ($1,049,100.78), together with interest on the
outstanding principal balance until paid in full at the rate of eight percent
(8%) per annum. All computations of interest under this Note shall be made on
the basis of a year of 365/366 days and the actual days elapsed (including the
first but excluding the last day) occurring in the period.
Any amount overdue under this Note shall bear interest at a rate of twelve
percent (12%) per annum. In the event that any interest rate provided for
herein shall be determined to be unlawful, such interest rate shall be computed
at the highest rate permitted by applicable law. Any payment by the Maker of
any interest amount in excess of that permitted by law shall be considered a
mistake, with the excess being applied to the principal of this Note without any
prepayment premium or penalty.
Accrued interest only shall be payable on the last day of each June,
September, December and March after the date hereof, commencing June 30, 1997
and continuing through and including December 31, 1998 (the "Payment Date").
The entire outstanding principal balance of this Note, and all accrued and
unpaid interest thereon, shall be due and payable in full on the Payment Date.
The entire outstanding principal balance of this Note, and all accrued and
unpaid interest thereon, may be payable, in whole or in part, from time to time,
without any prepayment premium or penalty.
This Note is made and delivered pursuant to that certain Amendment to
Convertible Debt Documentation and Exercise of Conversion Right dated of even
date herewith (the "Amendment") and in consolidation, modification, renewal and
extension of certain outstanding indebtedness evidenced by (i) the Maker's
Secured Convertible Promissory Note dated September 29, 1994 payable to the
Investor in the original principal amount of $300,000, (ii) the Maker's Secured
Convertible Promissory Note dated March 30, 1995 payable to the Investor in the
original principal amount of $350,000, and (iii) the Maker's Secured Convertible
Promissory
<PAGE>
Note dated November 22, 1995 payable to the Investor in the original principal
amount of $480,000. This Note is entitled to the benefits of those three
certain Secured Convertible Promissory Note Purchase Agreements dated as of
September 29, 1994, March 30, 1995 and November 22, 1995, respectively, by and
between the Maker and the Investor, as the same have been amended (including the
amendments effected by the Amendment) (as the same may be amended from time to
time, hereinafter referred to as the "Note Purchase Agreements"). The holder of
this Note is entitled to the benefits of the Note Purchase Agreements and the
Security Agreements (as defined in the Note Purchase Agreements) and to the
benefits of any other security now or hereafter granted. Neither this reference
to such Note Purchase Agreements nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Maker to pay the
principal of this Note and any interest accrued thereon as provided herein.
This Note is secured by certain assets of the Maker pursuant to the terms
of certain Security Agreements by and between the Maker and the Investor. Upon
the occurrence of any Default, as defined in such Security Agreements, which
Default remains uncured for a period of 30 days following notice of such default
from the registered holder of the Note, the holder hereof may declare any or all
obligations or liabilities of the Maker to such holder (including the unpaid
principal hereunder and any interest due thereon) immediately due and payable
without presentment, demand, protest or notice.
All payments made by the Maker or principal and interest in this Note shall
be made in immediately available funds to the holder.
The Maker hereby promises to pay all of the holder's reasonable costs and
expenses of collection, including without limitation reasonable attorney's fees
(to the extent permitted by applicable law), disbursements, appraiser's fees and
court costs in the event collection procedures are commenced by the holder
hereof.
Every maker, endorser and guarantor hereof, or of the indebtedness
evidenced hereby, expressly waives presentment, demand, protest, notice of
dishonor, notice of non-payment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in collection,
and the benefit of any exemption under the homestead exemption law, if any, or
any other exemption or insolvency laws, and consents that the holder (i) may
release or surrender, exchange or substitute any real estate or personal
property, or both, or other collateral security now or hereafter held as
security for the payment of this Note, and (iii) may extend the time for payment
or otherwise modify the terms of payment of any part or the whole of the debt
evidenced thereby.
The holder may, at its option, provided this Note has been declared due and
payable, demand, sue or collect or make any compromise or settlement it deems
desirable with reference to any rights or property securing in the obligations
evidenced hereby. The holder shall not have any duty as to collection or
protection of such security or the income therefrom or as to the preservation or
any rights with respect thereto.
2
<PAGE>
No delay or omission of the holder in exercising any right or remedy
hereunder shall constitute a waiver of any such right or remedy. A waiver on
one occasion shall not operate as a bar to or waiver of any such right or remedy
on any future occasion.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed on the
day and year first above written.
ATTEST: NEON SYSTEMS, INC.
By: /s/ John S. Reiland By: /s/ F. Joseph Backer
------------------------------ ----------------------------------
F. Joseph Backer, President
Name: John S. Reiland
------------------------------
Title: CFO
------------------------------
<PAGE>
Exhibit 10.12
AMENDMENT TO
CONVERTIBLE DEBT DOCUMENTATION
AND EXERCISE OF
CONVERSION RIGHT
THIS AMENDMENT TO CONVERTIBLE DEBT DOCUMENTATION AND EXERCISE OF CONVERSION
RIGHT (this "Amendment") is made and entered into as of the 31st day of March
1997, by and between NEON Systems, Inc., a Delaware corporation (the "Company"),
and JMI Equity Fund, L.P. (the "Investor").
RECITALS
The Company and the Investor are parties to (i) that certain Secured
Convertible Promissory Note Purchase Agreement dated as of September 29, 1994,
relating to a loan made by the Investor to the Company in the original principal
amount of $300,000 (the "September 1994 NPA"), (ii) that certain Secured
Convertible Promissory Note Purchase Agreement dated as of March 30, 1995,
relating to a loan made by the Investor to the Company in the original principal
amount of $350,000 (the "March 1995 NPA"), and (iii) that certain Secured
Convertible Promissory Note Purchase Agreement between the Company and the
Investor dated as of November 22, 1995 relating to a loan made by the Investor
to the Company in the original principal amount of $480,000. Such loans are
respectively evidenced by (i) the Company's Secured Convertible Promissory Note
dated September 29, 1994 payable to the Investor in the original principal
amount of $300,000 (the "September 1994 Note"), (ii) the Company's Secured
Convertible Promissory Note dated March 30, 1995 payable to the Investor in the
original principal amount of $350,000 (the "March 1995 Note"), and (iii) the
Company's Secured Convertible Promissory Note dated November 22, 1995 payable to
the Investor in the original principal amount of $480,000.
The September 1994 NPA and the September 1994 Note have been amended by the
Company and the Investor pursuant to Amendment Number One to Secured Convertible
Promissory Note Purchase Agreement and Secured Convertible Promissory Note and
Amendment Number Two to Secured Convertible Promissory Note Purchase Agreement,
each dated March 30, 1995, and pursuant to Amendment Number Three to Secured
Convertible Promissory Note Purchase Agreement and Secured Convertible
Promissory Note dated November 22, 1995. The March 1995 NPA and the March 1995
Note have been amended by the Company and the Investor pursuant to an Amendment
Number One to Secured Convertible Promissory Note Purchase Agreement and Secured
Convertible Promissory Note dated November 22, 1995.
The foregoing documents, as amended, are collectively referred to herein as
the "Convertible Debt Documents." The Secured Convertible Promissory Notes
referenced above, as amended, are collectively referred to herein as the
"Convertible Notes." The indebtedness outstanding under the Convertible Debt
Documents is referred to herein as the "Convertible Debt."
<PAGE>
The Convertible Debt Documents include provisions for the conversion of
amounts outstanding thereunder into shares of the Company's Series A Preferred
Stock, par value $.01 per share (the "Series A Preferred Stock"). The Company
and the Investor desire to enter into this Amendment to (i) acknowledge and
confirm their agreement on August 7, 1996 that the aggregate amount (principal
and interest) of the Convertible Debt that may be converted into shares of the
Series A Preferred Stock may not exceed $250,000; (ii) provide for the
conversion, as of the date hereof, of $250,000 of such indebtedness into 125,000
shares of the Series A Preferred Stock; and (iii) modify, renew and extend the
remaining balance (principal and interest) of the indebtedness evidenced by the
Convertible Debt Documents.
In consideration of the foregoing and the mutual covenants and agreements
contained herein, the parties hereby agree as follows:
1. CONFIRMATION OF PRIOR AGREEMENT. The Company and the Investor hereby
acknowledge and confirm their agreement on August 7, 1996 that notwithstanding
any provision of the Convertible Debt Documents to the contrary, the aggregate
amount (principal and interest) of the Convertible Debt that may be converted
into shares of the Series A Preferred Stock may not exceed $250,000, and the
Investor hereby waives and relinquishes forever any right it has to convert any
amount of the Convertible Debt in excess of $250,000.
2. CONVERSION. The Investor hereby notifies the Company of its election
to convert into shares of the Series A Preferred Stock $250,000 of the
Convertible Debt, and the Company acknowledges receipt of such election. Such
amount shall be so converted as of the date of this Amendment, and the Company
shall cause 125,000 shares of the Series A Preferred Stock to be issued to the
Investor in respect thereof. The Investor acknowledges and agrees that,
following the issuance of such shares, it has no right to convert any additional
amount of the Convertible Debt into shares of the Series A Preferred Stock.
3. MODIFICATION OF INDEBTEDNESS. The Investor and the Company
acknowledge and agree that, prior to the conversion provided for in paragraph 2
above, the outstanding balance (principal and interest) of the Convertible Debt
was $1,299,100.78, consisting of $1,130,000 of principal and $169,100.78 of
interest. Following such conversion, the outstanding balance of the Convertible
Debt is $1,049,100.78. Such Convertible Debt shall be modified, renewed and
extended by the execution and delivery by the Company of a Secured Promissory
Note in the form of Exhibit A attached hereto (the "Renewal Note"). The Renewal
Note shall be in the principal amount of $1,049,100.78, shall bear interest at
the rate of 8% per annum and shall mature on December 31, 1998; provided,
however, that interest accrued but unpaid thereon shall be payable quarterly in
arrears on the last day of each June, September, December and March prior to the
maturity date and on the maturity date. The Renewal Note shall be executed in
modification, renewal and extension of the existing Convertible Debt and shall
not effect a cancellation thereof. The Company and the Investor also agree that
the indebtedness secured by the security interests granted by the Company to the
Investor pursuant to those two certain Security Agreements dated as of September
29, 1994 and March 30, 1995 by and between the Company and the Investor shall
include, without limitation, all of the indebtedness evidenced by, and accruing
under or in connection with, all of the Convertible Notes, the Renewal Note and
all other obligations of the Company to the Investor, whether now existing or
hereafter arising.
2
<PAGE>
4. AMENDMENT OF PRIOR DOCUMENTS. This Amendment shall constitute
Amendment Number Four to the Convertible Debt Documents dated as of September
29, 1994 by and between the Company and the Investor, Amendment Number Two to
the Convertible Debt Documents dated as of March 30, 1995 by and between the
Company and the Investor and Amendment Number One to the Convertible Debt
Documents dated as of November 22, 1995 between the Company and the Investor.
This Amendment also shall constitute the first amendment to each of the Security
Agreements referenced above. As modified hereby, the Convertible Debt Documents
and such Security Agreements shall continue in full force and effect and be
binding on the parties hereto and their respective successors and permitted
assigns. References to the Convertible Debt Documents and such Security
Agreements after the date hereof shall mean the Convertible Debt Documents and
such Security Agreements as amended pursuant to this Amendment (and shall
include the Renewal Note.)
5. MISCELLANEOUS. This Amendment may be executed in any number of
counterparts and by both parties hereto in separate counterparts, with the same
effect as if both parties had signed the same document. All such counterparts
shall be deemed an original, shall be construed together and shall constitute
the same instrument. This Amendment shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first written above.
COMPANY:
NEON SYSTEMS, INC.
By: /s/ F. Joseph Backer
---------------------------------------
Printed Name: F. Joseph Backer
-----------------------------
Title: President
----------------------------------
INVESTOR:
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P., its
general partner
By: /s/ Charles E. Noell
----------------------------------
Charles E. Noell,
a general partner
3
<PAGE>
AMENDMENT NUMBER ONE
TO
SECURED CONVERTIBLE PROMISSORY NOTE
NEON Systems, Inc. (the "Company") and JMI Equity Fund, L.P. (the
"Investor") hereby agree that the Secured Convertible Promissory note (the
"Note") by and between the Investor and Company dated as of March 31, 1997, be
and hereby is amended such that the term "Payment Date", as defined therein,
shall mean March 31, 1999 in lieu of December 31, 1998.
In all other respects, the Note is hereby ratified, confirmed and approved,
and all terms thereof remain in full force and effect.
This Amendment may be executed in any number of counterparts and by both
parties hereto in separate counterparts, with the same effect as if both parties
had signed the same document. All such counterparts shall be deemed an
original, shall be construed together and shall constitute the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
8th day of December, 1998.
COMPANY:
NEON SYSTEMS, INC.
By: /s/ John S. Reiland
Title:CFO
INVESTOR:
JMI EQUITY FUND, L.P.
By: /s/ Charles E. Noell
a general partner
4
<PAGE>
Exhibit 10.13
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement dated as of May 19, 1993 (the
"Agreement") by and between NEON Systems, Inc., a Delaware corporation (the
"Company"), JMI Equity Fund, L.P., a Delaware limited partnership (the
"Purchaser") and Peter Schaeffer (the "Founder"):
WITNESSETH:
WHEREAS, pursuant to the terms of a Series A Stock Purchase Agreement dated
the date hereof between the Company and the Purchaser (the "Purchase
Agreement"), the Purchaser is acquiring an aggregate of 500,000 shares (the
"Preferred Shares") of Series A Convertible Preferred Stock, par value $.01 per
share (the "Preferred Stock"), of the Company; and
WHEREAS, it is a condition to the obligations of the Purchaser under the
Purchase Agreement that this Agreement be entered into by the parties hereto,
and the parties desire to enter into this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of these premises and the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange commission, or any
other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the common stock, par value $.01 per share,
of the Company, as constituted as of the date of this Agreement.
"CONVERSION SHARES" shall mean shares of Common Stock issued or
issuable upon conversion of the Preferred Shares, and any shares of capital
stock received in respect thereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"FOUNDER SHARES" shall mean the 400,000 shares of Common Stock held by
the Founder on the date hereof.
<PAGE>
-2-
"REGISTRATION EXPENSES" shall mean all expenses incurred in connection
with a registration statement, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees and
expenses (including counsel fees) incurred in connection with complying
with state securities or "blue sky" laws, fees of the National Association
of Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, costs of insurance, and fees and disbursements of one counsel
for the sellers of Restricted Stock, but excluding any Selling Expenses.
"RESTRICTED STOCK" shall mean (1) the Conversion Shares, excluding
Conversion shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and
disposed of in accordance with the registration statement covering them or
(b) publicly sold pursuant to Rule 144 under the Securities Act and (2)
except for Sections 4 and 6, the Founder Shares, excluding Founder Shares
which have been (a) registered under the Securities Act pursuant to an
effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them or (b) publicly
sold pursuant to Rule 144 under the Securities Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Restricted Stock which are incurred
in connection with a registration statement.
2. RESTRICTIVE LEGEND. Each certificate representing Preferred Shares,
Conversion Shares or Founder Shares shall, except as otherwise provided in this
Section 2 or in Section 3, be stamped or otherwise imprinted with a legend
substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS.
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES
LAWS, OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS
OF THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS.
<PAGE>
-3-
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault
shall be satisfactory) the securities being sold thereby may be sold without
registration under the Securities Act.
3. NOTICE OF PROPOSED TRANSFER. (a) Prior to any proposed transfer of any
Preferred Shares, Conversion Shares or Founder Shares (other than under the
circumstances described in Sections 4, 5 or 6), the holder thereof shall give
written notice to the Company of its intention to effect such transfer. Each
such notice shall describe the manner of the proposed transfer and, if requested
by the Company, shall be accompanied by an opinion of counsel satisfactory to
the Company (it being agreed that Testa, Hurwitz & Thibeault shall be
satisfactory) to the effect that the proposed transfer may be effected without
registration under the Securities Act, whereupon the holder of such stock shall
be entitled to transfer such stock in accordance with the terms of its notice;
PROVIDED, HOWEVER, that no such opinion of counsel shall be required for a
transfer to one or more partners of the transferor (in the case of a transferor
that is a partnership) or to a parent corporation, subsidiary corporation or to
a corporation which is under common control with a transferor (in the case of a
transferor that is a corporation).
(b) Each certificate for Preferred Shares, Conversion Shares or
Founder Shares transferred as provided in this Section 3 shall bear the legend
set forth in Section 2, except that such certificate shall not bear such legend
if (i) such transfer is in accordance with the provisions of Rule 144 or Rule
144A under the Securities Act (or any other rule permitting public sale without
registration under the Securities Act) or (ii) the opinion of counsel referred
to above is to the further effect that the transferee and any subsequent
transferee (other than an affiliate of the Company) would be entitled to
transfer such securities in a public sale without registration under the
Securities Act. The restrictions provided for in this Section 3 shall not apply
to securities which are not required to bear the legend prescribed by Section 2
in accordance with the provisions of Section 2.
4. REQUIRED REGISTRATION. (a) At any time after the Company's Initial
Public Offering, one or more holders of Restricted Stock constituting at least
40% of the total shares of Restricted Stock then outstanding may request the
Company to register under the Securities Act all or any portion of the shares of
Restricted Stock held by such requesting holder or holders for sale in the
manner specified in such notice, PROVIDED that the shares of Restricted Stock
for which registration has been requested shall constitute at least 20% of the
total shares of Restricted Stock originally issued if such holder or holders
shall request the registration of less than all shares of Restricted Stock then
held by such holder or holders (or any lesser percentage if the reasonably
anticipated aggregate price to the public of such public offering would exceed
$2,000,000). For purposes of this Section 4 and Sections 5, 6, 13(a) and 13(d),
the term "Restricted Stock" shall be deemed to include the number of shares of
Restricted Stock which would be issuable to a holder of Preferred Shares upon
conversion of all shares of Preferred Stock held by such holder at such time;
PROVIDED, HOWEVER, that the only securities which the
<PAGE>
-4-
Company shall be required to register pursuant hereto shall be shares of Common
Stock; and PROVIDED further that, in any underwritten public offering
contemplated by this Section 4 or Sections 5 and 6, the holders of Preferred
Shares shall be entitled to sell such Preferred Shares to the underwriters for
conversion and sale (in such public offering) of the shares of Common Stock
issued upon conversion thereof.
(b) Notwithstanding anything to the contrary contained in this
Section 4, no request may be made under this Section 4 within 90 days after the
effective date of a registration statement filed by the Company covering a firm
commitment underwritten public offering in which the holders of Restricted Stock
shall have been entitled to join pursuant to Sections 5 or 6 and in which there
shall have been effectively registered all shares of Restricted Stock as to
which registration shall have been requested.
(c) Further notwithstanding anything to the contrary contained in
this Section 4, if the Company shall furnish to the holders of Restricted Stock
requesting any registration pursuant to this Section 4 a certificate signed by
the President of the Company stating that, in the judgment of the Board of
Directors of the Company, it would be detrimental to the Company or its
shareholders for a registration statement to be filed in the near future, the
Company's obligation to effect such a registration shall be deferred for a
period not to exceed 90 days from the date of receipt by the Company of such
holders', request.
(d) Following receipt of any notice under this Section 4, the Company
shall immediately notify all holders of Restricted Stock from whom notice has
not been received, and such holders shall be entitled within 30 days thereafter
to request the Company to include in the requested registration all or any
portion of their shares of Restricted Stock. The Company shall use its best
efforts to register under the Securities Act, for public sale in accordance with
the method of disposition specified in the notice from requesting holders, the
number of shares of Restricted Stock specified in such notice (and in all
notices received by the Company from other holders within 30 days after the
giving of such notice by the Company). If such method of disposition shall be
an underwritten public offering, the holders of a majority of the shares of
Restricted Stock to be sold in such offering may designate the managing
underwriter of such offering, subject to the approval of the Company, which
approval shall not be unreasonably withheld or delayed.
(e) The Company shall be obligated to register Restricted Stock
pursuant to this Section 4, on only two (2)occasions; PROVIDED, HOWEVER, that
such obligation shall be deemed satisfied only when a only when a registration
statement covering all shares of Restricted Stock specified in notices received
as aforesaid, for sale in accordance with the method of disposition specified by
the requesting holders shall have become effective and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto.
<PAGE>
-5-
(f) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, except as and to the extent that, in
the opinion of the managing underwriter (if such method of disposition shall be
an underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold.
(g) Except for registration statements on Forms S-4, S-8 or any
successor-forms thereto, and unless the Company has previously given the notice
referred to in Section 5, the Company will not file with the Commission any
other registration statement with respect to its Common Stock, whether for its
own account or that of other stockholders, from the date of receipt of a notice
from requesting holders pursuant to this Section 4 until the completion of the
period of distribution of the registration contemplated thereby.
5. INCIDENTAL REGISTRATION. (a) If the Company at any time (other than
pursuant to Section 4 or Section 6) proposes to register any of its securities
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or any successor forms thereto), each
such time it will give written notice to all holders of outstanding Restricted
Stock of its intention so to do. Upon the written request of any such holder,
received by the Company within 30 days after the giving of any such notice by
the Company, to register any of its Restricted Stock (which request shall state
the intended method of disposition thereof), the Company will use its best
efforts to cause the Restricted Stock as to which registration shall have been
so requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent required to
permit the sale or other disposition by the holder (in accordance with its
written request) of such Restricted Stock so registered.
(b) If any registration pursuant to this Section 5 shall be, in whole
or in part, an underwritten public offering of Common Stock, the number of
shares of Restricted Stock to be included in such an underwriting may be reduced
as follows: first from the Founder Shares, and then pro rata among the other
requesting holders based upon the number of shares of Restricted Stock owned by
such holders if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; PROVIDED, HOWEVER, that such
number of shares of Restricted Stock shall not be reduced if any shares are to
be included in such underwriting for the account of any person other than the
Company or requesting holders of Restricted Stock, and PROVIDED FURTHER that in
no event shall less than one-third of the total number of shares of Common Stock
to be included in such an underwriting be made available for shares of
Restricted Stock.
(c) Notwithstanding the foregoing provisions of this Section 5, the
Company may withdraw any registration statement referred to in this Section 5
without thereby incurring any liability to the holders of Restricted Stock.
<PAGE>
-6-
6. REGISTRATION ON FORM S-3. (a) If at any time (i) a holder or holders
of-Restricted Stock request that the Company file a registration statement on
Form S-3 or any successor thereto for a public offering of all or any portion of
the shares of Restricted Stock held by such requesting holder or holders, the
reasonably anticipated aggregate price to the public of which would exceed
$500,000, and (ii) the Company is a registrant entitled to use Form S-3 or any
successor thereto to register such shares, then the Company shall use its best
efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of shares of Restricted Stock specified in such
notice.)
(b) Whenever the Company is required by this Section 6 to use its
best efforts to effect the registration of Restricted Stock, each of the
procedures and requirements of Section 4 (including but not limited to the
requirement that the Company notify all holders of Restricted Stock from whom
notice has not been received and provide them with the opportunity to
participate in the offering) shall apply to such registration; PROVIDED,
HOWEVER, that there shall be no limitation on the number of registrations on
Form S-3 which may be requested and obtained under this Section 6; and PROVIDED
FURTHER that the requirements contained in the first sentence of Section 4(a)
shall not apply to any registration on Form S-3 which may be requested and
obtained under this Section 6.
7. OBLIGATIONS OF THE COMPANY. If and whenever the Company is required
by the provisions of Section 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided), except that the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended for a period not to
exceed 90 days in any 24-month period if there exists at the time material
nonpublic information relating to the Company which, in the reasonable opinion
of the Company, should not be disclosed;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 7(a) and comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such registration statement in accordance with the sellers, intended method
of disposition set forth in such registration statement for such period;
<PAGE>
-7-
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request;
PROVIDED, HOWEVER, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock is delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters and to such seller,
stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements contained therein) and (C) to such other
effects as reasonably may be requested by counsel for the underwriters or by
such seller or its counsel, and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any
<PAGE>
-8-
amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including information as
to the period ending no more than five business days prior to the date of such
letter) with respect to such registration as such underwriters reasonably may
request; and
(h) make available for inspection by each seller of Restricted Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
For purposes of Sections 4(f), 7(a) and 7(b), the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 90 days
after the effective date thereof.
8. OBLIGATIONS OF SELLING SHAREHOLDERS. In connection with each
registration hereunder, the sellers of Restricted Stock will furnish to the
Company in writing such information with respect to themselves and the proposed
distribution by them as reasonably shall be necessary to assure compliance with
federal and applicable state securities laws.
9. CERTAIN UNDERWRITING MATTERS. In connection with each registration
pursuant to Sections 4, 5 or 6 covering an underwritten public offering, the
Company and each seller agree to enter into a written agreement with the
managing underwriter selected in the manner herein provided in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
10. EXPENSES. (a) The Company will pay all Registration Expenses in
connection with each registration statement under Sections 4, 5 and 6, including
the Registration Expenses of the Purchaser and the Founder.
(b) All Selling Expenses in connection with each registration
statement under Sections 4, 5 or 6 shall be borne by the participating sellers
in proportion to the number of shares sold by each, or by such participating
sellers other than the Company (except to the extent the Company shall be a
seller) as they may agree.
<PAGE>
-9-
11. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of a registration
of any of the Restricted Stock under the Securities Act pursuant to Sections 4,
5 or 6, the Company will and hereby does indemnify and hold harmless each seller
of such Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Sections 4, 5 or 6, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, PROVIDED, HOWEVER, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such seller, any such underwriter or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each other seller of
Restricted Stock, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
other seller, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Restricted Stock was registered
under the Securities Act pursuant to Sections 4, 5 or 6, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and each
such officer, director, other seller, underwriter and controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
PROVIDED, HOWEVER, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue
<PAGE>
-10-
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to such seller, as
such, furnished in writing to the Company by such seller specifically for use in
such registration statement or prospectus, and PROVIDED FURTHER that the
liability of each seller hereunder shall not apply to amounts paid in settlement
without such seller's prior written consent. Not in limitation of the
foregoing, it is hereby understood and agreed that the indemnification
obligations of any seller hereunder pursuant to any underwriting agreement
entered into in connection herewith shall be limited to the obligations
contained in this Section 11(b).
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 11 and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11 if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, PROVIDED
HOWEVER, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 11 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 11 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this
<PAGE>
-11-
Section 11; then, and in each such case, the Company and such holder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so that such
holder is responsible for the portion represented by the percentage that the
public offering price of its Restricted Stock offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; PROVIDED HOWEVER, that, in any such case, no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
12. CHANGES IN COMMON STOCK OR PREFERRED STOCK. If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
13. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
after 90 days after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon request
a written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Restricted Stock without
registration.
14. TRANSFERABILITY OF REGISTRATION RIGHTS. The rights conferred herein
on the holders of Preferred Shares or Conversion Shares shall only inure to the
benefit of a transferee of Preferred Shares or Conversion Shares if (i) there is
transferred to such transferee at least 10,000 of the Preferred Shares or
Conversion Shares or (ii) such transferee is a partner of the transferor (in the
case of a transferor that is a partnership) or such transferee is a shareholder,
parent
<PAGE>
-12-
corporation, subsidiary corporation or a corporation which is under common
control with a transferor (in the case of a transferor that is a corporation).
15. "MARKET STAND-OFF" AGREEMENT. If requested in writing by the
underwriters for the Company's Initial Public Offering, each holder of
Restricted Stock who is a party to this Agreement shall agree not to sell
publicly any shares of Restricted Stock or any other shares of Common Stock
(other than shares of Restricted Stock or other shares of Common Stock being
registered in such offering), without the consent of such underwriters, for a
period of not more than 90 days following the effective date of the registration
statement relating to such offering; PROVIDED HOWEVER, that all persons entitled
to registration rights with respect to shares of Common Stock whether or not
they are parties to this Agreement, all other persons selling shares of Common
Stock in such offering and all executive officers and directors of the Company
shall also have agreed not to sell publicly their Common Stock under the
circumstances and pursuant to the terms set forth in this Section 15.
16. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The company represents
and warrants to the Purchaser as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Certificate of Incorporation or By-laws of the Company or any
provision of any indenture, agreement or other instrument to which it or any or
its properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
17. MISCELLANEOUS.
(a) BINDING EFFECT; ASSIGNMENT. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto (including without limitation transferees of any Preferred Shares
or Conversion Shares), whether so expressed or not.
(b) NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be mailed by certified or
registered mail, return receipt requested, postage prepaid, or telexed, in the
case of non-U.S. residents, addressed as follows:
<PAGE>
-13-
if to the Company or any other party hereto, at the address of such
party set forth in the Purchase Agreement;
if to any subsequent holder of Preferred Shares or Restricted Stock,
to it at such address as may have been furnished to the Company in writing by
such holder;
in any case, at such other address or addresses as shall have been furnished in
writing to the Company (in the case of a holder of Preferred Shares or
Restricted Stock) or to the holders of Preferred Shares or Restricted Stock (in
the case of the Company) in accordance with the provisions of this paragraph.
(c) NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
(d) AMENDMENTS, WAIVERS AND CONSENTS. This Agreement may not be
amended or modified, and no provision hereof may be waived, without the written
consent of the Company and the holders of at least a majority of the outstanding
shares of Restricted Stock.
(e) TERMINATION. The obligations of the Company to register shares
of Restricted Stock under Sections 4, 5 or 6 shall terminate on the tenth
anniversary of the completion of an underwritten public offering of shares of
Common Stock in which the net proceeds to the Company shall be at least
$10,000,000.
(f) LIMITATION ON GRANT OF OTHER REGISTRATION RIGHTS. The Company
shall not grant any registration rights more favorable than any of those
contained herein, so long as any of the registration rights under this Agreement
remains in effect.
(g) SEVERABILITY. If any provision of this Agreement shall be held
to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
(h) GOVERNING LAW. 'THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE AS TO MATTERS WITHIN THE SCOPE THEREOF AND AS TO ALL OTHER MATTERS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS,
<PAGE>
-14-
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF THE CONFLICTS OF LAWS THEREOF.
(i) INJUNCTIVE RELIEF. The Company recognizes that the rights of the
Purchasers under this Agreement are unique and, accordingly, the Purchasers
shall, in addition to such other remedies as may be available to them at law or
in equity, have the right to enforce their rights hereunder by actions for
injunctive relief and specific performance to the extent permitted by law. This
Agreement is not intended to limit or abridge any rights of the Purchasers which
may exist apart from this Agreement.
(j) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[The Remainder of This Page Intentionally Left Blank.]
<PAGE>
-15-
- - IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
NEON SYSTEMS, INC.
By: /s/ Peter Schaeffer
-------------------
Peter Schaeffer
President
: Address: 6464 Savoy Drive Suite 4141
Houston, Texas 77063
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P. Its General
Partner
By: /s/ Charles E. Noell
--------------------
Charles E. Noell
A General Partner
Address: 14141 Southwest Freeway,
Suite 6200
Sugar Land, Texas 77478
/s/ Peter Schaeffer
-------------------
Peter Schaeffer
Address:
<PAGE>
EXHIBIT 10.14
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") dated as of
________________, 19___, is between Neon Systems, Inc., a Delaware corporation
(the "Company"), and the undersigned director of the Company (the "Indemnitee"),
with reference to the following facts:
A. The Indemnitee. is currently serving as a director of the Company and
the Company desires that the Indemnitee continue in such capacity. The
Indemnitee is willing, under certain circumstances, to continue serving as a
director of the Company.
B. Section 145 of the General Corporation Law of the State of Delaware,
under which Law the Company is organized empowers a corporation to indemnify a
person serving as a director, officer, employee or agent of the corporation and
a person who serves at the request of the corporation as a, director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, and such Section 145 and the bylaws of the Company specify
that the indemnification set forth in said Section 145 and in the bylaws,
respectively, shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
In order to induce the Indemnitee to continue to serve as a director of the
Company and in consideration of his or her continued service, the Company hereby
agrees to indemnify the Indemnitee as follows:
1. INDEMNITY. The Company shall indemnify the Indemnitee and his or her
executors,. administrators or 'assigns, for any Expenses (as defined below) that
the Indemnitee is or becomes legally obligated to pay in connection with any
Proceeding. As used in this Agreement the term "Proceeding" shall include any
threatened, pending or completed claim, action, suit, investigation or
proceeding, whether brought by or in the right of the Company or otherwise and
whether of a civil, criminal, administrative or, investigative nature, in which
the Indemnitee may be or may have been involved as a party, witness or
otherwise, by reason of the fact that Indemnitee is or was a director or officer
of the Company, by reason of any actual or alleged error or misstatement or
misleading statement made or suffered by the Indemnitee, by reason of any action
taken by him or her or of any inaction on his or her part while acting as such
director or officer, or by reason of the fact that he or she was serving at the
request of the Company as a director, trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise;
PROVIDED, HOWEVER, that in each such case Indemnitee. acted. in good faith and
in a manner which he or she reasonably believed to be in or not opposed to the
best interests of the Company, and, in the case of a criminal proceeding, in
addition had no reasonable cause to believe that his or her conduct was
unlawful. As used in this Agreement, the term "other enterprise" shall include
(without limitation) employee benefit plans and administrative committees
thereof, and the term "fines" shall include (without limitation) any excise tax
assessed with respect to any employee benefit plan. Any corporation,
partnership,
<PAGE>
limited liability company or other entity on behalf of which Indemnitee may be
deemed to be acting in connection with his or her service to the Company shall
be entitled to the benefits of the indemnity provided for by this Agreement to
the same extent and under the same conditions upon which Indemnitee is entitled.
to such. indemnity.
2. EXPENSES. As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, judgments, fines, penalties, settlements
and costs, attorneys' fees and disbursements and costs of attachment or similar
bonds, investigations, and any expenses of establishing a right to
indemnification under this Agreement.
3. ENFORCEMENT. If a claim or request under this Agreement is not paid
by the Company, or on its behalf, within 30 calendar days after a written claim.
or request has been received by the Company, then the Indemnitee may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim or request and if successful in whole or in part, the Indemnitee shall be
entitled to be paid also the Expenses of prosecuting such suit. The burden of
proving that the Indemnitee is not entitled to indemnification for any reason
shall be upon the Company..
4. SUBROGATION. Upon any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of.
the Indemnitee, who shall execute all papers required and shall do everything
that may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
5. EXCLUSIONS. The Company shall not be liable under this Agreement to
pay any Expenses in connection with any claim made against the Indemnitee:
(a) to the extent that payment is actually made to the Indemnitee
under a valid, enforceable and collectible insurance policy;
(b) to the extent that the Indemnitee is indemnified and actually
paid otherwise than pursuant to this Agreement:
(c) in connection with a judicial action by or in the right of the
Company, in respect of any claim, issue or matter as to which the
Indemnitee shall have been adjudged to be liable to the Company unless and
only to the extent that any court in which such action was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses as such court shall deem
proper;
(d) if it is proved by final judgment in a court of law or other
final adjudication to have been based upon or attributable to the
Indemnitee's in fact having gained any personal profit or advantage to
which he or she was not legally entitled;
(e) f or a disgorgement of profits made from the purchase and sale by
the Indemnitee of securities pursuant to Section 16(b) of the Securities
Exchange Act of
<PAGE>
1934, as amended, and amendments thereto or similar provisions of any state
statutory law or common law; or
(f) for any judgment, fine or penalty which the Company is prohibited
by applicable law from paying.
6. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against any and all Expenses incurred in
connection therewith.
7. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company 'for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify the Indemnitee for the portion of such Expenses to
which the Indemnitee is entitled.
8. ADVANCE OF EXPENSES. Expenses incurred by the Indemnitee in
connection with any Proceeding, except the amount of any settlement, shall be
paid by the Company in advance upon request of the Indemnitee that the Company
pay such expenses. The Indemnitee hereby undertakes to repay to the Company the
amount of any Expenses theretofore paid by the Company to the extent that it is,
ultimately determined that such Expenses were not reasonable or that the
Indemnitee is not entitled to indemnification.
9. NOTICE OF CLAIM. The Indemnitee, as a condition precedent to his or
her right to be indemnified under this Agreement, shall give to the Company
notice in writing as soon as practicable of any claim made against him or her
for which indemnity will or could be sought under this Agreement, but a failure
to give such notice will affect the obligations of the Company hereunder only to
the extent that the Company is actually and materially prejudiced thereby.
Notice to the Company shall be given at its corporate headquarters and shall be
directed to the corporate secretary (or such other addressee as the Company
shall designate in writing to the Indemnitee); notice shall be deemed received
it sent by prepaid mail properly addressed, the date of such notice being the
date postmarked. In addition, the Indemnitee shall give the Company such
information and cooperation as it may reasonably require in connection with such
claim.
10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one instrument.
11. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Certificate of Incorporation or
bylaws of the Company and amendments thereto or under law.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with Delaware law, without giving effect to the principles of
conflict of laws thereof.
<PAGE>
13. SAVING CLAUSE. Wherever there is conflict between any provision of
this Agreement and any applicable present or future statute, law or regulation
contrary to which the Company and the Indemnitee have no legal right to
contract, the latter shall prevail, but in such event the affected provisions of
this Agreement shall be curtailed and restricted only to the extent necessary to
bring them within applicable legal requirements.
14. COVERAGE. The provisions of this Agreement shall apply with respect
to the Indemnitee's service as a (director and/or officer) of the Company prior
to the date of this Agreement and with respect to all periods of such service
after the date of this Agreement, even though the Indemnitee may have ceased to
be a director of the Company.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, legatees,
legal representatives, successors and. permitted assigns.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
"COMPANY" NEON SYSTEMS, INC.
By:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
"INDEMNITEE"
--------------------------------------------
<PAGE>
EXHIBIT 10.15
ORIGINAL LEASE
SUGAR CREEK PLACE
SUGAR LAND, TEXAS
LEASE AGREEMENT
By and Between
TURNER ADREAC, L.C.
and
NEON SYSTEMS, INC.
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into on this 23rd day of October,
1997, by and between Landlord and Tenant.
W I T N E S S E T H:
1. CERTAIN DEFINITIONS AND BASIC TERMS.
1.01 Parties, Rent, Term and Premises. Landlord and Tenant hereby
agree that for purposes of this Lease, the following capitalized terms shall
mean:
LANDLORD: Turner Adreac, L.C., a Texas limited liability
company.
TENANT: Neon Systems, Inc., a Delaware corporation.
BASE RENTAL: Years 1-5 - Twenty and No/100 Dollars ($20.00) per
year per square foot of Net Rentable Area within the
Leased Premises.
BASE YEAR: 1999
BROKER: Trione & Gordon, Inc.
BUILDING: The Sugar Creek Place office building, which is to
be constructed on the Land.
COMMENCEMENT DATE: If Tenant elects to have Landlord contract for the
construction of the Leasehold Improvements, the later to occur of. (i) Fifteen
(15) days following the Leasehold Improvements Completion Date (as defined in
Exhibit "C" attached hereto), less the total number of days of Tenant Delay (as
defined in Exhibit "C") and (ii) August 1, 1998. If Tenant elects to have
Landlord contract for the construction of the Leasehold Improvements and the
Leasehold Improvements Completion Date less the number of days of Tenant Delay
(as defined in Exhibit "C") is a date after July 15, 1998, then two (2) days of
Base Rental shall abate and not be made payable by Tenant for each day after
such date until the Commencement Date, and, in the event as a result of such
delay, Tenant is required to temporarily relocate its offices, Landlord shall
reimburse Tenant for Tenant's reasonable and actual third party moving expenses
paid and or payable for such temporary relocation provided, however, that such
temporary relocation shall be as a result of Landlord's failure to complete
construction of the Leasehold Improvements and tender possession of the Leased
Premises to Tenant by July 15, 1998 other than by reason of Tenant Delay.
If Tenant elects to contract directly for the construction of the Leasehold
Improvements, the Commencement Date shall be the later of (i) the date which is
ninety (90) days following the date that Landlord tenders possession of the
Leased Premises to Tenant in a "broom clean" condition
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with all of Landlord's Work (as described in Exhibit "C") complete, excluding
such portions of Landlord's Work which are required to be performed following
completion of work to be performed by Tenant's contractor, or (ii) August 1,
1998. In the event that Landlord does not so tender the Leased Premises to
Tenant by May 1, 1998, and further provided that Tenant has timely met Tenant's
obligations per the terms and conditions of Exhibit "C" including the Schedule
of Critical Dates, (as defined in Exhibit "C"), then two (2) days of Base Rental
shall abate and not be payable by Tenant for each day until such date which the
Leased Premises are so tendered to Tenant, and in the event as a result of such
delay, Tenant is required to temporarily relocate its offices, Landlord shall
reimburse Tenant for Tenant's reasonable and actual third party moving expenses
paid and or payable for such temporary relocation provided, however, that such
temporary relocation shall be as a result of Landlord's failure to timely tender
possession of the Leased Premises other than by reason of Tenant Delay.
Notwithstanding the foregoing, if as of the Commencement Date determined in
accordance with either of the two preceding paragraphs the Garage (as defined on
Exhibit "E") or the ground-floor lobby of the Building are not substantially
complete (i.e., open and available for use by Tenant and its employees and
visitors as intended by the design thereof), the Commencement Date will be
delayed until the Garage and ground-floor Building lobby are substantially
complete, and two (2) days of Base Rental shall abate and not be made payable by
Tenant for each day that the Commencement Date is so delayed.
LAND: The tract or parcel of land described by metes and bounds on
Exhibit "A" attached hereto and made a part hereof for all purposes.
LANDLORD'S ADDRESS FOR NOTICES:
Turner Adreac, L.C.
407 Julie Rivers Dr., Suite 102
Sugar Land, Texas 77478
WITH A COPY TO:
Dwight Donaldson
10497 Town & Country Way, Suite 855
Houston, Texas 77024
LEASED PREMISES: All of floor 5 of the Building estimated to be a
minimum of twenty five thousand six hundred thirty-three (25,633) square feet of
Net Rentable Area as reflected on the floor plan(s) of the Leased Premises
attached hereto and made a part hereof for all purposes as Exhibit "B", together
with any additional premises hereafter added thereto by written amendment to
this Lease.
MINIMUM LEASED PREMISES NET RENTABLE AREA: All of floor 5 of the
Building estimated to be a minimum of 25,633 square feet.
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RENT: All Base Rental, Tenant's Additional Rental, Tenant's
Estimated Additional Rental (as defined below) and all other sums payable to
Landlord by Tenant pursuant to the terms of this Lease.
SECURITY DEPOSIT: forty two thousand seven hundred twenty-one and
66/100 Dollars ($42,721.66).
TENANT'S ADDITIONAL RENTAL: For each calendar year Tenant's
Proportionate Share of the Excess Operating Expense Amount (defined below).
TENANT'S PROPORTIONATE SHARE: The term "Tenant's Proportionate
- -Share" shall mean the percentage determined by dividing the Net Rentable Area
contained within the Leased Premises by the aggregate Net Rentable Area of the
Building.
TENANT'S ADDRESS FOR NOTICES: Until Tenant occupies the Leased
Premises, after which time Tenant's address for notices will be the Leased
Premises, the address for notices to Tenant is:
Neon Systems, Inc.
14141 Southwest Freeway, Suite 6200
Sugar Land, Texas 77478
Attn: John Reiland
TERMINATION DATE: Sixty months following the Commencement Date
subject to the Commencement Agreement attached hereto as Exhibit "I".
1.02 OTHER BASIC TERMS.
NET USABLE AREA. The term 'Net Usable Area", as used herein,
shall mean (a) in the case of a floor leased to a single tenant, all floor area
measured from the inside surface of the outer glass line of the Building to the
inside surface of the opposite outer glass line, excluding only Vertical
Penetrations and General Common Areas (both defined below), and (b) in the case
of a floor leased to or held for lease to more than one tenant, all floor are-as
within the inside surface of the outer glass line of the Building enclosing the
Leased Premises and measured to the inside surface of demising walls (I.E.,
walls separating the Leased Premises from areas leased to or held for lease to
other tenants, from On-Floor Common Areas (defined below] and/or from General
Common Areas), excluding only Vertical Penetrations.
VERTICAL PENETRATIONS. The term "Vertical Penetrations' shall
mean the areas within (and measured from the mid-point of the walls enclosing)
Building's stairs, fire towers, elevator shafts, flues, vents, stacks, pipe
shafts and vertical ducts, but excluding columns or projections necessary to the
Building. Areas for the specific use of Tenant and installed at the request of
Tenant such as special stairs or elevators are not included within the
definition of Vertical Penetrations.
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GENERAL COMMON AREAS. The term "General Common Areas" shall mean
those areas within (and measured from the mid-point of the walls enclosing) the
Building's elevator machine rooms, main mechanical and electrical rooms, ground
floor public lobbies, rest rooms, mechanical rooms, janitor closets, telephone
and equipment rooms, and other similar facilities and other areas not leased or
held for lease within the Building but which are necessary or desirable for the
proper utilization of the Building or to provide customary services to the
Building.
ON-FLOOR COMMON AREAS. The term "On-Floor Common Area" shall mean
all areas located above the ground floor of the Building and within (and
measured from the mid-point of the walls enclosing) public corridors, elevator
foyers and mechanical and electrical rooms for the use of all tenants on the
floor on which the Leased Premises are located.
COMMON AREAS. The term "Common Areas" shall mean all of the
General Common Areas and the On-Floor Common Areas of the Building.
NET RENTABLE AREA. The term "Net Rentable Area' shall be measured
and mean as follows:
(i) as to any full floor leased by Tenant, the
Net Rentable Area of the space leased shall equal the sum of (A) the Net
Usable Area of that space, and (B) an allocation of the square footage of
the General Common Areas (as such term is hereinafter defined) based upon
the ration which the Net Usable Area of the space bears to the aggregate
Net Usable Area of the Building; and
(ii) as to any partial floor leased by Tenant,
the Net Rentable Area of the space leased shall equal the sum of (A) the
Net Usable Area of that space, (B) an allocation of the square footage of
the On Floor Common Areas (as such term is herein defined) based upon the
ratio which the Net Usable Area of that space bears to the aggregate Net
Usable Area of the floor on which its located, and (C) an allocation of
the area of the square footage of the General Common Areas based upon the
ratio which the sum of (A) and (B) bears to the aggregate Net Usable Area
of the office space in the Building.
NET RENTABLE AREA OF THE LEASED PREMISES AND THE BUILDING. The
foregoing definitions of Net Usable Area, Vertical Penetrations, General Common
Areas, On-floor Common Areas and Net Rentable Area shall be used by the
Landlord's architect in calculating the Building Net Rentable Area, Leased
Premises Net Rentable Area and Tenant's Proportionate Share upon substantial
completion of construction of the Building, such calculations to be reviewed and
agreed to by the Tenant's Architect. Tenant and Landlord hereby stipulate and
agree that such computations, as agreed to by Landlord's architect and Tenant's
Architect, shall be appropriate and acceptable, notwithstanding any different
measurement thereof that may be based on any industry standard established,
whether now used or hereafter established, in other similar office buildings in
the area of the Building, and that such computations by the Landlord's architect
and Tenant's architect shall be confirmed by Landlord and Tenant in the
Commencement Agreement. If the Building is ever demolished, altered, remodeled,
renovated, expanded or otherwise changed in such
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manner as to alter the amount of space contained therein, the Building Net
Rentable Area shall be adjusted and recalculated pursuant only to a physical
change in the Building by using the foregoing method of determining Net Rentable
Area.
EXCESS OPERATING EXPENSE AMOUNT. For any calendar year, the
amount by which the Operating Expense Amount for that year exceeds the Operating
Expense amount for the Base Year. If the rentable area of the Building in that
year differs from the rentable area of the Building in the Base Year pursuant
only to a physical change in the Building, the Operating Expense amount for the
Base Year shall be appropriately adjusted.
2. DEMISE AND LEASE TERM.
2.01 DEMISE OF LEASED PREMISES. Subject to and upon the terms,
provisions and conditions hereinafter set forth, and each in consideration of
the duties, covenants and obligations of the other hereunder, Landlord does
hereby lease, demise and let to Tenant and Tenant does hereby lease and take
from Landlord the Leased Premises.
2.02 TERM. Subject to and upon the terms and conditions set forth
herein, or in any exhibit hereto, the term of this Lease shall commence on the
Commencement Date and shall expire on the Termination Date.
2.03 DECLARATION OF COMMENCEMENT DATE. Within five (5) days after the
Commencement Date and at any time thereafter upon the request of Landlord,
Tenant shall execute and deliver to Landlord a declaration as set forth in
Exhibit I of the Lease attached hereto specifying the date upon which the same
occurred.
3. USE. The Leased Premises are to be used and occupied by Tenant
(and its permitted assignees and subtenants) solely for the purpose of general
office space and incidental or related uses and for no other purpose, provided,
however, the Leased Premises shall never be used for any one of the Specifically
Prohibited Uses set out in Section 7.05. The Premises may be used by Tenant (and
its permitted assignees and subtenants) for general office space and incidental
or related uses and no other purpose. Tenant may maintain (for the
noncommercial use of its employees and visitors) a kitchen/lunch room, coffee
bars, printing and copying facilities, storage, telecommunications equipment,
computer equipment, data and word processing equipment, showers, exercise rooms,
and any other facility or equipment utilized in the normal conduct of Tenant's
business and not inconsistent with the primary use of the Premises as a business
office.
4. RENT.
4.01 BASE RENTAL. Tenant hereby covenants and agrees to pay the Base
Rental and Tenant's Additional Rental in accordance with Section 4.04 below.
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4.02 ADDITIONAL RENTAL. (a) At or prior to March 1 of each calendar
year beginning in 2000, Landlord shall present to Tenant a good faith estimate
of Tenant's Additional Rental to be due and payable by Tenant for the balance of
such calendar year. Tenant shall not be responsible for the payment of any
Additional Rental for the years 1998 and 1999. Thereafter Tenant shall pay to
Landlord an amount equal to the estimated Tenant's Additional Rental for the
remainder of such year divided by the number of full calendar months remaining
in such year, which payments shall be made according to the terms of Section
4.04. From time to time during any calendar year and upon thirty (30) days prior
written notice to Tenant, Landlord may revise its estimate of the Tenant's
Additional Rental for such calendar year. Thereafter, the monthly installments
of estimated Tenant's Additional Rental payable by Tenant shall be appropriately
adjusted in accordance with the revised estimate so that by the end of such
calendar year, the total payments of estimated Tenant's Additional Rental paid
by Tenant shall equal the amount of such revised estimate. As used herein,
"Tenant's Estimated Additional Rental" shall mean the estimated Tenant's
Additional Rental payments to be made by Tenant pursuant to this Section 4.02.
(b) As used herein, "Operating Expense Amount" shall mean an amount
equal to (x) plus (y), where:
(x) equals the amount of the Actual Operating Expenses (defined
below) for the entire Complex (defined below) for such year, and
(y) equals a management fee contribution equal to Five percent
(5%) of Base Rental for the entire Complex (defined below) for such year
subject to Section 4.03 (d) (xxiii).
(c) Within one hundred fifty (150) days after the end of each calendar
year during the term of this Lease (except for the year 1998 ), Landlord shall
provide Tenant a statement showing the Actual Operating Expenses for said
calendar year, prepared in accordance with generally accepted accounting
principles, and a statement prepared by Landlord comparing Tenant's Estimated
Additional Rental paid by Tenant with Tenant's Additional Rental. In the event
that Tenant's Estimated Additional Rental paid by Tenant exceeds Tenant's
Additional Rental for said calendar year, Landlord shall pay Tenant an amount
equal to such excess at Landlord's option, by either giving a credit against
rentals next due, if any, or by direct payment to Tenant within thirty (30) days
of the date of such statement. In the event that the Tenant's Additional Rental
exceeds Tenant's Estimated Additional Rental for said calendar year, Tenant
shall pay Landlord, within thirty (30) days of receipt of the statement, an
amount equal to such difference. Tenant shall have the fight to audit, at
Tenant's expense and after giving twenty (20) days' prior written notice to
Landlord, Landlord's books and records relating to Actual Operating Expenses for
any period within the term of this Lease. Any such inspection and audit shall
be at Tenant's expense and shall be conducted in Landlord's office during normal
business hours by Tenant's accounting personnel or by independent public
accountants or other qualified consultants.
4.03 ACTUAL OPERATING EXPENSES. (a) "Actual Operating Expense", as
that term is used herein, shall consist of all Operating Expenses (defined
below), computed on a calendar year accrual basis, for the Building, the Land,
related pedestrian walkways, landscaping, fountains,
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roadways and parking facilities, and such additional facilities to service any
of the foregoing in subsequent years as may be necessary or desirable in
Landlord's discretion (the Building, the Land, and said additional facilities
being hereinafter sometimes collectively called the "Complex").
(b) The term "Operating Expenses" as used herein shall mean all
expenses, costs and disbursements (other than the costs and expenses
specifically described in Section 4.03(d) below) of every kind and nature
relating to or incurred or paid in connection with the ownership and operation
of the Complex, including but not limited to, the following:
(i) Reasonable wages and salaries of all persons directly
engaged in the operation, maintenance, security or access control for the
Complex, including taxes, insurance and benefits relating thereto.
(ii) Cost of supplies, tools, equipment and materials used in
the operation and maintenance of the Complex.
(iii) Cost of all utilities for the Complex which are not paid or
reimbursed by tenants, including but not limited to the cost of water and
power for heating, lighting, air conditioning and ventilating.
(iv) Cost of all maintenance and service agreements for the
Complex and the equipment therein, including but not limited to security
service, window cleaning, elevator maintenance and janitorial service.
(v) Cost of repairs and general maintenance (excluding repairs
and general maintenance paid or reimbursed by proceeds of insurance or by
Tenant or other third parties).
(vi) Amortization of the cost of installation of capital
investment items which are installed for the purpose of reducing or
avoiding increases in operating expenses or which may be required by
governmental authority; provided, however, no costs related to initial
construction of the Complex shall be included. All such costs which
relate to the installation of such capital investment items shall be
amortized over the reasonable life of the capital investment item, with
the reasonable life and amortization schedule being determined in
accordance with generally accepted accounting principles and in no event
to extend beyond the reasonable life of the Complex.
(vii) The cost of all insurance relating to the Complex as
Landlord may elect to obtain, which may include without limitation the
cost of fire and extended coverage insurance, rental abatement insurance
and liability insurance applicable to the Complex and Landlord's personal
property used in connection therewith.
(viii) All taxes, assessments and governmental charges (including
reasonable costs and expenses contesting the amount or validity thereof
by appropriate administrative or legal proceedings, paid or payable by
Landlord (excluding Abated Taxes for the applicable
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year as provided and defined in Section 4.05), whether federal, state,
county or municipal and whether they be by taxing districts or
authorities presently taxing the Complex or by others subsequently
created or otherwise, and any other taxes and assessments attributable to
the Complex or its operation, including, without limitation, all real
property taxes and general and special assessments; vault rentals;
charges, fees, levies or assessments for transit, housing, police, fire
or other governmental services or purported benefits to the Complex;
service payments in lieu of taxes; and any tax, fee or excise on the act
of entering into this Lease or any other lease of space in the Building,
on the use or occupancy of the Complex or any part thereof, or on the
rent payable under any lease or in connection with the business of
renting space in the Complex, 'Taxes" shall not include federal and state
taxes on income, death taxes, franchise taxes, and any taxes imposed or
measured on or by the income of Landlord from the operation of the
Complex; provided, however, that if at any time during the term of this
Lease, the present method of taxation or assessment shall be so changed
that the whole or any part of the taxes, assessments, levies, impositions
or charges now levied, assessed or imposed on real estate and the
improvements thereto shall be discontinued and as a substitute therefore,
or in lieu of an addition thereto, taxes, assessments, levies,
impositions or charges shall be levied, assessed and/or imposed wholly or
partially as a capital levy or otherwise on the rents received from the
Complex or the rents reserved herein or any part thereof, then such
substitute or additional taxes, assessments, levies, impositions or
charges, to the extent so levied, assessedor imposed, shall be deemed to
be included within Operating Expenses to the extent that such substitute
or additional tax would be payable if the Complex were the only property
of the Landlord subject to such tax. Tenant shall, in addition to and
separate from Tenant's Additional Rental as herein calculated, pay and
reimburse Landlord upon demand for any and all taxes, surcharges, levies,
assessments, fees and charges payable by Landlord, whether or not now
customary or within the contemplation of the parties hereto: (a) upon,
measured by or reasonably attributable to the cost or value of Tenant's
equipment, furniture, fixtures and other personal property located in the
Leased Premises-, (b) upon or measured by any rent payable hereunder
including, without limitation, any gross income tax, gross receipts tax
or excise tax levied by the State of Texas, the federal government of the
United States or any other governmental body with respect to the receipt
of such rent; (c) upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy
by Tenant of the Leased Premises or any portion thereof, or (d) upon this
transaction or any document to which Tenant is a party creating or
transferring an interest of an estate in the Leased Premises.
(c) In the event that the Building is less than 95% occupied, on a
monthly average basis calculated on the ratio of Net Rentable Area under lease
to the aggregate Net Rentable Area in the Building, during any calendar year or
in the event the entire Building is not provided with Building standard services
during any calendar year, an adjustment shall be made in computing each
component of the Actual Operating Expenses which varies with the rate of
occupancy of the Building (such as utility and janitorial expenses) so that the
Actual Operating Expenses shall be computed for such year as though the Building
had been 95% occupied during such year and as though the entire Building had
been provided with Building standard services during such year. In making the
adjustment of Actual Operating Expenses pursuant to this Section 4.03 (c),
however, it
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is understood and agreed that (i) no adjustment will be made to any item or
component of Actual Operating Expenses which does not actually vary with the
rate of occupancy of the Building, (ii) any adjustment that is made to any item
or component of Actual Operating Expenses shall be based on the extent to which
that particular item or component actually varies with the rate of occupancy of
the Building, and (iii) the adjustments for each year after the Base Year shall
be made in a manner consistent with the adjustments for the Base Year.
(d) Landlord hereby agrees that "Operating Expenses" shall not include
(i) depreciation and other non-cash charges, expenditures classified as capital
expenditures for federal income tax purposes and amortization thereon except as
set forth in Section 4.03(b)(vi), (ii) costs for which Landlord is entitled to
specific reimbursement by Tenant, by any other tenant of the Building or by any
other third party or Abated Taxes for the applicable year except as provided and
defined in Section 4.05, (iii) leasing commissions, (iv) costs incurred by
Landlord in connection with the negotiation of any tenant lease in the Complex,
including leasing commissions, attorneys fees, costs disbursement and other
expenses in connection with negotiations or disputes with tenants or other
occupants of the Building, and leasehold improvements expenses (and/or
allowances therefore), (v) overhead and profit increments paid to subsidiaries
or other affiliates of Landlord or an affiliate of any partner or shareholder of
Landlord, or to the property management company or an affiliate of the property
management company (excepting the management fee contribution as defined in
Section 4.02(b)(y) of this Lease) for services on or to the Complex, to the
extent the same is in excess of the reasonable cost of said item or service in
an arms length transaction with an unaffiliated party, (vi) marketing or
advertising expenses or public relations or the production and distribution of a
tenant newsletter, tenant perception surveys and the creation and implementation
of tenant retention programs; (vii) collection costs incurred by Landlord,
(viii) repairs, replacements, or other work occasioned by (a) fire, windstorm or
other casualty required to be insured hereunder by Landlord except to the extent
of deductibles on such coverages not to exceed $10,000 (b) the exercise by
governmental authorities of the right of eminent domain, (c) the act of
Landlord, or any affiliate of Landlord, or any contractor, representative,
employee or agent of same, except to the extent of deductibles not in excess of
$10,000 on insurance providing coverage for such loss or amage, or (d) any other
tenant in the Building, or any other tenant's agents, employees, licensees or
invitees; (ix) expenses for work performed in any other tenants' or prospective
tenants' space (including any cost or expense incurred as a direct result of
painting, decorating, carpet shampooing, drapery cleaning and wall washing
within the rentable areas of the Building to the extent such are not Building
standard services) which is unrelated to Actual Operating Expense as defined in
this Section 4.03 and to Landlord Services as defined in Section 6 of this
Lease, except to the extent of deductibles not in excess of $10,000 on Landlord
provided insurance providing coverage for such loss or damage; (x) costs for
correcting any defects in the original design or any subsequent construction of
the Building or the material used in the construction of the Building (including
latent defects in the original or any subsequent construction of the Building or
defects in the design of the Building) or in the Building equipment or
appurtenances thereto; (xi) any and all expenses relating to the presence in and
around the Building, including without limitation costs of any identification,
encapsulation, removal or other treatment of any hazardous materials including
asbestos-containing materials, or the replacement of any such material with
non-asbestos containing material as required by any laws or regulations, whether
currently existing or hereafter enacted; (xii) advertising and promotional
expenses,
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including, without limitation, leasing-related advertising and promotional
expenses; (xiii) all interest or penalties incurred as a result of Landlord's
failure to pay any costs of taxes or assessments as the same shall become due
because of Landlord's negligence; (xiv) excess costs for goods or services
attributable to any payments received by Landlord or the property manager, or
the employees or officers of either, from suppliers or goods or services as
kickbacks, finders fees, expediting fees or other similar dishonest fees; (xv) a
bad debt loss, rent loss or payment to a reserve for bad debts or rent loss-,
(xvi) any and all costs associated with the operation of the business of the
entity which constitutes Landlord; excluded items shall specifically include but
shall not be limited to, formation of the entity, internal accounting and legal
matters, including but not limited to preparation of tax returns and financial
statements and gathering of data therefore (except to the extent required in the
performance of Landlord's performance under the Lease, such as the preparation
of the annual operating expense statement for the Complex), costs of defending
any lawsuits, costs of selling, syndicating or financing the Complex, financing
and refinancing costs, interest on debt or amortization payments on any
mortgages and rental payments under any ground leases or lease and cost of any
disputes between Landlord and its employees; (xvii) any expense incurred as a
direct result of the negligence of Landlord, its agents, servants or employees
or arising out of Landlord's negligent failure to manage the Complex
consistently with the standard required by this Lease to the extent that such
expense would not have been incurred in the absence of such negligence; (xviii)
any costs or expense for services or amenities that are specifically provided
for the benefit of a particular tenant and that are of a nature not generally
provided to all tenants in the Building or for services or amenities generally
provided to all tenants in the Building but which are provided to any particular
tenant without additional charge or at a reduced charge (on a net effective
basis) than the charge imposed upon other tenants; (xix) Landlord's cost of
electricity, incremental air conditioning and other services sold to tenants for
which Landlord is entitled to be reimbursed by tenants (whether or not actually
collected by Landlord) as a separate additional charge or rental; (xx)
charitable donations; (xxi) allocation of Landlord's or the property manager's
home office costs or general overhead, other than central accounting costs to
the extent that the cost allocated does not materially exceed the cost that
would have been incurred for on-site personnel and accounting equipment; (xxii)
costs required by or incurred in connection with any law enacted before the date
of the Lease or the regulations promulgated thereunder, including without
limitation, the Americans with Disabilities Act of 1990, the Clean Air Act and
the Texas Architectural Barriers Act; (xxiii) an allocation to Tenant of the
management fee contribution described in Section 4.02(b)(y) which would cause
Tenant's share of the management fee contribution to exceed five percent (5%) of
Tenant's Base Rental.
4.04 RENTAL PAYMENT. (a) Tenant hereby agrees to pay the Base Rental
plus Tenant's Estimated Additional Rental and Tenants Additional Rental. The
Base Rental and Tenant's Estimated Additional Rental shall be due and payable in
twelve (12) equal installments on the first day of each calendar month during
each year of the initial term of this Lease and any extensions or renewals
hereof, and Tenant hereby agrees to so pay such rentals to Landlord at
Landlord's address as provided herein (or such other address as may be
designated by Landlord in writing from time to time) monthly in advance.
Provided Tenant's payment by Tenant shall be received by Landlord by on or
before the fifth day of each calendar month during which the same become due, no
late charge or interest shall be charged to Tenant for such payment.
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(b) If the term of this Lease as described above commences on other
than the first day of a calendar month or terminates on other than the last day
of a calendar month, then the installments of Base Rental and Tenant's Estimated
Additional Rental for such month or months shall be prorated and the installment
or installments so prorated shall be paid in advance. The payment for such
prorated month shall be calculated by multiplying the monthly installment by a
fraction, the numerator of which shall be the number of days of the lease term
occurring during said commencement or termination month, as the case may be, and
the denominator of which shall be the total number of days occurring in said
commencement or termination month. Also, if the term of this Lease commences or
terminates on other than the first day of a calendar year, the Base Rental and
Tenant's Estimated Additional Rental shall be prorated for such commencement or
termination year, as the case may be, by multiplying each by a fraction, the
numerator of which shall be the number of days of the lease term during the
commencement or termination year, as the case may be, and the denominator of
which shall be 365, and the calculation described in Section 4.02(c) below shall
be made as soon as reasonably possible after the termination of this Lease, but
in no event later than ninety (90) days following the end of the calendar year
after such termination, Landlord and Tenant hereby agreeing that the provisions
relating to said calculation shall survive the termination of this Lease.
(c) Tenant shall pay all Rent under this Lease at the times and in the
manner provided in this Lease, without demand, set-off or counterclaim except as
provided herein. Tenant hereby acknowledges and agrees that (i) Landlord and
Tenant have expressly negotiated that except as expressly provided under Section
6.01 (c) below, Tenant's covenants to pay Rent under this Lease are separate and
independent from Landlord's covenant to provide services and other amenities
hereunder, and (ii) had the parties not mutually agreed upon the independent
nature of Tenant's covenants to pay Rent hereunder, Landlord would have required
a greater amount of Base Rental in order to enter into this Lease. All Rent not
received by Landlord by the fifth (5h) day of the month shall bear interest from
the date due until paid at the greater of (1) two percent (2%) above the "prime
rate" per annum of Texas Commerce Bank National Association or its successor
("TCB") in effect on said due date (or if the "prime rate" be discontinued, the
base reference rate then being used by TCB, to define the rate of interest
charged to commercial borrowers) or (2) eighteen percent (18%) per annum;
provided, however, in no event shall the rate of interest hereunder exceed the
maximum non-usurious rate of interest (hereinafter called the "Maximum Rate")
permitted by the applicable laws of the State of Texas or the United States of
America, whichever shall permit the higher non-usurious rate, and as to which
Tenant could not successfully assert a claim or defense of usury, and to the
extent that the Maximum Rate is determined by reference to the laws of the State
of Texas, the Maximum Rate shall be the indicated rate ceiling (as defined and
described in Texas Revised Civil Statutes, Article 5069-1.04, as amended) at the
applicable time in effect. Landlord agrees that in the event Tenant fails to
pay Rent by the fifth (5d) day of the month, once, but not more than once in any
calendar year of the Lease Term and provided that Tenant pays such Rent within
five (5) days of Landlord's written notice to Tenant of Tenant's failure to pay
rent, that no late charge or interest shall accrue thereon or be payable by
Tenant with respect to such rent payment.
4.05 TAX ABATEMENT. Landlord and Tenant stipulate and agree that the
Base Rental and the Operating Expense Amount for the Base Year provided for in
this Lease contemplate and
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intend that Landlord will receive certain abatements of ad valorem property
taxes for the City of Sugar Land and Fort Bend County (the "Abated Taxes") that
would otherwise be payable by the Landlord for the Project during the Base Year
and subsequent years during the Lease Term, and, as a result, be payable by
Tenant in the calculation of Tenant's Additional Rental.
Tenant and Landlord agree that Actual Operating Expenses for the Base
Year, and Actual Operating Expenses for any subsequent calendar years from
January 1, 1999 through December 31, 2004, but not any subsequent years during
the Lease Term, shall not include the amount of such Abated Taxes for purposes
of computing Tenant's Estimated Additional Rental and Tenant's Additional
Rental.
4.06 SECURITY DEPOSIT. The Security Deposit, if any, shall be due and
payable by Tenant on the date of execution of this Lease by Tenant, to be held
for the performance by Tenant of Tenant's covenants and obligations under the
lease, it being expressly understood that the deposit shall not be considered an
advance payment of rental or a measure of Landlord's damages in case of default
by Tenant. Upon any event of default or breaches of Tenant's covenants or
obligations under this Lease other than the payment of any sum of money due
Landlord, Landlord shall advise Tenant in writing of the nature of such default
or breech of covenant and shall provide Tenant with a period of thirty (30) days
within which to remedy said default or breech of covenant prior to Landlord
exercising its rights to use the Security Deposit as herein provided. Following
any such application of the security deposit, Tenant shall pay to Landlord on
demand the amount so applied in order to restore the security deposit to the
amount thereof existing prior to such application. Any remaining balance of the
security deposit shall be returned by Landlord to Tenant within thirty (30) days
after the termination of this Lease; provided, however, Landlord shall have the
right to retain and expend such remaining balance (a) to reimburse Landlord for
any and all rentals or other sums due hereunder that have not been paid in full
by Tenant and/or (b) for cleaning and repairing the Leased Premises if Tenant
shall fail to deliver same at the termination of this Lease in a neat and clean
condition and in as good a condition as existed at the date of possession of
same by Tenant, ordinary wear and tear only excepted. Tenant shall not be
entitled to any interest on the security deposit. Notwithstanding the
foregoing, the Security Deposit shall be kept by Landlord in a separate
federally insured account bearing interest at competitive money market rates.
Landlord shall promptly deposit the security deposit in such account following
payment of same by Tenant and shall advise enant of the name and address of the
financial institution and the applicable account number(s). Provided that no
event of monetary default has occurred and remained uncured for a period beyond
the curative period provided in this Lease and that no event of non-monetary
default or breach of covenant or obligation has occurred and remained uncured
for a period beyond the curative periods provided in this Lease within the
preceding twenty-four (24) months and further provided that no event of default,
or breach of covenant or obligation then currently exists, Landlord shall return
the Security Deposit and any interest accrued thereon to Tenant within thirty
(30) days following Landlord's receipt of the twenty-fourth (24h) month's
payment of Rent from Tenant.
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5. LEASEHOLD IMPROVEMENTS
5.01 INITIAL LEASEHOLD IMPROVEMENTS. The Leased Premises shall be
delivered to Tenant at the Commencement Date in its then current condition with
only the additional leasehold improvements and tenant finish, if any, set forth
and described on Exhibit "C" attached hereto.
5.02 SUBSEQUENT LEASEHOLD IMPROVEMENTS. Tenant shall not make or allow
to be made (except as otherwise provided in this Lease) any alterations or
physical additions (fixtures) in or to the Leased Premises, or place safes,
vaults or other heavy furniture or equipment within the Leased Premises, without
first obtaining the written consent of Landlord which consent shall not be
unreasonably withheld. Tenant shall submit requests for consent to make
alterations or physical additions together with copies of the plans and
specifications for such alterations. Subsequent to obtaining Landlord's consent
and prior to commencement of construction of the alterations, Tenant shall
deliver to Landlord the building permit and a copy of the executed construction
contract covering the alterations. Tenant shall pay to Landlord upon demand a
review fee in the amount of Landlord's actual costs incurred (not to exceed five
hundred dollars ($500.00) to compensate Landlord for the cost of review and
approval of the plans. TENANT SHALL NOT BE ASSESSED A REVIEW FEE BY LANDLORD
FOR LANDLORD'S REVIEW AND APPROVAL OF TENANT'S PLANS RELATED TO EXPANSION OF THE
LEASED PREMISES BY WAY OF TENANT'S EXERCISE OF EXPANSION OPTIONS OR RIGHT OF
REFUSAL AS DESCRIBED IN EXHIBIT "H" ATTACHED HERETO. Tenant shall deliver to
Landlord a copy of the "as-built" plans and specifications for all alterations
or physical additions so made in or to the Leased Premises, and shall reimburse
Landlord for the cost incurred by Landlord, if any, to update its current
architectural plans for the Building. Landlord's approval as provided herein
shall not be required for alterations or physical additions which total in
actual costs an amount less than or equal to $5,000 in the aggregate in any
given year under the term of this Lease provided however, Tenant shall remain
responsible for all other fees, costs and requisite submittals and shall abide
by all other terms and conditions associated with the construction of said
alterations or physical additions as provided for in this Section 5.02. Tenant
agrees specifically that no food, soft drink or other vending machine will be
installed within the Leased Premises which is not for the exclusive use of
Tenant, its employees and invitees.
5.03 OWNERSHIP OF IMPROVEMENTS. All alterations, physical additions,
or improvements in or to the Leased Premises (including fixtures) but excluding
Tenant's trade fixtures, shall, when made, become the property of Landlord and
shall be surrendered to Landlord upon termination of this Lease, whether by
lapse of time or otherwise; provided, however, this clause shall not apply to
moveable equipment or furniture owned by Tenant. Notwithstanding the preceding
provisions of this Section, Tenant shall have the option of removing all such
alterations, physical additions and improvements and restore the Leased Premises
to building standard condition.
5.04 INDEMNITY. Except for work performed by Landlord, Tenant shall
indemnify and hold harmless Landlord from and against all costs (including
reasonable attorneys' fees and costs of suit), losses, liabilities, or causes of
action arising during the term of the Lease out of or relating to any
alterations, additions or improvements made by Tenant to the Leased Premises,
including but not limited to any mechanics' or materialmen's liens asserted in
connection therewith.
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5.05 LIENS. Tenant shall not be deemed to be the agent or
representative of Landlord in making any such alterations, physical additions or
improvements to the Leased Premises, and shall have no right, power or authority
to encumber any interest in the Complex in connection therewith other than
Tenant's leasehold estate under this Lease. However, should any mechanics' or
other liens be filed against any portion of the Complex or any interest therein
(other than Tenant's leasehold estate hereunder) by reason of Tenant's acts or
omissions or because of a claim against Tenant or its contractors, Tenant shall
cause the same to be canceled or discharged of record by bond or otherwise
within thirty (30) days after notice by Landlord. If Tenant shall fail to
cancel or discharge said lien or liens, within said thirty (30) day period,
which failure shall be deemed to be a default hereunder, Landlord may, at its
sole option and in addition to any other remedy of Landlord hereunder, cancel or
discharge the same and upon Landlord's demand, Tenant shall promptly reimburse
Landlord for all costs incurred in canceling such lien or liens.
5.06 COMPLIANCE WITH LAWS. Tenant shall cause all alterations,
physical additions, and improvements (including fixtures), constructed or
installed in the Leased Premises by or on behalf of Tenant to comply with all
applicable governmental codes, ordinances, rules, regulations and laws. Tenant
acknowledges and agrees that neither Landlord's review and approval of Tenant's
plans and specifications nor its observation or supervision of the construction
or installation thereof shall constitute any warranty or agreement by Landlord
that same comply with such codes, ordinances, rules, regulations and laws.
5.07 HAZARDOUS SUBSTANCES. Tenant shall use its diligent good faith
efforts to comply with all applicable federal, state or local laws, regulations,
orders, judgments and decrees regarding health; safety or the environment
("Environmental Laws") pertaining to or governing Tenant's particular use and
occupancy of the Leased Premises or the conduct of Tenants business therein,
including without limitation the application for and maintenance of all required
permits, the submittal of all notices and reports, proper labeling, training and
record keeping, and timely and appropriate response to any release or other
discharge by Tenant of a substance under Environmental Laws.
5.08 ADA COMPLIANCE. Tenant shall be wholly responsible for any
accommodations or alterations that are required by applicable governmental
codes, ordinances, rules, regulations and laws to be made to the Leased Premises
to accommodate disabled employees and customers of Tenant, including, without
limitation, compliance with the American with Disabilities Act (42 U.S.C. __
1201 et seq.) ("ADA") and the Texas Architectural Barriers Act
(Tex.Rev.Civ.Stat.Art 9201) ("TABA"). As to any full floor(s) of the Building
which are leased by Tenant, Tenant's responsibility under this Section 5.08
shall not apply to elevator lobbies, mechanical, electrical and rest rooms which
are constructed by Landlord as provided for in Landlord's plans and
specifications for the Building.
5.09 BUILDING COMPLIANCE WITH LAWS AND REGULATIONS. Landlord warrants
to Tenant that Landlord's Building shall at the time at which Tenant takes
occupancy of the Leased Premises, comply with all laws, ordinances, orders,
rules and regulations (state, federal, municipal and other agencies or bodies
having any jurisdiction thereof) relating to the use, condition or occupancy of
Landlord's Building. Landlord shall cause the Landlord's Building to comply
with such laws,
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ordinances, orders and other regulations as are hereafter enacted or amended,
subject to the actual costs thereof being amortized as described in Section
4.03(b)(vi) and constituting a portion of Actual Operating Expenses for
calculation of Tenants' Additional Rental.
6. LANDLORD SERVICES.
6.01 SERVICES. (a) Provided that no Event of Default pursuant to
Section 13.01(a) has occurred and is continuing, Landlord shall furnish Tenant
while Tenant is occupying the Leased Premises;
(i) Hot and cold domestic water at those points of supply
provided for general use of other tenants in the Building, including hot
and cold domestic water service to one set of men's and ladies' restrooms
and one drinking fountain on each floor on which any portion of the
Premises is located and for distribution to other plumbing fixtures
installed by Tenant with the Leased Premises.
(ii) Subject to curtailment as required by governmental laws,
rules or regulations, air conditioning and heating to the Leased Premises
and the general Common Areas during the normal business hours of the
Building (7:00 a.m. to 6:00 p.m. Monday through Friday, and 8:00 a.m. to
1:00 p.m. on Saturday, exclusive of holidays). Tenant will be billed for
overtime air and electrical service at $35.00 per hour per floor.
Landlord (at no cost to Tenant) will install timer controls that allow
Tenant to operate the Building HVAC equipment after normal business hours
and record such usage for billing purposes. Holidays observed by the
Building will be New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, Friday following Thanksgiving Day and Christmas
Day.
(iii) Electric lighting service for all public areas and special
service areas of the Building and all levels of the Building parking
garage from dusk until dawn in the manner and to the extent reasonably
deemed by Landlord to be in keeping with the standards of a first-class
office building.
(iv) Janitor service on a five (5) day week basis, in a manner
consistent with the standards of other first-class office buildings
in the Sugar Land area of Fort Bend County, Texas; provided, however if
Tenant's floor coverings are other than standard commercial grade vinyl
tile or carpets Landlord will only clean same upon special agreement with
Tenant.
(v) Equipment to limit access to the Building after normal
business hours (such equipment to include intelligent, programmable
central control unit, card/keyboard entry, burglar, fire and emergency
alarms and 24-hour electronic monitoring capability); provided, however,
Landlord shall have no responsibility to prevent and shall not be liable
to Tenant for, liability or loss to Tenant, its agents, employees and
visitors arising out of losses due to theft, burglary, or damage or
injury to persons or property caused by persons gaining access
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to the Building or the Leased Premises, and Tenant hereby releases
Landlord from all liability relating thereto.
(vi) Sufficient electricity to operate as generally outlined in
Article 220 of the National Electric Code Handbook including low-voltage
electrical capacity sufficient to service a total connected (exclusive of
lighting and air handlers), plus sufficient additional electrical
capacity to operate, the lighting and base-Building air handlers load of
no less than 10 watts per square foot of Net Rentable Area within the
Leased Premises, calculated separately for each floor on which portions
of the Leased Premises are located. Tenant shall pay to Landlord,
monthly as billed, such charges as may be separately metered or as
Landlord's engineer shall reasonably compute for any electrical service
usage in excess of that stated above. IF TENANT'S USE OF THE LEASED
PREMISES REQUIRES SEPARATE METERING AND/OR AIR CONDITIONING IN EXCESS OF
BUILDING STANDARD, THE SAME SHALL BE PURCHASED AND INSTALLED AT TENANT'S
EXPENSE AND TENANT SHALL PAY ALL OPERATING COSTS RELATING THERETO,
(vii) All Building standard fluorescent bulb and ballast
replacement in all areas and all incandescent bulb replacement in public
areas, toilet and rest room areas and stairwells and exterior lighting
fixtures.
(viii) Reasonably adequate, non-exclusive passenger elevator
service to the Leased Premises twenty-four (24)hours per day, which shall
include (subject to repair and maintenance service agreements) a minimum
of two passenger elevator cabs.
(ix) Maintenance of the roof, exterior walls, load-bearing
columns, foundation, floor slabs which are constructed by Landlord as
provided for in Landlord's plans and specifications for the Building, and
other structural components, the mechanical, electrical and plumbing
systems, the common areas, bathrooms, interior plants, exterior lighting
and the driveways and exterior landscaping of the Project, and such
repairs and replacements as may be required to maintain the Building and
parking garage in keeping with the standards of a first-class office
building.
(x) Management of the Building including an on-site property
manager for the Project, Monday through Friday from 8:00 a.m. to 5:00
p.m., exclusive of holidays.
(xi) Not less than two local-access fiber optic providers
servicing the Building through separate Building entrance links located
on separate sides of the Building.
(b) To the extent any of the services or amenities required to be
provided by Landlord pursuant to the terms of this Lease (the "Landlord
Services") require electricity, gas and water supplied by public utilities,
Landlord's covenants hereunder shall only impose on Landlord the obligation to
use its good faith efforts to cause the applicable public utilities to furnish
the same. Failure by Landlord to furnish any of the Landlord Services to any
extent, or any cessation thereof, resulting from causes beyond the reasonable
control of Landlord, shall not render Landlord liable in any respect for damages
to either person or property, nor be construed as an eviction of Tenant, nor
work an abatement of rent, nor relieve Tenant from fulfillment of any covenant
or agreement
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hereof. As used herein, the phrase "causes beyond the reasonable control of
Landlord" shall include, without limitation, acts of the public enemy,
restraining of government, unavailability of materials, strikes, civil riots,
floods, hurricanes, tornadoes, earthquakes and other severe weather conditions
or acts of God.
(c) In the event of a failure by Landlord to provide the Landlord
Services resulting from the malfunction or obsolescence of the Building
equipment or machinery, or from any other cause which is reasonably within the
control of Landlord, Landlord covenants and agrees to promptly repair or replace
such equipment or machinery, or to rectify such other cause, and to restore such
Landlord Services. Tenant hereby covenants and agrees that in the event of any
interruption or cessation of Landlord Services described in this Section
6.01(c), Tenant shall have no claim for rebate or abatement of Rent or for
damages on account thereof; provided, however, that in the event any such
interruption or cessation of Landlord Services renders all or any portion of the
Leased Premises untenantable, and such interruption or cessation continues for
five (5) consecutive business days, Rents with respect to the untenantable
portion of the Leased Premises shall be equitably abated thereafter until such
Landlord Services are restored or the affected portion(s) of the Leased Premises
are otherwise restored to a tenantable condition. Provided that Tenant notifies
Landlord in writing immediately upon such failure of building equipment or
machinery or such other cause which has caused all or any portion of the Leased
Premises to become untenantable and that such failure or cause occurred through
no fault of Tenant and further provided that Landlord, upon receipt of such
written notification from Tenant, fails to use diligent good faith efforts to
promptly repair or replace such equipment or machinery, or to rectify such other
cause, and to restore such Landlord services and such failure of Landlord shall
cause the Leased Premises or portions thereof to remain untenantable for in
excess of five (5) business days as provided herein, then the equitable
abatement of rent shall be calculated from the first day of such interruption of
Landlord Services.
(d) Tenant shall pay Landlord, at the charges established by Landlord
from time to time (which charges shall not exceed Landlord's actual costs in
performing such services), for all supplementary services provided by Landlord
or its agents to Tenant, other than Landlord Services, which charges shall be
payable by Tenant upon demand by Landlord. Such supplementary services shall
include, without limitation, maintenance, repair, janitorial, cleaning and other
services provided during hours other than ordinary business hours and/or in
amounts not reasonably considered by Landlord as standard.
(e) Tenant hereby acknowledges and agrees that Landlord is obligated
to provide only the Landlord Services under this Lease, and that Landlord, its
agents and representatives, have made no representations whatsoever of any
additional services or amenities to be provided by Landlord now or in the future
under this Lease. Notwithstanding the foregoing, Tenant recognizes that
Landlord may, at Landlord's sole option, elect to provide additional services or
amenities for the tenants of the Complex from time to time, and hereby agrees
that Landlord's discontinuance of any of same, shall not constitute a default of
Landlord under this Lease nor entitle Tenant to any abatement of or reduction in
Rent. Additional services or amenities which Landlord elects to provide for
other Tenants of the Complex shall be made available by Landlord to Tenant upon
Tenant's request therefor, at the same cost and on the same basis as for
Landlord's other tenants.
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6.02 SECURITY SYSTEM ACCESS CARDS AND LOCKS. Landlord shall furnish
Tenant with three and one-half (3.5) sets per thousand square feet of Net
Rentable Area within the Leased Premises of access cards for the Building
corridor doors entering the Leased Premises. Additional access cards will be
furnished by Landlord (at Landlord's cost therefor) upon an order signed by
Tenant and at Tenant's expense. All such access cards shall remain the property
of Landlord. No additional locks shall be allowed on any door of the Leased
Premises without Landlord's permission, and Tenant shall not make or permit to
be made any duplicate access cards, except those furnished by Landlord. Upon
termination of this Lease, Tenant shall surrender to Landlord all access cards
to any locks on doors entering or within the Leased Premises, and give to
Landlord the explanation of the combination of all locks for safes, safe
cabinets and vault doors, if any, in the Leased Premises. Tenant will have the
right to connect the security system for the Leased Premises into the Building
security system at no cost to Tenant other than installation costs and customary
monitoring fees.
6.03 GRAPHICS, BUILDING DIRECTORY AND NAME. (a) Landlord shall provide
and install all initial Building Standard letters or numerals on entrance doors
to the Leased Premises at Landlord's sole cost and expense; all such letters and
numerals shall be in the Building standard graphics. No signs, numerals,
letters or other graphics shall be used or permitted on the exterior of, or
which may be visible from outside, the Leased Premises, unless approved in
advance and in writing by Landlord.
(a) Landlord shall install Building standard strips in a number which
is proportionate to Tenant's proportionate share of the net rentable area of the
Building containing a listing of Tenant's name on the Building directory board
located in the main lobby of the Building. Landlord shall provide to Tenant as
soon as is practicable following Landlord's selection of a directory board
system, information on the number of strips which will be available to Tenant
and Tenant shall provide to Landlord the information which Tenant desires to
have listed on said strips.
(b) Tenant will have the right to install signs displaying Tenant's
logo in the elevator bank in the lobby level of the Building. Tenant will also
have the right to prominently display its logo in the elevator lobby of each
full floor leased by Tenant and next to or on its door on each partial floor
Tenant occupies, plus the right to install directional signage on each partial
floor. All Tenant signage shall be of a size, constructed of materials and
affixed in locations which shall be approved by Landlord, which approval shall
not be unreasonably delayed, conditioned or withheld.
6.04 MAINTENANCE AND REPAIRS. Landlord shall maintain the Building
(excluding leasehold improvements) in a good and operable first class condition,
and shall make such repairs and replacements as may be required to maintain the
Building in such condition. This Section 6.04 shall not apply to damages
resulting from an exercise of eminent domain (as to which Section 8 shall
apply). Unless otherwise expressly stipulated herein, Landlord shall not be
required to make any improvements to or repairs of any kind or character to the
Leased Premises during the term of this Lease, except such repairs to Building
standard improvements as are necessary for normal maintenance operations;
provided, however, non-Building standard leasehold improvements will, at
Tenant's written request, be-maintained by Landlord at Tenant's expense, at a
cost or charge
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equal to the costs incurred in such maintenance plus as additional charge of
fifteen percent (15%). Tenant's leasehold improvements for the purposes of this
Section 6.04 shall be deemed to be Building standard and thereby not subject to
additional cost for repairs associated with normal maintenance operations,
provided that the cost to construct the Tenant's Initial Leasehold Improvements
and Subsequent Leasehold Improvements, if any, shall not exceed the Improvement
Allowance described in Exhibit "C" attached hereto. Notwithstanding any
provisions of this Lease to the contrary, all repairs, alterations or additions
to the base Building or its systems (as opposed to those involving only Tenant's
leasehold improvements), and all repairs, alterations or additions to Tenant's
non-Building standard leasehold improvements which affect the Building's
structural components or major mechanical, electrical or plumbing systems, made
by or for or on behalf of Tenant and any other tenants in the Building shall be
made by Landlord or its contractor only, and, in the case of Tenant, shall be
paid for by Tenant in an amount equal to Landlord's costs plus fifteen percent
(15%).
6.05 LANDLORD ALTERATIONS OR MODIFICATIONS. Notwithstanding anything
herein to the contrary, Landlord hereby expressly reserves the right in its
reasonable discretion to (a) temporarily change the location of, close, block or
otherwise alter any entrances, corridors, doorways or walkways leading to or
providing access to the Building or any part thereof or otherwise restrict the
use of same provided such activities do not unreasonably impair Tenants access
to the Leased Premises, (b) improve, remodel, or otherwise alter the Building,
and (c) Landlord shall have the right at any time during the Term to attach to
any or all of the Complex windows a glazing or coating of film for the purpose
of improving the Complex's energy efficiency which glazing or coating shall not
cause the windows of the Complex to become opaque nor unreasonably diminish the
amount of natural light within the Leased Premises. Tenant shall not remove,
alter or disturb any such glazing, coating or film and the addition of such
glazing, coating or film, shall in no way reduce Tenant's obligations under this
Lease or impose any liability on Landlord and it is agreed that Landlord shall
not incur any liability whatsoever to Tenant as a consequence thereof and such
activities shall not be deemed to be a breach of any of Landlord's obligations
hereunder. Landlord agrees to exercise good faith in notifying Tenant within a
reasonable time in advance of any alterations, modifications or other actions of
Landlord under this Section 6.05. Any diminution or shutting off of light, air
or view by any structure which is now or may hereafter be effected on lands
adjacent to the Complex shall in no way affect this Lease or impose any
liability on Landlord. Noise, dust or vibration or other incidents to new
construction of improvements on lands adjacent to the Complex, whether or not
owned by Landlord, shall in no way affect this Lease or impose any liability on
Landlord.
7. CARE AND USE OF THE LEASED PREMISES.
7.01 REPAIRS BY TENANT. Tenant shall at its own cost and expense, (i)
maintain the Leased Premises in a first class clean, safe, operable, attractive
condition, and shall not commit or allow to remain any waste or damage to any
portion thereof or to the Complex, and (ii) subject to Landlord's supervision,
repair or replace any damage or injury to the Complex caused by Tenant, its
agents, contractors, employees. If Tenant fails to make such repairs or
replacements promptly after receipt of written notice from Landlord, Landlord
may, at its option, make such repairs or replacements, and Tenant shall to the
extent such costs of repair or replacement are not covered by Landlord's
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insurance pursuant to the provisions of Section 11.01 of this Lease, repay the
cost thereof plus a charge of fifteen percent (15%) to the Landlord on demand.
Any damage or injury to the base Building or its systems (as opposed to those
involving only Tenant's leasehold improvements) and (notwithstanding the
foregoing) any damage or injury to Tenant's leasehold improvements which affects
the Building's structural components or major mechanical, electrical or plumbing
systems, caused by Tenant, its agents, contractors, employees shall be repaired
or replaced by Landlord, but at Tenant's expense plus a charge of fifteen
percent (15%) to the extent such costs of repair or replacement are not covered
by Landlord's insurance pursuant to the provisions of Section 11.01 of this
Lease.
7.02 ENTRY FOR REPAIRS AND INSPECTION. Tenant shall permit Landlord
and its contractors, agents or representatives to enter into and upon any part
of the Leased Premises upon forty-eight (48) hours prior notice at all
reasonable hours to inspect or clean the same, make repairs, alterations or
additions thereto, show the same to prospective tenants or purchasers, to
determine whether Tenant is performing its obligations hereunder for any other
purpose as Landlord may deem necessary or desirable, and such entry shall not
constitute a trespass or an eviction (constructive or otherwise) and Tenant
shall not be entitled to any abatement or reduction of rent or claim for damages
for any injury to or interference with Tenant's business, for loss of occupancy
or quiet enjoyment or for consequential damages by reason thereof. Except in
the case of an emergency, Landlord shall schedule all such entries into and upon
any part of the Leased Premises so as to minimize the disruption to Tenant and
its business to the extent reasonably practicable. Tenant may require one or
more representatives of Tenant to accompany Landlord and its contractors, agents
or representatives in any entry into secured or confidential areas. Any work to
be undertaken for cleaning, repairs, alterations or improvements to the Leased
Premises shall be done as promptly as reasonably possible and to the extent
practicable after 7:00 p.m. on weekdays or on weekends and so as to cause as
little interference to Tenant and its business as reasonably possible. Promptly
upon completion of any work undertaken by or on behalf of Landlord, the Leased
Premises shall be restored to the condition which existed prior to such entry.
Landlord will only have the right to show the Leased Premises to prospective
tenants during the final nine months of the Lease term.
7.03 NUISANCE. Tenant shall conduct its business and control its
agents, employees, invitees, contractors and visitors in such manner as not to
create any nuisance, or unreasonably interfere with, annoy or disturb any other
tenant or Landlord in its operation of the Building. Landlord shall be
responsible for maintaining compliance by the Building's other Tenants with
respect to this same or similar clauses contained within other Tenant's leases.
7.04 LAWS AND REGULATIONS: Rules of Building. Tenant shall comply
with, Tenant shall use diligent, good faith efforts to cause its visitors,
employees, contractors, agents and invitees to comply with, and Landlord shall
use reasonable good faith efforts to cause other Tenants to comply with, all
laws, ordinances, orders, rules and regulations (state, federal, municipal and
other agencies or bodies having any jurisdiction thereof) relating to the use,
condition or occupancy of the Leased Premises, and with the rules of the
Building reasonably adopted and altered by Landlord from time to time for the
safety, care and cleanliness of the Leased Premises and the Building and for
preservation of good order therein. all of which Building rules will be sent by
Landlord to Tenant
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in writing and shall be thereafter carried out and observed by Tenant, its
employees, contractors, agents. Tenant and its employees, contractors, and
agents shall be required to comply with additions or modifications to the
rules of the Building only if such modifications or additions: (a) are
reasonable and consistent with rules and regulations imposed in comparable
buildings in the area of one-half mile to either side of State Highway 59
bounded by the Sam Houston Tollway (Beltway 8) to the northeast and State
Highway 6 to the southwest; (b) are not inconsistent with any other
provisions of this Lease; (c) are uniformly enforced among all office tenants
within the Building; and (d) are effective only after Tenant has received
reasonable advance written notice of such modifications or additions. 'The
current rules of the Building are attached hereto as Exhibit "13".
7.05 SPECIFICALLY PROHIBITED USES. Tenant shall not (a) occupy or use
the Leased Premises, or permit any portion of the Leased Premises to be occupied
or used, for any business or purpose which is unlawful, disreputable or deemed
to be hazardous on account of fire or other hazards, or permit anything to be
done which would in any way increase the rate of fire or liability or any other
insurance coverage on the Building and/or its contents, (b) keep, or permit to
be kept, any substance in the Leased Premises which might emit offensive odors
into other portions of the Building, or (c) install any food, soft drink or
other vending machine in the Leased Premises, other than those for the exclusive
use of Tenant and its business invitees. Tenant shall not use nor permit the
Premises to be used by any subtenant or assignee for the business of oil and gas
exploration or for the business of a title agency.
7.06 SURRENDER OF THE LEASED PREMISES. At the termination of this
Lease, by lapse of time or otherwise, Tenant shall deliver up the Leased
Premises to Landlord in as good condition as existed on the date of possession
by Tenant, ordinary wear and tear, damage by fire or casualty, taking by eminent
domain or transfers in lieu thereof, latent defects and repairs for which the
Landlord or another third party is responsible excepted. Upon such termination
of this Lease, Landlord shall have the right to re-enter and resume possession
of the Leased Premises.
7.07 HOLDING OVER. In the event of holding over by Tenant after
expiration or termination of this Lease without the prior written consent of
Landlord, Tenant shall pay as liquidated damages one hundred fifty percent
(150%) of the amount of all Base Rental and Tenant's Additional Rental which was
payable by Tenant immediately prior to such expiration or termination. In the
event of any unauthorized holding over, Tenant shall also indemnify Landlord
against all claims for damages by any other tenant to whom Landlord may have
leased all or any part of the Leased Premises effective upon the termination of
this Lease. In the event Tenant shall be precluded from timely vacating the
Leased Premises upon expiration or termination of this Lease as a result of
significant damage, destruction or similar catastrophic event involving Tenant's
future leased premises, Tenant shall be permitted to remain in occupancy of the
Leased Premises subject to all of the terms and conditions contained within this
Lease for a maximum period of sixty (60) days following the expiration or
termination of this Lease and shall only be responsible to Landlord for the
payment of the amounts provided for pursuant to this Section 7.07 as liquidated
damages. Any such holding over without the prior written consent of Landlord
shall create a tenancy at sufferance relationship with Tenant.
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8. CONDEMNATION. If all of the Complex is taken or condemned, or
acquired under threat of condemnation, by or at the direction of any
governmental authority (a "Taking" or "Taken", as the context requires), or if
so much of the Complex is Taken that, in Landlord's reasonable opinion, the
remainder cannot be restored to an economically viable, quality office building,
or if the awards payable to Landlord as a result of any Taking are, in
Landlord's reasonable opinion, inadequate to restore the remainder to an
economically viable, quality office building, Landlord may, at its election,
exercisable by the giving of written notice to Tenant within sixty (60) days
after the date of the Taking, terminate this Lease as of the date of the Taking
or the date Tenant is deprived of possession of the Leased Premises (whichever
is later), provided, however, that Landlord shall similarly terminate all other
tenant leases within the Building. If this Lease is not terminated as a result
of a Taking, Landlord shall restore the Leased Premises remaining after the
Taking to a Building standard condition, provided, however, in the event the
Landlord has not actually completed such repair work such that the Leased
Premises are tenantable and otherwise suitable for the operation of Tenant's
business, in Tenant's reasonable discretion, within two hundred and seventy
(270) days from the date of the condemnation, or if twenty (20) percent or more
of the Leased Premises is Taken, Tenant shall have the right to terminate this
Lease by delivering written notice to Landlord. In the case of Tenant's written
notice to Landlord pursuant to Tenant's rights provided herein to terminate this
Lease as a result of the Taking of twenty (20) percent or more of the Net
Rentable Area of the Leased Premises, such termination must be delivered to
Landlord within (60) days after the date of the Taking, failing which, such
right of Tenant shall be of no further force or effect. During the period of
restoration, Base Rental shall be abated to the extent the Leased Premses are
rendered untenantable and, after the period of restoration, Base Rental and
Tenant's Proportionate Share shall be reduced in the proportion that the area of
the Leased Premises Taken or otherwise rendered untenanta6le bears to the area
of the Leased Premises just prior to the Taking. If any portion of Base Rental
is abated under this Section 8, Landlord may elect to extend the expiration date
of the Term for the period of the abatement. All awards, proceeds, compensation
or other payments from or with respect to any Taking of the Complex or any
portion thereof shall belong to Landlord, Tenant hereby assigning to Landlord
all of its right, title, interest and claim to same. Tenant shall have the
right to assert a claim for and recover from the condemning authority, but not
from Landlord, such compensation as may be awarded on account of Tenant's moving
and relocation expenses, and depreciation to and loss of Tenant's movable
personal property and any leasehold improvements above building standard paid
for by Tenant.
9. DAMAGES FROM CERTAIN CAUSES. Landlord shall not be liable or
responsible to Tenant for any loss or damage to any property or person
occasioned by theft, fire, act of God, public enemy, injunction, riot, strike,
insurrection, war, court order, requisition or order of governmental body or
authority, or any cause beyond Landlord's control, or for any damage or
inconvenience which may arise through repair or alteration of any part of the
Building.
10. CASUALTY. In the event of a fire or other casualty in the Leased
Premises, Tenant shall promptly give notice thereof to Landlord. If the Leased
Premises shall be partially destroyed by fire or other casualty so as to render
the Leased Premises untenantable in whole or in part, Rent shall abate
thereafter as to the portion of the Leased Premises rendered untenantable until
such time as the Leased Premises are made tenantable and Landlord agrees to
commence and prosecute such repair work promptly and with all due diligence. In
the event such destruction results in total or
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substantial damages to or destruction of the Building and Landlord shall elect
not to rebuild, then all Rent owed up to the time of such destruction or
termination shall be paid by Tenant and thenceforth this Lease shall cease and
come to an end. Landlord shall give Tenant written notice of its decisions,
estimates or elections under this Section 10 within sixty (60) days after any
such damage or destruction. In the event that more than twenty (20) percent of
the Net Rentable Area of the Leased Premises becomes untenantable as a result of
fire or other casualty and further if a qualified contractor selected by
Landlord reasonably estimates that it will take longer than two hundred seventy
(270) days from the date of such casualty to rebuild/restore such destruction,
Tenant shall have the right to terminate this Lease by delivering written notice
to Landlord within thirty (30) days of receiving such notice with respect to the
duration of the anticipated rebuilding/restoration time requirements from
Landlord or Landlord's contractor. If Tenant does provide such notice to
Landlord and thereby elects not to terminate this Lease, Landlord shall be
obligated to commence and prosecute such repair work promptly and with all due
diligence and shall restore the Leased Premises to the condition that existed
immediately prior to such casualty subject to the limitations further provided
in this Section 10 of the Lease. If the repair and restoration is not competed
within thirty (30) days after the time period stated in the notice provided to
Tenant by Landlord or Landlord's contractor, Tenant shall have the right to
terminate this Lease. If Tenant elects to terminate the Lease pursuant to the
rights granted to Tenant under this Section 10, Tenant may nevertheless continue
its occupancy of the tenantable portion of the Leased Premises for up to six
months following the date of the casualty, provided that Tenant continues to pay
all Rent prorated as to the portion of the Leased Premises then occupied by
Tenant and Tenant otherwise abides by the terms of the Lease. Notwithstanding
anything contained in this Section 10, Landlord shall only be obligated to
restore or rebuild the Leased Premises to the condition originally constructed
by way of Landlord's Work at Tenant Space combined with the level of
improvements which were afforded by way of the Improvement Allowance as defined
in Exhibit "C" to the Lease and in no event shall Landlord be required to expend
more sums than received from the proceeds of any insurance carried by Landlord;
provided, however, Tenant shall have the right to cause Landlord to rebuild or
restore the Leased Premises to the condition they were in prior to such damage
or destruction, in which event Tenant shall bear the cost (including rentals
which are lost due to any excess construction time) of such restoration or
rebuilding to the extent the same exceeds the costs Landlord would have incurred
had only Building standard improvements been used.
11. INSURANCE.
11.01 INSURANCE BY LANDLORD. Landlord shall obtain and maintain
throughout the term of this Lease the following policies of insurance:
(a) replacement cost fire and extended coverage insurance of not less
than eighty percent (80%) of full replacement cost, excluding footings and
foundations, on the Building (excluding non-Building standard leasehold
improvements) and on all Building standard improvements; and
(b) comprehensive general and contractual liability insurance in an
amount of at least $1,000,000 against claims for personal injury, death and
property damage occurring in or about the Building.
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Said insurance shall be maintained with an insurance company authorized
to do business in Texas, subject to the foregoing requirements of Section 11.01,
in such amounts desired by Landlord and at the expense of Landlord (but with the
same to be included in the operating expenses of the Building as described in
Section 4.03) and payments for losses thereunder shall be made solely to
Landlord. If the annual premiums to be paid by Landlord for casualty insurance
shall exceed the standard rates because of Tenant's operations within or
contents of the Leased Premises or because the improvements to the Leased
Premises are above Building standard, Landlord shall notify Tenant no later than
ten (10) days prior to Landlord's purchase of said insurance policy, to the
extent to which Landlord shall have such information, the nature of Tenant's
operations, contents within the Leased Premises or the improvements to the
Leased Premises which are above building standard and which have caused the
annual premiums to be paid by Landlord for casualty insurance to exceed the
standard rate and Tenant shall promptly pay the excess amount of the premium
upon request by Landlord (and if necessary, Landlord may allocate the insurance
costs of the Building to give effect to this sentence). Tenant shall be named
as an additional insured under Landlord's general liability insurance policy.
11.02 INSURANCE BY TENANT. Tenant shall obtain and maintain throughout
the term of this Lease the following policies of insurance.
(a) replacement cost fire and extended coverage insurance, with
vandalism, malicious mischief and sprinkler leakage endorsements, on all of
Tenant's personal property and non-Building standard leasehold improvements in
the Leased Premises in an amount not less than the full replacement cost
thereof;
(b) comprehensive general and contractual liability insurance against
claims for personal injury, death and property damage occurring in or about the
Leased Premises, such insurance to afford protection to the limits of (i) not
less than $2,000,000.00 in respect of injury to or death of any number of
persons arising out of any one occurrence and (ii) $1,000,000.00 in respect of
any instance of property damage; and
Tenant shall deliver to Landlord, prior to the Commencement Date, certificates
of such insurance and shall, at all times during the term of this Lease, deliver
to Landlord upon request true and correct copies of said insurance policies.
The policy described in clause (b) shall (i) NAME LANDLORD AS AN ADDITIONAL
INSURED, (ii) provide that it will not be canceled or reduced in coverage
without thirty (30) days' prior written notice to Landlord, (iii) insure
performance of the indemnities of Tenant contained in this Lease, and (iv) be
primary coverage, so that any insurance coverage obtained by Landlord shall be
excess thereto. Tenant shall deliver to Landlord certificates of renewal at
least thirty (30) days prior to the expiration date of each such policy and
copies of new policies at least thirty (30) days prior to terminating any such
policies. All policies of insurance required to be obtained and maintained by
Tenant shall be subject to the approval of Landlord as to terms, coverage,
deductibles and issuer.
11.03 WAIVER OF RECOVERY AND SUBROGATION RIGHTS. Landlord and Tenant
each hereby waives any and all rights of recovery, claims, actions or causes of
action, against the other, its
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agents, servants, partners, shareholders, officers, or employees, for any loss
or damage that may occur to the Leased Premises or the Building, or any
improvements thereto, or any personal property of such party therein, by reason
of fire, the elements, or any other cause which would be insured against under
the terms of the insurance policies required to be maintained pursuant to
Sections I 1.0 I and 1 1.02 hereof, or which is actually maintained by such
other party, regardless of cause or origin, including negligence of the other
party hereto, its agents, officers, partners, shareholders, servants, or
employees, and covenants that no insurer shall hold any right of subrogation
against such other party. If the respective insurer of Landlord and Tenant does
not permit such a waiver without an appropriate endorsement to such party's
insurance policy, then Landlord and Tenant each covenant and agree to notify its
insurer of the waiver set forth herein and to secure from such insurer an
appropriate endorsement to its respective policy with respect to such waiver.
12. HOLD HARMLESS. Landlord shall not be liable to Tenant, its
agents, servants, employees, contractors, customers or invitees for any damage
to person or property caused by any act, omission or neglect of Tenant, its
agents, servants or employees, and Tenant agrees to indemnify and hold Landlord
harmless from all liability and claims for any such damage in the Building or on
the Land. Tenant shall not be liable to Landlord, or to Landlord's agents,
servants, employees, contractors, customers or invitees for any damage to person
or property caused by any act, omission or neglect of Landlord, its agents,
servants or employees, and Landlord agrees to indemnify and hold Tenant harmless
from all claims for such damage.
13. ENFORCEMENT OF LEASE.
13.01 DEFAULT BY TENANT. The occurrence of any one or more of the
following shall constitute an Event of Default" under this Lease:
(a) the failure of Tenant to pay any Rent as and when due under this
Lease and the continuance of such failure for a period of ten (10) days after
receipt of written notice to Tenant;
(b) the failure of Tenant to perform, comply with or observe any of
the other covenants or conditions and the continuance of such failure for a
period of thirty (30) days after receipt of written notice to Tenant; or, if
such failure cannot reasonably be cured within said thirty (30) day period
despite Tenant's diligent good faith efforts, the failure of Tenant to promptly
commence its diligent good faith efforts to cure such failure within said thirty
(30) day period and complete curative action within a reasonable time
thereafter;
(c) the filing of a petition by or against Tenant or any guarantor of
Tenant's obligations under this Lease (i) naming Tenant as debtor in any
bankruptcy or other insolvency proceeding, (ii) for the appointment of a
liquidator or receiver for all or substantially all of Tenant's property or for
Tenant's interest in this Lease, or (iii) to reorganize or modify Tenant's
capital structure; and in the case of filing against Tenant on an involuntary
basis and any of the same is not dismissed within sixty (60) days thereafter;
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(d) the admission by Tenant in writing of its inability to meet its
obligations as they become due or the making by Tenant of an assignment for the
benefit of its creditors;
(e) except for any sale or exchange of Tenant's stock in a public
offering and the subsequent sale of Tenant's stock on a nationally recognized
exchange or NASDAQ, the transfer of ownership interests in Tenant in one or more
transactions, the result of which is to change the majority ownership interest
and/or control of Tenant from that which existed as of the date of execution of
this Lease, unless Landlord consents to such change in ownership and/or control
in advance (which consent will not be unreasonably withheld, conditioned or
delayed); or
(f) the assignment or subletting of all or any part of the Leased
Premises by Tenant without the prior written consent of Landlord in accordance
with Section 19.
13.02 REMEDIES OF LANDLORD. Upon any Event of Default, Landlord may
exercise any one or more of the following described remedies, in addition to all
other rights and remedies provided at law or in equity;
(a) Terminate this Lease by written notice to Tenant and forthwith
repossess the Leased Premises and be entitled to recover forthwith as damages a
sum of money equal to the total of (i) the cost of recovering the Leased
Premises (including attorneys' fees and costs of suit), (ii) the cost of
removing and storing any personal property, (iii) the unpaid Rent earned at the
time of termination, plus interest thereon at the rate described in Section
4.04(c), (iv) the present value (discounted at the rate of eight percent (8%)
per annum) of the balance of the Rent for the remainder of the lease term less
the present value (discounted at the same rate) of the fair market rental value
of the Leased Premises for said period, taking into account the period of time
the Leased Premises will remain vacant until a new tenant is obtained, and the
cost to prepare the Leased Premises for occupancy and the other costs (such as
leasing commissions and attorneys' fees) to be incurred by Landlord in
connection therewith, and (v) any other sum of money and damages owed by Tenant
to Landlord under this Lease.
(b) Elect to receive liquidated damages in an amount equal to the
monthly Base Rental and monthly Tenant's Estimated Additional Rental payable
hereunder for the month during which this Lease is terminated times eighteen
(18), which amount shall be in lieu of the payment of damages Landlord may
suffer by reason of such termination, but which shall not be in lieu of or
reduce in any way any amount due from Tenant (including accrued Rent) or damages
incurred by Landlord due to breach by Tenant of any covenant or other obligation
herein (whether or not liquidated) which accrued prior to the termination of
this Lease. Nothing contained in this Lease shall limit or prejudice the right
of Landlord to prove for and obtain in any proceedings to enforce Landlord's
rights hereunder, including without limitation, any proceedings for bankruptcy
or insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
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(c) Terminate Tenant's right of possession (but not this Lease) and
may repossess the Leased Premises by forcible entry and detainer suit or
otherwise, without thereby releasing Tenant from any liability hereunder and
without demand or notice of any kind to Tenant and without terminating this
Lease. Landlord shall use reasonable efforts under the circumstances to relet
the Leased Premises on such terms and conditions as Landlord in its sole
discretion may determine (including a term different than the term of this
Lease, rental concessions, alterations and repair of the Leased Premises);
provided, however, Landlord hereby reserves the fight (i) to lease any other
comparable space available in the Building or in any adjacent building owned by
Landlord prior to offering the Leased Premises for lease, and (ii) to refuse to
lease the Leased Premises to any potential tenant which does not meet Landlord's
standards and criteria for leasing other comparable space in the Building.
Landlord shall not be liable, nor shall Tenant's obligations hereunder be
diminished because of, Landlord's failure or refusal to relet the Leased
Premises or collect rent due in respect of such reletting. For the purpose of
such reletting Landlord shall have the right to decorate or to make any repairs,
changes, alterations or additions in or to Leased Premises as may be reasonably
necessary or desirable. In the event that (i) Landlord shall fail or refuse to
relet the Leased Premises, or (ii) the Leased Premises are relet and a
sufficient sum shall not be realized from such reletting (after first deducting
therefrom, for retention by Landlord, the unpaid rent due hereunder earned but
unpaid at the time of reletting plus interest thereon at the rate specified in
Section 4.04(c), the cost of recovering possession (including attorneys' fees
and costs of suit), all of the costs and expenses of such decorations, repairs,
changes, alterations and additions, the expense of such reletting and the cost
of collection of the rent accruing therefrom) to satisfy the Rent, then Tenant
shall pay to Landlord as damages a sum equal to the amount of such deficiency.
Any such payments due Landlord shall be made upon demand therefore from time to
time and Tenant agrees that Landlord may file suit to recover any sums failing
due under the terms of this Section 13.03(c) from time to time. No delivery to
or recovery by Landlord of any portion due Landlord hereunder shall be any
defense in any action to recover any amount not theretoforereduced to judgment
in favor of Landlord, nor shall such reletting be construed as an election on
the part of Landlord to terminate this Lease unless a written notice of such
intention be given to Tenant by Landlord. Notwithstanding any such termination
of Tenant's fight of possession of the Leased Premises, Landlord may at any time
thereafter elect to terminate this Lease. In any proceedings to enforce this
Lease under this Section 13.03(c), Landlord shall be presumed to have used its
reasonable efforts to relet the Leased Premises, and Tenant shall bear the
burden of proof to establish that such reasonable efforts were not used.
(d) Alter any and all locks and other security devices at the Leased
Premises, and if it does so Landlord shall not be required to provide a new key
or other access right to Tenant unless Tenant has cured all Events of Default;
provided, however, that in any such instance, during Landlord's normal business
hours and at the convenience of Landlord, and upon the written request of Tenant
accompanied by such written waivers and releases as Landlord may require,
Landlord will escort Tenant or its authorized personnel to the Leased Premises
to retrieve any personal belongings or other property of Tenant not subject to
Landlord's lien or security interest described in Section 13.01. The provisions
of this Section 13.03(d) are intended to override and control any conflicting
provisions of the Texas Property Code.
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13.03 DEFAULT BY LANDLORD. If Landlord defaults in the performance of
any of its obligations under the Lease, and such default has a material adverse
effect on Tenant's use and enjoyment of the Premises, and if such default
continues for 30 days after written notice to Landlord, and to any first lien
mortgagee or ground lessor of Landlord of which Tenant has notice (or, if such
failure cannot reasonably be cured within said 30-day period despite Landlord's
or such mortgagee's or ground lessor's diligent good faith efforts, such longer
period of time as is required provided that Landlord or such mortgagee or
ground lessor commences diligent good faith efforts to cure such failure within
said 30-day period and thereafter diligently pursue such efforts) Tenant may, at
its option, in addition to all other remedies available at law or under the
Lease: (a) cure such default and invoice Landlord for the reasonable costs
thereof, in which event Tenant shall have the right to deduct from Rents payable
hereunder the amount of any such invoice not paid by Landlord within 10 days of
its receipt thereof, or (b) institute legal proceedings against Landlord to
recover the damages incurred by Tenant on account of such default and/or to
enjoin such default.
13.04 REMEDIES OF TENANT. Upon any Event of Default by Landlord, Tenant
may exercise all rights and remedies provided at law or in equity except to the
extent otherwise specifically provided in this Lease.
13.05 NON-WAIVER. No action by the Landlord or Tenant shall be deemed
to imply or constitute a waiver by them of any of their rights under this Lease
unless such waiver is in writing and signed by Landlord or Tenant and
acknowledges that such action taken by Landlord or Tenant is an express waiver
of their rights. Furthermore, any such writing shall not be deemed to be a
continuing waiver of Landlord's or Tenant's fights and shall be expressly
limited to actions recited in any such waiver. Landlord and Tenant shall have
the right to declare any default under the Lease not waived in writing at any
time and take such action as might be lawful or authorized hereunder, either in
law or in equity.
13.06 RENT COMPUTATION. For purposes of computing unpaid rent which
would have accrued and become payable under this Lease, unpaid rent shall
consist of the sum of:
(a) the total Base Rental for the balance of the Term; plus
(b) Tenant's Additional Rental for the balance of the Term. For
purposes of computing, Additional Rental for the calendar year of the default
and each future calendar year in the Term, it shall be assumed to be equal to
the Additional Rental for the calendar year prior to the year in which default
occurs compounded at a rate equal to the mean average rate of inflation for the
three (3) calendar years preceding the calendar year of the default, as
determined by using the United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index (All Urban Consumers, all items, 1982-84 equals
100) for the metropolitan area or region of which Houston, Texas is a part. If
such index is discontinued or revised during the Term, such other government
index or computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the index had not been
discontinued or revised. If no replacement index exists then Landlord shall
select as a replacement index that index which, in Landlord's opinion, is
generally recognized as the successor index.
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13.07 LANDLORD'S RIGHT TO CURE DEFAULTS. All agreements and provisions
to be performed by Tenant under any of the terms of this Lease shall be at
Tenant's sole cost and expense and without any abatement of rent. If Tenant
shall fail to pay any sum of money, other than Base Rental, required to be paid
by it hereunder or shall fail to cure any default and such failure shall
continue for ten (10) days after notice thereof by Landlord, then Landlord may,
but shall not be obligated so to do, and without waiving or releasing Tenant
from any obligations, make any such payment or perform any such act on Tenant's
part. All sums so paid by Landlord and all costs incurred by Landlord in taking
such action shall be deemed additional rent hereunder and shall be paid to
Landlord on demand, and Landlord shall have (in addition to all other rights and
remedies of Landlord) the same rights and remedies in the event of the
non-payment thereof by Tenant as in the case of default by Tenant in the payment
of rent.
14. ATTORNEYS' FEES. In the event either party defaults in the
performance of any of the terms, agreements or conditions contained in this
Lease and the other party places the enforcement of this Lease, or any part
thereof, or the collection of any rent due or to become due hereunder, or
recovery of the possession of the Leased Premises, in the hands of an attorney
who files suit upon the same, and should such non-defaulting party prevail in
such suit, the defaulting party agrees to pay the other party's reasonable
attorneys' fees.
15. SUBORDINATION. Tenant covenants and agrees with Landlord to
subordinate Tenant's rights and interests under this Lease to any mortgage, deed
of trust and/or security agreement which may now or hereafter encumber the
Building or the Land or any interest of Landlord therein and/or the contents of
the Building, and to any advances made on the security thereof and to any and
all increases, renewals, modifications, consolidations, replacements and
extensions thereof provided the holder thereof delivers to Tenant a
non-disturbance agreement reasonably acceptable to Tenant. In confirmation of
such subordination, however, at Landlord's request Tenant shall execute promptly
any appropriate certificate or subordination agreement or instrument that
Landlord may reasonably request. In the event of the enforcement by the
trustee, the beneficiary or the secured party under any such mortgage, deed of
trust or security agreement of the remedies provided for by law or by such
mortgage, deed of trust or security agreement, subject to the terms of any
non-disturbance agreement or subordination agreements executed by Tenant,
Tenant, upon request of the any person or party succeeding to the interest of
Landlord as a result of such enforcement, will automatically become the Tenant
of such successor in interest without any change in the terms or other
provisions of this Lease; provided, however, that such successor in interest
shall not be bound by (a) any payment of Rent for more than one month in advance
except prepayments in the nature of security for the performance by Tenant of
its obligations under this Lease, or (b) any amendment or modification of this
Lease made without the written consent of such ground lessor or such successor
in interest; and further provided that such successor in interest shall assume
and perform the duties and obligations of Landlord under the Lease from and
after the date Landlord's interest is so acquired, subject to and without
increasing the limitations of Landlord's Personal Liability set forth in Section
20 of this Lease. Upon request by such successor in interest, whether before or
after the enforcement of its remedies, Tenant shall execute and deliver an
instrument or instruments reasonably acceptable to Tenant confirming and
evidencing such attornment herein set forth, and deliver such instruments or
certificates within fifteen (15) days after being requested by Landlord to do
so. Notwithstanding anything contained in this Lease to the contrary, in the
event of any
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default by Landlord in performing its covenants or obligations hereunder which
would give Tenant the right to terminate this Lease, Tenant shall not exercise
such right unless and until (a) Tenant gives written notice of such default
(which notice shall specify the exact nature of said default and how the same
may be cured) to the lessor under any such land or ground lease and the
holder(s) of any such mortgage or deed of trust or security agreement who has
theretofore notified Tenant in writing of its interest and the address to which
notices are to be sent, and (b) said lessor and holder(s) fail to cure or cause
to be cured said default within thirty (30) days from the receipt of such notice
from Tenant. This Lease is further subject to and subordinate to all matters of
record in Harris County, Texas. The terms of any subordination and attornment
agreement executed by Tenant with any lienholder shall supercede and control
over the provisions of this Section 15 as to such matters between Tenant and
such lienholder.
Notwithstanding anything to the contrary set forth above, any beneficiary under
any deed of trust may at any time subordinate its deed of trust to this Lease in
whole or in part, without any need to obtain Tenant's consent, by execution of a
written document subordinating such deed of trust to the Lease to the extent set
forth in such document and thereupon the Lease shall be deemed prior to such
deed of trust to the extent set forth in such document without regard to their
respective dates of execution, delivery and/or recording. In that event, to the
extent set forth in such document, such deed of trust shall have the same rights
with respect to this Lease as would have existed if this Lease had been
executed, and a memorandum thereof, recorded prior to the execution, delivery
and recording of the deed of trust.
Notwithstanding the foregoing, Tenant shall not be disturbed in its rights to
use, occupy and possess the Lease Premises pursuant to the terms and conditions
of this Lease so long as Tenant is not in default hereunder.
Upon acquisition of the Land, Landlord shall provide to Tenant a commercially
reasonable Non-disturbance agreement in a form reasonably acceptable to Tenant
in favor of Tenant from any lien holder(s) or any mortgage holder(s), now in
existence against the Leased Premises, and as to all advances made or hereafter
to be made thereon. If at any time during the term of this Lease any new or
additional lien or mortgage is imposed on the Complex, then contemporaneously
with the creation of such lien or mortgage, Landlord shall provide to Tenant a
commercially reasonable non-disturbance agreement in a form reasonably
acceptable to Tenant in favor of Tenant from such lien holder(s) or mortgage
holder(s). Each non-disturbance agreement shall be in recordable form and may
be recorded at Tenant's election and expense.
16. ESTOPPEL CERTIFICATE. Tenant agrees periodically to furnish
within ten (10) days after so requested by Landlord, or the holder of any deed
of trust, mortgage or security agreement covering the Building, the Land, or any
interest of Landlord therein, a certificate signed by a Tenant to the extent the
following are true representations (a) that this Lease is in full force and
effect and unmodified (or if there have been modifications, that the same is in
full force and effect as modified and stating the modification), (b) as to the
Commencement Date and the date through which Base Rental and Tenant's Estimated
Additional Rental have been paid, (c) that, except as stated on the Certificate,
Tenant has accepted possession of the Leased Premises and that any improvements
required by the terms of this Lease to be made by Landlord have been completed
to
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the satisfaction of Tenant, (d) that except as stated in the certificate no Rent
has been paid more than thirty (30) days in advance of its due date, (e) that
the address for notices to be sent to Tenant is as set forth in this Lease (or
has been changed by notice duly given and is as set forth in the certificate),
(f) that except as stated in the certificate, Tenant, as of the date of such
certificate, has no charge, lien, or claim of offset against Rent due or to
become due, (g) that except as stated in the certificate, Landlord is not then
in default under this Lease, (h) as to the amount of Net Rentable Area then
occupied by Tenant, (i) that there are no renewal or extension options, purchase
options, rights of first refusal or the like in favor of Tenant except as set
forth in this Lease and 6) as to such other matters as may be reasonably
requested by Landlord or the holder of any such deed of trust, mortgage or
security agreement and which accurately confirm matters of fact and provisions
of this Lease. Any such certificate may be relied upon by any, prospective
purchaser, secured party, mortgagee or any beneficiary under any mortgage, deed
of trust on the Building or the Land or ay part thereof or interest of Landlord
therein.
17. NAME OF BUILDING AND BUILDING SIGNAGE. Landlord and Tenant
mutually covenant and agree that provided no Event of Default then exists,
Tenant shall be permitted the use of the upper most position of a monument sign
to be provided by Landlord (substantially as shown on Exhibit "K" hereto) in a
location proximal to the driveway access from U.S. Highway 59. The area
provided on Landlord's monument for Tenant's identification shall be a minimum
of twenty-four square feet in size. Tenant's signage to be erected upon the
monument provided by Landlord, shall be at Tenant's expense, shall be of a
design, constructed of materials, affixed in an exact location which shall be
subject to the approval of Landlord. which approval shall not be unreasonably
withheld. Other than to the extent provided in this Section 17, Tenant shall
not be permitted to place signage on any part of the Building exterior or
complex. Should an Event of Default occur, Landlord hereby reserves and shall
have the right at any time and from time to time to remove Tenant's name from
the monument signage as Landlord may deem advisable, and Landlord shall not
incur any liability whatsoever to Tenant as a consequence thereof.
18. ASSIGNMENT OR SUBLETTING BY TENANT
18.01 GENERAL. In the event Tenant should desire to assign this Lease
or sublet the Leased Premises or any part thereof or allow same to be used or
occupied by others, Tenant shall give Landlord written notice (which shall
specify the duration of said desired sublease, assignment, use or occupancy, the
date same is to occur, the exact location of the space affected thereby and the
proposed rentals on a square foot basis chargeable thereunder) of such desire at
least fifteen (15) days in advance of the date on which Tenant desires to make
such assignment or sublease or allow such a use or occupancy. Landlord shall
then have a period of fifteen (15) days following receipt of such notice within
which to notify Tenant in writing that Landlord elects:
(a) to refuse to permit Tenant to assign or sublet this Lease which
refusal shall only be based upon Landlord's reasonable judgment that (i) the
nature and character of the proposed assignee or sublessee, its business and
activities or intended use of the Leased Premises are not consistent with the
standards of the Building (ii) the proposed occupancy would impose a material
additional burden upon the Building systems or Landlord's ability to provide
services to other tenants in the Building provided, however, that Tenant shall
have the opportunity to agree to rectify
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or alleviates such additional burden at Tenant's expense, in which event this
condition shall not be the basis for Landlord's refusing its consent, or (iii)
the granting of such consent would constitute a default of any exclusive or
restrictive use provision of any other lease in the Building, provided, that
Landlord has given Tenant prior written notice of such exclusive or restrictive
use and in such case this Lease shall continue in full force and effect in
accordance with the terms and conditions hereof, or
(b) to terminate this Lease (in the event of a proposed assignment) or
recapture (in the event of a proposed sublease) the space so affected for the
period of the proposed sublease term as of the date so specified by Tenant in
which event Tenant shall be relieved of all obligations hereunder as to such
space arising from and after such date for the period of the proposed sublease
term, or
(c) to suspend this Lease as to the space so affected as of the date
and for the duration so specified by Tenant in its notice, in which event Tenant
will be relieved of all obligations hereunder as to such space during said
suspension, including a suspension of the Rent in proportion to the portion of
the Leased Premises affected thereby (but after said suspension, if the
suspension is not for the full term hereof, Tenant shall once again become
liable hereunder as to the applicable space), or
(d) permit Tenant to assign this Lease or sublet such space for the
duration specified in such notice, provided that the form and substance of the
proposed sublease or instrument of assignment is expressly subject to all of the
terms and provisions of this Lease and to any matters to which this Lease is
subject.
Notwithstanding the foregoing, Tenant shall have the right to sublet all or any
portion of the Leased Premises to any entity which by majority ownership
controls, is under common control with, or is controlled by Tenant and Tenant
shall have provided Landlord with proof thereof and provided that the sublease
and such subletting is expressly subject to all of the terms and provisions of
this Lease including, but not limited to, Sections 3, 18.02, 18.03 and 18.04
hereof.
18.02 AGREEMENTS WITH LANDLORD. No assignment or subletting by Tenant
shall be effective unless Tenant shall execute, have acknowledged and deliver to
Landlord, and cause each sublessee or assignee to execute, have acknowledged and
deliver to Landlord, an instrument in form and substance reasonably acceptable
to Landlord in which (i) such sublessee or assignee adopts this Lease and
assumes and agrees to perform jointly and severally with Tenant, all of the
obligations of Tenant under this Lease, as to the space transferred to it, (ii)
Tenant subordinates to Landlord's statutory lien, contract lien and security
interest any liens, security interests or other fights which Tenant may claim
with respect to any property of such sublessee or assignee, (iv) Tenant and such
sublessee or assignee agree to provide to Landlord, at their expense, direct
access from a public corridor in the Building to the transferred space, (v) such
sublessee or assignee agrees to use and occupy the transferred space solely for
the purpose specified in Section 3 or for other general office use purposes
which shall not conflict with any exclusive use rights granted by Landlord to
any of Landlord's other tenants within Landlord's Building and otherwise in
strict accordance with this Lease and (vi) Tenant acknowledges and agrees that,
notwithstanding such subletting or assignment, Tenant remains directly and
primarily liable for the performance of all the
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obligations of Tenant hereunder (including, without limitation, the obligation
to pay Rent), and Landlord shall be permitted to enforce this Lease against
Tenant or such sublessee or assignee, or both, without prior demand upon or
proceeding in any way against any other persons. So long as any Event of
Default shall exist hereunder, Landlord, in addition to any other remedies
herein provided or available at law or in equity. may, at its option, collect
directly from such assignee or subtenant all rents due and becoming due to
Tenant under such assignment or sublease and apply such rent against the Rent
due to Landlord frm Tenant hereunder, and no such collection shall be construed
to constitute a novation or a release of Tenant from the further performance of
its obligations hereunder.
18.03 EFFECT OF TRANSFER. No consent by Landlord to an assignment or
sublease shall be deemed in any manner to be a consent to a use not permitted
under Section 3. Any consent by Landlord to a particular assignment or sublease
shall not constitute Landlord's consent to any other or subsequent assignment or
sublease, and any proposed sublease or assignment by any assignee or sublessee
shall be subject to the provisions of this Section 18 as if it were a proposed
sublease or assignment by Tenant. The prohibition against an assignment or
sublease described in this Section 18 shall be deemed to include a prohibition
against Tenant's mortgaging or otherwise encumbering its leasehold estate, as
well as against an assignment or sublease which may occur by operation of law,
each of which shall be ineffective and void and shall constitute an event of
default under this Lease unless consented to by Landlord in writing in advance.
18.04 DELIVERY TO LANDLORD. In any situation in which Landlord consents
to an assignment or sublease hereunder, Tenant shall promptly deliver to
Landlord a fully executed copy of the final sublease agreement or assignment
instrument and all ancillary agreements relating thereto.
19. PEACEFUL ENJOYMENT. Landlord covenants that Tenant shall and may
peacefully have, hold and enjoy the Leased Premises, subject to the other terms
hereof, provided that Tenant pays the rental and other sums herein recited to be
paid by Tenant and performs all of Tenant's covenants and agreements herein
contained. It is understood and agreed that this covenant and any and all other
covenants of Landlord contained in this Lease shall be binding upon Landlord and
its successors only with respect to breaches occurring during its and their
respective ownership of the Landlord's interest hereunder.
20. LIMITATION OF LANDLORD'S PERSONAL LIABILITY. Tenant specifically
agrees to look solely to Landlord's interest in the Complex (but including
rental income and proceeds of insurance, condemnation, sale and financing
accruing to Landlord after the date of any final judgment) for the recovery of
any judgment against Landlord, it being agreed that Landlord, its officers,
directors, agents and employees shall never be personally liable for any such
judgment. The provision contained in the foregoing sentence is not intended to,
and shall not, limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or Landlord's successors in interest or any
suit or action in connection with enforcement or collection of amounts which may
become owing or payable under or payable under or on account of any insurance
policy maintained by Landlord. Landlord's obligations hereunder are subject to
Landlord acquiring the Land upon the terms and conditions of the Landlord's
contract for such acquisition and Landlord obtaining interim construction
financing of the Building upon terms and conditions satisfactory to Landlord.
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Tenant's obligations hereunder are subject to Landlord notifying Tenant in the
affirmative of said approvals on or before, October 30, 1997.
21. NOTICES. (a) Any notice or other communications to Landlord or
Tenant required or permitted to be given under this Lease (and copies of the
same to be given to the parties as below described) must be in writing and shall
be effectively given if delivered to such party at its address for notice set
forth in Section 1.01 above, or if sent by United States mail, certified or
registered, return receipt requested, to said address. Any notice mailed shall
be deemed to have been given on the regular business day next following the date
of deposit of such item in a depository of the United States Postal Service in
Houston, Texas. Notice effected other than by mail shall be deemed to have been
given at the time of actual delivery. Either party shall have the right to
change its address to which notices shall thereafter be sent by giving the other
written notice thereof. Additionally, Tenant shall send copies of all notices
of Landlord Default required or permitted to be given to Landlord to each lessor
under any ground or land lease covering all or part of the Land and each holder
of a mortgage or deed of trust encumbering the Complex who notifies Tenant in
writing of its interest and the address to which notices are to be sent.
22. BANKRUPTCY. If a petition is filed by or against Tenant for
relief under Title 11 of the United States Code, as amended (the "Bankruptcy
Code"), and Tenant (including for purposes of this Section Tenant's successor in
bankruptcy, whether a trustee or Tenant as debtor in possession) assumes and
proposes to assign, or proposes to assume and assign, this Lease pursuant to the
provisions of the Bankruptcy Code to any person or entity who has made or
accepted a bona fide offer to accept an assignment of this Lease on terms
acceptable to Tenant, then notice of the proposed assignment setting forth (a)
the name and address of the proposed assignee, (b) all of the terms and
conditions of the offer and proposed assignment, and (c) the adequate assurance
to be furnished by the proposed assignee of its future performance under the
Lease, shall be given to Landlord by Tenant no later than twenty (20) days after
Tenant has made or received such offer, but in no event later than ten (10) days
prior to the date on which Tenant applies to a court of competent jurisdiction
for authority and approval to enter into the proposed assignment. Landlord
shall have the prior right and option, to be exercised by notice to Tenant given
at any time prior to the date on which the court order authorizing such
assignment becomes final and non-appealable, to receive an assignment of this
Lease upon the same terms and conditions, and for the same consideration, if
any, as the proposed assignee, less any brokerage commissions which may
otherwise be payable out of the consideration to be paid by the proposed
assignee for the assignment of this Lease. Any person or entity to which this
Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be
deemed, without further actor documentation, to have assumed all of the Tenants
obligations arising under this Lease on and after the date of such assignment.
Any such assignee shall, upon demand, execute and deliver to Landlord an
instrument confirming such assumption. No provision of this Lease shall be
deemed a waiver of Landlord's rights or remedies under the Bankruptcy Code to
oppose any assumption and/or assignment of this Lease, to require a timely
performance of Tenant's obligations under this Lease, or to regain possession of
the Premises if this Lease has neither been assumed on or rejected within sixty
(60) days after the date of the order for relief or within such additional time
as a court of competent jurisdiction may have fixed. Notwithstanding anything
in this Lease to the contrary, all amounts payable by Tenant to or on behalf of
Landlord under this Lease, whether or not expressly
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denominated as rent, shall constitute rent for the purposes of Section 502(b)(6)
of the Bankruptcy Code.
23. MISCELLANEOUS.
23.01 SATELLITE DISH INSTALLATION. Tenant shall be allowed to install
up to three (3) satellite dish antennas on the rooftop of the Building, and use
of the Building risers to run conduit and cabling as necessary to connect the
antennas to the Premises at no additional cost to Tenant. The size of such
antennas shall not exceed three feet (Y) in diameter, subject to Landlord's
reasonable approval of the location and manner of attachment of such antennas
and any applicable law and regulations affecting the Building.
23.02 MOVING EXPENSE. Tenant shall be responsible for all cost and
expense associated with Tenant's relocation to Landlord's Building.
23.03 WAIVER OF LIEN BY TENANT. Tenant shall have no right, and Tenant
hereby waives and relinquishes all rights which Tenant might otherwise have, to
claim any nature of lien (other than a judgment lien) against the Building or to
withhold, deduct from or offset against any Rent or other sums to be paid to
Landlord by Tenant.
23.04 SUCCESSOR AND ASSIGNS. This Lease shall be binding upon and inure
to the benefit of the successors and assigns of Landlord, and shall be binding
upon and inure to the benefit of Tenant, its successors, and, to the extent
assignment may be approved by Landlord hereunder, Tenants assigns.
23.05 NUMBER AND GENDER. The pronouns of any gender shall include the
other genders, and either the singular or the plural shall include the other.
23.06 REMEDIES CUMULATIVE; APPLICABLE LAW. All rights and remedies of
Landlord under this Lease shall be cumulative and none shall exclude any other
rights or remedies allowed by law; and this Lease is declared to be a Texas
contract, and all of the terms thereof shall be construed according to the laws
of the State of Texas.
23.07 AMENDMENT. This Lease may not be altered, changed or amended,
except by an instrument in writing executed by all parties hereto.
23.08 ENTIRE AGREEMENT. The terms and provisions of all Exhibits
described herein and attached hereto are hereby made a part hereof for all
purposes. This Lease constitutes the entire agreement of the parties with
respect to the subject matter hereof, and all prior correspondence, memoranda,
agreements or understandings (written or oral) with respect hereto are merged
into and superseded by this Lease.
23.09 AUTHORITY OF TENANT AND LANDLORD. If Tenant and Landlord is a
corporation, partnership or other entity, Tenant and Landlord warrants and
represents unto each other that (a) Tenant is a duly organized and existing
legal entity, in good standing in the State of Delaware, and
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Landlord is a duly organized and existing legal entity, in good standing in the
State of Texas, (b) Tenant and Landlord has full right and authority to execute,
deliver and perform this Lease, (c) the person executing this Lease was
authorized to do so and (d) upon request of Tenant and Landlord, such person
will deliver to each other satisfactory evidence of his or her authority to
execute this Lease on behalf of Tenant and Landlord.
23.10 GOOD FAITH EFFORTS. Whenever in this Lease there is imposed upon
Landlord the obligation to use its good faith efforts, reasonable efforts or
diligence, Landlord shall be required to do so only to the extent the same is
economically feasible and otherwise will not impose upon Landlord extreme
financial or other business burdens.
23.11 SEVERABILITY. If any term or provision of this Lease, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and shall be enforceable to the extent permitted by
law.
23.12 BROKERAGE COMMISSIONS. Landlord agrees to pay to Broker, if any,
a real estate brokerage commission as set forth in a separate commission
agreement between Landlord and Broker. Tenant hereby represents and warrants to
Landlord that Tenant has not employed any other agents, brokers or other such
parties in connection with this Lease, and agrees that Tenant shall hold
Landlord harmless from and against any and all claims of all other agents,
brokers or other such parties claiming by or through Tenant.
23.13 MEMORANDUM: At the request of either party, Landlord and Tenant
agree to execute and record a Memorandum of this Lease in the real estate
records of Fort Bend County, Texas
23.14 PARKING. Parking spaces for the Leased Premises shall be governed
by the terms and provisions of Exhibit E attached hereto and made a part hereof
for all purposes.
23.15 EXHIBITS. All Exhibits referenced in this Lease are incorporated
herein for all purposes as if fully set forth within the text of this Lease.
Exhibit A - Legal Description
Exhibit B - Preliminary Floor Plan of Leased Premises
Exhibit B- I Preliminary Floor Plan of Expansion Space
Exhibit C - Initial Tenant Improvements
Exhibit D - Building Standard Holidays
Exhibit E - Parking
Exhibit F - Building Rules and Regulations
Exhibit G - Renewal Option
Exhibit H - Expansion Option
Exhibit I - Commencement Agreement
Exhibit J - Landlord's Building Description
Exhibit K - Monument Sign
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23.16 ACKNOWLEDGMENT OF NON-APPLICABILITY OF DTPA. It is the
understanding and intention of the parties that Tenant's rights and remedies
with respect to the transactions provided for and contemplated in this Lease
(collectively, this "Transaction") and with respect to all acts or practices of
Landlord, past, present, or future, in connection with this Transaction, are and
shall be governed by legal principles other than the Texas Deceptive Trade
Practices - Consumer Protection Act (the "DTPA"). Accordingly, Tenant hereby
(a) agrees that under Section 17.49(f) of the DTPA this Transaction is not
governed by the DTPA and (b) certifies, represents and warrants to Landlord that
(i) Tenant has been represented by legal counsel in connection with this
Transaction who has not been directly or indirectly identified, suggested or
selected by the Landlord or any agent of Landlord and Tenant has conferred with
Tenant's counsel concerning all elements of this Lease (including, without
limitation, this Section 25.15) and this Transaction and (ii) the Leased
Premises will not be occupied by Tenant as Tenant's family residence. Tenant
expressly recognizes that the total consideration as agreed to by Landlord has
been predicated upon the inapplicability of the DTPA to this Transaction and
that Landlord, in determining to proceed with the entering into of this Lease,
has expressly relied on the inapplicability of the DTPA to this Transaction.
23.17 TENANT'S SPECIAL RIGHTS TO TERMINATE LEASE
(a) Tenant shall have the right to terminate this Lease if Landlord
fails to consummate the acquisition of the Land and obtain interim construction
financing for the Building on or before October 31, 1997. If Landlord does not
notify Tenant in writing of the occurrence of each such events by October 31,
1997, Tenant will have the right to terminate this Lease by written notice to
Landlord not later than November 7, 1997.
(b) Tenant will have the right to terminate this Lease if Landlord
fails to achieve any of the following construction progress events by the
deadline date specified:
(i) substantial completion of the Building foundation to the
condition that Landlord's contractor can commence erection of the
structural steel of the Building by January 30, 1998;
(ii) substantial completion of the erection of structural steel
of the Building by March 20, 1998;
(iii) completion of the Building to "dried-in" condition so that
the Building is sufficiently sealed against the rain and other elements
to permit the commencement of construction of the Initial Leasehold
Improvements without risk of damage thereto from weather elements by May
1, 1998.
Upon occurrence of each of the construction progress events described above,
Landlord will deliver to Tenant a written certification thereof from Landlord's
architect. If Tenant does not receive such certification with respect to any
such event by the applicable deadline therefor, Tenant may exercise its
termination right by delivery to Landlord of a notice of such termination within
five (5) business days following the applicable deadline date.
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(c) Upon receipt by Landlord of timely notice by Tenant of its
election to terminate this Lease pursuant to the provisions of this Section
23.17, Landlord and Tenant shall each be released from all further liability
under this Lease, irrespective of what costs or expenses either of the parties
have incurred prior to the date of termination. Should Tenant fail to deliver
timely notice of its election to terminate this Lease pursuant to Sections
23.17(a) or (b) above, Tenant's right to so terminate this Lease shall be of no
further force or effect.
23.18 CONSTRUCTION OF BUILDING. Landlord covenants and agrees to
construct the Building substantially in accordance with the description thereof
set forth on Exhibit "J" attached hereto and those certain plans and
specifications prepared by Yeatts Architecture, Inc., Job No. 9708, dated
September 30, 1997.
IN TESTIMONY WHEREOF, the parties hereto have executed this Lease as of
the date aforesaid.
LANDLORD:
TURNER ADREAC, L.C.
By: /s/ Michael Van
---------------
Name: Michael Van
Title: Executive Vice President
TENANT:
NEON SYSTEMS, INC.
By: /s/ Joe Backer
--------------
Name: Joe Backer
Title: CEO
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EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
METES AND BOUNDS DESCRIPTION
3.841 ACRES OUT OF RESERVE'T"
SUGAR CREEK CENTER
FORT BEND COUNTY, TEXAS
Being a tract or parcel of land containing 3.841 acres (167,321 square feet)
situated in the Brown & Belknap League, Abstract 15, in Fort Bend County, Texas,
and being out of and a part of that certain Reserve "D", called 6.0596 acres,
out of Sugar Creek Center as recorded in Slide 596B of the Plat Records of Fort
Bend County, said 3.841 acre tract being more particularly described by metes
and bounds as follows (with all bearings referenced to the subdivision plat):
BEGINNING at a 5/8-inch iron rod found for the most easterly northeast comer of
said Reserve "D" in Sugar Creek Center, being the southerly comer of a cutback
at the intersection of the southwesterly right-of-way line of Commerce Green
Boulevard (100 feet wide) with the westerly right-of-way line of U.S. Highway 59
(Southwest Freeway - width varies) as shown in Slide 596/B of the Plat Records
of Fort Bend County, being also the most easterly corner of the herein described
3.841 acre tract;
THENCE South 26'06'17" West along the westerly line of said U.S. Highway 59 and
the easterly line of said Reserve "D", a distance of 278.83 feet to the
southeast corner;
THENCE North 6353'43" West, a distance of 54.83 feet to an angle point;
THENCE South 88'38'36" West, a distance of 222.85 feet to an intersect with the
west line of said Reserve "D" and the east right-of-way line of Alkire Drive (80
feet wide) as recorded in Volume 237, Page 159, of the Deed Records of Fort Bend
County;
THENCE in a northerly direction, a distance of 124.68 feet along the west line
of said Reserve "D" and the east right-of-way line of said Alkire Drive,
following the arc of a curve to the left, having a radius of 1928.40 feet, a
central angle of 03'42'1 6" (Chord = N03'l 8'57"W, 124.66') to the end of the
said curve;
THENCE continuing in a northerly direction, a distance of 792.19 feet along the
west line of said Reserve "D" and the east right-of-way line of said Alkire
Drive, following the arc of a curve to the left, having a radius of 2993.00
feet, a central angle of 15'09'55" (Chord = N1249'06"W, 789.88') to an intersect
with the southwesterly right-of-way line of said Commerce Green Boulevard as
monument on the ground;
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THENCE in a southerly direction, a distance of 872.44 feet along the east line
of said Reserve "D" and the westerly right-of-way line of said Commerce Green
Boulevard, following the arc of a curve to the left, having a radius of 1180.69
feet, a central angle of 42'20'13" (Chord = S41046'38"E, 852.72') to a 5/8-inch
iron rod found for a cutback corner;
THENCE South 18'24'36" East along the cut-back corner at the northeast comer of
said Reserve "D" a distance of 28.67 feet to the POINT OF BEGINNING and
containing 3.841 acres (167,321 square feet) of land, more or less.
McClendon & Reno
Ph: (281) 240-9099
Job No. 48-9703A
October, 1997
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EXHIBIT B
FLOOR PLAN OF LEASED PREMISES
1
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EXHIBIT B-1
FLOOR PLAN OF EXPANSION AREA
1
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EXHIBIT C
INITIAL TENANT IMPROVEMENTS
This Workletter (this "Agreement") is made and entered into this ___ day
of 199__, in connection with that certain Lease Agreement (the "Lease") by and
between constitutes the entire agreement between Landlord and Tenant with
respect to the construction and completion of the Leased Premises. All
capitalized terms used herein, but not otherwise defined shall have the meanings
ascribed to such terms in the Lease.
To induce Landlord and Tenant to enter into the Lease (which is hereby
incorporated by reference to the extent that the provisions of this Agreement
may apply thereto) and in consideration of the mutual covenants hereinafter
contained, Landlord and Tenant mutually agree as follows in the event Tenant
elects to have Landlord construct the Initial Tenant Improvements:
1. WORK BY LANDLORD. Landlord shall cause to be constructed and/or
installed in the Leased Premises of the leasehold improvements and tenant finish
(the "Initial Tenant Improvements") as set forth on approved plans which are to
be developed in accordance with Schedule of Critical Dates herein stated.
2. PLANNING AND CONSTRUCTION. Landlord and Tenant shall cooperate in
good faith in the planning and construction of the Initial Tenant Improvements,
and Tenant shall respond promptly to any request from Landlord for Tenant's
approval of any particular aspect thereof, it being agreed and understood that
it is the intent and desire of the parties that the Leased Premises be ready for
Tenant's occupancy on or before July 15, 1998 (the "Estimated Leased Premises
Delivery Date").
3. QUALITY OF WORK. Landlord shall supervise the construction of the
Initial Tenant Improvements and shall use its reasonable good faith efforts to
cause same to be constructed and installed in a good and workmanlike manner in
accordance with good industry practice. Landlord and Tenant shall inspect the
Leased Premises before Tenant takes occupancy and create a repair list of items
(if any) that may need correcting. The creation of such list shall not delay
the "Leasehold Improvements Completion Date". Landlord shall use reasonable
good faith to correct all items listed in a timely manner. Landlord's
contractor shall provide Tenant a one (1) year warranty on workmanship,
materials and equipment (or in the case of equipment warranties where
manufacturers' warranties exceed one (1) year, such warranties which
manufacturers provide).
4. COMPLETION OF CONSTRUCTION. The "Leasehold Improvements
Completion Date" shall mean the date upon which the Initial Tenant Improvements
are substantially complete. Landlord shall provide a temporary or final
certificate of occupancy covering the Leased Premises as required for Tenant's
temporary and final use of the Leased Premises. The phrase "substantially
complete" shall mean that all construction debris has been removed from the
Leased Premises and the Leased Premises are clean, the Leased Premises may
reasonably be used and occupied for the purposes intended by the Tenant and the
progress of the construction of the Initial Tenant Improvements to date is such
that final completion of the Initial Tenant Improvements can occur
1
<PAGE>
within a reasonable period of time and without undue interference to the
Tenant's use of the Leased Premises. If the Leased Premises are not ready for
occupancy by the Estimated Leased Premises Delivery Date for any reason,
Landlord shall not be liable or responsible for any claims, damages or
liabilities in connection therewith or by reason thereof unless otherwise
provided for in the Lease.
5. DISCLAIMER OF WARRANTY. The foregoing constitutes Landlord's only
warranty with respect to the Leasehold Improvements. TENANT ACKNOWLEDGES THAT
THE CONSTRUCTION AND INSTALLATION OF THE INITIAL TENANT IMPROVEMENTS, IF ANY, TO
BE PROVIDED BY LANDLORD, WILL BE PERFORMED BY TURNER ADREAC QUEST, L.C. D.B.A.
QUEST CONSTRUCTION COMPANY AND THAT LANDLORD HAS MADE AND NVILL MAKE NO
WARRANTIES TO TENANT WITH RESPECT TO THE QUALITY OF CONSTRUCTION THEREOF OR AS
TO THE CONDITION OF THE PREMISES, EITHER EXPRESS OR IMPLIED, AND THAT LANDLORD
EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY THAT THE LEASED PREMISES ARE OR WILL BE
SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE. AS SET FORTH IN SECTION 4.04
(c) OF THIS LEASE, EXCEPT AS EXPRESSLY PROVIDED IN SECTION 6.01(c) HEREOF.
TENANT'S OBLIGATION TO PAY BASE AND ADDITIONAL RENTAL HEREUNDER IS NOT DEPENDENT
UPON THE CONDITION OF THE LEASED PREMISES OR THE BUILDING OR THE PERFORMANCE BY
LANDLORD, QUEST CONSTRUCTION COMPANY, TENANT OR ANY CONTRACTOR OF TENANT OF ANY
OBLIGATIONS HEREUNDER, AND TENANT SHALL CONTINUE TO PAY THE BASE AND ADDITIONAL
RENTAL WITHOUT ABATEMENT, SETOFF OR DEDUCTION, NOTWITHSTANDING ANY BREACH BY
LANDLORD CONTRACTOR OF THEIR DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR
IMPLIED. However, Landlord agrees that in the event that any defect in the
construction of the Initial Tenant Improvements is discovered, Tenant shall have
the right to pursue and seek to enforce any warranties of each contractors)
and/or manufacturer of any defective materials incorporated therein in Tenant's
own name.
6. COST OF INITIAL TENANT IMPROVEMENTS-LANDLORD CONSTRUCTS INITIAL
TENANT IMPROVEMENTS. Landlord shall pay all costs and expenses of the Initial
Tenant Improvements (including, labor, materials and architectural and
engineering costs) up to the aggregate amount of $15.00 per square foot of
Tenant's Net Rentable Area (the "Improvement Allowance"). Any costs and
expenses in excess of the Improvement Allowance shall be paid in cash by Tenant
to Landlord 50% upon Landlord's execution of the Construction Contract thereto
with the balance payable monthly (within ten (10) days of receipt of Landlord's
invoice to Tenant therefore) to Landlord in accordance with the terms and
conditions for monthly progress payments by Landlord to Landlord's Contractor
during the construction period. All payments not received by Landlord within
the prescribed period for payment shall bear interest from the date due until
paid at the greater of (1) two percent (2%) above the "prime rate" per annum. of
Texas Commerce Bank National Association or its successor ("TCB") in effect on
said due date (or if the "prime rate" be discontinued, the base reference rate
then being used by TCB to define the rate of interest charged to commercial
borrowers) or (2) eighteen percent (18%) per annum; provided, however, in no
event shall the rate of interest hereunder exceed the maximum non-usurious rate
of interest (hereinafter called the "Maximum Rate") permitted by the applicable
laws of the State of Texas or the United
2
<PAGE>
States of America, whichever shall permit the higher non-usurious rate, and as
to which Tenant could not successfully assert a claim or defense of usury, and
to the extent that the Maximum Rate is determined by reference to the laws of
the State of Texas, the Maximum Rate shall be the indicated rate ceiling (as
defined and described in Texas Revised Civil Statutes, Article 5069-1.04, as
amended) at the applicable time in effect.
In the event the costs of the Initial Tenant Improvements as defined
above shall be less than the Improvement Allowance, Landlord shall rebate to
Tenant the amount of the Improvement Allowance which has not been expended.
Landlord may effect such rebate in any of the following methods and the
determination of the method of rebate shall be at the sole discretion of
Landlord;
(i) Landlord may issue direct payment to Tenant in an amount equal to
the amount of Improvement Allowance which Landlord has not expended. Such
payment shall be made within forty-five (45) days following receipt by Landlord
of all final invoices for labor, materials and architectural and engineering,
costs associated with the construction of the Tenant Improvements and lien
waivers therefor but in no event shall such payment be issued prior to Tenant's
Occupancy of the Leased Premises and execution by Tenant of the Commencement
Agreement as provided for in Exhibit "I" to the Lease.
(ii) Landlord may provide to Tenant an abatement of Base Rental due
under the Lease in an amount equal to the amount of Improvement Allowance not
expended by Landlord. Landlord shall provide to Tenant Landlord's calculation
of the amount of abatement within forty-five (45) days following receipt by
Landlord of all final invoices for labor, materials and architectural and
engineering costs associated with the construction of the Tenant Improvements
and lien waivers therefor. No abatement of Tenant's Base Rental due under the
Lease shall become effective prior to Tenant's Occupancy of the Leased Premises
and execution by Tenant of the Commencement Agreement as provided for in Exhibit
T' to the Lease.
3
<PAGE>
PART 1. SCHEDULE OF CRITICAL DATES WHEN LANDLORD CONSTRUCTS INITIAL TENANT
IMPROVEMENTS
Set forth below is a schedule of certain critical dates relating to
Landlord's and Tenant's respective obligations with respect to construction of
the Initial Leasehold Improvements for the Leased Premises. These dates and the
respective obligations of Landlord and Tenant are more fully described in Part
II below.
<TABLE>
<CAPTION>
RESPONSIBLE
DATE DUE PARTY
-------- -----
<S> <C> <C> <C>
A. Preliminary Space Plan November 15, 1997 11/15/97
Delivery Date
B. Landlord Preliminary 5 days following Landlord's Landlord 11/20/97
Review Date receipt of Preliminary Space Plan
C. Space Plan December 19, 1997 Tenant 12/19/97
Delivery Date
D. Landlord Review Date 5 days following Landlord's Landlord 12/24
receipt of Space Plan
E. Space Plan 10 days following Tenant's Tenant 01/03/98
Revision Date receipt of Landlord's Comments
F. Space Plan 5 days following Landlord's Landlord 01/08/98
Approval receipt of revised Space Plan
G. Working Drawings 30 days following Working Tenant 02/07/98
Delivery Date Drawings delivery date
H. Working Drawings 5 days following Working Landlord 02/12/98
Revision Date Drawings delivery date
I. Working Drawings 10 days following receipt of Tenant 02/22/98
Revision Date Landlord's comments to
Working Drawings
J. Working Drawings 5 days following Landlord's Landlord 02/27/98
Review Date receipt of revised Working
Drawings
K. Bid Date 15 days following Working Landlord 03/14/98
Drawings approval
4
<PAGE>
L. Bid Review 5 days following receipt of Bid Tenant 03/19/98
M. Bid Revision Date 5 days following receipt of Landlord 03/24/98
requested revisions from Tenant
N. Bid Date 5 days following receipt of Tenant 03/29/98
Acceptance Date Revised Bid
O. Leasehold Improvements July 15, 1998 Landlord
Completion Date
</TABLE>
All references to days mean working or business days.
PART II. LANDLORD AND TENANT PRE-CONSTRUCTION OBLIGATIONS WHEN LANDLORD
CONSTRUCTS INITIAL TENANT IMPROVEMENTS
1. Tenant will deliver to Landlord no later than the Space Plan Delivery Date
(described in Part I above) a space plan containing the information
described in Part IV (I and 2) below, (said space plan and other
information and instructions being called the "Preliminary Tenant Space
Plan").
2. Landlord will review the Preliminary Tenant Space Plan to confirm that it
conforms to the requirements listed in Part IV (I and 2) below, and
Landlord shall report any non-conformity to Tenant, on or before the
Landlord Preliminary Review Date (described in Part I above).
3. Tenant will deliver to Landlord no later than the Space Plan Delivery Date
(described in Part I above) a space plan containing the information
described in Part IV below (said space plan and other information and
instructions being called the "Tenant Space Plan").
4. Landlord will review the Tenant Space Plan to confirm that it conforms to
the requirements listed in Part IV below, and Landlord shall report any
non-conformity to Tenant, on or before the Landlord Review Date (described
in Part I above). Additionally, on or before the Landlord Review Date,
Landlord shall meet with Tenant and advise Tenant informally of the
estimated costs based upon conformance with and utilization of Building
Standard Tenant Finishes (or better if and where indicated by Tenant on
Tenant Space Plan). Such amounts in excess of the Tenant finish cost
allowance, being called 'Tenant Extra Work' as further described in Part V
below.
5. In the event the Tenant Space Plan does not conform to the requirements of
Part IV below, or Tenant determines the approximate construction costs
associated with Tenant Extra
5
<PAGE>
Work are not within the scope of its budget, Tenant will deliver a
corrected Tenant Space Plan to Landlord no later than the Space Plan
Revision date (described in Part I above).
6. After Landlord has approved the Tenant Space Plan, Tenant shall promptly
cause working drawings (hereafter called "Tenant Working Drawings") of the
improvements to Leased Premises shown on the Tenant Space Plan to be
prepared and shall deliver to Land lord the Tenant Working Drawings no
later than the Working Drawings Delivery Date (described in Part I above)
or such later date as may be reasonable in light of the complexity of
Tenant's leasehold improvements or the nature of Tenant's above Standard
improvements,
7. Landlord shall deliver to Tenant written comments or approval of the Tenant
Working Drawings no later than the Working Drawings Approval Date
(described in Part I above).
In the event the Tenant Working Drawings vary in design from the Tenant
Space Plan, or if Landlord shall require modification to the Working
Drawings Tenant at Tenant's expense promptly shall correct the Tenant
Working Drawings.
8. Upon receipt of the approved Tenant Working Drawings, Landlord agrees to
cause its contractor to submit for pricing by its contractors and suppliers
the work shown on the Tenant Working Drawings to include bids from three
qualified subcontractors approved by Tenant for each element of
construction which Landlord's contractor will subcontract. Landlord shall
then furnish to Tenant the Bids which shall be based upon conformance with
and utilization of Building Standard Tenant Finishes (or better if and
where indicated by Tenant on the Tenant Working Drawings) and which shall
contain the material factors used by Landlord in calculation such Bid, on
or before the Bid Date (described in Part I above) or such later date as
may be reasonable in light of the complexity of Tenant's leasehold
improvements or the nature of Tenant's Above Standard improvements.
9. Tenant agrees to promptly review the Bid and to send written notice to
Landlord of its approval or rejection, on or before the Bid Acceptance Date
(described in Part I above).
PART III CERTAIN PROVISIONS RELATING TO CONSTRUCTION WHEN LANDLORD CONSTRUCTS
INITIAL TENANT IMPROVEMENTS
1. Upon approval of the Bid, Landlord agrees to use reasonable efforts, in
good faith, in installing the improvements to the Leased Premises described
therein prior to the Commencement Date. Tenant shall, in advance and upon
request by Landlord per the terms outlined in Paragraph 6 of this Exhibit,
pay all costs incurred in connection with Tenant Extra Work, including the
costs of the materials and labor therefore.
2. Tenant may make changes in the work to be done on or for its leasehold
improvements both before and during construction of same. However, Tenant
shall be responsible for all costs relating thereto, which costs shall
include those resulting from any delays incurred by Landlord as a result
of the changes.
6
<PAGE>
3. Unless Tenant occupies the Leased Premises prior thereto and subject to the
provisions of the paragraph entitled "Commencement Date" on page 2 of the
Lease, Tenant shall not be required to pay rent and the term of this lease
shall not commence until Tenant's leasehold improvements arc substantially
completed, unless such substantial completion is delayed as a result of
special above standard improvements requested by Tenant, or such other
delays as may be caused by Tenant. The following are examples of such
delays:
(a) If Tenant's leasehold improvements involve Tenant Extra Work which
requires more time to complete than is required for Building Standard
Improvements;
(b) Failure by Tenant or its architects, engineers, space planners or
others employed by Tenant to timely comply with the provisions of Part
II above (but only if the failure results in Tenant's leasehold
improvements being substantially completed later than they would have
been absent said failure);
(c) if Tenant makes changes either before or during construction of its
leasehold improvements as described in paragraph 2 of this Part III
(but only if the changes result in Tenants leasehold improvements
being substantially completed later than they would have been
substantially completed absent said changes).
4. Any failure of Tenant to use reasonable efforts, in good faith, to comply
with the requirements of this Exhibit shall constitute a default by Tenant,
giving Landlord all of the remedies described in Article 13, subject to the
notice and cure provisions provided for in Article 13 notwithstanding any
provisions hereof to the contrary.
5. Tenant shall pay and be responsible for the architectural and engineering
fees incurred in preparing the Tenant Working Drawings which relate to the
Leased Premises and Landlord shall reimburse Tenant for Tenant's cost
incurred in connection with the preparation of the Tenant Working Drawings
or chances thereto upon receipt of an invoice therefore and deduct same
from the Improvement Allowance.
6. Landlord and Tenant shall cooperate in good faith in the planning and
construction of the Initial Tenant Improvements, and Landlord shall respond
promptly to any request from Tenant for Landlord's approval of any
particular aspect thereof, it being agreed and understood that it is the
intent and desire of the parties that the Leased Premises be ready for
Tenant's occupancy on or before July 15, 1998 (the "Leasehold Improvements
Completion Date").
PART IV. MIMMUM INFORMATION REQUIRED OF TENANT SPACE PLAN
FLOOR PLANS INDICATING:
1. Location and type of all partitions.
7
<PAGE>
2. Location and types of all doors.
3. Location and type of glass partitions, windows and doors - indicate framing
if not Building Standard.
4. Location of telephone equipment room.
5. Location and type of all non-Building Standard electrical items.
6. Location, weight per square foot and description of any special weight
requirements.
7. Requirements for special air conditioning or ventilation.
8. Location and type of plumbing.
9. Location and type of kitchen equipment.
10. Location and type of equipment that has any special electrical, mechanical,
plumbing, or structural requirements, indicating such requirements.
11. Bracing or support of special walls, glass partitions, etc., if desired.
PART V. BUILDING STANDARD TENANT FINISHES
- Ceiling Tile - 2'x2'x5/8" non-directional random fissured surface
acoustical ceiling, color; white. USG Omni Fissured or equal
- Ceiling Grid - 2'x2' suspended steel exposed grid system, color; white
- USGDX Suspension System or equal
- Light Fixture - 2'x4' 18 cell recessed parabolic 3 lamp fluorescent
light fixture with electronic ballast, clear alzak finish and
fluorescent lamps
- Lightolier Deepcel DPA2G I 8DP340 or equal
- Light Fixture - Same as above but 2'x2' - 9 cell equal to Lightolier
- Deepcel DPA2G9DS2UA or equal
- Light Fixture - Recessed Downlight with clear alzak finish, A lamp and
white trim ring. Lightolier B7054 or equal
- Door Frames - full height (9'-04") RACO System frames
- Doors - Full height (9'-O") plastic laminate solid core door to match
corridor door.
- Partitions - Gypsum board partitions to have RACO System head track to
match door frames. RACO or equal
- Hardware - Satin finish bronze lever style cylindrical hardware
- SWBB Hinges 4-1/2x4 FBB 179 painted to match door frame by Stanley or
equal
8
<PAGE>
- Parallel or regular Arm door closer factory painted to match frame,
with six bolts; Yale 4400-BF-DA or equal
- Devises - Rocker type, quiet action wall switches; white clovers.
Pass and Seymour Sierraplex 2621 Series or equal
- Duplex receptacle; white cover. Pass and Seymour Sierraplex 26352
Series or equal
- Mini-blinds with extruded aluminum blinds pockets. Mini-blinds to
match aluminum sill color
SECURITY SYSTEM:
- The Building will include a high level security system with the
following features:
Intelligent, programmable central control unit
Car/keyboard entry
Burglar, fire and emergency alarms
24-hour electronic monitoring capability
LANDLORD'S WORK
AT LEASED PREMISES:
- Concrete floor
- 2' x 2' ceiling grid and one-time installation of tiles
- Metal stud framing with insulation at head and sill of exterior wall
- Glass and aluminum windows at exterior wall
- HVAC system will be provided by self-contained water cooled package
unit with 2 air-handier units per floor. Units will be complete with
leaving air temperature controls and inlet guide valve static pressure
control
- Air distribution will be through externally insulated sheet metal
ductwork, sized for low pressure, both upstream and downstream of the
VAV boxes
- Temperature control will be by ten fan-powered VAV boxes with electric
heat per floor serving the exterior zones and by eight cooling only
VAV boxes serving the interior zones
- The temperature control system will consist of a multi-channel
microprocessor based time clock for load scheduling.
- Installing supply and return air grilles and thermostats.
- TENANT FINISH WORK WILL CONSIST OF RELOCATING ANY SUPPLY AND RETURN
AIR GRILLES, LOWERING AND ADDRESSING OF THERMOSTATS THAT MAY BE
REQUIRED AS A RESULT OF MODIFICATIONS OR CHANGES IN TENANT'S SPACE
PLANS FOLLOWING LANDLORD'S INITIAL INSTALLATIONS.
- Untreated outside air will be supplied by a roof-mounted supply fan,
distributed by a vertical riser with taps on each floor
- Toilets will be exhausted by a roof-mounted exhaust fan, serving a
vertical riser
- Electrical system shall deliver 3500 amp 3 phase 4 conductor 277/480
volt power to the building (10 watts per square foot available power
for low voltage consumption). The
9
<PAGE>
electrical room on each floor shall have a 400 amp high voltage
distribution panel for each tenant to tap into, and a 225 amp low
voltage panel
- Landlord's Building will include a wet pipe automatic fire sprinkler
system in accordance with the City of Sugar Land and State of Texas'
requirements
- Landlord's work will include installation of all piping, equipment and
sprinkler heads of the fire sprinkler system within Tenant's space.
- TENANT FINISH WORK WILL INCLUDE ANY ADJUSTMENTS OR ADDITIONS OF FIRE
SPRINKLER HEADS THAT MAY BE REQUIRED AS A RESULT O MODIFICATIONS OR
CHANGES TO THE TENANT'S SPACE PLAN FOLLOWING LANDLORD'S INITIAL
INSTALLATIONS.
PART VI. LANDLORD'S WORK WHEN TENANT CONTRUCTS INITIAL TINANT
I.MPROVEMENTS
To induce Landlord and Tenant to enter into the Lease (which is hereby
incorporated by reference to the extent that the provisions of this Agreement
may apply thereto) and in consideration of the mutual covenants hereinafter
contained, Landlord and Tenant mutually agree as follows in the event Tenant
elects not to have Landlord construct the Initial Tenant Improvements.
1. WORK BY LANDLORD. Landlord shall cause to be constructed and/or installed
in the Leased Premises the Landlord's Work at Tenant Space as set forth in
this Exhibit "C" in accordance with Schedule of Critical Dates herein
stated.
2. PLANNING AND CONSTRUCTION. Landlord and Tenant shall cooperate in good
faith in the planning and construction of the Initial Tenant Improvements,
and Tenant shall respond promptly to any request from Landlord for Tenant's
approval of any particular aspect thereof, it being agreed and understood
that it is the intent and desire of the parties that the Leased Premises be
ready for tender of possession to Tenant on or before May 1, 1998 (the
"Estimated Tender of Possession Date").
3. QUALITY OF WORK. Landlord shall supervise the construction of the
Landlord's Work at Leased Premises and shall use its reasonable good faith
efforts to cause same to be constructed and installed in a good and
workmanlike manner in accordance with good industry practice. Landlord and
Tenant shall inspect the Leased Premises before Tenant takes possession and
create a repair list of items (if any) that may need correcting. The
creation of such list shall not delay the "Tender of Possession Date".
Landlord shall use reasonable good faith to correct all items listed in a
timely manner.
4. COMPLETION OF LANDLORD'S WORK AT LEASED PREMISES. The "Tender of
Possession Date" shall mean the date upon which the Landlord's Work at the
Leased Premises are substantially complete. The phrase "substantially
complete" shall mean that all construction debris has been removed from the
Leased Premises and the Leased Premises are tendered to Tenant in a "broom
clean" condition, and may reasonably be used by Tenant for the purpose of
construction of the Initial Tenant Improvements by Tenant's contractors and
the progress of the construction of the Landlord's Work at the Leased
Premises to date is such that final completion of the Landlord's Work at
the Leased Premises can occur within a reasonable period of time and
without undue
10
<PAGE>
interference to the Tenant's use of the Leased Premises for the purpose of
construction of the Initial Tenant Improvements. If the Leased Premises
are not ready for tender by the Estimated Tender of Possession Date for any
reason, Landlord shall not be liable or responsible for any claims, damages
or liabilities in connection therewith or by reason thereof unless
otherwise provided for in the Lease
PART VII. SCHEDULE OF CRITICAL DATES WHEN TENANT CONSTRUCTS INITIAL TENANT
IMPROVEMENTS
A. Set forth below is a schedule of certain critical dates relating to
Landlord's and Tenant's respective obligations with respect to construction
by Landlord of the Landlord's Work at Leased Premises and construction by
Tenant of the Initial Leasehold Improvements f/or the Leased Premises.
These dates and the respective obligations of Landlord and Tenant are more
fully described in Part VII below.
<TABLE>
<CAPTION>
RESPONSIBLE
DATE DUE PARTY
-------- -----
<S> <C> <C> <C>
A. Preliminary Space November 15, 1997 Tenant 11/14/97
Plan Delivery Date
B. Landlord Review 5 days following Landlord's Landlord 11/19/97
Date receipt of Space Plan
C. Space Plan December 15, 1997 Tenant
Delivery Date
D. Landlord Review 5 days following Landlord's Landlord 12/20
Date receipt of Space Plan
E. Space Plan 10 days following Tenant's Tenant 12/20
Revision Date receipt of Landlord's
Comments to Tenant's Space
Plan
F. Space Plan 5 days following Landlord's Landlord 01/04/98
Approval receipt of Landlord's
Comments to Tenant's Space
Plan
G. Working Drawings 20 days following Space Tenant 01/29/98
Revision Date Plan approval
H. Working Drawings 5 days following Working Landlord 02/08/98
Review Date Drawings delivery date
I. Working Drawings 10 days following receipt Tenant 02/08/98
Revision Date of Landlord's comments to
Working Drawings
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<PAGE>
J. Working Drawings 5 days following receipt of Tenant 02/13/98
Approval Landlord's comments to
Working Drawings
K. Estimated Tender May 1, 1998 Landlord 05/01/98
of Possession Date
L. Leasehold 75 days following Tender of Tenant
Improvements Possession Date
Completion Date
</TABLE>
All references to days other than with respect to Leasehold Improvements
Completion Date mean working or business days.
PART VIII. LANDLORD AND TENANT PRE-CONSTRUCTION OBLIGATIONS WHEN TENANT
CONSTRUCTS INITIAL TENANT IMPROVEMENTS
1. Tenant will deliver to Landlord no later than the Preliminary Space Plan
Delivery Date (described in Part I above) a space plan containing the
information described in Part IV (I and 2) above, (said space plan and
other information and instructions being called the "Preliminary Tenant
Space Plan").
2. Landlord will review the Preliminary Tenant Space Plan to confirm that it
conforms to the requirements listed in Part IV below, and Landlord shall
report any non-conformity to Tenant, on or before the Landlord Review Date
(described in Part VII above).
3. Tenant will deliver to Landlord no later than the Space Plan Delivery Date
(described in Part I above) a space plan containing, the information
described in Part IV above, (said space plan and other information and
instructions beiric, called the "Tenant Space Plan").
4. Landlord will review the Tenant Space Plan to confirm that it conforms to
the requirements listed in Part IV above, and Landlord shall report any
non-conformity to Tenant, on or before the Landlord Review Date (described
in Part VII above). Additionally, on or before the Landlord Review Date,
Landlord shall meet with Tenant and advise Tenant informally of the
estimated costs based upon conformance with and utilization of Building
Standard Tenant Finishes (or better if and where indicated by Tenant on
Tenant Space Plan). Such amounts in excess of the Tenant finish cost
allowance, being called "Tenant Extra Work" as further described in Part V
below.
5. In the event the Tenant Space Plan does not conform to the requirements of
Part IV above, or Tenant determines the approximate construction costs
associated with Tenant Extra Work are not within the scope of its budget,
Tenant will deliver a corrected Tenant Space Plan to Landlord no later than
the Space Plan Revision date (described in Part VII above).
6. After Landlord has approved Tenant Space Plan, Tenant shall promptly cause
working drawings (hereafter called "Tenant Working Drawings") of the
improvements to Leased Premises shown on the Tenant Space Plan to be
prepared and shall deliver to Landlord the
12
<PAGE>
Tenant Working Drawings no later than the Working Drawings Delivery Date
(described in Part VII above) or such later date as may be reasonable in
light of the complexity of Tenant's leasehold improvements or the nature of
Tenant's above Standard improvements.
7. Landlord shall deliver to Tenant written comments or approval of the Tenant
Working Drawings no later than the Working Drawings Approval Date
(described in Part VII above),
In the event the Tenant Working Drawings vary in design from the Tenant
Space Plan, or if Landlord shall require modification to the Working
Drawings Tenant at Tenant's expense promptly shall correct the Tenant
Working Drawings.
8. If such final plans and specifications (working drawings) are mutually
approved by Landlord and Tenant in writing, such plans and specifications
(working drawings) shall be initialed or signed by Landlord and Tenant and
dated but need not be attached to the Lease Agreement.
PART IX. CERTAIN PROVISIONS RELATING TO CONSTRUCTION-TENANT CONSTRUCTS INITIAL
TENANT IMPROVEMENTS
1. Landlord hereby consents to Tenant's construction of the Initial Tenant
Improvements at the Leased Premises upon the following four (4) conditions
precedent: (i) that Landlord and Tenant shall have mutually agreed in
writing upon plans and specifications for such construction utilizing the
procedure herein set forth; (ii) that Landlord and Tenant shall have
mutually agreed in writing upon one or more general contractors (herein
sometimes referred to in the singular as "contractor" and the plural as
"contractors") to be utilized by Tenant in erecting such improvements;
(iii) that Tenant has tendered to Landlord: a true copy of a "Building
Permit" (meaning all required governmental, quasi-governmental, regulatory
authority and other permits, consents, letters of utility availability and
permissions) for the work of Tenant and its contractors to be performed
under the Lease Agreement, certificates of all insurance required to be
obtained by Tenant pursuant to the Lease Agreement, certificates of
insurance from Tenants' contractor as Landlord may reasonably require; and
(iv) that the Lease Agreement has not been terminated for any reason
permitted under the Lease Agreement.
2. In connection with Tenant's erection of improvements at the Leased
Premises, if Landlord and Tenant have not prior to (or contemporaneous
with) the execution of the Lease by Landlord and Tenant agreed in writing
upon one or more general contractors to be utilized by Tenant in erecting
such improvements, then by the Working Drawings Delivery Date, Tenant shall
submit to Landlord a list of one (1) or more contractors, any of which
Tenant would be willing to enter into a contract with for the construction
of such improvements, provided that the bid of such contractor or price
negotiated with such contractor was satisfactory to Tenant. Landlord shall
notify Tenant whether Landlord objects to any contractor named on such list
of contractors and if so, the reason therefore within ten (10)
13
<PAGE>
days thereafter, failing which Landlord will be deemed to have approved
each contractor named on Tenant's list.
3. Upon tender of possession of the Leased Premises by Landlord to Tenant,
Tenant shall enter the Leased Premises and Tenant will perform such
construction work and provide and install such materials as are provided in
the Working Drawings and this Lease Agreement (inclusive of any other
Exhibits to the Lease Agreement) to be constructed or performed and
installed by Tenant. Tenant will also provide and install all other
interior work, trade equipment, furniture, fixtures, and effects of every
description necessary or appropriate for Tenant's business (other than
those specifically stated in this Exhibit similarly stated in the Working
Drawings to be provided by Landlord) and all such items to be provided and
installed by Tenant shall be new and modem and of first-class quality.
Tenant may make chances in its construction work (other than substantial
changes) without- Landlord's approval; Landlord will not unreasonably
withhold approval of substantial changes proposed by Tenant. Landlord
shall have the right to approve and to monitor any construction related to
the Building's MEP systems and structural members and to monitor any
construction related to the Leased Premises. Landlord will not impose any
fee in connection with the monitoring of Tenant's construction of the
Initial Tenant Improvements and installation of Tenant's equipment and
improvements in other areas of the Building.
4. At all times while Tenant is constructing the improvements at the Leased
Premises and installing its trade equipment, furniture and fixtures, Tenant
shall not unreasonably interfere with the conducting of business at the
Building. Tenant shall comply with said reasonable requests of Landlord as
Landlord might make for the purpose of avoiding such interference.
5. With respect to any labor performed or materials furnished by Tenant at the
Leased Premises, the following shall apply: All such labor shall be
performed and materials furnished at Tenant's own cost, expense and risk.
Labor and materials used in the installation of Tenant's furniture and
fixtures, and in any other work on the Leased Premises performed by Tenant,
will be subject to Landlord's prior written approval. Any such approval of
Tenant's labor shall constitute a license authorizing, Tenant to pen-nit
such labor to enter upon the Complex and Leased Premises prior to the
commencement of the lease term; however, the continued effectiveness of
such license is conditioned upon Tenant's aforesaid labor working in
harmony with and not interfering with labor utilized by Landlord or
Landlord's mechanics or contractors and not interfering with labor utilized
by any other tenant or such tenant's mechanics or contractors.
Accordingly, if at any time such entry of Tenant's labor shall cause
disharmony or interference therewith, this license may be withdrawn by
Landlord upon forty-eight (48) hours written notice to Tenant, upon
expiration of which Tenant shall have caused all of Tenant's labor (as to
whom Landlord shall have given such notice) to have been removed from the
Leased Premises and from the Complex. With respect to any contract for any
such labor or materials, Tenant acts as a principal and not as the agent of
Landlord. Subject to Section 11.3 of the Lease, Tenant agrees to indemnify
and hold Landlord harmless from all claims (including costs and expenses of
defending against such claims) arising or alleged to arise from any act or
omission of Tenant or Tenant's agents, employees, contractors,
subcontractors, laborers,
14
<PAGE>
materialmen or invitees or arising from any bodily injury or property
damage occurring or alleged to have occurred incident to Tenant's work at
the Leased Premises. Tenant shall have no authority to place any lien upon
the Leased Premises or any interest therein nor in any way to bind
Landlord; and any attempt to do so shall be void and of no effect.
Landlord expressly disclaims liability for the cost of labor performed or
materials furnished by Tenant. If, because of any actual or alleged act or
omission of Tenant, any lien, affidavit, charge or order for the payment of
money shall be filed against Landlord, the Leased Premises or any portion
thereof or interest therein, whether or not such lien, affidavit, charge or
order is valid or enforceable, Tenant shall, at its own cost and expense,
cause same to be discharged of record by payment, bonding or otherwise no
later than fifteen (15) days after notice to Tenant of the filing thereof,
but in all events, prior to the foreclosure thereof. All of Tenant's
construction at the Leased Premises shall be performed in substantial
compliance with the plans and specifications therefor mutually approved by
Landlord and Tenant in a good and workmanlike manner. All such work shall
be performed by Tenant in compliance with all applicable building codes,
regulations and all other legal requirements and shall be performedin such
manner as to not cause Landlord's fire and extended coverage insurance to
be canceled or the rate therefor increased (or at Landlord's option, will
upon demand pay any such increase). In the performance of such work,
Tenant shall not interfere with or delay any work being done by Landlord's
contractors.
6. Landlord will make reasonable utilities available to Tenant's contractors
at no additional cost or expense. Tenant's contractors shall have
non-exclusive use of the loading dock, freight elevators and other service
areas of the Building, all at no additional cost or expense (subject to the
reasonable scheduling procedures of Landlord's contractor).
7. Upon full completion of construction of the improvements by Tenant in
accordance with the Working Drawings, Landlord shall pay to Tenant (or, at
Landlord's option, Landlord may pay Tenant and the general contractor
and/or one or more subcontractors) as an "Allowance", the lesser of (i)
Tenant's actual "Tenant Improvement Costs" (as hereinafter defined) or (ii)
the Improvement Allowance as defined in Section 6 of this Exhibit "C"
toward Initial Tenant Improvement Costs with respect to the Leased Premises
provided that Tenant has furnished to Landlord the following (on forms to
be furnished by Landlord where applicable):
a.) A certificate of occupancy (or other certificates evidencing
inspection and acceptance of all of Tenant's construction by
appropriate government authorities);
b.) A copy of Tenant's contract with the general contractor performing
such work, which contract shall contain a schedule of values totaling
the full amount of the contract. In the event that Tenant has acted
as its own general contractor, Tenant must have entered into written
subcontracts with all parties who furnished labor and/or materials
totaling more than Five Hundred and No/100 Dollars ($500.00) and
copies of such subcontracts must be furnished to Landlord;
15
<PAGE>
c.) Tenant's affidavit, in the form attached hereto as Exhibit "C-1", that
such construction has been completed to its satisfaction and in strict
accordance with the Working Drawings which affidavit shall also state
the total Initial Tenant Improvement Costs itemized in reasonable
detail;
d.) General Contractor's Affidavit and Lien Waiver with respect to the
Leased Premises and Complex, in the form attached hereto as Exhibit
"C-2", executed by the general contractor(s) performing such work
stating that construction has been fully completed in accordance with
the Working Drawings and that all subcontractors, laborers and
material suppliers engaged in or supplying materials for such work
have been paid in full (in the event, however, that Tenant has acted
as its own general contractor, Tenant, itself, will execute Exhibit
"C-2");
e.) Subcontractor's Lien Waiver with respect tot he Leased Premises and
Complex, in the form attached hereto as Exhibit "C-3", executed by all
subcontractors and materialmen who shall have furnished labor and/or
materials for the work;
f.) Certificate of substantial completion from Tenant's architect or
engineer certifying that such construction work has been fully
completed in accordance with the Working Drawings;
g.) Notice from Tenant to Landlord that Tenant has opened for business at
the Leased Premises and execution by Tenant and delivery to Landlord
of the Commencement Agreement attached hereto as Exhibit "I"
indicating the commencement and termination dates of the lease term;
h.) Delivery to Landlord of certificates or duplicate originals of all
insurance which Tenant is required to carry under the terms of the
Lease;
i.) Execution by Tenant and delivery to Landlord of any Uniform Commercial
Code (UCC) Financing Statements required under the Lease;
1. Any work at the Leased Premises involving the sprinkler system (if any)
serving the Leased Premises shall be performed by Landlord or its
contractors at Tenant's cost. Tenant shall pay the cost of any such work
(or reimburse Landlord therefore) within ten (10) days after delivery to
Tenant of a statement therefore.
2. Notwithstanding anything to the contrary contained in this Exhibit "C" to
the Lease, if Tenant elects to construct the Initial Tenant Improvements,
Landlord shall upon the request of Tenant fund construction progress
payments on a monthly basis within twenty days after Landlord's receipt of
Tenant's contractor's standard AIA form draw request and supporting
documentation, provided, however that such draw request is delivered to
Landlord no earlier than two (2) days prior to the last day of the month to
which the draw request pertains and no later than five (5) days later than
the last day of the month to which the draw request pertains.
16
<PAGE>
EXHIBIT "C-1"
TENANT'S AFFIDAVIT
STATE OF Section
---------------
Section
COUNTY OF Section
---------------
BEFORE ME, the undersigned authority, personally appeared ;
who, being by me duly sworn, states as follows:
I.
I am the duly constituted representative of NEON SYSTEMS, INC., the Tenant
under and by virtue of a Lease Agreement with TURNER ADREAC, L.C. for certain
leased premises in THE FAIRFIELD BUILDING located in Sugar Land, Texas.
II.
As an inducement to Landlord to pay Tenant the sum of (AMOUNT DUE) as a
construction "Allowance" (as defined in the Lease), I do hereby certify as
follows:
(a) The construction of the Leased Premises has been completed to Tenant's
satisfaction and in strict accordance with the plans and
specifications mutually agreed upon as provided in the Lease.
(b) The total amount paid by Tenant for all construction work to the lease
premises is the sum of $ .
(c) Tenant has occupied and opened for business at the Leased Premises as
of , 19_____.
SIGNED this _________ day of ___________________, 1998.
NEON SYSTEMS, INC.
By: _______________________________
Authorized Agent
1
<PAGE>
STATE OF Section
---------------
COUNTY OF Section
---------------
BEFORE ME, the undersigned authority, on this day personally appeared
______________, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he/she executed the same for
the purposes therein expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ______ day of _____________,
1998.
-----------------------------------------
Notary Public, State of Texas
Print Name:
-----------------------------
My Commission Expires:
-------------------
STATE OF Section
---------------
COUNTY OF Section
---------------
SWORN TO AND SUBSCRIBED before me this _____ day of _______________, 1998.
-----------------------------------------
Print Name:
-----------------------------
My Commission Expires:
-------------------
2
<PAGE>
EXHIBIT "C-2"
GENERAL CONTRACTOR'S AFFEDAVIT AND LIEN WAIVER
STATE OF Section
COUNTY OF Section
BEFORE ME, the undersigned authority, personally appeared
(NAME), who, being by me duly sworn, states as follows:
I.
I am _______________(TITLE) FOR __________________________("CONTRACTOR")..
Contractor has completed construction of improvements to the Leased Premises for
NEON SYSTEMS, INC. in THE FAIRFIELD BUILDING located in Sugar Land, Texas, the
legal description of which is attached hereto as Exhibit "B"
II.
In consideration of the sum of $______________ which constitutes full
payment to Contractor for all work done at the Leased Premises, receipt of which
is hereby acknowledged, Contractor does hereby waive and release any and all
liens (and all rights to hereafter perfect any lien) on the property described
on Exhibit "B" and the improvements presently or hereafter erected thereon.
Further, as an inducement to Landlord to pay to Tenant the "Allowance" (as such
term is defined in the Construction Rider to the Lease), I, duly authorized
agent for Contractor, do hereby wan-ant and represent, for and on behalf of
Contractor, that construction of the Leased Premises has been fully completed in
strict accordance with the Working Drawings and Specifications and that
Contractor and all subcontractors, laborers and material suppliers engaged in
working, or supplying materials for such work, have been paid in full.
I further warrant and represent: (1) that all subcontractors, laborers and
material suppliers engaged in or supplying materials for such construction are
shown on Exhibit "A" attached hereto, (2) that the total amount due each is
shown thereon, (3) that the amount due each has been fully paid, (4) that each
has submitted a full and complete waiver of all rights to file any lien on the
project, and (5) that Contractor will fully indemnify and hold harmless both
Tenant and Landlord from and against any loss arising out of any lien filed by
any subcontractor, laborer or supplier of materials in any way relating to the
work done by or at the request of Contractor.
SIGNED this ___________day of __________________1998.
----------------------------------
Company Name
By:
-----------------------------
Authorized Agent
1
<PAGE>
STATE OF Section
COUNTYOF Section
BEFORE ME, the undersigned authority, on this day personally appeared known
to me to be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that he/she executed the same for the purposes therein
expressed.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this _____ day of
__________1998.
-----------------------------------------
Notary Public, State of Texas
Print Name:
------------------------------
My Commission Expires:
-------------------
STATE OF Section
COUNTY OF Section
SWORN TO AND SUBSCRIBED before me this _______day of ______________., 1998.
-----------------------------------------
Print Name:
-----------------------------
My Commission Expires:
-------------------
2
<PAGE>
EXHIBIT "A TO GENERAL CONTRACTOR'S AFFIDAVIT AND LIEN WAIVER"
LIST OF ALL SUBCONTRACTORS, LABORERS & MATERIAL SUPPLIERS
All subcontractors, laborers and suppliers paid in excess of $500.00 must
initial beside paid amount to acknowledge their receipt of payment in full.
<TABLE>
<CAPTION>
NAME OF SUBCONTRACTOR,
LABORER OR SUPPLIER TYPE OF WORK AMOUNT PAID INITIAL
- ------------------- ------------ ----------- -------
<S> <C> <C> <C>
1. Plumbing
- --------------------------------------------------------------------------------
2. HVAC
- --------------------------------------------------------------------------------
3. Electrical
- --------------------------------------------------------------------------------
4. Millwork & Carpentry
- --------------------------------------------------------------------------------
5. Storefront
- --------------------------------------------------------------------------------
6. Floor Covering
- --------------------------------------------------------------------------------
7. Lumber
- --------------------------------------------------------------------------------
8. Sheet Rock
- --------------------------------------------------------------------------------
9. Electrical Supplies
- --------------------------------------------------------------------------------
10. Plate Glass
- --------------------------------------------------------------------------------
11. Acoustical Ceiling
- --------------------------------------------------------------------------------
12. Architect
- --------------------------------------------------------------------------------
13. Insulation
- --------------------------------------------------------------------------------
14. Engineer
- --------------------------------------------------------------------------------
15. Painting
- --------------------------------------------------------------------------------
</TABLE>
**NOTE: Each subcontractor listed above shall execute an Exhibit "C-3".
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<PAGE>
EXHIBIT "C-3"
SUBCONTRACTORS LIEN WAIVER
The undersigned has heretofore provided (or contemplates hereafter
providing) labor and/or materials for improvements at the real property
described in Exhibit "B" attached hereto and incorporated by reference herein
for all purposes.
By this instrument, the undersigned (being a subcontractor or supplier of
material for the construction of improvements on a portion of the above
described real property) agrees to look for payment solely to (GENERAL
CONTRACTOR) and does hereby waive and release any and all liens on such above
described real property and all improvements presently or hereafter erected
thereon and further waives and releases all rights to hereafter perfect any lien
on such real property and/or improvements.
The undersigned also certifies that all work, labor, materials, machinery,
and equipment furnished by the undersigned to date have been fully paid for and
that there are no amounts unpaid in favor of any sub-contractor or materialman
or any other person finishing labor and/or materials utilized on the basis of
which any lien (commonly called a mechanic's or materialman's lien) has been or
can be filed for work done or materials, machinery, or equipment furnished to
said structures, property, or facilities or any part thereof Further, the
undersigned does hereby agree to indemnify and hold harmless the Owner of the
real property against any loss or damage which may be sustained by reason of the
placing or filing of liens against said real estate and the structures thereon
by sub-subcontractors, laborers, or materialmen, whether his own or those of
sub-subcontractors of materialmen or employees of sub-subcontractors. the
undersigned will pay all attorney's fees, court costs, and other expenses
arising from the placing or filing of any such liens.
SIGNED this _____________day of ___________________1998.
-------------------------------------------
Company Name
By:
--------------------------------------
Authorized Agent
STATE OF Section
COUNTY OF Section
BEFORE ME, the undersigned authority, on this day personally appeared
_______________ known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he/she executed the same for
the purposes therein expressed.
1
<PAGE>
GIVEN UNDER MY HAND AND SEAL OF OFFICE this _________day of _____________1998.
-------------------------------------------
Notary Public, State of Texas
Print Name:
-------------------------------
My Commission Expires:
---------------------
STATE OF Section
COUNTY OF Section
SWORN TO AND SUBSCRIBED before me this __________day of ______________1998.
-------------------------------------------
Print Name:
-------------------------------
My Commission Expires:
---------------------
2
<PAGE>
EXHIBIT D
BUILDING STANDARD HOLIDAYS
Subject to the provisions of Section 6, Landlord will furnish Building
standard heating, ventilating and air conditioning without special charge to
Tenant during Tenant's business hours, but only to the extent the same occur
between the normal business hours of the Building in effect from time to time.
The current normal business hours of the Building are 7:00 a.m. and 6:00 p.m. on
weekdays (from Monday through Friday, inclusive) and Saturdays between 8:00 a.m.
and 1:00 p.m., all exclusive of Holidays (defined below). Landlord will furnish
air conditioning and heating at other times (that is, at times other than the
times specified above), upon request of Tenant made in accordance with the rules
and regulations for the Building, in which event Tenant shall reimburse Landlord
for furnishing such services at the rate of $35.00 per floor per hour.
The following dates shall constitute "Holidays" as said term is used in
this Lease:
(1) New Year's Day
(2) Memorial Day
(3) Independence Day
(4) Labor Day
(5) Thanksgiving Day
(6) Friday following Thanksgiving Day
(7) Christmas Day
If in the event that any Holiday shall be observed on a day other than the
actual day on which such Holiday occurs, then the day which such Holiday is
observed shall constitute the Holiday under this Lease.
1
<PAGE>
EXHIBIT E
PARKING
Landlord hereby agrees to make available to Tenant, during the full ten-n
of this Lease, three and one-half (3.5) covered parking permit(s) for every one
thousand square feet of Net Rentable Area leased by Tenant within the Building
from time to time, fifteen percent (15%) of which shall be reserved/assigned
(hereinafter called the "Initial Parking Permits") in the Building parking
garage (hereinafter called the "Garage"), at no additional cost. Additional
parking permits may be made available upon the following terms and conditions:
(1) In the event Tenant shall desire to obtain additional covered
unassigned parking permits (hereinafter called "Additional Parking Permits") in
the Garage, Tenant shall notify Landlord in writing of Tenant's desire to do so.
Tenant shall pay as rental for the additional Parking Permits twenty five
dollars ($25.00) per month. Said rentals shall be due and payable to Landlord
as additional Rent on the first day of each calendar month during the term of
this Lease. Following Landlord's receipt of such written notice Landlord shall
make available to Tenant such number of Additional Parking Permits as Landlord
deems reasonable, if same are available. Landlord hereby agrees that Tenant may
at any time and from time to time during the term of this Lease elect to
discontinue leasing or taking any or all of the Additional Parking Permits by
giving written notice thereof to Landlord. Tenant hereby agrees that Landlord
may at any time and from time to time during the term of this Lease elect to
cancel any or all of the Additional Parking Permits (but not the Initial Parking
Permits) by giving written notice thereof to Tenant. Any such election by
Tenant or Landlord, as the case may be, shall be effective as of the first day
of the first full calendar month following the expiration of thirty (30) days
after the date such notice is given (the Initial Parking Permits and the
Additional Parking Permits being hereinafter collectively called the "Parking
Permits").
(2) Landlord will issue to Tenant parking tags, stickers or access cards
for the Parking Permits, or will provide a reasonable alternative means of
identifying and controlling vehicles authorized to park in the covered parking
areas of the Garage. Tenant shall surrender each such tag, sticker or other
identifying device to Landlord upon termination of the Parking Permit related
thereto.
(3) Landlord, at its discretion, shall have the right from time to time
and upon written notice to Tenant to designate the parking spaces pertaining to
any of Tenant's Parking Permits for assigned parking, and to designate the
areas(s) within which unassigned vehicles may be parked provided, however, the
Initial Parking Permits shall at all times be for covered spaces not on the roof
of the Garage.
(4) If, for any reason, Landlord fails or is unable to provide, or Tenant
is not permitted to use, all or any portion of the parking spaces to which it is
entitled hereunder, then Tenant's obligation to pay for such spaces shall be
abated for so long as Tenant does not have the use thereof. If the Garage is
taken under power of eminent domain or damaged or destroyed by a
1
<PAGE>
Casualty, Landlord shall use reasonable efforts to reconstruct or repair such
damage or destruction as promptly as practicable. If Tenant is not permitted to
use all or any portion of the parking spaces to which it is entitled hereunder,
and as a result Tenant is required to obtain alternate parking (which may
include shuttle service for Tenant's employees to and from the alternate parking
area), then Tenant may offset from its obligation to pay rentals under this
Lease the amount of the costs incurred by Tenant in obtaining such alternate
parking (including such shuttle service).
(5) If the term of this lease commences on other than the first day of a
calendar month or terminates on other than the last day of a calendar month,
then rentals for the Parking Permits shall be prorated on a daily basis.
(6) Tenant shall defend, indemnify and hold harmless Landlord and
Landlord's officers, directors, shareholders, partners, agents and employees
from and against all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, costs, expenses and disbursements (including court costs
and reasonable attorneys' fees) resulting directly or indirectly from the use of
the Parking Permits.
(7) Landlord may provide parking in the Garage for visitors to the
Building in an area designated by Landlord and in a capacity determined by
Landlord to be appropriate for the Building.
(8) Upon the occurrence of an Event of Default, as defined in Section
13.01(a) of the Lease, Landlord shall have the right (in addition to all other
rights, remedies and recourse hereunder and at law) to suspend until such Event
of Default has been cured the Parking Permits without prior notice or warning to
Tenant.
(9) In addition to the Parking Permits, Tenant and its visitors will have
the non-exclusive right (in common with the other tenants of the Building and
their visitors) to use the surface parking areas around the Building.
2
<PAGE>
EXHIBIT F
BUILDING RULES AND REGULATIONS
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar areas
shall not be used for the disposal of trash, be obstructed by tenants, or
be used by tenants for any purpose other than entrance to and exit from the
Leased Premises and for going from one part of the Building to another part
of the Building.
2. Plumbing fixtures shall be used only for the purposes for which they are
designated, and no sweepings, rubbish, rags or other unsuitable materials
shall be disposed into them. Damage resulting to any such fixtures from
misuse by a tenant shall be the liability of said tenant.
3. Signs, advertisements, or notices visible in or from public corridors or
from outside the Building shall be subject to Landlord's prior written
approval.
4. Movement in or out of the Building of furniture, office equipment, or any
other bulky or heavy materials shall be restricted to such hours as
Landlord designates. Landlord will determine the method and routing of said
items so as to ensure the safety of all persons and property concerned.
Advance written notice of intent to move such items must be made to the
Building management office.
5. All deliveries of furniture, office equipment or bulk freight shall be
coordinated in advance with Landlord, and shall be performed subject to
Landlord's supervision and direction by use only of an elevator designated
by Landlord.
6. Building management shall have the authority to prescribe the weight and
manner that heavy furniture and equipment are positioned.
7. Corridor doors, when not in use, shall be kept closed.
8. Tenant space that is visible from public areas must be kept neat and clean.
9. The disposal of trash or storage of materials in the hallways, elevator
lobbies, stairways and other common are-as of the Building is prohibited.
10. No animals shall be brought into or kept in, on or about the Building.
11. Tenant shall not tamper with or attempt to adjust temperature control
thermostats in the Leased Premises. Landlord shall adjust thermostats as
required to maintain the Building standard temperature.
12. Tenant will comply with any and all security procedures established by
Landlord from time to time.
1
<PAGE>
13. Tenants shall lock all office doors leading to corridors and turn out all
lights at the close of their working day.
14. All requests for overtime air conditioning or heating must be submitted in
writing to the Building management office by 2:00 p.m. on the day desired
for weekday requests, by 2:00 p.m. Friday for weekend requests and by 2:00
p.m. on the preceding business day for holiday requests. Tenant shall not
be required to make requests for the areas contained within the Leased
Premises which Tenant intends to operate on a 24-hour basis as contemplated
under Section 5.01 of this Lease.
15. No flammable or explosive fluids or materials shall be kept or used within
the Building except in areas approved by Landlord, and Tenant shall comply
with all applicable building and fire codes relating thereto.
16. Smoking is prohibited in the Building except in designated areas.
17. The Building is designated a non-smoking building except for areas, if any,
that may be designated by Landlord from time to time as smoking areas.
Notwithstanding the foregoing, any tenant may designate a smoking lounge or
confined area in its leased premises provided that such lounge or confined
area is equipped with an adequate filtration system in Landlord's judgment
to avoid discharge of smoke vapors or odors into the common areas of the
Building, the return-air plenum or into space leased or held for lease to
others.
Landlord reserves the right to rescind any of these rules and regulations and to
make such other and rules and regulations as in its reasonable judgment shall,
from time to time, be required for the safety, protection, care and cleanliness
of the Building, and the operation thereof, the preservation of good order
therein and the protection and comfort of the tenants and their agents,
employees and invitees. Such rules and regulations, when made and written
notice thereof is given to a tenant, shall be binding upon it in like manner as
if originally herein prescribed.
2
<PAGE>
EXHIBIT G
RENEWAL OPTION
Provided, no Event of Default by Tenant has occurred and remains uncured,
Tenant, shall have the right to renew and extend this lease for two (2) separate
but consecutive five (5) year renewal periods or one additional ten (10) year
period at a Base Rental equal to ninety-five percent (95%) of the then
prevailing Market Rental Rate, and the other terms and conditions as set forth
below, along with any Additional Rental by providing written notice to Landlord
no later than two hundred seventy (270) days prior to the termination date of
this lease or extension thereof. In the event of such renewal, the "Term" shall
include such renewal term and such renewal shall be upon the same provisions as
for the initial Term except that:
(1) Landlord shall not be obligated to make any alterations or
improvements to the Leased Premises;
(2) After the second Renewal Term, Tenant shall have no further right to
renew this Lease.
(3) In the event Landlord has not received written notice of Tenant's
intention and desire to exercise the Option to lease the Premises for
the Extended Term two hundred seventy (270) days prior to the
termination Date, such Option shall expire and the Lease shall
terminate at the end of the Initial Term;
(4) Any such extension shall apply to all space included in the Premises
as of the expiration of the prior term and shall be upon all the same
terms and conditions of this Lease except for (i) the then executed,
discharged, or waived provisions of the Lease such as any tenant
interior construction obligations of Landlord, (ii) the renewal
option, and (iii) the Base Rental; and
(5) The Base Rental for the option period shall be ninety-five percent
(95%) of the "Prevailing Market Rate", as defined below, for each year
of the specific option period.. The term "Prevailing Market Rate"
shall mean the rental rate as would be accepted in an arm's length,
bona fide negotiations for a new lease of the space for which the
Market Rental Rate is being determined to be executed at the time of
determination and to commence at the time that the rental rate based
upon such determination will be effective under the Lease upon all of
the terms and conditions of the Lease by a willing prospective lessee
and accepted by a willing lessor for office space in the area one-half
mile to either side of State Highway 59 bounded by the Sam Houston
Tollway (Beltway 8) to the northeast and State Highway 6 to the
southwest.
"Prevailing Market Rate" shall mean the rental rate charged for space of
comparable, office buildings in the First Colony area of Sugar Land, Texas
taking into consideration, but not limited to
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such factors as: location, quality and age of the building; use and size of the
space in question; location and/or floor level within the building; extent of
leasehold improvements allowance (considering existing improvements); abatements
(including with respect to base rental, operating expenses and ad valorem/real
estate taxes, and parking charges); parking charges or inclusion of same in
rental; lease takeovers/assumptions; relocation allowances; refurbishment and
repainting allowances; any and all other concessions or inducements, extent of
services provided or to be provided; distinction between "gross" and "net"
lease; base year or dollar amount for escalation purposes (both operating costs
and ad valorem/real estate taxes); any other adjustments (including by way of
indexes) to base rental; term or length of lease; and any other relevant term or
condition in making such "Prevailing Market Rate" rental rate determination.
Within thirty (30) days after receipt of Tenant's notice of exercise of a
Renewal Option, Landlord will notify Tenant in writing of its determination or
the Prevailing Market Rate for the Leased Premises for the renewal term. If
Tenant disagrees with the Prevailing Market Rate determined by Landlord,
Landlord and Tenant will negotiate in good faith to reach an agreement as to a
mutually acceptable Base Rental rate for the renewal term. If Landlord and
Tenant are unable to reach an agreement within thirty (30) days after Tenant
receives Landlord's notice of determination, Tenant shall have the option to
either withdraw the exercise of the renewal option or to give written notice
(the "BINDING NOTICE") to Landlord of its election to exercise the renewal
option and have the Prevailing Market Rate determined by Qualified Brokers (as
hereinafter defined) in accordance with the following provisions. If Tenant
does not so notify Landlord within such time, Tenant shall be deemed to have
elected not to renew this Lease and all rights of Tenant to renew and extend
this Lease shall automatically terminate.
If Tenant elects to exercise a Renewal Option and have the prevailing market
Rate determined by qualified Brokers, Landlord and Tenant shall each within five
(5) days after Landlord's receipt of the Binding Notice nominate and appoint a
Qualified Broker to determine the Prevailing Market Rate. Upon the appointment
of the two qualified Brokers, they shall be instructed to fairly and impartially
determine the Prevailing market Rate. The two (2) Qualified Brokers shall
afford to landlord and Tenant the right to submit evidence with respect to such
value and shall, with all possible speed, make their respective determinations
and deliver a written report thereof to Landlord and Tenant within thirty (30)
days after their appointment. If the higher of the two Prevailing Market Rate
determinations is not more than one hundred ten percent (110%) of the lower
determination, the average of the values so determined shall be binding upon
Landlord and Tenant and shall be the basis upon which the Base Rental equal to
ninety-five percent (95%) of the then Prevailing Market Rate shall be determined
for purposes of the applicable renewal term. if the higher determination is
more than one hundred ten (110%) of the lower determination, the two Qualified
Brokers shall within five (5) days after both of such qualified Brokers have
submitted their written reports to landlord and Tenant select by mutual
agreement a third (3rd) qualified Broker and give written notice of such
appointment to Landlord and Tenant. If the two (2) Qualified Brokers fail to
agree upon the third Qualified Broker within said five 95) day period, a third
Qualified Broker shall be selected by mutual agreement of Landlord and Tenant
within a further period of five (5) days. If Landlord and Tenant cannot so
agree on the third qualified Broker, then either Landlord or Tenant may elect to
have such Qualified Broker appointed by the president of the Texas Chapter of
the Society of Industrial and Office Realtors or its successor
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organization. The third Qualified Broker shall be instructed to fairly and
impartially determine which of the two original Qualified Brokers' determination
of the Prevailing Market Rate most closely approximates his determination of the
Prevailing Market Rate, and the determination so selected shall be binding upon
Landlord and Tenant and shall be the basis upon which the Base Rental equal to
ninety-five percent (95%) of the then Prevailing Market Rate shall be determined
for purposes of the applicable renewal term. Landlord and Tenant shall pay the
fees and expenses of the Qualified Broker it appoints, and the fees and expenses
of the third Qualified Broker shall be divided equally between Landlord and
Tenant. If any Qualified Broker appointed as aforesaid shall thereafter become
unable or unwilling to act, such Qualified Broker's successor shall be appointed
in the same manner as provided in this paragraph for the appointment of the
Qualified Broker so becoming unable or unwilling to act.
As used herein, the term "QUALIFIED BROKER" means a real estate broker who (a)
is licensed in the State of Texas, (b) has been actively and continuously
engaged in leasing office space in multi-story office buildings in the greater
Houston area for not less than the previous five (5) year period, and (c) during
the preceding three (3) year period has individually represented a party to an
office space lease of at least 25,000 square feet.
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EXHIBIT H
EXPANSION OPTIONS
Provided no Event of Default has occurred and remains uncured by Tenant,
Tenant shall have the options to lease additional areas on the fourth floor of
the Building (the "Expansion Areas"), as follows:
The Expansion Areas shall be provided by Landlord, and must be taken by
Tenant, in increments and in the sequences as follows:
The first Expansion Area ("Option Space I") as shown on Exhibit B- I of the
Lease shall equal 8,542 square feet of Net Rentable Arm
The second Expansion Area ("Option Space 2") as shown on Exhibit B-1 of the
Lease shall equal 8,000 square feet of Net Rentable Area.
The third Expansion Area ("Option Space 3") as shown on Exhibit B-I of the
Lease shall equal 9,000 square feet of Net Rentable Area.
Tenant must exercise its options to lease the Expansion Areas by written
notice received by Landlord no later than the Exercise Dates, Landlord shall
deliver the applicable Expansion Area by the Delivery Dates, and Rental shall
become due and payable for such Expansion Areas on the Expansion Commencement
Dates, as follows:
<TABLE>
<CAPTION>
EXPANSION EXERCISE DELIVERY RENT
OPTION DATE DATE COMMENCEMENT
DATE
<S> <C> <C> <C>
First Option August 1, 1998 November 1, 1998 January 1, 1999
Second Option March 1, 1999 June 1, 1999 August 1, 1999
Third Option November 1, 1999 February 1, 2000 April 1, 2000
</TABLE>
If the Commencement Date of the Lease occurs after August 1, 1998, each of
the dates set forth above shall be extended one day for each day beyond
August 1, 1998, that the Commencement Date of this Lease so occurs.
FIRST OPTION:
By on or before the First Option Exercise Date as set forth above,
Tenant shall be entitled to exercise: (i) its option as to Option Space 1;
(ii) its option as to Option Space 2, if Tenant simultaneously exercises
its option to Option Space 1; and (iii) its option as to Option Space 3, if
Tenant simultaneously exercises its option to Option Space I and Option
Space 2. If by on or before the First Option Exercise Date, Tenant does not
elect to exercise its option to lease Option Space 1, then Tenant's option
rights (but not its right of first
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refusal provided below) as to Option Space 3 shall cease, terminate and
expire automatically on the First Option Exercise Date, I.E., August 1,
1998.
SECOND OPTION:
By on or before the Second Option Exercise Date as set forth above,
Tenant shall be entitled to exercise: (i) its option as to Option Space 1,
if not previously exercised by the First Option Exercise Date; (ii) its
option as to Option Space 2, if not previously exercised by the First
Option Exercise Date, and if Tenant has previously exercised its option as
to Option Space 1, or simultaneously exercises its option to Option Space
1, and (iii) its option as to Option Space 3, if Tenant has previously
exercised its option to Option Space I by the First Option Exercise Date,
and if Tenant has previously exercised its option to Option Space 2 by the
First Option Exercise Date or simultaneously exercises its option to Option
Space 2. If Tenant has not elected to exercise its option to lease Option
Space I by the Second Option Exercise Date, then Tenant's option rights
(but not its right of first refusal provided below) as to Option Space 2
shall cease, terminate and expire automatically on the Second Option
Exercise Date. If Tenant exercises its option to lease Option Space I by
the First Option Exercise Date, but does not exercise its option to lease
Option Space 2 by the Second Option Exercise Date, then Tenant's option
rights (but not its right of first refusal provided below) as to Option
Space 3 shall cease, terminate and expire automatically on the Second
Option Exercise Date, i.e., March 1, 1999.
THIRD OPTION:
By on or before the Third Option Exercise Date as set forth above,
Tenant shall be entitled to exercise: (i) its option as to Option Space 1,
if not previously exercised by Tenant; (ii) its option as to Option Space 2
if Tenant has previously exercised its option as to Option Space I by the
Second Option Exercise Date, and (iii) its option as to Option Space 3, if
Tenant has previously exercised both its option to Option Space I by the
First Option Exercise Date and its option to Option Space 2 by on or before
the Second Option Exercise Date. All rights and options of Tenant as to
any and all Expansion Areas shall cease, terminate and expire automatically
on the Third Option Exercise Date, I.E., November 1, 1999.
OTHER MATTERS:
Upon the exercise by Tenant of any of the foregoing Options, Tenant
shall also have the right and option to extend the Termination Date of this
Lease as to both the initial Leased Premises and all Expansion Areas
previously and then being optioned, until five (5) years after the
Expansion Commencement Date of the Option then being exercised. In the
event of Tenant's exercise of such option to so extend the Termination Date
of this Lease, and only in such event, Landlord shall provide to Tenant an
allowance equal to Fifteen Dollars ($15.00) per square foot of Net Rentable
Area of the Expansion Area then being. optioned, for the payment of
architectural and engineering fees, permanent leasehold improvements,
cabling and communication equipment expenses and any other related
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expenses for construction of the Expansion Area(s) then being optioned. If
Tenant does not so elect to extend the Termination Date of this Lease,
Landlord shall provide to Tenant an allowance equal to the sum of
Twenty-Five Cents ($0.25) per square foot of Net Rentable Area of the
Expansion Area(s) then being optioned times the number of months from the
Expansion Commencement Date until the Termination Date of this Lease, for
the payment of architectural and engineering fees, permanent leasehold
improvements, cabling and communication equipment expenses and any other
related expenses for construction of the Expansion Area(s) then being
optioned. All other terms and conditions of this Lease shall be applicable
to the Expansion Area(s) being optioned. The actual Net Rentable Area
contained within the Expansion Area(s) referenced in this Exhibit "H" shall
be determined in accordance with the terms and conditions for determining
Net Rentable Area as provided for in the Commencement Agreement (Exhibit
"I") to the Lease.
Tenant shall have the right and option to either contract directly and on
and for its own account for the design and construction of the leasehold
improvements to the Expansion Area(s), or to have Landlord contract for the
construction of the leasehold improvements to the Expansion Area(s), on the same
terms and conditions set out in this Lease for the construction of the initial
Leased Premises. Landlord shall install and construct the same building shell
components and improvements for the Expansion Area(s) described in Exhibits "C"
and "J" of the initial Leased Premises. Any Expansion Area(s) leased by Tenant
pursuant to this Exhibit "H" will be delivered to Tenant with all of Landlord's
Work complete, excluding such portion of Landlord's Work which are required to
be performed following completion of work to be performed by Tenant's
contractor. If Tenant elects to have Landlord contract for the construction of
the leasehold improvements to any of the Expansion Area(s), then the Delivery
Date(s) and Expansion Commencement Date(s) as to such Expansion Area(s) stated
above shall not be applicable, and instead the Delivery Date and Expansion
Commencement Date of the Expansion Area(s) for which Landlord contracts for
construction of the leasehold improvements thereto shall be calculated and
subject to the terms and conditions of Exhibit "C" to this Lease.
In addition to the foregoing Options as to Expansion Areas, Tenant is
hereby granted a first right of refusal to lease additional space on the fourth
and fifth floors of the Building, when and if such space shall become available.
Within a reasonable period of time from the date upon which Landlord shall
become aware of a bona fide offer that is acceptable to Landlord to lease any
portion of the refusal space (other than an offer by Tenant), Landlord shall
advise Tenant of said offer and of the identity of the third-party prospect and
the material business terms of the offer. Within fifteen (15) days after Tenant
has received such information form Landlord, Tenant may, at its option, give
Landlord written notice of the exercise of its first right of refusal. If
Tenant exercises its first right of refusal under this provision, Tenant shall
be entitled to take possession of said expansion space, which shall become part
of the Leased Premises and subject to the terms of this Lease, effective upon
the same terms and conditions as to that of the offer which Landlord had
provided notice of the terms and conditions of to Tenant; provided, however,
that (a) if the proposed third-party lease term is less than the remaining term
of the Lease, Tenant will have the 6ption to lease the refusal space for the
remainder of the term hereof, and (b) if the proposed third-party lease term
would extend beyond the remaining term of this Lease, then:
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(i) if there is then less than three (3) years remaining in the term of
this Lease, Tenant will have the option to lease the refusal space for
a term of five (5) years, in which event the term of this Lease as to
the existing Leased Premises will be extended to be coterminous with
Tenant's lease of the refusal space, in which event the Base Rental
for the existing Leased Premises during the extended term of this
Lease will be the Prevailing Market Rate (determined at the time of
Tenant's exercise of such option in accordance with the procedures
established in Exhibit "G"); and
(ii) if there is then three (3) years or more remaining in the term of this
Lease, Tenant will have the option to lease the refusal space for such
remaining term, in which event the Base Rental set forth in the notice
to Tenant shall be adjusted as required to fully amortize all of the
allowances and inducements to be provided to Tenant in connection with
its lease of the refusal space over the term of Tenant's lease of such
space.
Failure of Tenant to give such notice within such fifteen (15) day period shall
cause Landlord to have a period of one hundred twenty (120) days to consummate a
lease of the subject space to Landlord's prospect based upon the material
business terms outlined to Tenant in Landlord's prior written notice to Tenant.
In the event Landlord shall fail to consummate a lease of the subject space to
Landlord's prospect based upon the material business terms outlined to Tenant in
Landlord's prior written notice to Tenant within such period of one hundred
twenty (120) days, Landlord shall again be obligated to advise Tenant of future
offers to lease that portion of the refusal space in the manner described above
and Tenant's first right of refusal shall apply to any such subsequent lease
offer.
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EXHIBIT I
COMMENCEMENT AGREEMENT
THIS COMMENCEMENT AGREEMENT is executed by and between TURNER ADREAC, L.C.,
a Texas limited liability company ("Landlord"), and NEON SYSTEMS INCORPORATED, a
Delaware corporation ("Tenant").
WHEREAS, Landlord and Tenant have entered into that certain Lease agreement
dated ______________, 1997 (the "Lease"), for the lease by Landlord to Tenant of
the Leased Premises described in the Lease within the Building situated on the
real property in Fort Bend County, Texas, as more particularly described on
Exhibit "A" attached hereto; and
WHEREAS, Landlord and Tenant desire to evidence the completion of the
Leased Premises, the commencement of the term of the Lease and the other matters
set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. Landlord has fully completed all construction work and leasehold
improvements required of Landlord under the terms of the Lease and/or any other
agreements between Landlord and Tenant concerning the Leased Premises.
2. Me Leased Premises are tenantable. Landlord has no further
obligations for construction of the Leased Premises and Tenant acknowledges
that, to Tenant's knowledge the Land, the Building and the Leased Premises are
satisfactory in all respects. Further, the Leased Premises are suitable for the
Use of Tenant permitted under the Lease.
3. Tenant has taken possession of and has accepted the Leased Premises,
and the Base Rental and Additional Rental are presently accruing in accordance
with the terms of the Lease.
4. The Commencement Date of the Lease is and the
Termination Date of the Lease is unless sooner terminated or
extended pursuant to any provision of the Lease.
5. Pursuant to S 1.02 of the Lease, Landlord's and Tenant's architects
have calculated, and the Landlord and Tenant hereby confirm and agree, that:
Net Usable Area is used in the Lease equals _____________square feet.
Vertical Penetrations as used in the Lease equals _____________square feet.
General Common Areas as used in the Lease equals _____________square feet.
On-Floor Common Areas as used in the Lease equals _____________square feet.
Net Rentable Area as used in the Lease equals _____________square feet.
Building Net Rentable Area as used in the Lease equals
_______________percent (____%).
Leased Premises Net Rentable Area as used in the Lease
equals _______________percent (_____%).
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Tenant's Proportionate Share as used in the Lease
equals ________________percent (____%).
6. All capitalized terms not defined herein shall have the meaning
assigned to them in the Lease.
AGREED TO THIS _____________day of_____________________199____.
NEON SYSTEMS, INC. TURNER ADREAC, L.C.
a Delaware corporation a Texas limited liability company
By: By:
-------------------------- -----------------------------
Name: Name: Michael Van
Title: Executive Vice President
Title:
-------------------------
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<PAGE>
STATE OF TEXAS Section
COUNTY OF FORT BEND 21
This instrument was acknowledged before me on ________________199____. by
____________, the __________________of Neon Systems, Inc., a Delaware
corporation, on behalf of said corporation.
-------------------------------------------
Notary Public, State of Texas
STATE OF TEXAS Section
COUNTY OF FORT BEND Section
This instrument was acknowledged before me on _______________, 199_____, by
___________________, the of Turner Adreac, L.C., a Texas limited liability
company, on behalf of said company.
-------------------------------------------
Notary Public, State of Texas
3
<PAGE>
EXHIBIT J
LANDLORD'S BUILDING DESCRIPTION
SITEWORK:
- Lime-stabilized sub-grade
- Reinforced concrete pavement (5" & 6")
- Landscape/irrigation consistent with Sugar Creek Center and City of
Sugar Land standards
- Vertical lamp High Pressure Sodium lighting
SITE UTILITIES:
- Water, sanitary sewer, storm sewer, gas and underground electrical
service
TELE-COMMUNICATIONS:
- Two Fiber Optic lines available to the building
- Standard Telephone Service
BUILDING STRUCTURE:
- Drilled pier with underreamed. footings
- Select-fill sub-grade
- Reinforced concrete slab-on-grade
- Composite System Steel frame with metal deck and concrete slab at
elevated levels
BUILDING EXTERIOR:
- Masonry (brick) veneer with metal stud/sheathing back-up Pre-cast
Stone trim & moldings
- Pre-cast stone wainscoat
- Glass and aluminum strip window with reflective/tinted glass
- 3-ply built-up roof (a mechanically fastened EPDM or modified Bitumen
alternative)
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HVAC SYSTEM:
- Water cooled, self-contained system with 2 air handlers on each floor
serving 10 fan-powered VAV boxes with electric heat per floor serving
the exterior zones, and 8 cooling only VAV boxes serving the interior
zone
- Temperature control system will consist of a multi-channel
microprocessor based time clock for load scheduling
- Air distribution will be through externally insulated sheet metal
ductwork sized for low pressure, both upstream and downstream of the
VAV boxes
ELECTRICAL SYSTEM:
- Landlord's Building will be equipped with 3500 amp 3 phase 4 conductor
277/480 volt power
- The electrical room on each floor shall have a 400 amp high voltage
distribution panel, a 75 KVA
- transformer and a 225 amp low voltage panel for each tenant to tap
into
- 10 watts per square foot planned for tenant's use
FIRE PROTECTION SYSTEM:
- Landlord's Building will include a wet pipe automatic fire protection
sprinkler system in accordance with City of Sugar Land and State of
Texas requirements
ELEVATORS:
- Three 3500 lb., 350 fpm, six stop electric geared, with high grade cab
finishes.
- One 2500 lb., 150 frm, hydraulic elevator serving the parking garage
BUILDING FINISHES:
SIDEWALK:
- Salt finish concrete
ROOF:
- 3-ply Built-up roofing system with rock ballast or modified Bitumen
roofing system with cap sheet
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WINDOWS:
- Off-set flush glaze, solar cool gray glass with bronze finished
aluminum frames and mullions.
FRONT ENTRY DOORS:
- Standard 9 foot tall medium style solar cool gray tempered glass with
satin bronze or chrome finished frame with matching hardware
ENTRANCE LOBBY &
GROUND FLOOR LOBBY:
- Walls-Vinyl/cloth wall covering
- Floors - 16"x 1 6" limestone or approved equal
- Base - Limestone or approved equal
- Ceiling - Gypsum board with contemporary brass pendant lighting and
gypsum board coffers
- Elevator doors and frames - satin bronze
- Building directory mounted opposite elevator doors
TYPICAL FLOOR
ELEVATOR LOBBY:
- Walls - High finish wall at elevator doors; wall covering on opposite
wall with directory
- Floors - Limestone or approved equal
- Base - Limestone
- Ceiling - 2'x2' recessed acoustical tile or gypsum board with
incandescent downlighting
- 9 foot elevator doors and frames - Automotive lacquer limestone color
paint
COMMON CORRIDORS:
- Walls - Vinyl wall covering
- Floors - 36 oz carpet
- Base - 2-1/2" resilient base
- Doors - full height (9'-O") plastic laminate solid core door to match
corridor door. Hardware is lever style satin bronze with satin bronze
closers and hinges
- Door Frames - Full height (9'-O") limestone color painted hollow metal
frames
- Ceiling - 2'x2' acoustical grid, white; non-directional acoustical
tile
- Lighting - 2'x2' parabolic 3 lamp fluorescent fixtures
- Column covers - Painted gypsum board
- Fire extinguisher and painted cabinet at all stair doors
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TOILET ROOMS:
- Floor - 16'X 1 6' Limestone tile or approved equal
- Wall - 2"x2" glazed ceramic tile with vinyl wall covering above to
ceiling
- Base - Limestone or equal
- Countertop - Hard surface counter mounted lavatories
- Ceiling - Painted gypsum board or 12"xl2" concealed spline
- Lighting - Compact fluorescent downlights with recessed light covers
over lavatories
- Toilet partitions - Floor-mounted steel; factory standard paint in
light beige to match floor tile
- State of the art - automatic sensor operated fixtures
ELEVATOR CARS:
- Walls - High finish with satin bronze control panels
- 9 Foot Doors - Center opening satin bronze
- Floors - Limestone, or approved equal
- Ceiling - Satin bronze with incandescent downlights
STAIRS:
:
- Pre-engineered painted stair system or concrete filled metal pan with
concrete sealer and painted steel pipe rails
- Fluorescent lighting
- Walls - Painted gypsum board
PARKING:
- Building will include a minimum of four (4) parking spaces per 1,000
square feet of Net Rentable Area
- Not less than 30% of the Building parking spaces will be contained
within a 3-story structured parking garage
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<PAGE>
EXHIBIT K
MONUMENT SIGN
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FIRST AMENDMENT OF OFFICE BUILDING LEASE AGREEMENT
WHEREAS, TURNER ADREAC L.C.("Landlord"), and NEON SYSTEMS, INC. ("Tenant")
entered into a certain Lease Agreement dated October 23, 1997 ("the Lease
Agreement"); and
NOW, THEREFORE, the parties undersigned do hereby agree that the Lease
Agreement shall be amended as follows:
1. The Leased Premises as defined in Section 1.01 of the Lease Agreement is
hereby amended to mean and read:
(a) All of floor 5 of the Building estimated by Landlord to be twenty
five thousand nine hundred eighteen (25,918) square feet of Net
Rentable Area, and (b) a portion of floor 4 of the building estimated
by Landlord to be eight thousand three hundred sixty-three (8,363)
square feet of Net Rentable Area (same being Option Space 1 as
referenced on Revised Exhibit H attached hereto), as reflected on the
floor plan(s) of the Leased Premises attached hereto and made a part
hereof for all purposes as Amended Exhibit "B", together with any
additional premises hereafter added thereto by written amendment to
this Lease. Tenant shall have the right to verify the net Rentable
Area of the Leased Premises, and Landlord agrees to cooperate with
Tenant and Tenant's architect with respect thereto.
2. The Minimum Leased Premises Net Rentable Area as defined in Section 1.01 of
the Lease Agreement is hereby amended to mean and read:
All of floor 5 of the Building estimated to be 25,918 square feet.
3. Landlord's shall construct the Initial Tenant Improvements for the portion
of the Leased Premises located on floor 5 in accordance with the Tenant
Working Drawings dated March 3, 1998, revised March 12, 1998, May 6, 1998
and May 11, 1998, without additional cost for the construction, provided
however Tenant shall be responsible for the payment of all costs and
expenses associated with Tenant's architectural and engineering services
related to the construction of the Initial Tenant Improvements in such
space. The leasehold improvements in Option Space 1 will be designed and
constructed in accordance with Amended Exhibit H. Landlord acknowledges
that Tenant is entitled to the full allowance of $16.50 per square foot of
Net Rentable Area in Option Space 1.
4. Landlord acknowledges that in connection with Tenant's exercise of the
First Expansion Option, Tenant also elected to extend the Termination Date
of the Lease as to the initial Leased Premises and Option Space 1 until the
fifth anniversary of the Expansion Commencement Date of Option Space 1;
accordingly, the Termination Date of the Lease is now December 31, 2003
(subject to any adjustment of the Option Space 1 Expansion Commencement
Date in accordance with Amended Exhibit H).
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5. Exhibit "B-1" of the Lease Agreement is hereby amended to read as set out
in Amended Exhibit "B-1" attached hereto:
6. Exhibit "E" of the Lease Agreement is hereby amended to read as set out in
Amended Exhibit "E" attached hereto:
7. Exhibit "H" of the Lease Agreement is hereby amended to read as set out in
Amended Exhibit "H" and Exhibit "H- I" attached hereto:
8. Section 6.01 (xi) of the Lease Agreement is hereby amended to mean and
read:
Management of the Building including an on-site property manager for
the Project, Monday through Friday from 8:00 a.m. to 5:00 p.m.,
exclusive of holidays. On-site shall mean within the Building or
Landlord's building to be constructed adjacent to the Building.
Except as changed and modified herein the terms and provisions of Lease
Agreement continue in full force and effect.
All capitalized terms used herein (and not otherwise defined herein) shall have
the meanings attributed to them in the Lease Agreement.
IN WITNESS WHEREOF this instrument has been executed this 30th day of July,
1998.
"LANDLORD" "TENANT"
TURNER ADREAC, L.C. NEON SYSTEMS, INC.
By: /S/ MICHAEL VAN By: /S/ JOHN S. REILAND
-------------------------- -----------------------------
Name: Michael Van Name: John S. Reiland
Title: Exec. Vice President Title: CFO
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AMENDED EXHIBIT E
PARKING
Landlord hereby agrees to make available to Tenant, during the full term of
this Lease, THREE AND ONE-HALF (3.5) covered parking permit(s) for every one
thousand square feet of Net Rentable Area leased by Tenant within the Building
from time to time, fifteen percent (15%) of which shall be reserved/assigned
(hereinafter called the "Initial Parking Permits") in the Building parking
garage (hereinafter called the "Garage"), at no additional cost. Additional
parking permits may be made available upon the following terms and conditions:
(1) In the event Tenant shall desire to obtain additional covered
unassigned parking permits (hereinafter called "Additional Parking Permits") in
the Garage, Tenant shall notify Landlord in writing of Tenant's desire to do so.
Tenant shall pay as rental for the additional Parking Permits twenty five
dollars ($25.00) per month. Said rentals shall be due and payable to Landlord
as additional Rent on the first day of each calendar month during the term of
this Lease. Following Landlords receipt of such written notice Landlord shall
make available to Tenant such number of Additional Parking Permits as Landlord
deems reasonable, if same are available. Landlord hereby agrees that Tenant may
at any time and from time to time during the term of this Lease elect to
discontinue leasing or taking any or all of the Additional Parking Permits by
giving written notice thereof to Landlord. Tenant hereby agrees that Landlord
may at any time and from time to time during the term of this Lease elect to
cancel any or all of the Additional Parking Permits (but not the Initial Parking
Permits) by giving written notice thereof to Tenant. Any such election by
Tenant or Landlord, as the case may be, shall be effective as of the first day
of the first fall calendar month following the expiration of thirty (30) days
after the date such notice is given (the Initial Parking Permits and the
Additional Parking Permits being hereinafter collectively called the "Parking
Permits").
(2) Landlord will issue to Tenant parking tags, stickers or access cards
for the Parking Permits, or will provide a reasonable alternative means of
identifying and controlling vehicles authorized to park in the covered parking
areas of the Garage. Tenant shall surrender each such tag, sticker or other
identifying device to Landlord upon termination of the Parking Permit related
thereto.
(3) Landlord, at its discretion, shall have the right from time to time
and upon written notice to Tenant to designate the parking spaces pertaining to
any of Tenant's Parking Permits for assigned parking, and to designate the
areas(s) within which unassigned vehicles may be parked provided, however, the
Initial Parking Permits shall at all times be for covered spaces not on the roof
of the Garage.
(4) If, for any reason, Landlord fails or is unable to provide, or Tenant
is not permitted to use, all or any portion of the parking spaces to which it is
entitled hereunder, then Tenant's obligation to pay for such spaces shall be
abated for so long as Tenant does not have the use thereof. If the Garage is
taken under power of eminent domain or damaged or destroyed by a Casualty,
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Landlord shall use reasonable efforts to reconstruct or repair such damage or
destruction as promptly as practicable. If Tenant is not permitted to use all
or any portion of the parking spaces to which it is entitled hereunder, and as a
result Tenant is required to obtain alternate parking (which may include shuttle
service for Tenant's employees to and from the alternate parking area), then
Tenant may offset from its obligation to pay rentals under this Lease the amount
of the costs incurred by Tenant in obtaining such alternate parking (including
such shuttle service).
(5) If the term of this lease commences on other than the first day of a
calendar month or terminates on other than the last day of a calendar month,
then rentals for the Parking Permits shall be prorated on a daily basis.
(6) Tenant shall defend, indemnify and hold harmless Landlord and
Landlord's officers, directors, shareholders, partners, agents and employees
from and against all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, costs, expenses and disbursements (including court costs
and reasonable attorneys' fees) resulting directly or indirectly from the use of
the Parking Permits.
(7) Landlord may provide parking in the Garage for visitors to the
Building in an area designated by Landlord and in a capacity determined by
Landlord to be appropriate for the Building.
(8) Upon the occurrence of an Event of Default, as defined in Section
13.01(a) of the Lease, Landlord shall have the right (in addition to all other
rights, remedies and recourse hereunder and at law) to suspend until such Event
of Default has been cured the Parking Permits without prior notice or warning to
Tenant.
(9) In addition to the Parking Permits, Tenant and its visitors will have
the non-exclusive right (in common with the other tenants of the Building and
their visitors) to use the surface parking areas around the Building.
(10) Landlord shall have the right to have an independent company operate
the parking garage and Tenant agrees to contract with such company upon the same
terms as set forth herein. Landlord agrees, however, that notwithstanding any
such operating or management agreement with an independent third party, Landlord
shall remain fully liable to Tenant for the performance by such third party of
Landlord's obligations under this Exhibit E; any default by such third party in
performing such obligations shall constitute a default by Landlord entitling
Tenant to exercise any and all remedies against Landlord as if such operating or
management agreement did not exist and Tenant had contacted for the Parking
Permits directly from Landlord.
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AMENDED EXHIBIT H
EXPANSION OPTIONS
Provided no Event of Default has occurred and remains uncured by Tenant,
Tenant shall have the options to lease additional areas on the fourth floor of
the Building (the "Expansion Areas"), as follows:
The Expansion Areas shall be provided by Landlord, and must be taken by
Tenant, in increments and in the sequences as follows:
The first Expansion Area ("Option Space 1") as shown on Amended Exhibit B-1
of the Lease shall equal approximately 8,363 square feet of Net Rentable
Area.
The second Expansion Area ("Option Space 2") as shown on Amended Exhibit
B-1 of the Lease shall equal approximately 8,344 square feet of Net
Rentable Area.
The third Expansion Area ("Option Space 3") as shown on Amended Exhibit B-1
of the Lease shall equal approximately 9,107 square feet of Net Rentable
Area.
Tenant must exercise its options to lease the Expansion Areas by written notice
received by Landlord no later than the Exercise Dates, Landlord shall deliver
the applicable Expansion Area by the Delivery Dates, and Rental shall become due
and payable for such Expansion Areas on the Expansion Commencement Dates, as
follows:
<TABLE>
<CAPTION>
EXPANSION EXERCISE DELIVERY RENT COMMENCEMENT
OPTION DATE DATE DATE
<S> <C> <C> <C>
First Option August 1, 1998 November 1, 1998 January 1, 1999
Second Option March 1, 1999 June 1, 1999 August 1, 1999
Third Option November 1, 1999 February 1, 2000 April 1, 2000
</TABLE>
If the Commencement Date of the Lease occurs after August 1, 1998, each of
the dates set forth above shall be extended one day for each day beyond
August 1, 1998, that the Commencement Date of this Lease so occurs.
FIRST OPTION:
By on or before the First Option Exercise Date as set forth above,
Tenant shall be entitled to exercise:(i) its option as to Option Space 1;
(ii) its option as to Option Space 2, if Tenant simultaneously exercises
its option to Option Space 1; and (iii) its option as to Option Space 3, if
Tenant simultaneously exercises its option to Option Space 1 and Option
Space 2. If by on or before the First Option Exercise Date, Tenant does not
elect to exercise its option to lease Option Space 1, then Tenant's option
rights (but not its fight of first refusal provided below) as to Option
Space 3 shall cease, terminate and expire automatically on the First Option
Exercise Date, I.E., August 1, 1998.
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SECOND OPTION:
By on or before the Second Option Exercise Date as set forth above, Tenant
shall be entitled to exercise:(i) its option as to Option Space 1, if not
previously exercised by the First Option Exercise Date; (ii)its option as
to Option Space 2, if not previously exercised by the First Option Exercise
Date, and if Tenant has previously exercised its option as to Option Space
1, or simultaneously exercises its option to Option Space 1, and (iii) its
option as to Option Space 3, if Tenant has previously exercised its option
to Option Space 1 by the First Option Exercise Date, and if Tenant has
previously exercised its option to Option Space 2 by the First Option
Exercise Date or simultaneously exercises its option to Option Space 2. If
Tenant has not elected to exercise its option to lease Option Space 1 by
the Second Option Exercise Date, then Tenant's option rights (but not its
right of first refusal provided below) as to Option Space 2 shall cease,
terminate and expire automatically on the Second Option Exercise Date. If
Tenant exercises its option to lease Option Space 1 by the First Option
Exercise Date, but does not exercise its option to lease Option Space 2 by
the Second Option Exercise Date, then Tenant's option rights (but not its
right of first refusal provided below) as to Option Space 3 shall cease,
terminate and expire automatically on the Second Option Exercise Date,
I.E., March 1, 1999.
THIRD OPTION:
By on or before the Third Option Exercise Date as set forth above,
Tenant shall be entitled to exercise:(i) its option as to Option Space 1,
if not previously exercised by Tenant; (ii) its option as to Option Space 2
if Tenant has previously exercised its option as to Option Space 1 by the
Second Option Exercise Date, and (iii) its option as to Option Space 3, if
Tenant has previously exercised both its option to Option Space 1 by the
First Option Exercise Date and its option to Option Space 2 by on or before
the Second Option Exercise Date. All rights and options of Tenant as to
any and all Expansion Areas shall cease, terminate and expire automatically
on the Third Option Exercise Date, I.E., November 1, 1999.
OTHER MATTERS:
Upon the exercise by Tenant of any of the foregoing Options, Tenant
shall also have the right and option to extend the Termination Date of this
Lease as to both the initial Leased Premises and all Expansion Areas
previously and then being optioned, until five (5) years after the
Expansion Commencement Date of the Option then being exercised. In the
event of Tenant's exercise of such option to so extend the Termination Date
of this Lease, and only in such event, Landlord shall provide to Tenant an
allowance equal to Sixteen Dollars and Fifty Cents ($16.50) per square foot
of Net Rentable Area of the Expansion Area then being optioned, for the
payment of architectural and engineering fees, permanent leasehold
improvements, cabling and communication equipment expenses and any other
related expenses for construction of the Expansion Area(s) then being
optioned. If Tenant does not so elect to extend the Termination Date of
this Lease, Landlord shall provide to
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Tenant an allowance equal to the sum of Twenty-Five Cents ($0.275) per
square foot of Net Rentable Area of the Expansion Area(s) then being
optioned times the number of months from the Expansion Commencement Date
until the Termination Date of this Lease, for the payment of architectural
and engineering fees, permanent leasehold improvements, cabling and
communication equipment expenses and any other related expenses for
construction of the Expansion Area(s) then being optioned. All other terms
and conditions of this Lease shall be applicable to the Expansion Area(s)
being optioned. The actual Net Rentable Area contained within the
Expansion Area(s) referenced in this Amended Exhibit "H" shall be
determined in accordance with the terms and conditions for determining Net
Rentable Area as provided for in the Commencement Agreement (Exhibit "I")
to the Lease.
Tenant shall have the right and option to either contract directly and on
and for its own account for the .design and construction of the leasehold
improvements to the Expansion Area(s), or to have Landlord contract for the
construction of the leasehold improvements to the Expansion Area(s), on the same
terms and conditions set out in this Lease for the construction of the initial
Leased Premises. Landlord shall install and construct the same building shell
components and improvements for the Expansion Area(s) described in Exhibits "C"
and "J" of the initial Leased Premises. Any Expansion Area(s) leased by Tenant
pursuant to this Exhibit "H" will be delivered to Tenant with all of Landlord's
Work complete, excluding such portion of Landlord's Work which are required to
be performed following completion of work to be performed by Tenant's
contractor. If Tenant elects to have Landlord contract for the construction of
the leasehold improvements to any of the Expansion Area(s), then the Delivery
Date(s) and Expansion Commencement Date(s) as to such Expansion Area(s) stated
above shall not be applicable, and instead the Delivery Date and Expansion
Commencement Date of the Expansion Area(s) for which Landlord contracts for
construction of the leasehold improvements thereto shall be calculated and
subject to the terms and conditions of Exhibit "C" to this Lease.
Notwithstanding anything to the contrary contained within this Other Matters
Section in this Amended Exhibit "H", Landlord and Tenant agree and acknowledge
that Landlord intends to construct at its sole cost and expense an area
consisting of approximately 5,326 square feet of Net Rentable Area within Option
Space 3 for its own use. Landlord shall prepare for Tenant's review and
approval, Working Drawings for that portion of the Option Space 3 which Landlord
shall occupy, which Working Drawings shall be in accordance with the
specifications contained within the Tenant Working Drawings for the initial
Leased Premises dated March 3, 1998, revised March 12, 198, May 6, 1998 and May
II, 1998, provided by Tenant to Landlord and in general accordance with the
Space Plan attached hereto as Exhibit "H-I" covering that portion of Option
Space 3. Landlord shall be permitted to occupy this portion of Option Space 3
until such time as Tenant elects to exercise it option to lease Option Space 3
but in no event for a period of less than twelve (12) months from the date of
Landlord's occupancy thereof, provided, however, that the term of Landlord's
occupancy shall not extend beyond January 31, 2000, in the event of Tenant's
timely election to exercise its option to lease such space. In the event that
Tenant elects to exercise its option to lease the Expansion Area ("Option Space
3"), Tenant shall not receive the allowance herein provided on that portion of
the Expansion Area ("Option Space 3") which Landlord shall have constructed for
its own use, provided, however, Landlord shall, (a) as required, replace or
repair any damage to the improvements resulting from Landlord's use thereof, (b)
to the extent to which the improvements constructed by Landlord for its own use
shall deviate from the
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Space Plan referenced herein, Landlord shall restore the improvements to comply
therewith, and (c) shampoo the carpets and repaint the walls therein to the
extent required to restore same to a "like new" condition.
In addition to the foregoing Options as to Expansion Areas, Tenant is
hereby granted a first right of refusal to lease additional space on the fourth
and fifth floors of the Building, when and if such space shall become available.
Within a reasonable period of time from the date upon which Landlord shall
become aware of a bona fide offer that is acceptable to Landlord to lease any
portion of the refusal space (other than an offer by Tenant), Landlord shall
advise Tenant of said offer and of the identity of the third-party prospect and
the material business terms of the offer. Within fifteen (15) days after Tenant
has received such information from Landlord, Tenant may, at its option, give
Landlord written notice of the exercise of its first right of refusal. If
Tenant exercises its first right of refusal under this provision, Tenant shall
be entitled to take possession of said expansion space, which shall become part
of the Leased Premises and subject to the terms of this Lease, effective upon
the same terms and conditions as to that of the offer which Landlord had
provided notice of the terms and conditions of to Tenant; provided, however,
that (a) if the proposed third-party lease term is less than the remaining term
of the Lease, Tenant will have the option to lease the refusal space for the
remainder of the term hereof, and (b) if the proposed third-party lease term
would extend beyond the remaining term of this Lease, then:
(i) if there is then less than three (3) years remaining in the term of
this Lease, Tenant will have the option to lease the refusal space for
a term of five (5) years, in which event the term of this Lease as to
the existing Leased Premises will be extended to be coterminous with
Tenant's lease of the refusal space, in which event the Base Rental
for the existing Leased Premises during the extended term of this
Lease will be the Prevailing Market Rate (determined at the time of
Tenant's exercise of such option in accordance with the procedures
established in Exhibit "G"); and
(ii) if there is then three (3) years or more remaining in the term of this
Lease, Tenant will have the option to lease the refusal space for such
remaining term, in which event the Base Rental set forth in the notice
to Tenant shall be adjusted as required to fully amortize all of the
allowances and inducements to be provided to Tenant in connection with
its lease of the refusal space over the term of Tenant's lease of such
space.
Failure of Tenant to give such notice within such fifteen (15) day period shall
cause Landlord to have a period of one hundred twenty (120) days to consummate a
lease of the subject space to Landlord's prospect based upon the material
business terms outlined to Tenant in Landlord's prior written notice to Tenant.
In the event Landlord shall fail to consummate a lease of the subject space to
Landlord's prospect based upon the material business terms outlined to Tenant in
Landlord's prior written notice to Tenant within such period of one hundred
twenty (120) days, Landlord shall again be obligated to advise Tenant of future
offers to lease that portion of the refusal space in the manner described above
and Tenant's first right of refusal shall apply to any such subsequent lease
offer.
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<PAGE>
AMENDED EXHIBIT B
FLOOR PLAN OF LEASED PREMISES
[DRAWING]
5TH FLOOR
25,918 N.R.A.
Subject to verification by
Landlord's & Tenant's Architect
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<PAGE>
AMENDED EXHIBIT B-1
FLOOR PLAN OF LEASED PREMISES
[DRAWING]
4TH FLOOR
25,814 N.R.A.
Subject to verification by
Landlord's & Tenant's Architect
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<PAGE>
AMENDED EXHIBIT H-1
SPACE PLAN OF EXPANSION AREA
[DRAWING]
4TH FLOOR
25,814 N.R.A.
Subject to verification by
Landlord's & Tenant's Architect
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<PAGE>
Exhibit 10.16
DATED 19 DEEDS 1996
- ---------------------------
(1) NU-SWIFT SOVEREIGN LIMITED
(2) NEON SYSTEMS (UK) LIMITED
AGREEMENT FOR LEASE
relating to third floor premises at
Sovereign House 26/30 London Road Twickenham Middlesex
RICHARDS BUTLER
Beaufort House
15 St. Botolph Street
London EC3A 7EE
Ref: RHN/96-84884
<PAGE>
THIS AGREEMENT FOR LEASE made the 19 day of December One thousand nine hundred
and ninety six
BETWEEN:-
(1) NU-SWIFT SOVEREIGN LIMITED whose registered office is at Wistons Lane,
Elland, West Yorkshire HX5 8DS (hereinafter called "the Landlord")
(2) NEON SYSTEMS (UK) LIMITED whose registered office is at 3 Downing Street,
Farnham, Surrey GU9 7PA (Company No. 3082465) (hereinafter called "the Tenant")
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 In this Agreement unless the context otherwise requires the following
expressions shall have the following meanings and cognate expressions are to be
construed accordingly:-
"Agreed Form of Lease" means the draft lease annexed hereto;
"Completion Date" means the date five working days after the date of the Court
Order referred to in clause 14;
"Date of Tenant's Entry" means the date of this Agreement;
"Landlord's Solicitors" means Richards Butler of Beaufort House 15 St. Botolph
Street London EC3A 7EE ref RMN/96-84884;
"Lease" means the lease to be granted by the Landlord and accepted by the Tenant
pursuant to clause 2;
"Premises" means the Demised Premises as described in the Agreed Form of Lease;
"Rent Commencement Date" means 25th December 1996;
"Tenant's Solicitors" means Stevens & Bolton of 1 The Billings Walnut Tree Close
Guildford Surrey GU1 4YD;
"VAT" means value added tax;
"Working Day" means a day on which the clearing banks in the City of London are
open during banking hours and "Working Days" -shall be construed accordingly.
1.2 The phrases defined in the Agreed Form of Lease shall (unless
specified to the contrary) have the same meanings ascribed to them herein.
1.3 Where the context so admits or requires words importing one gender
shall I be construed as importing any other gender and the singular includes the
plural and vice versa and where any party hereto two or more persons any
obligation on the part of that party contained or implied herein shall be deemed
to be joint and several obligations on the part of such person.
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<PAGE>
1.4 The Index and headings are for reference only and shall not affect the
meaning or interpretation of this Agreement.
1.5 Reference to a specific statute or provision of a specific statute
includes all regulations and orders from time to time made pursuant to that
statute or (as the case may be) provision or any statute or provision amending
or replacing the same.
2. GRANT OF LEASE
2.1 On the Completion Date the Landlord shall grant and the Tenant shall
accept the Lease of the Premises at the Rent.
2.2 The term of the Lease shall be five years commencing on the 1st day of
December 1996.
2.3 The Yearly Rent shall be payable from and including the Rent
Commencement Date pursuant to the provisions of the Agreed Form of Lease.
2.4 Service Charge and Insurance Charge and all other outgoings payable
under the Lease other than Yearly Rent shall be payable from and including the
Date of Tenant's Entry and the Tenant shall pay such sums in accordance with the
terms of the Agreed Form of Lease as if the Lease had been granted.
3. ENCUMBRANCES
The Lease shall be granted subject to:-
3.1 all matters registered or capable of registration in any register of
local land charges and all other matters otherwise registrable by any local or
other competent authority or pursuant to legislation;
3.2 all charges, notices, orders, restrictions, agreements, proposals or
requirements and other matters arising under or pursuant to the legislation
relating to town and country planning and to the requirements of the local
planning authority;
3.3 all other matters whatsoever affecting the Premises which are capable
of discovery by searches or inquiries whether or not in writing made of any
person or local or other competent authority or statutory body or by inspection
or survey and whether or not such searches or inquiries inspection or survey
have in fact been made by or on behalf of the Tenant;
3.4 [all matters contained or referred to in-the Part IV of Schedule 1 to
the Agreed Form of Lease;
4. DEDUCTION OF TITLE
4.1 Title to the Premises shall not be deduced.
4.2 The Tenant hereby agrees that no requisition or objection shall be
raised in respect of:
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4.2.1 the Landlord's title to the Premises in respect of which the Tenant
has satisfied itself prior to the date hereof;
4.2.2 those matters revealed by the Landlord or those acting for or
representing the Landlord to the Tenant or those acting for or representing the
Tenant on or prior to the date hereof
AND the Tenant is deemed to accept the Lease with full knowledge of the same.
5. VACANT POSSESSION
Subject to the matters referred to in clause 3 hereof vacant possession of the
Premises shall be given on completion.
6. NON-ASSIGNABILITY
The Landlord shall only be required to execute the Lease in favour of the Tenant
and the Tenant shall not pending the grant and acceptance of the Lease assign,
charge or otherwise dispose of its Interest under this Agreement or any part
thereof.
7. REPRESENTATIONS
The Tenant hereby acknowledges that it has not entered into this Agreement in
reliance on any statement or representation made by or on behalf of the Landlord
other than such statements or representations as are contained in this Agreement
or in written replies given by the Landlord's Solicitors to any written
inquiries raised by the Tenant's Solicitors prior to the date hereof.
8. COMPLETION
8.1 Completion of the grant of the Lease shall take place, before 12:30
p.m. on the Completion Date at the offices of the Landlord's Solicitors or
elsewhere as they may reasonably direct,
8.2 If completion shall be effected after 12:30 p.m. on any day
competition shall for the purposes of apportionment of income and outgoings and
of the calculation of any interest payable by the Tenant be deemed to have taken
place an the next following working day and any such sums payable by the Tenant
shall be payable on completion.
8.3 At any time on or after the Completion Date, either party being ready
and willing to fulfil its own outstanding obligations under this Agreement, may
(without prejudice to any other right or remedy available to them) give to the
other party or its solicitors notice in writing requiring completion of this
Agreement in conformity with this clause and upon service of such notice
aforesaid it shall become and be a term of this Agreement in respect of which
time shall be of the essence thereof, that the party to whom the notice is given
shall complete this Agreement within 10 working days after service of the notice
(exclusive of the day of service): but this condition shall operate without
prejudice to any right of either party to rescind this Agreement :in the
meantime.
8.4 The money payable by the Tenant on completion shall be paid either:-
8.4.1 by credit to account number 0023889 maintained by the Landlord's
Solicitors with Lloyds Bank Plc at 39 Threadneedle Street, London, EC2 (Code No:
30-00-09T) or to such other
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<PAGE>
account with a bank in the United Kingdom or the Landlord's solicitors may from
time to time nominate; or
8.4.2 if the Landlord's Solicitors so agree but not otherwise by delivery to
the Landlord's Solicitors of a town clearing banker's draft or drafts drawn on a
clearing bank in favour of the Landlord's Solicitors or in favour of such other
person or persons as they may direct
AND completion shall not be regarded as having been effected until such time as
such drafts or moneys have been so delivered or credited so as to be in
unconditional possession of the relevant recipients.
9. NOTICES
9.1 Any notice to be given or served by a party pursuant to this Agreement
shall be in writing and may be:-
9.1.1 given or served by that party or-its Solicitors; and
9.1.2 given to or served upon the party to be served or its solicitor.
9.2 Any such notice may (in addition to any other valid method of service)
be given or served either:-
9.2.1 by Sending the same by registered or recorded delivery post addressed
to the person to or upon whom it is to be given or served at the address for
that person given in this Agreement or such other address in the United Kingdom
as that person may by notice to the other parties hereto and their Solicitors
stipulate as that person's address for service of notices pursuant to this
Agreement or if no such address is given or stipulated at that person's last
known address and any notices so given or served shall be deemed to be received
and the date on which it is given or served shall be deemed to be the next
working day after posting; or
9.2.2 by sending the same by telex or telephone facsimile to receiving
equipment at the address for service of the person to or upon whom notice is to
be given or served in which case the date of-service shall be the date of
transmission except where such transmission is effected after 5:00 p.m. on any
day or on a day which is not a working day when the date of service shall be
deemed to be the next working day after the date of transmission.
10. VAT
The consideration for any supply made or to be made under the terms of or in
connection with this Agreement or in connection with its completion is exclusive
of VAT unless otherwise stated and the party to whom the supply is made hereby
agrees to pay VAT payable thereon.
11. DEFAULT BY THE TENANT
11.1 If:-
11.1.1 there shall be any material breach on the part of the Tenant of any of
its obligations contained in this Agreement and the Tenant shall fail to
commence forthwith and proceed
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<PAGE>
diligently to remedy the breach within such period as may be reasonable after
written notice of the breach has been given to the Tenant; or
11.1.2 the Tenant does not pay any monies within five days after they become
due in accordance with this Agreement or the Tenant fails to enter into the
Lease within five days from the date they were meant to do so;
11.1.3 if the Tenant shall commit an act of insolvency (as hereinafter
defined)
THEN and in any such case the Landlord may:-
11.1.4 by notice in writing require the Tenant to vacate the Premises and (at
the Landlord's option) to remove any works carried out to the Premises by the
Tenant and to reinstate the Premises whereupon the Tenant shall immediately
comply with the requirements of such notice or complete the said works at the
cost of the Tenant; or
11.1.5 enter and resume possession of the Premises and all buildings and
erections thereon without making any compensation to the Tenant in respect
thereof; or
11.1.6 by notice in writing forthwith determine this Agreement whereupon this
Agreement shall cease absolutely and the Landlord shall be at liberty to deal
with the Premises as if this Agreement had never been made
AND the Tenant shall be responsible for:-
11.1.7 damages at a rate equal to the Yearly Rent (which if the Yearly Rent
cannot be calculated shall be such sum as the Landlord shall reasonably
estimate) and other rent and monies payable as if the Lease had been granted
from the Rent Commencement Date up to and until the Premises are re-let by the
Landlord together with interest thereon at the Prescribed Rate charged in
accordance with the terms of the Lease.
PROVIDED that the remedies conferred on the Landlord above shall be cumulative
remedies and also shall not prejudice the right of the Landlord to recover from
the Tenant any other sums due to the Landlord from the Tenant hereunder and
damages in respect of any failure by the Tenant to perform the obligations on
the part of the Tenant contained in this Agreement.
11.2 The expression "an act of insolvency" referred to above includes (in
relation to a company or other corporation which is the Tenant) inability of the
company to pay its debts or if the Tenant shall Enter into liquidation (other
than a voluntary members liquidation when solvent for the purpose of
reconstruction or amalgamation forthwith carried into effect) whether
voluntarily or compulsorily or if the Tenant shall for any reason be removed
from the register of companies or be unable to pay its debts within the meaning
of Section 123 of the Insolvency Act 1986 or if a petition shall be presented
for the appointment of an administrator or a receiver (whether or not an
administrative receiver) or manager shall be appointed of the whole. or any part
of its undertaking or an administration order shall be made or if there shall be
convened a meeting of creditors or members to consider a voluntary arrangement
or any other scheme or composition with the Tenant's creditors and in relation
to the various events of insolvency they shall wherever appropriate be
interpreted in accordance and in conjunction with the relevant provisions of the
Insolvency Act 1986 or such other legislation that may amend or replace the
same.
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<PAGE>
12. NO IMPLIED WARRANTIES
The Landlord does not warrant or make any representation that the Premises are
suitable for the Tenant's business.
13. OCCUPATION PRIOR TO THE GRANT OF THE LEASE
13.1 The Tenant shall be entitled to enter the Premises as licensee only
and use them for the purpose authorised by and in accordance with the terms of
the Lease on or after the date hereof.
13.2 This Agreement does not operate as a lease and until the grant of the
Lease:-
13.2.1 occupation of the Premises by the Tenant shall be by way of license
only; and
13.2.2 the Tenant does not have nor is entitled to any estate right or
interest in the Premises,
13.3 From the Date of Tenant's Entry until the grant of the Lease:-
13.3.1 the Tenant shall be liable to observe and perform the same obligations
as are imposed by the covenants on their respective parts and conditions to be
contained in the Lease in so far as they are not inconsistent with the
provisions of this Agreement;
13.3.2 the Landlord shall have and be-entitled to all remedies by distress
action or otherwise for recovering any monies or for breach of obligation on the
part of the Tenant as if the Lease had then been granted.
13.4 From the Date of Tenant's Entry until the grant of the Lease the
Tenant will pay by way of license fee sums equal in the aggregate to and payable
in the same manner and at the same times as the sums referred to in clauses 2.3
and 2.4 hereof.
13.5 Upon the grant of the Lease any such payment of license fee shall be
taken as payment for the period to which it relates of the Rent and other rent
and monies which would have been payable under the Lease in respect of that
period if the Lease had then been granted.]
14. LANDLORD AND TENMT ACT 1954
14.1 The parties hereto agree to make a joint application to the Court
pursuant to Section 38 of the Landlord and Tenant Act 1954 (as amended by
Section 5 of the Law of Property Act 1969) for an order authorising an agreement
excluding in relation to the Lease the Provisions of Sections 24 to 28 of the
said Act such exclusion to be in the form of clause 5.13 of the Lease and the
parties shall use their best endeavours to obtain such order prior to 24th
February 1997.
14.2 If the order referred to in clause 14.1 has not been obtained on or
before 24th February 1997 then either party may by notice in writing given to
the other at any time thereafter rescind but before the said order has been
obtained determine this Agreement without prejudice to the rights of either
party in respect of any antecedent breach.]
15. NON-MERGER
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Notwithstanding completion of the Lease all the provisions of this Agreement
shall remain in full force and effect thereafter to the extent that the same may
remain to be implemented or observed or may expressly or by implication remain
applicable.
AS WITNESS whereof the hands of the parties hereto or their duly authorised
agents the day and year first before written.
SIGNED by )
)
or and an behalf )
of the Landlord )
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OFFICE
[Diagram]
THIRD FLOOR 1,100
26-30 LONDON'ROAD TWICKENHAM
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SCHEDULE I
PART I
DESCRIPTION OF THE DEMISED PREMISES
1. All those parts of the third floor of Building shown for the purpose
of identification only edged red on the Plan including:-
1.1 the doors, frames, equipment and fitments and any glass relating to
the doors of the demised premises;
1.2 the windows including the glass therein and any window. frames in any
external walls bounding the Demised Premises;
1.3 the internal plaster or other surfaces of load bearing walls and
columns within the Demised Premises and of walls which form boundaries of the
Demised Premises;
1.4 the whole of all non load bearing walls and columns within the Demised
Premises;
1.5 the upper surface of the floor slab beneath and the under surface of
the floor slab above each floor of the Demised Premises;
1.6 the raised floor and supports and the void between the floor slab
beneath each floor of the Demised Premises and the raised floor;
1.7 the false ceiling and supports and the. void between the floor slab
above each floor of the Demised Premises and the false ceiling;
1.8 all Conducting Media, plant and machinery now or after-the date of
this Lease installed in any part of the Building and exclusively serving the
Demised Premises;
1.9 all fixtures and fittings from time to time annexed to the Demised
Premises;
1.10 all additions and improvements from time to time made to the Demised
Premises
BUT excluding the structural parts of the Building including the loadbearing
framework, roof, foundations, external walls and any Conducting Media, plant and
machinery within but not exclusively serving or forming part of the Demised
Premises.
PART II
RIGHTS GRANTED TO THE TENANT
2.1 The following rights in common with the Landlord and others:-
2.1.1 the right to the passage of soil water gas electricity telephones
heating ventilation air conditioning and other effluvia and services through any
Conducting Media installed in the Building or comprised in any adjoining or
neighbouring property-of the Landlord and which serve the Demised Premises;
2.1.2 the right to pass and repass over and along the entrance hall,
landings, passages and staircases of the Building intended for the common use of
the occupiers of the Building;
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2.1.3 the right to use the passenger lifts (for the carrying of persons
only) and the goods lifts (if any), plant and machinery in the Building at such
time as the same shall be working;
2.1.4 the right to use the male and female lavatory accommodation within the
Building and which is intended for use by occupiers of the Demised Premises;
2.1.5 the right to have the name of any lawful occupier of the Demised
Premises displayed on any notice board (if provided) by the Landlord for the
purpose in the ground floor reception hall of the Building;
2.1.6 the right to load and unload goods at such part (if any) of the
Building as may from time to time be designated by the Landlord for such purpose
provided that such loading and unloading shall be carried out with reasonable
speed and in such manner and at such times as not to cause obstruction nuisance
or inconvenience to others occupiers-or users of the Building Provided that the
parking of vehicles on or the obstruction by others of any accessways
serving-such designated loading and unloading area shall not constitute an
infringement of the said rights.
2.1.7 All rights of support and protection currently enjoyed by the Demised
Premises.
PART III
RIGHTS EXCEPTED TO THE LANDLORD
3.1 The right to erect or alter or to consent to the erection or
alteration of the Building or any building for the time being on any adjoining
or neighbouring property notwithstanding that such erection or alteration
provided that such does not materially diminish the access of light and air
enjoyed by the Demised Premises and the right to deal with any such property as
it may think fit provided that the Tenant's use and enjoyment of the Demised
Premises is not materially adversely affected.
3.2 The right of passage and running of water. soil, gas, electricity
telephones heating ventilation air-conditioning and of all other effluvia and
services or supplies through such Conducting Media as are now or may after the
date of this deed be installed in the Demised Premises and serving or capable of
serving other parts of the Building or adjoining or neighbouring property or
any' buildings now or after the date of this deed erected on such property
together with the right to enter upon the Demised Premises to inspect repair or
maintain any such Conducting Media on reasonable prior notice (save in case of
emergency).
3.3 The right to enter on reasonable prior notice (save in -case of
emergency) upon the Demised Premises in connection with the erection,
alteration, improvement, repair renewal or maintenance of any other part of the
Building or any adjoining or neighbouring property or building and for such
purpose to underpin, shore up and bond and tie into the structure of the Demised
Premises without the payment of any compensation or consideration to the Tenant
subject to the Landlord making good at its own expense any damage thereby caused
to the Demised Premises provided that such right shall only be exercised if the
Landlord cannot carry out such works or actions such objectives without entering
the Demised premises.
3.4 The right to lay or construct new Conducting Media passing through the
Demised Premises and to connect into such Conducting Media as are now or may
after the date of this deed be installed in the Demised Premises (other than any
such Conducting Media capable of serving
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only the Demised Premises) subject to the Landlord making good at its own
expense any damage thereby caused to the Demised Premises.
3.5 The right to enter upon the Demised premises in the circumstances in
which in the covenants by the Tenant contained in t i Lease the Tenant covenants
to permit such entry.
3.6 All easements quasi-easements privileges and rights (other than a
right of access onto the Demised Premises) whatsoever now enjoyed by other
parts. of the Building or adjoining or neighbouring property in, under, over or
in respect of the Demised Premises as if such parts or such adjoining or
neighbouring property and the Demised Premises had at all times heretofore been
in separate ownership and occupation and such matters had been acquired by
prescription or formal grant.
PART IV
MATTERS SUBJECT TO AND WITH THE BENEFIT
OF WHICH THE DEMISED PREMISES ARE DEMISED
4.1 The covenants restrictions stipulations rights liabilities and other
matters other than charges to secure money set out or referred to in the
Property and Charges Registers of H.M. Land Registry Title number MX219359.
4.2 A Transfer dated 14th April 1981 made between John Perring Limited (1)
and Spicemoor Limited (2).
4.3 A Deed of Grant dated 2nd September 1983 made between Spicemoor
Limited (1) and the South Eastern Electricity Board (2).
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SCHEDULE 2
PART I
INSURANCES TO BE MAINTAINED BY THE LANDLORD
1. Insurance throughout the term with reputable insurers against:-
1.1 loss of the Yearly Rent and the Insurance Charge and the Service
Charge due to damage or destruction caused by any of the Insured Risks in an
amount not exceeding the Landlord's Surveyor's reasonable estimate from time to
time of the Yearly Rent Insurance Charge and Service Charge payable in respect
of the Demised Premises for the Loss of Rent Period; and
1.2 damage or destruction of the Demised Premises by any of the Insured
Risks in a sum equal to the Landlord's or the Landlord's Surveyor's reasonable
estimate from time to time of the reinstatement value of the Demised Premises;
and
1.3 damage or destruction of any part of the Building (other than the
Demised Premises) by any of the Insured Risks in a sum equal to the Landlord's
or the Landlord's Surveyor's reasonable estimate from time to time of the
reinstatement value of the Building
SUBJECT in each case to such excesses exclusions or limitations as such insurers
may from time to time require or impose.
PART II
PROVISIONS AS TO PAYMENT OF THE INSURANCE CHANGE
2.1 The Tenant shall pay to the Landlord on demand:-
2.1.1 First the whole of the gross premiums and other expenses from time to
time required to effect or maintain the insurances specified in paragraphs 1.1
and 1.2 of Part I of this Schedule and of all fees and expenses incurred by the
Landlord in obtaining valuations and advice as to the appropriate level of cover
(but not more often than once in every two years);
2.1.2 Secondly such proportion determined by the Landlord's Surveyors (such
proportion to be based on the proportion that the floor area of the Demised
Premises bears to the floor area of the Building (excluding the floor area of
the Common Areas) unless this would be manifestly unfair) of the gross premiums
and other expenses from time to time required to effect or maintain the
insurances specified in paragraph 1.3 of Part I of this Schedule and of all fees
and expenses incurred by the Landlord in obtaining valuations and advice as to
the appropriate level of cover (but not more often than once in any two calendar
years) and in each case any Irrecoverable VAT in respect of such premiums and
expenses credit being given to the Tenant for any payments on account paid by
the Tenant under the following paragraph.
2.2 Whenever any claim is made by the Landlord under any of the insurances
stipulated in Part I of this Schedule the Tenant shall pay to the Landlord on
demand by way of additional rent the whole (or a proper proportion as the case
may be) of any amounts which fall to be borne by the Landlord in respect of such
claim under any excess provisions contained in the policies of such insurances.
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2.3 The Landlord may retain for the Landlord's own benefit any commissions
or discounts received or obtained by the Landlord on or based on the gross
premiums and other expenses which would otherwise be paid or incurred or
suffered by the Landlord in effecting or maintaining such insurances.
PART III
INTERPRETATION
3. In this Schedule "reinstatement value" means the full cost of
rebuilding or reinstating the Demised Premises or the Building (as the ,case may
be) together with architects' surveyors' engineers' and other professional fees
and expenses the cost of sharing up debris removal demolition site clearance and
any works required by Legislation and any other incidental expenses in
connection with rebuilding or reinstatement due allowance being made for
increases in costs fees and expenses during the period from the date of damage
or destruction until the estimated date of completion of rebuilding and
reinstatement.
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SCHEDULE 3
PART I
THE SERVICE CHARGE
1.1 The Service Charge payable by the Tenant to the Landlord shall be the
Service Charge Percentage of the reasonable and proper costs and expenses of the
Landlord in respect of the Services carried out or performed in connection with
the Demised Premises and/or the Building in each Accounting Period
notwithstanding that any such work may be necessary by reason of any latent or
patent defect or due to normal wear and tear or otherwise and notwithstanding
that any necessary remedial work might or does amount to an improvement and such
costs and expenses may include any costs and expenses incurred by the Landlord
in respect of the management and supervision of the Services and an amount in
respect of any tax properly payable in respect of the Services Provided that if
the Service Charge shall in any year exceed the Service Charge Cap then the
Service Charge recoverable from the Tenant (here meaning 9 Neon Systems (U.K.)
Limited and its immediate assignee only and -not any other successors in title)
shall be restricted to the amount of the Service Charge Cap.
1.2.1 The Landlord shall prepare shortly before the commencement of each
Accounting Period (except for the First Accounting Period of the term) an
estimate ("the Service Charge Estimate') of the anticipated expenditure to be
incurred by the Landlord in respect of the Services in respect of that
Accounting Period and the Landlord may include in any such estimate such amount
as the Landlord or the Landlords Surveyor may from time to time deem expedient
in respect of a reserve fund to be held by the Landlord on trust for the
occupier of the Building to cover major items of anticipated expense whether or
not of an annually recurring nature.
1.2.2 The Landlord shall prepare as soon as practicable after the expiration
of each Accounting Period (including the First Accounting Period) during the
term (and immediately following the expiration of the last Accounting Period) a
summarised account (the "Service Charge Account") of the total expenditure
incurred by the Landlord in respect of the Services for the relevant Accounting
Period.
1.3 Landlord shall as soon as practicable after the same shall have been
prepared submit to the Tenant a copy of such Service Charge Account and of the
Service Charge Estimate and shall notify the Tenant of the Service Charge
payable by the Tenant (taking into account any revision to the Service Charge
Percentages which may have accrued during the relevant Accounting Period) in
respect of the Accounting Period to which the Service Charge Account relates and
of the advance payments On account payable in respect of the Accounting Period
to which the Service Charge Estimate relates (which advance payment shall be
payable in the same way as set out in clause 1.6 below).
1.4 Every entry in such Service Charge Account shall be sufficient
evidence of the expenditure or provision recorded therein but the Tenant shall
be entitled once in each Accounting Period at its own expense to inspect the
vouchers supporting such Service Charge Account at reasonable times and at such
place as the Landlord may reasonably stipulate.
1.5 The Service Charge Account shall be certified as fair by the Landlords
Surveyor and such certified Service Charge Account shall be conclusive (save in
the event of manifest error) and shall in any event be binding upon the Tenant
if not challenged within 20 days of delivery.
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1.6 Pending the ascertainment of the Service Charge for each Accounting
Period the Tenant shall pay to the Landlord without deduction by quarterly
payments in advance on the four usual quarter days in every year of the term
(and proportionately for any part of a year) a reasonable provisional sum on
account of the Service Charge such provisional sum to be reasonably determined
from time to time during the Accounting Period by the Landlord's Surveyor but in
any-even t to be subject to the Service Charge Cap.
1.7 Within ten days of receiving a Service Charge Account in respect of a
relevant Accounting Period (including the First Accounting Period) the Tenant
shall pay to the Landlord (or as the case may be shall be allowed by the
Landlord against future sums due by way of Service Charge (or in the case of the
last Accounting Period be paid by the Landlord) the difference between the
aggregate of the provisional sums already paid by the Tenant on account of the
Service Charge in respect of such Accounting Period and the actual amount of the
Service Charge for such period.
1.8 In the event of the Landlord at the request of the Tenant Providing or
operating the Services and/or providing staff at any time outside of the Normal
Business Hours then the Tenant shall pay the whole or such part of the costs and
expenses incurred by the Landlord in connection therewith as the Landlord shall
determine ("additional service charge") and such additional service charge shall
be payable- by the Tenant to the Landlord within ten days of demand therefor
provided that the Landlord may pending the ascertainment of the additional
service charge require the Tenant to pay a provisional sum (the amount of such
provisional sum being in the Landlord's discretion) an account of the additional
service charge prior to the provision of such services and/or prior to an
account of the costs and expenses incurred by the Landlord in connection
therewith being prepared.
1.9 The Landlords determination as to the additional service charge shall
be conclusive (save in the event of manifest error) and shall be binding on the
Tenant if not challenged in writing within 10 days of the amount of the
additional service charge being notified to the Tenant any such challenge by the
Tenant to the amount of the additional service charge shall be deemed for the
purposes of this Lease to. be a disagreement or dispute relating to the Service
Charge.
1.10.1 If the Tenant shall notify the Landlord in writing of any disagreement
or dispute relating to the Service Charge within 10 days of the date of receipt
by the Tenant of the relevant Service Charge Account or the date of notification
as to the amount of the additional service charge (as the case may be) and the
Landlord and the Tenant 5hall within twenty-one days after the receipt by the
Landlord of such written notification be unable to reach agreement thereon such
disagreement or dispute shall be referred at the request of either party to an
independent surveyor to be agreed upon by the Landlord and by the Tenant or if
the parties shall be unable to agree to an independent surveyor nominated at the
request of either the Landlord or of the Tenant by or an behalf of the President
for the time being of the Royal Institution of Chartered Surveyors (whose
nomination shall be binding on the Parties hereto).
1.10.2 Such independent surveyor shall act as an arbitrator in accordance
with the Arbitration Acts 1950 and 1979 unless before his appointment or on or
within 14 days after his appointment the Landlord shall elect that the
independent surveyor shall act as an expert in which case the independent
surveyor shall do so.
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1.10.3 In the Event of the Landlord so electing that the independent surveyor
shall act as an expert:-
1.10.3.1 the independent surveyor shall afford the Landlord and the Tenant a
reasonable opportunity of making written representations to the independent
surveyor as to the matter in dispute and of each commenting in writing to the
independent surveyor upon the others representations and whilst the independent
surveyor may consider such representations and comments in arriving at his
decision he shall not be in any way bound or fettered thereby and shall be
entitled to determine the matter in dispute on the basis of his own knowledge
and judgement;
1.10.3.2 the decision of the independent surveyor as to the matter in dispute
shall be final and binding upon the parties hereto.
1.10.4 The fees of the independent surveyor shall be paid by the Landlord and
the Tenant in such proportions as the independent surveyor shall direct or
failing any such direction by the Landlord and Tenant equally.
1.10.5 If the independent surveyor shall fail to reach a decision and give
notice thereof to the Landlord and the Tenant within three months after his
appointment or such longer period as the Landlord may from time to time
designate or if he shall relinquish his appointment or die or if it shall become
apparent that for any reason he will be unable to complete his duties hereunder
the Landlord may apply to the President for a substitute to be appointed in his
place which procedure may be repeated as many times as necessary.
1.10.6 If the President shall for any reason not be available or be unable or
unwilling to make any appointment applied for pursuant to this paragraph at the
time of application therefor the appointment may be made by such officer of such
other professional body of surveyors as the Landlord shall nominate and any
reference herein contained to the President shall be deemed to include a
reference to such Vice-President or other officer then available arid able and
willing to make such appointment.
1.10.7 Once the independent surveyor has been appointed the Landlord and the
Tenant shall use their respective best endeavours to see that the determination
of the matter in dispute is proceeded with as expeditiously as possible.
1.10.8 Notwithstanding any dispute relating thereto the Service Charge and
any provisional sum on account of the Service Charge shall remain due and
payable and in the event of it being determined that an overpayment has been
made the same shall be alleged against future sums due by way of Service Charge.
1.11 PROVIDED THAT:-
1.11.1 If the Landlord shall during the term change the Accounting Period the
Landlord shall be entitled to make such adjustments therefrom as shall be
necessary.
1.11.2 The Landlord may require that the Service Charge Percentage be varied
to reflect any change in the floor area of the Demised Premises and/or the
Building or to take account of any other matter rendering the Service Charge
Percentage unfair or unreasonable in the opinion of the
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Landlord's Surveyor and the decision of the Landlord's Surveyor as to the
revised Service Charge Percentage shall be final save in case of manifest error.
1.11.3 If it is necessary to apportion the Service Charge over part of an
Accounting Period the total of the Service Charge for the relevant Accounting
Period shall be deemed to have been expended equally on a. day to day basis over
the Accounting Period and shall be apportioned accordingly and such
apportionment shall be made in respect of the First Accounting Period ending 31
March 1997 from the [19] day of December 1996 and further apportioned for the
period 1 April 2000 to the termination of the Term.
1.11.4 In calculating the Service Charge payable by the Tenant the Landlord
need not charge the whole of the costs of renewing any plant equipment and
machinery in the Relevant Accounting Period but the Landlord may spread the cost
in the Service Charge by instalments over such number of years as the Landlord
may in all the circumstances deem appropriate together with interest on the
outstanding balance from time to time on the Landlord's expenditure at a rate
equal to two per centum, (2%) per annum below the Prescribed Rate and the total
expenditure for. any relevant Accounting Period may be computed accordingly.
1.11.5.1 if the Landlord shall expend monies in respect of the Services in
excess of the aggregate of the provisional payments made on account of the
Service Charge it shall be entitled to take into account when preparing the
Service Charge Account for the relevant Accounting Period the following:- if it
has borrowed monies (as it is entitled hereby to do) reasonable interest and any
fees payable to the lender and;
1.11.5.2 if it provides monies out of its own resources interest on the monies
provided at a rate equal to two per centum (2%) per annum below the Prescribed
Rate.
1.11.6 The Tenant shall not be entitled to question any item of expenditure
in an Accounting Period on the ground that it need not have been incurred in
that Accounting Period or that the Services could have been provided more
economically.
1.11.7 The cost of replacement of an item of plant machinery and y equipment
shall be treated as part of the Service Charge whether or not the new item is
the same kind as the old.
1.11.8 If for any reason any of the costs expenses and outgoing relating to
an Accounting Period shall have been omitted from the relevant Service Charge
Account the same may be included as part of the Service Charge for any
subsequent Accounting Period.
1.11.9 The provisions of this Schedule shall continue to apply
notwithstanding the expiration or sooner determination of the Term in respect of
the period down to such expiration or determination.
1.12 The Landlord hereby covenants with the Tenant that:
1.12.1 any sum included in the Service Charge paid by the Tenant pursuant to
this Schedule shall be held by or on behalf of the Landlord in Trust during a
period not exceeding 80 years from the date hereof (which shall be perpetuity
applicable thereto) for the occupiers of the Building for the time being and
shall be deposited in a bank account separate from the Landlord's own money and
interest shall be accumulated to and added to such fund.
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PART II
THE SERVICES
2.1 The inspection maintenance repair renewal rebuilding repointing
redecoration servicing lighting and cleaning and the replacement where
appropriate as often as may be desirable of:-
2.1.1 the whole of all external and structural parts of the Building
including without limitation the roofs floor slabs walls frame columns
staircases and foundations of the Building and any part which extends under or
over any pavement or public highway all window frames and finishes cladding
external entrance doors and all finishes (but excluding any parts of the
exterior or structure of the Building for which any tenant of the Landlord is
solely responsible);
2.1.2 each and every part of the Common Areas including without limitation:-
2.1.2.1 all tiles plasterwork and the coverings of the walls, ceilings
(including any suspended ceilings) and floors (including any raised floors),
2.1.2.2 all glazings and fixed glass, and window frames all doors and door
frames and window furniture and door furniture,
2.1.2.3 all landscaped areas including the costs of irrigation, mowing and of
the replacement of grass plants and trees;
2.1.3 all landlord's fixtures and fittings within the Common Areas;
2.1.4 all boundary walls and fences;
2.1.5 all Conducting Media in use by the Landlord (whether alone or in
common with others) or by two or more tenants in common up to the point of
connection with the public system;
2.1.6 all items of whatever nature used or capable of use in common between
the Building and other land or buildings;
2.1.7 all other parts of the Building (excluding any rents. thereof which
any tenant of the Landlord is solely responsible to repair).
2.2 The provision whenever the Landlord shall consider the same to be
necessary or appropriate to the Common Areas of the foregoing:-
2.2.1 the gritting salting re-surfacing and relaying of the vehicular and
pedestrian ways;
2.2.2 directional and other signs;
2.2.3 any gates parking barriers traffic control systems security posts and
lighting;
2.2.4 any items considered by the Landlord to be necessary or appropriate
for the benefit safety or security of persons visiting the Building;
2.2.5 lighting including the renewal of all light fittings and equipment.
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2.3 The provision running inspection maintenance repair insurance and
cleansing and replacement as often as may be desirable of all plant machinery
and equipment (whether or not forming part of Conducting Media) serving the
Building (but excluding any such plant machinery or equipment for which any
tenant of the Landlord is solely responsible) without limitation:-
2.3.1 the heating equipment radiators and boilers (including any water tanks
and ancillary equipment);
2.3.2 air conditioning and ventilation equipment;
2.3.3 lifts and hoists and their respective shafts and plant;
2.3.4 refuse containers;
2.3.5 fire and smoke alarms any fire fighting prevention or detection
equipment smoke detection extraction or ventilation equipment sprinklers hoses
and dry risers;
2.3.6 electricity generating distribution or transforming equipment and all
electricity meters save insofar as belonging to any Statutory Undertaker;
2.3.7 security equipment intruder alarms closed circuit televisions
telephones entry phones public address systems;
2.3.8 plant monitoring and control equipment; and
2.3.9 other plant machinery or equipment of whatsoever nature-used in
connection with the Services or for the benefit of the Building.
2.4 The engagement of such independent contractors and the employment of
such management security reception housekeeping porterage maintenance cleaning
and other staff as the Landlord or its agents may deem desirable for the
efficient management and supervision of the Building including without
limitation the provision of:-
2.4.1 remuneration statutory contributions pension contributions welfare
insurance meal and travelling expenses and allowances for the provision of motor
vehicles and maintenance expenses (all as the landlord may deem appropriate) and
any redundancy payments compensation and other sums payable by law to the staff;
2.4.2 accommodation and control rooms in the Building and of residential
accommodation for any housekeeper/porter and his family whether or not within
the Building.(including the payment of rates and other outgoings of any kind
whatsoever the cost of decoration furnishings repairs lighting and heating and
of the provision of hot and cold water and all other running costs in respect of
any such accommodation . ) where any residential flat shall be within the
Building the Landlord shall be entitled to include in the Service Charge Account
for the relevant Accounting Period a notional sum in respect of the rent which
would otherwise be obtainable in respect of the flat as office accommodation;
2.4.3 the provision maintenance repair and renewal of all tools machines
appliances and equipment and any other items in the opinion of the Landlord
required to enable any oil the
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foregoing to carry out their duties in an efficient manner including the costs
of vehicles clothing uniforms telephones monitoring equipment and security
systems.
2.5 The employment of managing agents in connection with:-
2.5.1 the management of the Building;
2.5.2 the supervision and control of the Services;
2.5.3 the collection of the Service Charge the Insurance Charge and the
Rents
PROVIDED always that if the Landlord fulfils such duties itself or through its
own management company the Landlord shall be entitled to include in the Service
Charge Account for the relevant Accounting: Period a reasonable and proper sum
in respect thereof.
2.6 Effecting insurance against any claim or liability which the Landlord
may reasonably deem prudent including without limitation any which may arise in
relation to or from the Services public access the employment of staff or
otherwise including the carrying out of periodic valuations of the Demised
Premises and of the Building for insurance purposes.
2.7 Paying and discharging all general and water rates and other outgoings
of any nature whatsoever (including metering charges) and whether of a capital
or revenue nature now or hereafter charged or assessed or imposed upon the
Common Areas Including any hire collection charges or special costs which may be
levied by any local authority utility company or other competent authority in
relation to any, service rendered by any such authority or company for the
benefit of the Building.
2.8 The cleaning of all windows in the Common Areas.
2.9 Paying and discharging all costs of supplying fuel gas electricity oil
and water from time to time supplied in respect of the Services including
without limitation the provision and maintenance of meters any meter rents
standing charges.
2.10 The provision maintenance decoration cleansing and :renewal within the
Common Areas of:-
2.10.1 any reception facilities seating pictures tables and other furniture
or decorative items;
2.10.2 any floral and other similar decorations plants tubs or containers
fountains or pools;
2.10.3 notice boards and indicator plates and of any receiving or
transmitting aerials and dishes intended for common use by the tenants;
2.10.4 public pay telephones, clocks or other amenities.
2.11 The carrying out doing or provision for the efficient running of the
Building or for the benefit of the occupiers of any of:-
13
<PAGE>
2.11.1 works required to ensure that the Building complies with the
requirements of the insurers of the Building (but excluding any such works for
which any tenant of the Landlord is solely responsible);
2.11.2 works required to ensure that the Building complies with all statutory
and other requirements now and from time to time in force including compliance
by the Landlord with every notice regulation order of any competent authority in
relation to the Building or any part thereof and any works required in
connection with the detection or prevention of fire and means of escape in case
of emergency (but excluding any such works for which any tenant of the Landlord
is solely responsible);
2.11.3 making representations against or otherwise contesting the instance of
any legislation orders or statutory requirements affecting the Building for
which any tenant is not directly liable;
2.11.4 works and expenditure incurred in respect of the maintenance repair
decoration inspection cleansing and where appropriate renewal of items shared
used or benefiting the Building and other land or premises;
2.11.5 supplying to tenants copies of any notices or regulations made by the
Landlord;
2.11.6 enforcing covenants in other Leases of parts of the Building for the
general benefit of the tenants thereof as determined by the Landlord's
Surveyors;
2.11.7 the cost of employing such professional and other advisers as the
Landlord shall deem necessary in connection with the Services and the
preparation and auditing of the Service Charge Accounts;
2.11.8 the prosecution of any action which the Landlord reasonably considers
shall be taken in the general interest of the Building;
2.11.9 the creation and maintenance of any reserve fund to be held by the
Landlord.
2.12 Carrying out any other works or providing any other service or 6ing
which in the reasonable opinion of the Landlord is for the efficient running of
the Building or for the benefit of the occupiers thereof (whether or not of a
like nature to the foregoing) or for the purpose of carrying out the covenants
or powers of the Landlord hereunder or in the interests of good estate
management.
2.13 The payment of any taxes (including without limitation Value Added Tax
at the rate from time to time prescribed by any legislation) properly payable by
the Landlord in respect of:-
2.13.1 the supply of any service hereinbefore mentioned;
2.13.2 the supply of any of the goods services or items mentioned in this
Schedule and;
2.13.3 the provision or maintenance of any reserve fund.
14
<PAGE>
(ON LEASE)
SIGNED as a Deed of ) Director
NU-SWIFT SOVEREIGN LIMITED )
Secretary/
Director
15
<PAGE>
(ON COUNTERPART)
SIGNED as a Deed of ) Director
NEON SYSTEMS (U.K.) LIMITED )
Secretary/
Director.
16
<PAGE>
AMENDED DATED 12 FEBRUARY 1997
(1) YOUTH CHANGE LIMITED
and
(2) NEON SYSTEMS (UK) LIMITED
----------------------------
DEED OF ASSIGNMENT
----------------------------
of a Lease dated
relating to property known as
THIRD FLOOR
SOVEREIGN HOUSE
26/30 LONDON ROAD
TWICKENHAM
MIDDLESEX
Stevens & Bolton
1 The Billings
Walnut Tree Close
Guildford
Surrey GUI 4YD
Ref M:HL
<PAGE>
THIS ASSIGNMENT is made the 12 day of February 1997
BETWEEN:
(1) YOUTHCHANGE LIMITED (formerly NEON SYSTEMS (UK) LIMITED) whose
registered office is at 3 Downing Street Farnham Surrey (Company
Registration Number 3082465) ("the Vendor") and
(2) NEON SYSTEMS (UK) LIMITED (formerly YOUTHCHANGE LIMITED) whose
registered office is at Sovereign House 26/30 London Road Twickenham
Middlesex (Company Registration Number 03232225) ("the Purchaser")
1. DEFINITIONS AND INTERPRETATIONS
In this Deed:
1.1 "The Property" means the leasehold property known as Third Floor
Sovereign House 26/30 London Road Twickenham Middlesex and more
particularly described in and demised by the Lease
1.2 "The Lease" means a Lease made the 7 day of February 1997 between (1)
Nu-Swift Sovereign Limited and (2) the Vendor by which the Property
was demised to the Vendor for the term of five years from the 1st day
of December 1996 ("the Term") at the commencing yearly rent of
L11,150.00 (eleven thousand one hundred and fifty pounds) ("the Rent")
1.3 "The Provisions" means the covenants agreements and conditions
contained in the Lease to be observed and performed by the Tenant
1.4 "The Price" is L1.00 (one pound)
1.5 "The Term" Includes any period of holding over or extension or
continuance of the Term whether by statute or common law
1.6 "The Rent Deposit Deed" means a deed made the 7 day of February 1997
between (1) Nu-Swift Sovereign Limited and (2) the Vendor pursuant to
which the Vendor deposited the sum of L14,100 and charged such sum to
Nu-Swift Sovereign Limited
1.7 If the Vendor or the Purchaser is at any time more than one person its
obligations shall be the joint and several obligations of such persons
STEVENS & BOLTON
---------------
SOLICITORS
GUILDFORD
1 The Billings, Walnnt Tree Close,
Guildford. Surrey. GUI 4YD
Tel +44 (0) 1483 302264
Fax +44 (0) 1483 302254
DX 2423 Guildford 1
FARNHAM
5 Castle Street, Farnham,
Surrey GU9 7HT
<PAGE>
1.8 Words importing one gender import any other gender words importing the
singular import the plural and vice versa arid any reference to a
person includes a reference to a company authority board department or
other body
1.9 The clause Heading, shall not be taken into account for the Purposes
of the construction or interpretation of this Deed
2. ASSIGNMENT
2.1 In consideration of the Price (receipt of which the Vendor
acknowledges) tile Vendor as with full title guarantee assigns to the
Purchaser tile Property for the residue of the Term Subject throughout
the residue of the Term to the payment of the Rent and the performance
and observance of the Provisions
2.2 The parties agree and declare that the covenants by the Vendor implied
by Section 4 of the Law of Property (Miscellaneous Provisions) Act
1994 and by the Vendor transferring with full title guarantee are
modified so that those covenants shall not extend to any breach of the
tenant's covenants in the Lease relating to the repair arid decoration
of the Property or relating in any way to its actual state and
condition
2.3.1 For the consideration aforesaid the Vendor assigns to the Purchaser
all the Vendor's right arid title arid the benefits arid burdens of
the Rent Deposit Deed
2.3.2 The Purchaser hereby, covenants the Vendor to observe arid perform all
the obligations of the Vendor in the Rent Deposit Deed and to
indemnify, arid keep indemnified the Vendor against all costs claims
expenses liabilities and demands arising, in any way from the Rent
Deposit Deed
IN WITNESS whereof this document has been duly executed as a deed and delivered
the day and year first above written
EXECUTED as a DEED by YOUTHCHANGE )
LIMITED acting by two Directors or a Director )
and the Secretary:
Director
Director/Secretary
STEVENS & BOLTON
---------------
SOLICITORS
GUILDFORD
1 The Billings, Walnnt Tree Close,
Guildford. Surrey. GUI 4YD
Tel +44 (0) 1483 302264
Fax +44 (0) 1483 302254
DX 2423 Guildford 1
FARNHAM
5 Castle Street, Farnham,
Surrey GU9 7HT
<PAGE>
Exhibit 10.17
Mietrertrag
zwischen der
Triple P Deutschland GmbH
Martin-Behaim-Str. 4
63263 Neu-Isenburg
- nachstehend Vermieter genannt
und
Neon Systems GmbH i.G.
Martin-Behaim-Str. 4
63263 Neu-Isenburg
vertreten durch den Geschaftsfuhrer Harm Christian Koth
- nachstehend Mieter genannt
Dieser Mietvertrag wird unter dem Vorbehalt geschlossen, das der
Gebaudeeigentumer, die Commerz Grundbesitz Investmentgeselsschaft mbH, dieser
Untervermietung zustimmt und die notwendigen Umbauarbeiten genehmigt.
<TABLE>
<CAPTION>
Abschnitt 1 Mietgegenstand
<S> <C>
1.1 63263 Neu-Isenburg, Martin-Behaim-Str. 4
1.2 Im 2. Obergescholl, FIGgel 8
396,95 qm BruttogrundriVIAche inki. anteillger Gemeinschaftsfl5chen
zurn Zwecke des Betriebes eines BGros
1.3 Irn 2. Garagengeschog, NI 2 insgesarrit 7 KFZ-Stellpl5tze (Nr. 136 bis
1 42)
1.3.1 Die Kosten fOr den Urnbau der Mietfl@che Obernimi-rit der Vermieter.
Folgende Spezjfikation wurde vereinbart:
a) Entfernen einer Wand (Flurseite) von Raurn 21 1
1
<PAGE>
b) Verlegung von Teppichboden der gleichen, bereits ausgelegten
Ware, sofern these vorn Hersteller noch geliefert werden kann, an
der Stelle, wo die Wand (a) entfernt wird. Sollte der Hersteller
den gleichen Teppichboden nicht mehr liefern kannen, so wird eine
6hnliche Ware verlegt.
c) Entfernen einer TOr und Ausbau einer Wand zwischen Raurn 209 und
21 0.
d) Verlegung eines Flip-Chart's (Figenturn Vermieter) von Raum 211
nach Raurn 210 (Wand rechts)
e) Umsetzung von Bilderleisien von Raurn 21 0 und 21 1 an Flurwand
rechts
f) Installation einer Klingel/TGr6ff ner an der FlOgell:Gr. Die
Offneraniage wird in Raurn 21 1 installiert
g) Der SchlieRzylinder der TOr zurn FlOgel A in der Teekoche wird
blind" gemacht, sodas die TGr von beiden Seiten nicht mehr zu
6ffnen geht.
1.3.2 Die vorhandene TeekGche kann vom Mieter komplett genutzt werden und
zwar solange, bis der FlUgel A im zweiten ObergeschoR vermietet ist
(siehe Punkt 1.6.1). In der gem. Punkt 1.2 genannten
Gesamt-Quadratmeterzahl ist eine Hilfte der KC)chenf(Ache
einkalkuliert. FCjr die Oberfassung der anderen Hdlfte verzichtet der
VermieTer auf eine Mietzahlung. Der Vermieter verpflichtet sich, bei
Vermietung des F[Cigel A, die TeekGche auf seine Kosten entsprechend
umbauen zu lassen (Teilung). Hierzu geh6rt auch die
KOcheneinrichtung.
1.3.3 Die vom Vermieter vorhandene Telefon-Apparatur wird vor Mietbeginn
demonriert. Der Vermieter stellt dem Mieter einen Platz auGerhalb der
Mietfi5che kostenfrei zur VerfCjgung, damit er ggf. eine eigene
Telefonzentrale aufstellen kann.
1.3.4 Die in den Mietr5umen vorhandenen EinbauschrAnke bedinden sich im
Eigenturn des Vermieters. Der Vermieter Gberl5llt die EinbauschrSnke
dern Mieter kostenfrei for die Dauer der Mietzeit.
1.4.1 Eine Anderung der sich aus 1.2 ergebenden Nutzungszwecke ist nur mit
schriftricher Genehmigung des Vermieters zuldssig.
1.4.2 Etwaige Zustimmungserki5rungen des Vermieters werden stets, auch wenn
dies in der Zus-6mmungserkl5rung niche ausdrGcklich gesagt ist,
vorbehaltlich einer etwa erforderlichen behbrdlichen Genehmigung zur
Nutzungsinderung ertei(T. deren Beschaffung dern Mieter auf seine
Kosten obliegt.
1.4.3 Vor Durchfohrung der genehmigten Nutzungs5nderung hat der Mieter dem
Vermieter nachzuweisen, entweder, daR die hierfGr erforderliche
beh6rdliche Genehmigung rechtsbestdndig erteilt ist, oder das eine
behi5rdliche Genehmigung nicht erforderlich ist.
1.5.1 Die Ber6cksichtigung von 4nderungsw(inschen des Mieters, die nach
Abschlug eines Vertrages ge5uger-t werden, sind nur m6glich, wenn eine
Anderungsvereinbarung Ober Kosten und Termine schriftlich getroffen
wird.
2
<PAGE>
1.5.2 Etwa erforderliche beh6rdliche Genehmigungen for Anderungswansche gem.
1.5.1 holt der Vermieter ein, ohne darnit for deren
Genehmigungsf5higkeit Gew5hr zu leisxen.
1.5.3 Der Mieter ist verpflichtet, alle mit den Anderungen verbundenen
Kosten und Folgekosten, einschl. der Genehmigungskosten, zu tragen.
Dies gilt auch clann, wenn dies in der Anderungsverainbarung niche
noch einmal ausdrCicklich gesagt ist.
Aus einer Ver-z6gerung der FerTigstellung der Mietr5ume aufgrund von
Mieterwiinschen kann der Mieter keine Ansprijche herleiten.
1.6.1 Der Mieter erh5lt vom Vermieter ein Oplions- bzw. Vormietrecht f0r
die FISche im zweiten Obergeschol@, FlOgel A. Diese Option erhfilt der
Vermieter solange aufrecht, bis er diesen FlOgel anderweitig vermieten
kann. Macht der Mieter von seinem Vor mietrecht keinen Gebrauch, so
entfallen jegliche Anspr6che gegen6ber dern Vermieter, falls dieser
die vg. Fl5che anderweitig vermietet. Macht der Mieter von seinem
Vormistrecht Gebrauch, so sind sich die Vertragsparteien darOber
einig, das die Vertragsbedingungen fCjr die vg. Fl5che neu verhandelt
werden.
Abschnitt 2 Mietbeginn und Mietdauer
2.1 Das Mietverh4ltnis beginnt am 1 5.08.1997, sp5testens am 01.09.97. Der
tats5chliche Mietbeginn richtet sich nach der Pertigstellung der vom
Mieter gewanschten Umbauarbeiten.
2.2 Der Mieter Obernimmt die R5umlichkeiten wie besichtigt. Der Vermieter
wird jedoch vor Mietbeginn die Winde streichen, vorhandene Lamellen
reinigen und eine Teppichreinigung auf seine Kosten durchf0hren
lassen. Es erfolgt im Vorfeld eine Probe-Teppichreinigung.
2.3 Bei Obergabe vorhandene geringfOgige MSngel, die den Betriabsablauf
des Mieters nicht beeintr5chtigen und auch ohne BeeintrAchtigung des
Betriebsablaufs des Mieters behoben werden k6nnen, verz6gern die
Obergabe nicht. Sie sind jedoch dann unverz0glich zu beheben. Sind
die im PunkT 1.3.1 genannten Umbauten bei Mietbeginn, noch nicht
abgeschlossen und f6hren these ggf. zu Beeintrachtigungen des
Betriebsablaufs des Mieters, so kann der Mieter keine Anspr0che
gegenGber dern Vermieter hierzu geltend machen.
2.4 Das Mietverh5itnis endet am 31.07.2002.
2.5 Das Mietverh5itnis verlSngert sich bis zurn 31.12.2003, falls es nichT
sechs Monate vor Ablauf der festgeschriebenen Mietzeit durch eine der
Vertragsparteien schriftlich gekOndigt wird.
3
<PAGE>
Abschnitt 3 Mietzins
3.1 Der Mietzins betr5gt manatlich
3.1.1 gem. 1.2: 396,95 qm BGF x 21,50/qm DM 8,534.43
3.1.2 gem. 1.3: 7 Stellpl5ize x DM 65,--/Steliplatz DM 455.00
Insgesamt DM 8,989.43
zuzFjglich der Mehrwertsteuer in der jeweils gesetzlichen Hbhe.
Die Mietzelt ist per tats5chlichem Mietbeginn fCjr zwei Monate
mietfrei.
3.2 Der Mierzins 5ndert sich automatisch prozentval, bezogen auf den
jeweils laufenden Mietzins, sofern sich der Lebenshaltungskostenindex
fOr die Bundesrepublik Deutschland (4-Personen-Arbeitnehmerhaushalt
mit mittlerem Einkommen, 1980 = 1 00), herausgegeben vom Statistischen
Bundesamt, gegen0ber dem Stand der letzten Mietver5nderung um mehr als
5 Punkte nach oben oder unten verAnder-t hat.
3.3 Die Mietver@nderung entspricht der Ver5nderung des
Lebenshaltungskostenindexes. Sie wird erstmals wirksam for denjenigen
Monat, der auf die Indexveraffentlichung entsprechend 3.2 folot.
3.4 Die vorstehencle WartsicherunQsklausel bedarf der Zustimmung der
zusTAndigen Landeszontralbank. Diese wird vom Vermieter eingeholt.
Sollte die Zustimmung versagt werden, so sind die Parteien
verpflichtet, eine neue zul5ssige Klausel zu vereinbaren, die dem
gewollten Zweck am nichsten kommt.
3.5 FOr den Fall, clas clas Mietverhgltnis Ober die Grundmietzeit gem.
Vorziffer 2.4 hinaus andauert, erhalten der Vermieter und der Mieter
das Recht, von dem jeweiligen Vertragspartner die Aufnahme von
Verhandiungen zu verlangen, weiche die Vereinbarung einer neuen
Basismiste auf Marktrnietniveau zum Gegenstand haben.
3.6 Die Miete ist monatlich im voraus bis zurn 5. Werktag eines jeden
Monats auf das Konto des Vermieters; zu entrichten.
Die Bankverbindung des Vermieters lautet:
Dresdner Bank AG Frankfurt/Main
BLZ. 500 800 00
Kto. 510047100
4
<PAGE>
Abschnitt 4 Nebenkosten
4.1 S5mtliche Betriebskosten und die angemessenen Kosten der
Hausverwaltung tragen die Mieter. Betriebskosten sind alle in der
Anlage 3 zu Abschnitt 27 Abs 1 der zweiten Berechnungsverardnung
aufgef0hrte Kosten, die Kosten der Fasadenreinigung, des Betriebes der
Garagentore, der Be- und EntiCittungsaniagen, der Auftugsreparaturen,
der Portiers und der sonstigen fOr den Betrieb des GebSudes benbtigten
Personals (einschl. der Kosten einer etwa durchzufOhrenden
GebSudebewachung), die Beleuchtungsmittel, sowie alle k0nftiq etwa
entstehenden Betriebskosten und alle auf Gesetz, Verordnung oder
Ortss=ungen beruhenden Geb0hren, Steuern und Abgaben, die etwa kOnftig
neu fOr clas MietgrundstElck eingef6hrt werden. Bei Vorhandensein
oder bei Einrichtung von Sarnmelschildanlagen, Wegweisern o.,5. ist
der Mieter verpflichtet, these zu benutzen und die Kosten von deren
Installation, Er- und Unterhaltung zu tragen.
Die Kosten des Betriebes der Tiefgarage Obernimmt der Mieter. Hierzu
geh6ren. die Kosten fOr Sjuberung, Fahrbahnrnarkiterung, Strom,
Leuchtmittel, Wartung von elektronischen Leseger@iten und
Gegensprechanlagen.
4.2 Alle Kosten i.S. von 4.1 werden, soweit sie nicht vom Mieter
unmittelbar beglichen oder nach Verbrauch ermittelt werden, im
Verh5ltnis der Mietfl5che gem, Zif-fer 1.2 auf die Mieter urngelegi,
wobei fOr die Nebenkostenabrechnung pro Tiefgaragenplatz pauschal 4 qm
angesew werden.
Weiche BeTriebskosten nach Verbrauch umgelegt werden, entscheidet,
soweit nicht gesetzliche Regelungen bestehen, der Vermieter.
4.3 Die Abrechnung der Kosten gem. 4.1 erfolgt j5hrlich.
Abrechnungszeitraum is-[ clas Kalenderjahr.
4.4 Auf alle Kosten i.S. von 4.1 wird zun5chst eine monatliche
Vorauszah[ung in 1-16he von DM 1.984,75 zuzogl. Mehrwerts-teuer
erhoben, die f5llig wird zusammen mit dem monailichen Mietzins.
Etwa sich aus der j5hrlichen Abrechnung ergebende Forderungen werden
fd[lig einen Monat nach Zustellung der Abrechnung.
4.5 Eine Anpassung der monatlichen Vorauszahlung an gelinderie
VerhAltnisse nimmt der VermieTer gem. i 315 8GB vor. Die geinderte
Vorauszahlung ist in diesem Falle ab dem Zugang der
Anpassungsmitteflung folgenclen Monat zu leisten.
4.6 Endet das Mietverhiltnis wjhrend der Abrechnungsperiode, wird die
Abrechnung nicht zwischenzeitlich, sondern nur im Rahmen der
allgerneinen Abrechnung erstellt.
4.7 Zu alien Kosten LS. von 4.1 kornmt die Mehrwertsteuer in jeweils
gesetzlicher Hahe hinzu.
5
<PAGE>
4.8 Der Vermieter 1511t auf seine Kosten einen sep. Strornz5hler
installieren. Der Mieter meldet sich selbst bei den Stadtwerken an
und tr5gt die Kosten des Stromverbrauchs.
Abschnitt 5 Sicherheit
5.1 Der Mieter stellt spAtestens bei AbschluB dieses Vertrages eine
Sicherheit fOr die Er-fOllung aller Verpflichtungen aus diesem Vertraq
durch selbstschuldnerische Borgschaft einer deutschen Grogbank oder
eines deutschen 6ffentlich-rechtlichen Kreditinstitutes in 1-16he von
DM 37.860,93.
5.2 Im Falle von Anderungen des Mietzinses oder der monatlichen
Kostenvorauszahlung oder der Mehrwer-isteuer ist die Sicherheit
innerhalb eines Monats nach Inkrafttreten der VerAnderung dieser
anzupassen.
5.3 SoIlte die Sicherheit w5hrend der Dauer des Mietverh5linisses vom
Vermieter in Anspruch genornmen werden, ist der Mieter verpflichteT,
sie unverzOglich wieder aufzufOllen.
5.4 Die BOrgschaft ist zurOckzugeben, vvenn clas Mietverh5ltnis beendet
ist, alle Nebenkosten abgerechnet sind und dem Vermieter aus dem
Mietverhiiltnis keine AnsprOche mehr zustehen.
</TABLE>
Abschnitt 6 KOndigung aus wichtigem Grund
FOr die KOndigung des Mietverh@iltnisses aus wichtigem Grund gelten die
geselzlichen estimmungen. Der Vermieter kann das MielverhAltnis auch dann
fristlos kcindigen, vVenn der Micter Ober sein Verm6gen das Konkurs- oder
Vergleichsverfahren beantragt, Ober das Verm6gen des Mieters das Konkurs- oder
Vergleichsverfahren von Dritten beantragt wird und er nichT innerhalb einer
Frist van vier Wcchen nach Antrag nachweist, dall der Antrag eines Dritten
unbegr6ndeT iST oder Ober das Verm6gen des Mieters das Konkurs- odor
Vergloichsverfahren er6ffneT wird oder die Er6ffnung des Konkursverfahrens
mangers Masse abgelehnt wird.
Abschnitt 7 Etauliche Ver5nderungen durch den Mieter
7.1 Bauliche Ver5nderungen innerhalb des Mietgegenstandes und die
Installation etwa fOr den Gewerbebetrieb des Mieters erforderlicher
Zusatzeinrichtungen bedOrlen der
6
<PAGE>
schriftlichen Zustimmung des Vermieters. Ihre Kosten gehen zu Lasten
des Misters. 1.4.2 und 1.4.3 gelten antsprechend.
7.2 Bei Beencligung des MietverhSltnisses hat der Mieter den wsprOnglichen
Zustand wieder herzustellen, sofern der Vermieter die - ihm vorher
anzubietende - Obernahme etwa vorn Mister veranfarSter Verinderungen
bzw. in dern Mietobjekt angebrachter Einrichtungen ablehnt. Ist der
Vermieter mit der Obernahme einverstanden, vergOtet er den Zeiiwert.
Kann eine Einigung Ober den Zeitwert nicht erzielt werden, ist dieser
von dern Sachverstindigen als Schiedsgutachter zu ermitteln, den die
fOr clas Objekt zust5ndige Industrie- und Handelskammer zu benennen
hat. ROckbauten gem. Abschnitt 1, Punkt 1.3.1, 1.3.2 und Abschnitt 4,
Punkt 4.8 mu(3 der Mister nicht vomehmen.
7.3 Gas- und Elektrogen5te dOrfen nur in dem Umfang an clas vorhandene
Leitungsnetz angeschlossen werden, als die vorgesehene Belastung, Ober
die sich der Mieter vorher zu informieren hat, nicht Oberschritten
wird. Weitere GerAte dcjrfen nur mit schriftlicher Zustimmung des
Vermieters angeschlossen werden. In diesem Fall hat der Mieter die
Kosten f6r die erforderfiche Anderung des Netzes zu tragen.
7.4 In den zu vermietenden Rjumlichkeiten befindet sich div. EDV-und
Telefonverkabelung vom Vermieter, die dort verbleibt und entsprechend
gekappi wird. Der Vermieter stallt dern Mieter die vorhandene
Verkabelung kosienfrei zur Verfcjgung, ebenso kann der Mieter auf
seine Kosten einen Sternkoppler im EDV-Verieilerschrank, der sich im
FlOgel A des zweiten Obergeschosses befinclet, insiallieren.
Desweiteren befindet sich in den zu vermietenden R@iurnlichkeiten ein
Elektro-Ver-teilerschrank. Vom Mister erforderliche VerAnderungen an
der Verkabelung bzw. am Elelctro-Verteilerschrank bedCjrfen der
schriftlichen Zustimmung des Vermieters.
Abschnitt 8 Haftung fOr den Zustand des Mietobjektes
8.1 Haftung des Vermieters:
8.1.1 Der Mietgegenstand wird dem Mister Gbergeben und vom Vermieter in
funkTionsf9higem Zustand erhalten, soweit die Instandhaltung und
Instandsmung nicht vom Mister Obernornmen werden.
8.1.2 FOr Beleuchtungsmittel im Bereich des Mietgegensiandes wird eine
Gew5hrleis-tung nicht Obernommen.
8.1.3 Minderung der Miete und SchadenersatzansprCiche des Misters wegen vom
Vermieter nicht zu vertretender Immissionen oder Stbrungen der Zug5nge
des Geb5udes oder wegen BaumaRnahmen Dritter auRerhalb des Geb5udes
sind ausgeschlossen.
7
<PAGE>
8.1.4 Schadensersatz- oder MinderungsansprOche wegen Wngeln des
Mietgegestandes bzw. wegen St6rungen im Be"rieb des Geb@iudes und
seiner -technischen Einrichtungen hat der Mieter nur clann, wenn der
Vermieter den Mangel bzvv. die Stbrung vorsAbschnitt Tzlich oder grob
fahrl@ssig zu vertreten hat odrr der VermieTer mit der
Wingelbeseitigung vors5tzl'ich oder grob fahriassig in Verzug ger5t.
Diese Haftungsbeschrsnkung gift nicht for SchadensersatzansprOche
soweit 8.1.5, Satz 1 , anwendbar ist.
8.1.5 FOr Sch5den, die unter das von der GebSudehaftpflichiversicherung des
Vermieters gedeckte Risiko fallen, ist die Haftung des Vermieters auf
Schadensersatz im Ein-6 zelfall beschr5nkt auf die 1-16he der
Versicherungssumme (DM 2.000-000,00 fOr jeden Versicherungsfall,
wobei, wenn van einem Versicherungsfall mehrore Mieter betroffen sind,
die DM 2.000.000,00 auf alle Betroffene anteilig im Verh,@Itnis der
eingetretenen und nachgewiesenen Schaden zu verteilen sind). For Ober
die Versicherungssumme hinausgehende SchAden haftet der VermieTer nur
bei vorskzficher oder grab fahrldssiger Schadensverursachung.
8.1.6 Die Haftungsbeschrinkung gem. 8.1.4 und 8.1.5 gelten nicht w5hrend der
Dauer der Gew@hrleistungszeit der mit der Einrichtung des Geb5udes
beauftragten Werkunternehmer. soweit M5ngel, Stdrungen oder Sch5den
vorliegen, fOr die der jeweilige Werkunternehmer
gewghrleistungspflichtig ist. Die Gew5hrleistung richtet sich
regelmSNg nach den gesetzlichen Bestimmungen; die GewShrielstungsdauer
betrigi fOr bewegliche Maschinenteile 1, unbewegliche Maschinenteiie
und AufzOge 2 Jahre ab Abnahme.
8.2 Haftung des Mieters
8.2.1 Der Mietgegenstand ist vorn Mieter pfleglich zu behandeln, zu reinigen
und von Ungeziefer freizuhalten.
8.2.2 Alie Schdnheitsreparaturen innerhalb der ausschliaglich vom Mieter
genutzten Rdume fOhrt der Mieter auf seine Kasten aus, desgleichen die
Pflege, Wartung, Instandhaltung dieser R5ume und sAmtlicher innerhalb
dieser R@ume gelegener Anlagen, Einrichtungen und Installationen
(einschl. der Zu- und Ableitungen zu den Ver- und entsorgungsanlagen
von/bis zu den HauptstrSngen, der Roll5den, der Fensterrahmen und der
den Mielgegenstand abschlieRenden TGren).
8.2.3 In denjenigen 115umon des Mietgegenstandes, die der gemeinschaftlichen
Nutzung durch mehrere oder alle Mieter dienen, fCjhr-t der Vermieter
die in 8.2.2 bezeichneten Arbeiten aus und Iegt die Kasten nach
MaRgabe von Abschnitt 4 um.
8.2.4 Die lnstandsetzungsverpflichtung gem. 8.2.2 und die entsprechende
l(ostenbeteiligungspflicht gem. 8.2.3 bestehen nicht wWend der
GewShrleistungszeit der jeweiligen Werkunternehmer (vgl. 8.1.6, Satz
2), soweit das Instandsetzungsbed0rifnis auf dem Mangel des
Mietgogenstandes beruhi, fOr den ein Werkunternehmer
gew5hrleistungspflichtig ist.
8
<PAGE>
8.2.5 Defekte Pensterscheiben an den ausschlieRlich der Nutzung des Mieters
dienenden 115urnen ersetz-t der Mieter, es sei denn, der Defekt ist
vorn Vermieter zu vertreten. Bez0glich der in 8.2.3 bezeichneten
Toile des Mietgegenstandes gilt insoweit 8.2.3 entsprechend.
8.2.6 VerSTOpfungen von Abflugleitungen hat derjenige Mieter zu beseltigen,
der Sie verursacht hat. Der Verursacher haftet auch fOr etwaige
Folgesch5den. L59t sich bei einer Verstopfung nicht feststellen, wer
Verursacher ist, so 15pt der Vermieter den Schaden beseitigen. Kasten
und Foigesch@den tragen in diesem Palle alle Mieter anteilig, die an
die betreffende Abflugleitung angeschlossen sind, mit Ausnahme
derjenigen Mieter, die nachweisen k6nnen, clarl sie die Verstopfung
niche verursacht haben k6nnen.
8.2.7 Bei Beendigung des Mietverh@ltnisses hat der Miew die ausschliegfich
von ihm gemieteten R5ume fachgerecht renoviert und instandgesetzi zu
Obergeben. Dazu gegeh6ren insbesondere die Reinigung des
Fuabodenbelages, Anstrich der W5nde , dicrr (-@Heizkdrper und
Leitungen sowie der TOrrahmen, alles in Qualitat VVie dern Mieter bw)
bezug Obergeben.
8.2.8 Gibt der Mieter den Mietgegenstand zurOck, ohne das die in 8.2.7
bezeichneten Arbeiten vorn Mieter ausgef0hrt sind und fGhrt der Mieter
die Arbeiten auch innerhalb einer ihm vom, Vermieter gesewen Nachfrist
nicht aus, kann der Vermieter aile erforderlichen Arbeiten auf Kosten
des Mieters ausfUhren; der Kostenerstattungsanspruch besteht auch
dann, wenn die Arbeiten vorn Nachmieter ausgefCjhr-T werden, Weiterhin
hat der Vermieter in diesem Palle Anspruch auf Erstattung des etwaigen
Schadens.
8.2.9 Vor Aufstellung schwergewichtiger Ger5te (Maschinen, Geldschrsnke
etc.) hat sich der Mieter Fiber die Zu]5ssigkeit der Belastung der
Geschoildecken beirn Vermieter zu erkundigen. Die zulgssige Belastung
darl nicht Ciberschritten werden. Wird sie doch Oberschritten, haftet
der Mieter for alle daraus entstehenden ScNden und Folgesch5den und
ist verpflichtet, den Vermieter von etwa deswegen bettehenden
Anspr0chen Dritter freizustellen.
8.2.10 FOr jede Beschiidigung innerhalb -des Mietgegenstandes ist der Mieter
verantwortlich, auch wenn die BescNdigung von seinen Angeh6rigen,
Angestellien, Milarbeitern, Unt&mietern, Besuchern, Lieferanten oder
Handwerkern verursacht ist.
Etwaige BeschSdigungen oder Verunreinigungen an GrundstOck und GebSude
aullerhalb des Mietgegenstandes, die von dem Mieter, seinen
Angeh6rigen, Milarbeitern, Untermietern, Besuchern, Lieferanten oder
Handwarkern verursacht und zu vertreten sind, sind vom Mieter
unaufgefordert unverzCjgiich zu beseitigen.
8.3 Gemeins3mes zu 8.1 und 8.2
9
<PAGE>
Die Parteien sind verpflichtex, die lhnen obliegenden
Instandhaltungs-und Instandsmungsarbeiten in einer angemessenen Fris-E
ausf0hren zu lassen. Kommt eine Partei einer ihr obliegenden
Instandhaltungs- oder Instandsauungspflicht trotz Mahnung und
Nachfristsetzung nicht fristgemAR nach, so isT die jeweils andere
berech-Cjgt, notvvendige Arbeiten auf Kosten der s5umigen Partei
ausfCjhren zu lassen.
Bei Gaf ahr im Verzuge ist jede Partei verpflichtet, die Gefahr
beseitigende Magnahme zu veranlassen.
Abschnitt 9 Betreten der Mietr6urne
9.0 Der Vermieter bzw. dessen Beauftragten und Bevollm5chtigten S-Ceht die
Besichtigung des Mietobjektes zu angernessener Gesch5ftszeit des
Mieters nach vorheriger Anmeldung frei. FOr Gefahrenf@lle ist dem
Vermieter jederzeit Zutritt zu ermbglichen.
Abschnitt 10 Bauliche VerSnderungen durch den Vermieter
10.1 Der Vermieter darf Ausbesserungen, Verbesserungen und bauliche
Ver5nderungen, die zur Erhaltung oder Unterhaltung oder zurn Ausbau
des Gebiudes oder des Mietgegenstandes oder zur Abwehr drohender
Gefahren oder zur Beseitigung von Sch@den notwendig oder zweckm5rlig
sind, auch ohne Zustimmung des Mieters vornehmen, Der Mieter hat die
in Betracht kornmenden ROurne zug5nglich zu halten und dar-f die
AusfCjhrung der Arbeiten nicht behindern oder verz6gern.
10.2 Der Vermieter hat clas Recht, jederzeit an und im C3eb2ude
Modernisierungsmagnahmen durchzufljhren.
10.3 Wegen MaRnahmen gem. 10.1 und 10.2 stehen dern Mieter Ansprcjche nur
insofern und insoweit zu, als sie mit einer 15ngeren als aine Woche
anhaltenden erheblichen Beeintr3chtigung des Beiriebes des Mieters
verbunden Sind.
Abschnitt 11 Gestaltung der Werbung, Namens- und Firmenschilder
11.1 Namens- und Firmenschilder werden einheitlich gestaltet und
angebracht. Das Bestimmungsrecht liegt beim Vermieter, der, soweit
eine einheitliche Gestaltung dies zuWlt, WOnsche der Mieter
berCicksichti9t.
10
<PAGE>
11.2 Soweit Werbefl5chen vermietet Sind, bedarf deren Gestaltung, die
ebenfalls einheitlich vorgenornmen warden soil, der vorherigen
Zustimmung des Vermieters. Durch Wer beanlagen dijrfen andere Mieter
und Driue weder gest6rt noch beeintr5chtigt werden.
11.3 Auch fUr Werbeanlagen gilt 1.4.2 und 1.4.3 entsprechend.
11.4 Der Mieter hat per Mietbeginn die ihm zugewiesenen ParkplAtze
entsprechend zu beschildern. Dies kann z.B. in Form eines
Firmenschildes erfolgen. Die KosTen hierfur Sind vom Mieter zu
tragen.
Abschnitt 12 Untervermietung
12.1 Eine Untervermietung der Raurne an Dritte ist nicht zul5ssig.
Abschnitt 13 Ve6uGerung
13.0 Im Faille einer VerWaerung ist Abschnitt 571 Abs. 2 BGB
ausgeschlossen.
Abschnitt 14 SchlOssel
14.1 Der Mieter erh5lT bei Obergabe Nr jecle ZimrnertOr einen SchlOssel.
Die vom Mieter zus2itzlich ben6tigten SchlOssel werclen ihm auf seine
KoSTen zur Verf0gung gestelit. Seinen entsprechenden Bedarf wird der
Mieter sp@itestens unverzuglich nach Empfang der Mitteilung gem 2.2.2
dem Vermieter schriftlich mitteilen.
14.2 Alle SchlCissel einschliefIlich etvva vorn Mieter geferti9ter
Nachschlossel Sind bei Beendigung des Mleiverh5ltnisses
zurijckzugeben.
14.3 Geschiehi dies trotz Mahnung und Nachfristsmung nicht, ist der
Vermieter berechtigt, die entsprechenden Schl6sser auf Kosten des
Mieters auszutauschen.
Abschnitt 15 Tod des Misters
15.0 Der Mieter verzichtet fGr seine Erben auf das vorzeitige
Undigungsrecht aus Abschnitt 569 BGB.
11
<PAGE>
Abschnitt 16 Ablauf der Mietzeit
16.0 Bei Ablauf der Mietzeit findet Abschnitt 568 B(3B keine Anwenclung.
Abschnitt 17 Mehrer Personen als Mieter
17.0 Mehrere, Personen als MieTer erm5chtigen sich gegenseitig zur Abgabe
und EnIgegen6ahme aller das Miewerh5ftnis betreffenden Erkl5rungen.
Diese Vollmacht ist erteilt unter Befreiung von den SeschrSnkungen
Abschnitt 1 81 BGS. Sie ist unwiderruffich.
Abschnitt 18 Kein Konkurenzschutz
18.0 Der Vermieter gewShrleistet innerhalb des in Abschnitt 1 bezeichneten
GrundstOcks keinen Konkurenzschutz.
Abschnitt 19 Gerichtsstand
19.1 Ist der Mieter Vollkaufmann oder eine juristische Person des
6ffentlichen Rechts, gilt: Gerichtsstand ist Frankfurt am Main.
Abschnitt 20 Beschr@nkung der Aufrechnung
20.0 Der Mieter kann nur mit sotchen AnsprOchen gegen0ber dem Mietzins und
den Nebenkosten aufrechnen, die entweder rechtskr5ftig festgestellt
oder vom Vermieter anerkannt sind.
Abschnitt 21 Verzuq
21.0 Im Falle des Verzuges mit der Zahlung des Mietzinses und der
Betriebskosten ist der Mieter zur Zahlvng von Verzugszinsen in H6he
von 4 % Ober dem jeweiligen Bundesbankdiskontsatz verpflichtet. Der
Vermieter isT berecht-igt, auch einen etwaigen weitergeheriden Schaden
geliend zu machen. Dern Mieter ist der Nachweis, dag nur ein
geringerer Schaden entstanden ist, nicht abgeschnitten.
12
<PAGE>
Abschnitt 22 Schriftformkiausel
22.0 Anderungen und Erg5nzungen dieses Vertrages bedOrfen der Schriftform.
Auf die Schriftform kann nur schriftlich verzichtet werden. Das
gleiche gilt Mir alle ErklSrungen, fGr welche ire diesem Vertrag die
Schriftform vorgesehen ist.
Abschnitt 23 Teilunwirksamkeit
23.0 Solite ein Teil dieses Vertrages nichtig oder anfechibar sein, so wird
die G,31tigkeit des Ver-trages davon nicht ber0hrt. Anstelle des
rechtsunwirksamen Teils gilt sodann als vereinbart, was dem in
gesetzlich zul5ssiger Weise am n5chsten kommt, was die
rtragschliegenden vereinbart h5tten, wenn sie die Unwirksarnkeit
gekannt h5tten. Entsprechendes gilt fOr den Fall, daft dieser Vertrag
ein Lricke haben sollte.
Abschnitt 24 Sonstiges
24.1 Verkehrssicherungs-/Reinigungspflicht:
Die Pflicht zur Reinigungs des GrundstOcks und zur Schnee- und
Eisbeseitigung liegt beim Vermieter.
24.2 Eine Nutzung der Tiefgarage durch Fahrzeuge, die mit Gas betrieben
werden, ist nicht ZU15ssig.
24.4 Beide Ver-tragspar-teien best5tigen, je ein Exemplar des Mietvertrages
(inkt. Anlagen) erhalten zu haben.
Neu-isenburg, den __6.887__ _____Neu-Iseuburg, den 30.7.g7
Triple P Deutshland GmbH
Hauptverwaltuang /s/ Ota Hts
r) Meter)
Nachlrag zum Mietvertrag VOM 30.07./o6.08.1997
13
<PAGE>
zwischen der
Triple P Deutschland GmbH
Martin-Behaim-Str. 4
63263 Neu-Isenburg
Vermieter
und
Neon Systems GmbH LG.
Martin-Behaim-Str. 4
63263 Neu-Isenburg
vertreten durch den Gesch5ftsfCjhrer Herm Christian K6th
- Mieter
Erg5nzend zum Mietvertrag vom 30.07./06.08.1997 vereinbaren die Partelen
folgende Mietvertrags5nderungen:
1) Abschnitt 2 Mietbeginn und Dauer, Punkt 2-4
Das Mietverh5lTnis endet am 31.08.2002.
2) Abschnitt 3 Mietzins, Punkt 3.2, 3.3 und 3.4
DeT monatliche Mietzins erhbht sich alle zwei Jahre urn 3,5
1. Erhbhung ab 01 .09.1 999 auf DM 9.304,06
2. Erh6hung ab 01.09.2001 auf DM 9.629,70
zuz0glich der Mehrvveristeuer in der jeweils gesetzlichen Hbhe.
Irn Obrigen gelten vollinhaltlich die Bestimmungen und Bedingungen des
Miewertrages vorn 30.07./06.08.1997.
Neu-Isenburg, den ____________ _________, den ________________________
TTipXP DeutscNaTid GTnbH
(Vermieter) _______________________________________
Meter)
14
<PAGE>
Miewertrag fUr gowerblich genu
und GrundstUcke
zvi,schen N.LS
Mortin-Beholrn-StraBe 4
63263 Neu-Isenburg
vertreten durch.den Geschbftskihrer Herrn J6rg KJingler
nachstehend Vermieter genannt -
und Neon Systems GrnbVi
Martin-Beholm-StraBe A
63263 Neu-Isenburg
vertreten durch der) Gesch6ftsf@jhrer Herrn Christian K6th
nachstehend Mieter genannt -
- -------------------------------------------------------------------------------
Abschnitt 1 Mietsache
1. Vermietet werden auf dem GrundstOck Martin-Behairn-StroGe 4-8 In 63263
NeuIsenburg
zurn Betrieb elnes Kros
folgencle R6urne -. 2. ObergeschoB, FICigel A+B mit insgesamt 803,19
qrn
2. Tiefgaragen-Abstellpt6tze: InsgesOmt 11 StCjck (Nr. 3 vor dern
Geb6ude, 136-142, 168-und 183+184 im 2. GarcigengeschoB N1 2 )
3. Dern Mleter werden vom Vermieter fCjr die Mletzeit folgende SchlOssel
ausge-hdndigt: siehe 9chlCisselprotokoll
15
<PAGE>
4. Folgencle IVIdna-el wurden bei der Ot)argabe festgestellt (soweit ein
besonderes Obe bep oll angetertigt wurde, '0'0' gilt dieses),
'ieh'29bergabprotokoll
Abschnitt 2 Mietzeit. KiIndigung
1. DosMietverhdltnisbeginntorn 01-10-1998-
b) Der MIgNert-rag mtifd auf dig Dauer von h(51tnis Iduft cm 31.05.2004 ob.
2. ugsferfigkeit der nicht rechtzeitiggm Fretwerden oder nicht
rechtzeitiger Bez sgeschlossen,
3. Bel Vermieter au R6ume sInd SchadensersatzansprOche gggen den g
genandelt. se! denn, der Vermleter hot vorsb1zlich ode@grob fahrldssl
ngerung des mietverh6ltnisses embB Abschnitt 568 BGB tritt
4. Eine still9chweigende VerI6 n1cht ein.
5. Der Vermieter kann den MietvertTag ous vAchfigem Grund mit sofortlger
Wirkung neben den gesetzlichen Regelungen, insbesondere donn kCindiger),
wenn der Mieter mit der Zahlung des Mletzinses oder mit sonstlqen
Zchlungs-verpfl'ichtun. ien in H6he e iner Monotsmiete trotz zweimaliger
Mahnung longer cis 9inen Monot in ROckstand ist;
der Mieter den vertrogswidriger) Gebrouch der Mietsoche oder ihre
unbefugte Oberlassung on dritte Personen trotz Mohnung des Vermieters
fortsetzt;
ein Antrag auf Er6ffnuna des Vergleichs oder Konkursverfahrens Ober dos
Verm6gen des Mieters gest&llt, der Mieter eine eidesstattliche
Versicherung gembB Abschnitt 807 ZPO abgegeben hot oder gin Hoffbefehi
hierzu ergongen ist, eln auBergerichtliches der Schuldenregullerung
dienendes Verfahren einge@eitet wird oder der Mieter seine Zahlungen
einstellt.
Bei elner vom Mieter zu vertretenden vorzeltigen Beendig ung des
Mietverhbltnisses haftet dieser fCjr den Ausfall/Mindereinnahmen der
Miete, Nebenobgoben und sonstigen Leistungen 16ngstens fClr die Zelt,
die dos Mietverhbltnis duTch die vorzeitige Beendigung des Mietvertrages
erleidet.
16
<PAGE>
Abschnitt 3 Mietzins
1.
a) Der Mietzins fClr den FlOgel A betrdgt monotlich DM 10-869,12 (in Worten
DM zehntausendochthundertneunundsechzig ) zuz0glich
Nebenkostenvorcuszohlung und der gesetzilchen MwSt. Inklusive der
PKW-Stellpldtze.
Der Mietzins fCjr den FlOqel B betragt monotlich DM 8.989,43 (in Worten
DM achttausendneunhur)de@achtundneunzig zuz0glicn
NelDenkostenvorcuszahlung und der gesetzlichGn MwSt. inclusive der
PKW-!@t9ilpl6tze.
b) Folgende Betriebskosten r1dutert durch Anlage 3 7u Abschnitt 27 11, BVO
in der jewelligen Fassung) slnd In dem obigen Mietzins nicht enthalten
und desholb gesondert zu zahlen:
1. Wasser
2. Kanal (Entw6sserung)
3. Beleuchtung, Allgerneinstrom (sowO n1cht bel Hetzung)
4. MCillobfuhr
5. Grundsteuer
6. St(aBenreinigung
7. Schornstelnfeggr (sowelt richt be@ Helaung)
8. Soch- und Haftpflichtversicherungen
9. Hauswart
10. Gartenpfiege
I 1. Schneebeseitigung
12. Personen- und Lastenaufzug
13. Gemeinschaftsantenne bzw. BreitbandanschluB
14. Hausreinigung und Ungezieferbakdmpfung
15. Reinigung und Wortung von He'vung und Ger@rten
16. Warrnwasser
17. Helzung
19. Wartungskosten fCjr Feuerl6schw, Tank- und
Lecksicherungsonlogen
19. BOrgerstg1greinigung
c) Der Vermieter ist berechtigt, Verwaltungskosten antellig ouf den Mieter
urnzulegen.
d) Der Vermieter kann w6hrend der Mietzeit zu Anfang elnes neuen
Berechnungszeitraumes den VerteilunqssehiCissel nach billigem Ermessen
neu bilden. Die Verteilung bzw. Neubestimm-ung eines
Verteilungssc@hlCjssels muG sich im Rohmen der gesetzllchen
Bestimmung9n, insbgsondere der Heizkostenverordnung, halten.
17
<PAGE>
2. TrItt durch Erh6hung oder NeueinfCjhrung von Betriebskosten eine
Mehrbelastung des Vermieters ein, ist der Mieter verpflichtet, den
entsprechenden Mehrbetrag vorn ZeItpunkt der Entstehung an zu zahlen.
3. Im Falle der Umsotzsteueroption ist der Vermieter berechtigt, auf
Mietzins, Betrlebskosten und Verwaltungskosten-Umsatzsteuer in
jewe'lliger gesetzlicher H6he zu er-heben.
Abschnitt 4 Anderung des MietZinseS
Der Mietzins. versteht sich zuzCiglich NK so\Wie der gesetzl- MwSt- und 6nd
2,5 % stelgerung /Johr
1.) FiCig9l A:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
vom 01.@K'199'7 bis
vom 01.01.1999 bis 31.05.1999 DM 10.869,12/ monatlich
volm 01.06.1999 bis 31,05.2000 CNA 11.140,85/ monattich
Vorn 01.06.2000 bis 31-05.2001 DM 11.419,37/ monotlich
vom 01.06.2001 bis 31.05.2002 DM 11.704,85/ monatfich
vom 01.06.2002 bis 31.05.2003 DM 11.997,47/ moncitlich
vom 01.06.2003 bis 31.05.20N DM 12.297,41 / monctlich
2.) FlOgel B:
vom 01.10.1998 bis 31.05.1999 DM 8,989.43 monotlich
vorn 0).06.1999 bis 31.05.2000 DM 9,214.17 monatlich
vom 01.06.2000 bis 31-05.2001 DM 9,444.52 monotlich
vom 01.06.2001 bis 31,05.2002 DM 9,680.63 monotlich
vom 01.06,2002 bis 31.05.2003 DM 9,922.65 monotlich
vorn 01.06.2003 bis 31.05.2004 DM 10,170.72 monatlich
</TABLE>
Abschnitt 5 Zahlung des Mietzinses
1 . Der Mletzins ist sp6testens am dritten Werktage eines j9den Monots an den
Vermieter oder an dle von ihm zur Entgegennahme jewells erm6chtigte Person
oder Stelle: Dresdner Bank Frankfurt, Konto-@r.: 510 047 1 00, BLZ 500 800
00 kostenfrei im voraus zu zahlen. Die Nebenkosten sind, soweit nichts
anderes ver-e Rechtzeitiqkeit der einbortist, zuqle'ich mit dem Mietzins zu
entrichten. FOr di Zohlung komr,@t es n1cht ouf dle Absenclung, sondern
auf die Anl,< unft d6-s Geldes or).
18
<PAGE>
Die Erh6hung oder Senkung der Betriebskosten berechtigt den Vermleter, die
Vorauszohlungen entsprechend anzupassen,
Die Vorouszohlung betr6gt monatlich zur Zeit fOr
a) Heizungskosten und
b) sonstige Betrlebskosten DM 4.015,95 netto zuzzCjglich der jeweils
gesetzlichen Mehrwertsteuer.
2. Befindet sich der Micter mit der Zahlung des Mietzinses und/oder der
Bgtr'iebskosten im ROckstand, so slnd Zahlungen zun(5cr)st ouf Anspr6che
deren Verjdhrung draht, dann cuf Kosten, Zinsen und Obrige chulden
anzurechnen, es set denn, der Mieter triff t eine ondere Bestimmung.
Abschnitt 6 Aufrachnung, ZurOckbehcIltung, Schadensersatz
1. Elne Aufrechnung und ZurCickbehaltung des Mieters gegenGber Forderungen ouf
i Mletzin und Nebenkosten ist nur mit unbestrittenen oder rechtskrdftig
festgest ell-ten Forderungen zul6ssiig.
2. ZurCickbehaltung und Aufrechnung wegen AnsprOchen aus einem onderen
Schuldverhdltnis sind ousgeschlossen, es sei denn. es handelt sich urn
unbestrittene oder rechtskrdftig festgestellte Forderungen.
SchodensersatzcnsprCiche noch Abschnitt 538 BGB sind ausgeschiossen, es sel
denn, der Vermieter hot vors(itzlich oder grob fahrldssig gehandelt.
Abschnitt 7 Sammelhelzung
1. Die vermietete . ien wdhrend der Heizperiode (I. Oktober bls 30. April)
in der Betriebszeit angemeisen zu behelzen, soweit n1cht betriebsbe-dingte
andere, Heizzelten notwendig slnd. AuSerholb der Heizperiode konn
Beheizung nur veriongt werden, wenn die AuBentemperatur on drel
aufeinanderf olgenden Tagen um 21:00 Uhr unter 12 Grad Celsius sinkt.
Beheizung bzw. Ersatzbehelzung konn nicht verlongt werden bei St6rungen,
h6herer Gewolt, beh6rdllchen Anordnungen oder bei sonstiger Unm6glichkeit
der Leistung (z.B, Brennstoffknoppheit), es sei denn, die Unm6gilchkelt
beruht cuf Vorsatz oder grober Fohrldssigkeit des Vermlieters. Die Rechte
des Mieters aus Abschnitt 537 BGB bleben unberf1hrt. Dern Mieter stehen
SchadensersatzonsprOche nicht zu, es sei denn, der Vermieter hot
vors6tzlich oder grob fahrlbssig gehandelt. Der Vermieter hat f0r
alsbaidige Beseitigung etwolger St6rungen Sorge zu tragen.
19
<PAGE>
2. Zu den Kosten des Betriebes der zentralen Heizungsonloge geh6ren die Kosten
der verbrouchten Brennstoff e,.und ihrer Uieferung, die Kosten des
Betriebsstromes, dle Kosten der Bedlenung, Uberwachung und Pflege der
Aniage, der regelMdBigen PrOfung ihrer Betriebsbereltschaft und
Betrielossicherheit einschlie3lich der Einstellung durch einen Fochmann,
der Reinigung der Anlage einschlie6lich der Oltankroinigung und des
Betriebsroumes einschlieBlich der Reinigung des Houses nach Anlieferung von
Brennstoff en, die Kosten der Messungen noch dern
Bundes-immissionsschutzgesetz shornsteinfege owle die ScrgebCjhren,
soweit dlese nicht onderweifig urngelegt werden, und die Kosten
der Anmietung oder onderer Arten der GebrouchsCiberiassung einer
Ausstottung zur Verbrouchserfassung sowie die Kosten der Verwendung einer
Ausstattung zur Verbrouchserfassung einschlieSlich der Kosten der
Berechnung und Auftellung. Zu den Kosten der Ueferung von Fernwdrme
geh6ren dle Kosten der Wbrmelieferung (Grund-, Arbeltsund
Verrechnungsprels) und die Kosten des Betriebes der zuge@6rigen Housonlogen
wie oben.
3. Macht eine MiGtPartei von der HE)izungsanjage kelnen Gebrouch, So befreit
dies pflichtung 7-ur Beteliligung on den Helzungskosten, nicht von der Ver
werdenden Zwlschenoblesung tr6gt der NAieter, den
4. Die Kasten elner notwendig safe betrifft.
Abschnitt 8 warmwasserversorgung
Zu den Kosten des Betriebs der zentroten Wormwasserversorgungsonlage geh6rer)
die eft sie icht besonders abgerechnet werden, und die Kosten der
Wasserversorgung, sow 7 Ziffer 2. Zu den Kosten der Wass erverKosten der
Wassererw6rmung entsprechend Abschnitt sorgun geh6rGn die Kosten des
Wasserverbrouchs, die GrundgebOhTen und die Zdh- 9 ischenz6hiern, die Kosten des
Betriebs lermieten, die Kosten der Verwenclung von Zweiner
houselgenenWasserversn-,rclungsonloge und einer Wossercufbereitungsontage
einschIle3lich der Aufbereitungsstoff e , Zu den Kosten der Lieferung von
Fernwarmwasser geh6ren die Kosten fCjr Lieferung des Wormwossers (Grund-,
Arbeits- und Verrechnungspreis) und die Kosten des Betriebs der zugehbrigen
Hausonlage entsprechend Abschnitt 7 Ziff er 2.
Abschnitt 9 Fahrstuhlbenutzung
Fahrstuhlbenutzung kann nicht verlongt werden bei Stillegung des Aufzuges bel
Stromausfall, otwendigen Reparaturen oder beh6rdlichen Anordnungen, es sea denn,
der Vermieter hat vors6tzllch oder grob fahrl6ssig gehandelt.
20
<PAGE>
Abschnitt 10 Benutzung der Mietsache, Gebrouchs0bedassung
1 . Der Mleter darf die Mletsoche zu anderen als den in Abschnitt 1 bestimmten
Zwecken und Gesch6ftszwelgan nur mit Einwilligung des Vermleters benut-zen;
er darf den Gesch6ftsbetrieb nicht ganz oder tellweise einstellen. Die
EimWilligung soll schriftlich erfolqqn. Dos Holten von Tieren bedarf der
Einwilligung des VerrT-@ieters. Die Ein-willigung soll schTiftlich
erfolgen.
2. Der Mieter ist ohne Einwiltigung des Vermieters weder zu einer
Untervermietung noch zu einer sonstigen Gebra-uchs0berlassung or) Dritte
berechtigt, Die Elr)wiili@njng soll schrIftlich erfolgen. Bei Firmen gilt
ein Wechsel des Inhabers oder elne derung der Rechtsform cis
GebrauchsCiberlossung . Die Einwilligung gilt nur fOr den inzelfoll, sle
konn ous wichtigem Grund widerrufen werden.
3. Der Mieter tritt dern Vermieter schon jetzt fCjr den Fall der
Gebrcuchs@ber@assung die ihm gegen den Untermleter oder Nutzer zustehenden
Forderungen nebst Pfandrecht in 1-16he der Mlefforderung des Vermieters zur
Sicherheit ob.
4. Dem Mieter ist dos Verkaufen und Anbleten von Erzeugnisson, die ein anderer
Mieter zuidssigerweise berelts im House vertrelbt, untersogt.
5. AuBerholb der Oblichen Betriebs- und Geschdftszq1ten ist der Vermleter
nicht verpflichtet, die houstechnischen Gemeinschaftseinrichtungen zur
VerfOgung zu stellen bzw. in Betrieb zu halten,
Abschnitt 11 Schilder, Rakiameantagen
1. Der Mleter hot Anspruch ouf Anbringung eines Firmgnschildes. Der Vermieter
weist einen Platz on und bestimmt die Art der AusfCjhrung. Die Ermietung
und Benutzung der AuSenwdnde einschl. der Gestaltung der Fenster beclarf
elner ge-sonderten Vereinborung.
2. Der Mieter muS die ihm zugeordneten PKW-Stellpldtze mit Firmenschildern
versehen.
3. Bel Beendigung des Mietverh6itnIsses hat der Mieter Schilder und
Reklomeanlogen zu entfernen und die durch die Anbringung, den Betrieb und
die Entfernung entstehenden Sch6den zu beseitigen. Jecloch kann der Mieter
ein kleines Schild mit dem Hinweis cuf seine neuen Rdume fOr Monate,
mindestens 3 Monote tang, an einer vom Vermieter zu bestirnmenden Stelie
belasser) Ozw. onbringen.
21
<PAGE>
Abschnitt 12 Beh6fdliche Genehmigungen, Betfiebsgefahr vorn Mieter
betriebener Anlagen und Einrichtungen
1 . Der Vermieter Obernimmt keine Haftung dofCjr, doS Genehmigungen fOr den
vorgesehenen Betrleb und seine Anlogen ertellt werden bzw. erteilte
Genehmigungen fortbestehen. Dies gilt insbesondere fCjr Konzessionen. Der
Mieter hot ouf seine Kosten sdmtliche Voroussetzungen fCjr den Betrieb
seines Gewerbes zu schaffen und aufrechtzuerhalten. Dies gilt ouch fOr
Reklomeonlogen usw. Auflogen der Gewerbeaufsicht oder onderer Stellen hat
der Mieter auf eigene Kosten zu erfCjllen.
2. Abschnitt 12 Zlff. I gilt jedoch nicht, wenn die Beschaffenheit und Loge
der Mietsache zum vereinborten Vertragszweck niCht geeignet ist.
3. Vor dem Aufstellen von Maschinen, schweren Gegenstbnden, andgren Anlogen
und Einrichtungen in den Mietrdumen hot sich der Mieter Ober die zuldssige
Belostungsgrenze der Stockwerksdecken belm Vermieter zu erkundigen und
dessen Zustimmung einzuholen. Die EinmAlligung soil schriftlich erfolgen.
For Sch6den, die durch Nichtbeachtung dieser Bestimmungen elntreten, haftet
der Mieter. Ergeben sich durch die Anlogen und Einrichtungen nochteilige
Auswirkungen f0r dos Gebdude, ErschOtterungen, Risse, usw., so kann der
Vermieter die erteilte Erloubnis widerrufen. FOr alle, vom Mieter
eingebrachten oder betriebenen Anlogen und Einrichtungen haftet der Mieter.
Soliten sich durch die Aufstellung oder den Betrieb von Anlagen und
Ein6chtungen des Mieters unaumutbare Nachteile oder Unzutr6glichkelten
ergeben, so ist der Mieter verpfiichtet, soweit er nlcht Abhilfe schaffen
kann, these zu entfernen bzw. 1hren Betrieb elnzustellen.
4. Dem Mieter obliegt die Verkehrssicherungspflicht in den ermieteten Rdurnen
und den Zugbngen cuf dem GrundstOck und der 6ff entlichen StroBe vor dem
GrundStock.
5. Der Mieter is", verpflichtet, eine Mieterhaftipflicht for die angemieteten
Fl6chen obzuschlieBen.
Abschnitt 13 Instandhaltung und Instandsaftung der Mietsache
1. Der Mieter hot in der Mletsoche fOr ousrelchende Reinigung, Loftung und
Heizung zu sorgen und die Rdume sowie die darin befindlichen Anlogen und
Einrichtungen pfleglich zu behandeln und von Ungefiefer freizuhalten.
2. For die Besch6digung der Mietsoche und des Gebbudes, sowle, der zu den
Mletrburnen oder zu dem Gebdude geh6rigen Anlagen ist der Mieter
ersatizipflichtig, sowe it sic von ihm oder den zu selnern Betrieb
gehdrenden Personen sowie Untermietern varursocht worden sind, Dies gilt
ouch for Schdden, die von Besuchern, Lleferanten und Hcndwerkern
22
<PAGE>
verursocht worden sind, sowelt sie ErfOllungsgehilfen des Mieters sind.
Dern Mieter obliegt der Beweis, doG ein Verschulden nicht vorgelegen
hot.
3. Der Mieter isl Insbesondere verpflichtet, ouf seine Kostan die
Sch6nheitsreporoturen (dos Topezieren, Anstreichen oder Kalken der Wdnde
und Decken, dos Sfreichen der FuBb6den und Heizk6rper einschl.
Heizrohre, der InnentOren sowie der Fenster und AuBentOren von Innen) in
den Mietrdumen in angernessenen Zeltrdumen ouszufOhren.
Zu 3. Der Mleter hot weiterh1n die nachstehenden Gegenstdnde, soweit sie
seiner unmittelbaren Einwirkung unterliegen, insbesondere Fenster- und
TOrversch[Osse sowie VerschluBvorrichtungen von Fensterldden, RoUdden,
Licht- und Klingelonlogen, Wdrmemesser, Schl6sser, Wasserhdhne,
KlosettspOler, Wasch- und AbfluBbecken einschl. der Zu- und Ableitungen,
Ofen, Herde, Gos- und Elektrogerdte und 6hnliche Elnrichtungen und
WaTmwasserbereitungsonlogen einschl. der Zu- und Ableitungen zu dlesen
instandzuhalten und instondzusetzen wobei besch6digte Glasschelben, ouch
Schoufer)sterscheiben, zu ersetzen, es sei denn, er bewelst, da13 ein
Verschulden des Mieters nicht vorgelegen hot. Noturloslertes Holzwerk
dorf nIcht mit Forbe behandelt werden. Der Mieter ist verpflichtet, die
fachgem6l3e Wortung, Reinigung und OberprOfung von Heizungs-, LCiftungs-
und dhnlichen Anlogen, Durchlauferhitzern, Wormwasserbereitungsanlcigen,
Ofen und Herden mindestens jdhrllch durchzuf6hren.
4. Bel Beendigung des Mietverhdltnisses ist der Mieter verpflichtet,
Dobeleinsdtze zu entfernen, 1_6cher ordnungsgem63 und unkenntlich zu
verschfieBen. Ver6nderungen dieser Art, denen der Vermieter nicht
ousdn@ckllch zugestimmt hat oder b9i Wohrung seiner berechtigten
Interessen nicht h6tte zustimmen mcissen, verpflichten den Mieter zum
Schadensersatz.
Kommt der Mieter seinen Verpflichtungen trotz Aufforderung mit
Fristsetzung und Ablehnungsandrohung nicht nach, so konn der Vermleter
erforderliche Arbelten ouf Kosten des Mieters vornehmen lossen.
5. Ist dos Mletverh6ltnis beendet, so stehen dem Vermieter die ErfOllungs-
und ErsatzonsprOche cus den Ziff, 1-4 ouch donn zu, wenn ein Nachmieter
die Arbeiten durchgef0hrt hat oder durchf0hren wird.
6. Jeden In und an der Mietsoche entstehenden Schaden hat der Mieter
unverzOglich dern Vermieter onzuzelgen. FOr einen durch nicht
rechtzeitige Anzeige verursochten welteren Schoden ist der Mieter
ersotzpflichtig, soweit er den Mange[ vorsbt-zlich verschwiegen oder
grob fohrlbsslg nicht erkonnt hat.
7. Der Vermieter haftet nicht fOr Schdden, die dem Mieter an den ihm
geh6renden Woren und Einrichtungsgegenst6nden entstehen, glelchgOltig
watcher Art, Herkunft, Dauer und welchen Umfonges die Einwirkungen Sind,
es sei denn, doG der Vermieter den Schoden vorsdtzllch oder grob
fohridssig herbeigefohrt hat. Im Cibrigen ist die Haftung des
23
<PAGE>
Vermleters grundsdtzlich auf die H6he und den Umfang der
HaftpfilchNersicherung (DM 2.000.000,--) begrenzt.
Abschnitt 14 Vordnderungen an und in der Mietsache durch den Mieter
1. Ver(5nderungen an und in der Mietsoche, insbesondere Um- und Einbouten,
Installotlonen und dergi., dCjrfen nur mit Einwilligung des Vermisters
vorgenommen werden. Die EInwIIIIgung soll schriftlich erfolgen, Auf
Verlongen des Vermieters ist der Mieter verpflichtet, die Um- oder
EInbauten gonz oder teilweise im Folle seines Auszuges zu entfernen und
den frOheren Zustand wieder herzustelien, ohne do$ es eines Vorbeholts
des Vermieters be! der EInwIIIIgung badarf,
2. Will der Mieter Einrichtungen, mit denen er die Mietsoche versehen hot,
bei Beend'Lqung des MietverhdItnisses wegnehmen, hot er sle zun6chst
dern Vermieter zur Ubernohme onzubieten. Dobel hot der Mieter seine
Preisvorstellung mitzuteilen sowie die Herstellungskosten und den
Herstellungszeitpunkt nachzuweisen. Wenn der Vermieter die
Einrichtungen Obernehmen will, hot er dem Mleter elnen ongemessenen
AusgIelch zu leisten.
3. Gas- und Elek-trogerdto dOrfen nur in dem Umfong on dos vorhondene
Leitungsnetz angeschlossen werden, als dle fCjr die Mietsoche
vorgesehene Belostung nicht Ciberschritten vVird, Weltere Ger6te dCjrfen
nur mit EimAtilligung des Vermieters ongeschlossen werden, Die
Einwilligung soll schriftlich erfolgen. Die Einwilligung kann versogt
werden, wenn dos vorhandene Leitungsnetz eine zus6tzliche Belastung
nicht oush6lt und der Mieter es ablehnt, die Kosten f0r eine
entsprechende Anderung des Netzes zu trogen.
Abschnitt 15 BaulichG Ver8ndGrungen und Ausbesserungen durch den Vermieter
1 . Der Vermleter darf Ausbesserungen und bouliche Ver6nderungen, die zur
Erholtung oder zur besseren wirtschaftlichen Verwertung des Anwesens
oder zum Ausbou des Gebbudes oder der Mietsache oder zur Abwendung
drohender Gefahren oder zur Beseitigung von Schdden notwendig werden,
ouch ohne Zustimmung des Mieters vornehmen. Dos gilt ouch fCjr Arbeiten
und bouliche MaGnahmen, die zwor nicht notwendig, ober zweckmdBig sind,
insbesondere der Modernisierung des Gebdudes dienen. Der Mieter hat die
In Betracht kornmenden Rdume zugdnglich zu holten und darf die
Ausf0hrung der Arbeiten nicht hindern oder verz6gern: andernfalls hat er
die dodurch entstehenden Schbden zu ersetzen. Auf die bet(jeblichen
Belonge des Mleters ist Rcicksicht zu nehmen.
24
<PAGE>
2. Werden MoGnahmen vorgenommen, wle z.B. Ausbou einer Verkehrsflbche,
Anlage der Kanolisation, HousanschlOsse on Versorgungsleii-ungen,
Verstdrkung und Verbesserung von Steigleltungen, Umstellung der
Beheizungsart von Kohle auf Gas oder OL Fernwdrme oder andere Heiz- oder
Energiearten (ouch Umstellung ouf elektrische Beheizung einschl.
Ger6te), die den Gebrauchsweri- der Mietsoche erh6hen, so ist der
Vermieter berechfigt, die Miete um einen Zuschlog von jdhrlich 14% der
von ihm aufgewendeten Bou- und Einrichtungskosten zu erh6hen. Die neue
Miete wird noch Fertigstellung mit Beginn des auf dle Aufforderung des
Vermieters folgenden Monots f6llig.
Abschnitt 16 Betretan der Mietsache
Der Mieter hot wdhrend der Oblichen GeSChdftszelt 7-u gewdhrieisten, doG
Vermieter, Becuftragte, Sochverstandige und Interessenten die Mietsache zum
Zwecke der Feststellung des baulichen Zustandes, der Neuvermietung, des Verkoufs
usw. - nach Voronmeldung - besichtigen k6nnen. Weiterhin muB der Mieter den
Zugong zu den EDVVerteiterschrdnken bei Reperatur- und Wortungsarbeiten
gewbhrleisten, In Fbilen von Gefohr ist dos Betreten zu jeder Toges- und
Nochtzelt zu erm6glIchen.
Abschnitt 17 Beendigung des Mietverhaltnisses
1. Der Mieter hat die Mietsoche unabhdngig von der Pfilcht zur
DurchfCjhrung der Schbnheitsreparaturen in souberem Zustand
zurCickzugeben. Kommt der Mi9ter dieser Verpflichtung nicht oder nicht
rechtzeltig noct), so kann der Vermleter die Mietsoche auf dessen Kosten
reinigen lassen.
Die Rdurnungspflicht des Mieters erstreckt sich ouf alle Gegenstbnde im
Mietberelch, soweit sle nicht dem Vermleter geh6ren. Komrnt der Mieter
dieser Pflicht nichf nach, so ist der Vermieter berechfigt, these
Gegenstdnde ouf Kasten des Mieters ent-fernen zu lassen. Eine
Aufbewahrungspflicht fCjr den Vermieter besteht nicht.
2. Endet dos Mietverh6itn'is durch fristlose KOndigung des Vermieters, so
haftet der Mieter bls zum Ablauf der verelnbarten Mietzeit fOr den
Mietausfall, der durch dos Leerstehen der Mietsache oder dodurch
entsteht, doG im Fall der Neuve(mietung nicht der bisherlge Mietzins
erzielt werden kann.
3. 15t zwischen den Porteien vereinbart, daB die Mieter
BetriebskostenvorschCjsse bezahlen, die einmoi im Johr obgerechnet
werden, so verbleibt es bei dieser Regelung. Dobel gilt bez0glich aller
Betriebskosten, deren H6he nur einmal im Johr festgestellt wird, doB
these Abgaben dergestalt zwischen dem Ausziehenden und dem
Nachfolgemleter bzw ,
25
<PAGE>
Vermleter , eteilt werd en, doG die 1-16he des Anteiles Q sich nach der
Dauer der Mietzeit richtet, soweit nicht eine Sonderabl6sung vereinbort
ist.
4. Der Mieter hat sbmtllche SchlOssel, ouch die, die er s1ch hat onfertigen
lossen, nach Beendigung der Mietzeit an den Vermieter abzuliefern.
Abschnitt 18 Personenmehrheit
1. Unter Mieter und Vermieter werden die Mietporteien ouch donn verstonden,
wann sie aus mehreren Personen bestehen, Mehrere Personen ols Mleter
hoften fOr alle Verpflichtungen ous dem Mietvertrag als Gesomtschuldner.
2. Mehrere Personen cis Mleter bevollmdchtigen sich hiermit gegenseitig zur
Abgabe und Annahme von Erkl6rungen mit W[rkung for und gegen jede
Person; dies gilt nicht fOr KOndigungen und Mieterh6hungen.
Abschnitt 19 knderung des Vertrages
Nebenobreden, Anderungen, Ergdnzungen und Aufhebung des Vertroges sollen
schriftlich vereinbort werden. Dos gleiche gilt for Zusagert, Zustimmungen,
Verzichte und Vergleiche oiler Art.
Abschnitt 20 ErfUllungsort
CAOllungsort fOr o[le sich aus.diesom Veftrag ergebenden Verpflichtungen ist
NeuIsenburg,
Abschnitt 21 Sicherheitslaistung
1. Der Mieter gIbt dem Vermieter for die Einholtung der ihm aus diesem
Vertrag obliegenden Verbindlichkeiten eine zinsiose Sicherhelt in Geld
in H6hE) von DM 71.623,50 (In Worten: DM
einundsiebzigtousendsechshundertdreiundzwar)zig). Der bereits
geloistete Betrag in 1-16he von DM 37.860,93, cis Sicherheitsleistung
for den FlOgel B, wird mit dieser Summe verrechnot. Die ROckgabe
erfolgt sp6testens 30 Togo nach Ablauf der Mietzeit.
2. Die Sicherhaitslaistung Ist fbilig bei Vertrogsunterzelchnung.
26
<PAGE>
3. FCjr den Fall der Ver6u3erung des GrundstOcks/der Eigentumswohnung/des
vermleteten Teileigenturns willigt der Mieter da(In ein, da13 die von
ihm erbrachte Sicherheltsteistung cuf den Erwerber Obertragen wird. Der
Vermieter sichert dem Mieter zu, im Ver6uBerungsfalle den Erwerber zur
ROckgew6hr der Slicherheit 7U verpflichten, soweit gegen these nicht
aufgerechnet ist,
Abschnitt 22 Wirksurnkeit der VertrQgsbestimmungen
1. Durch UngCjItIgkeit oiner oder mehrerer Bestimmungen dieses Vertrages
wird die GOItigkeit der Obrigen nicht ber0hrt.
2. Durch diesen Mietvertrag werden frOhere Vereinborungen aufgehoben.
Ausgenommen ist der bereits bestehende Vertrag des FICigels B, dessen
Vereinbcrungen bis zurn Beginn diesen Vertroges bestehen bleben.
Abschnitt 24 Hausordnung
1. m ausschlieSlich benutzten Klosett-, Woschbecken-1 Der Mieter hot die
von 1h abflCjsSe usw. ouf Seine Kasten zu reinigen und Verstopfungen
solcher AbfiCisse sofort beselifigen zu [ossen. Er haftet fOr seine
Angesteliten und Kunden.
2. Wird auf dem GrundstOck Schmutz verursocht, so hot der Mieter diesen
sofort zu beseitigen.
3. Dos Abstellen und Logern von Gegenstdnden (Kisten, Waren und dergi.)
auBerhalb der Mietsoche ist n1cht gestattet. Kraftrbder, Mopeds und
6r)nliche Fahrzeuge dCjrfen nur mit Einverstdndnis des Vermleters in den
von diesem bestimmten und den polizeilichen Vorschriften entsprechenden
R6umen, soweit vorhanden, untergebracht werden. Dos Aufstellen oder
Parken von Fahrzeugen im Hof Ist nur mit Einwilligung des Vermieters
gestottet. Die EinVi ligung soil schriftlich erfolgen.
4. Die Fenster mCissen bei Sturm, Regen odor Schnee geschlossen geholten
werden. Jeder bemerkte Schaden am Dache und etwaiges Eindringen des
Regens ist dem Vermieter sofort anzuzeigen.
5. Der HausmOll, !St zerkleinert in die aufgesteliten Tonnen zu leeren. Es
ist dafor Sorge zu tragen, daB nichts auf den Treppen, dem Houseingong
und an dern Plot7- an welchem die Tonnen aufgestelit Sind, verschOttet
wird: gegebenenfolis hot der Mieter unverzOglich fCjr die erforderl'iche
Rolnigung zu sorgen. Asche dorf nur abgekCjhit in die dazu bestimmten
Behblter geschOttet werden, Aus gewerblicher T6tigkeit onfallendes
27
<PAGE>
Verpockungsrnaterial oder 6hnliche Abfdlle dorf nicr)t in den
allgerneinen HausrnCjllgef6l3e geleert werden.
6. Alle mlt TOren vorsehenen Zugdnge (Keller, Boden, Laden, Lager usw.)
send jederzeit geschlossen zu halten. Sind SchlieBungszeiten fOr die
HaustOr festgelegt, so Sind di9se einzuhalten.
Ordnung im House Abdnderungen
rderlich mochen, dorf der Verml7eter
Datum:________________________________
Vermieter: Miefer:
___________________________________ _______________________________________
___________________________________ _______________________________________
___________________________________ _______________________________________
-trsg 6bcr)KTIZAbstellpl5tze
Mietver
zwischen CGI
Commerz Gnmdbesitz
InvesmientgeselIschaft rnbH
Krcuzberger Ring 56
5205 Wiesbaden
als Vemijeterin -
und Neon Systems QubH
Martin-Behaim-Stra& 4
63236 Neu-Isenburg
- als Mieterin -
wird folgender Vertxag geschlossen:
Abschnitt 1 Mictriume
28
<PAGE>
Zur Abstellung van I Kraftfahrzeug wird der auf dem Gnindstfick des Anwesuis
Martin-Behaim-StraBe 4-6, 63236 Neu-Isenburg, befindliche AuBen-Stellpatz Nr. 4
vermietat (Anlagel rot gekemzeicbnet).
Abschnitt 2 Mietzeit
Das Mietverhiltnis beginnt am 16. Juli 1999 und li'aft auf unbestimmte zeit.
Das Mietverhidtnis kann von beiden Parteien mit. einer Frist von zwei Wochen zum
Monatsende gek-Eindigt werden.
Die Kiincligung muB schrifflich erfolgen. F& die Einhaltung aller Fristen ist
der Fingang der jeweiligen Erklirung beim Erkl5nmgsempfinger Tna0geband.
29
<PAGE>
Abschnitt 3 Mictzins
EDer monatlicbe Mietzins fu-r dm in Abschnitt 1 dieses Mieweitrages
angerr6ieteten AuBcn-Stellplatz errochuet sich ie ol8t:
<TABLE>
<CAPTION>
<S> <C>
1 AuSen-Stellplatz DM 80,00
zzgl. MwSt. in der jeweiligen gesetzl. H6he (z.Z. 16"/o) DM 12,80
-----------
monatUebe Bruttomiete DM 92,80
----------
Fir den Monat Juli 1998 errechnet sich der NHetzins wie folgt:
1 AuBen-Stellplatz (I 6/3 1) DM 41,29
zzgl. MwSt. in derjeweiligerLgesetz]. H6hc (z.Z. 16%) DM 6,61
----------
Bruttomicte fu-r Juli 1998 DM 47,90
-----------
</TABLE>
Abschnitt 4 Zablunc, des Mietzinses
Der Mie=' s ist monatlich 'MI voraus, spitestens am dritten Werktag des Monats,
auf das uachfolgende Konto zu fiberwcisen:
Empf5nger: Commcrz Gruudbesitz Investmentgesellschaft mbH
Konto-Nr.: 860 30 60
Bank: Commerzbank AG
BLZ: 500 400 00
Abschnitt 5 fbernahme und Instandhalfting
Der Mieter iibemirnrut die Nfietsache wie besichtigt und erkeant deren Zustand
als vertragsgemiB an. Der Mieter ist verpflichtet, auf seine Kosten die
Mietsache instaudzuhalten und alle Anlagen und Einnchtun-en der Mietsache, die
ausschhe.Blich der Versorgung des Meters und der Nutzung durch ihn dienen,
instandzusetzen, es sei dern, er beweist, claB ein Verschulden des Nfieters
nicht vorgelegen hat.
Bauliche Andcrungen und Unigestahungen des Nfietgegenstandes sind nicht zulgssi&
30
<PAGE>
Abschnitt 6 Reendigung der Nlictcdt
Der Stellplatz ist bei Bcciicligung der NEetzeit besenrein zuhickzugeben.
Abschnitt 7 Vomitige Beendigung der Metzeit
adet das NEetverhdItnis durch fristlose K-6ndigung des Ven-nicters
(vertragswidrig@-,r Gebrauch der Pidtze, Nfietrackstand) so haftet der Mieter
fur den Schadcn, den der Vermicter dadurch erleidet, daB der Platz nach dem
Auszug dcs Mieters leerstebt oder bBliger vemxietet werdcn rnO. Die Haftung
daucrt bis zum Ende der vereinbart m. Mietzeit, h6distens jodoch ein Jahr nach
dem Auszu.,,,. Sie bestcht nicht, wcan der Vern-deter sich wn emien Ersaun-deter
nicht genUgend bemat hat.
Abschnitt 8 Andcrungen und Erginzungen des Mietyertrages
Nebenabroden, @mdcrwgen und Erghzungen des Vertrages sind nur wirksam, wenn sie
schriftlich vercinbart werden.
Abschnitt 9 Garagenordnung
Der Mieter hat die polizeilichen Bestirrimiiiigen for die Benutzung von Garagen
Und KYZAbstehpldtzen zu beachtcn. Insbesondere ist das Rauchen sowle die
BcLiut7ung von Feuer im Einstellraum und 'in allen Nebengebauden verboten,
ebenso d@lrfen wcdcr Treibswffe no-ch leerc Treibstoffbehiher gelagert wcrdcn.
Eine Nummo, als Lager, Werkstatt oder dergleichen ist nicht gestattet. Effie in
diesem Sinne zweckfremde Nutzung berechtigt den Venidctcy zur ftislJosen
Das Hupen, gcr5uscbvoUe L-wfenlasscri der Motaren und laute Schlagen von
Fahrzeugic5ren, Motorhaubeii und Kofferraumdeckehi ist vcrbaten. Gledches gilt
for das Wageawaschcn und clic Wasserentnahme auf dem Gnuidstikk.
Reparaturarbeiten darfen auf dem Grun&t5ck nicht vorgenommerl werden.
31
<PAGE>
Exhibit 10.18
AGREEMENT
This agreement is entered into as of January 8, 1992 by and between Goal
Systems International Inc.., an Ohio corporation ("Goal"), on the one hand, and
Neon Systems, Inc. an Illinois corporation ("Neon"), and Peter Schaeffer, an
individual and the sole shareholder of Neon ("Schaeffer"), on the other hand
(collectively, the "Neon Parties"), who hereby agree as follows:
BACKGROUND
A. Goal is in the business of acquiring, developing, supporting, and
marketing software products, including its OPS/MVS software product (the "OPS
Product"). Neon is in the business of acquiring, developing, supporting and
marketing software products, including Neon's Shadow DB2 product (the "Shadow
Product").
B. Neon wishes to acquire from Goal rights to use the source code from
release 2.2 and earlier for the OPS Product (the "OPS Source") and the source
code from other Goal software products and other releases of the OPS Product
(collectively "Other Goal Source") for inclusion in software products to be
developed, licensed and/or marketed by Neon. (The OPS Source and the Other Goal
Source are referred to collectively herein as the "Goal Source"). All
references to OPS Source shall be deemed to include all the related tools (for
example, edit macros and clists including those used to support OPS/MVS).
C. Goal wishes to acquire from Neon rights to use the source code from
the initial release of the Shadow Product (The "Shadow Source") and the source
code for other Neon software products and other releases of the Shadow Product
(collectively "Other Neon Source") for inclusion in software products to be
developed, licensed and/or marketed by Goal. (The Shadow Source and the Other
Neon Source are referred to collectively herein as the "Neon Source"). All
references to Shadow Source shall be deemed to include all the related tools
(for example, edit-macros and clists including those used to support Shadow).
D. The parties acknowledge that the licensing and/or marketing to be done
by either party may be done either directly or through third parties, including
by way of example and not limitation, OEMS ("Original Equipment Manufacturer" as
that term is used in the software industry).
E. Goal is willing to grant such rights to Neon as provided herein.
F. Neon is willing to grant such rights to Goal as provided herein.
AGREEMENT
For good, adequate and valuable consideration, including the above preamble, the
parties agree
<PAGE>
1. GRANT OF RIGHTS TO USE OPS SOURCE. Goal hereby grants to Neon the
non-exclusive right to use the OPS Source for inclusion in, in the development
of, and/or in the enhancement of, software products to be owned, supported,
licensed and/or marketed by Neon. Such software products shall not be
competitive with any existing or currently planned software product of Goal
which existing or currently planned software product of Goal is described in
Schedule A titled "Current and Planned Goal Software Product". Any software
owned, supported, licensed and/or marketed by Neon which is not competitive with
the Goal software products listed in Schedule A as they currently exist or, with
respect to planned software, as they are described therein, shall be deemed to
be "Authorized Neon Software Product". None of the OPS Source may be used by
Neon for inclusion in, in the development of, or in the enhancement of, any
software product other than Authorized Neon Software Product or in any other way
without the express written consent of Goal.
2. USE OF OTHER GOAL SOURCE. Upon request by Neon, Goal may (but shall
not be obligated to) grant to Neon the nonexclusive right to use specified other
Goal Source ("Authorized Other Goal Source") for inclusion in, in the
development of, and/or in the enhancement of, software products to be owned
supported, licensed and/or marketed by Neon. Any such other software product to
be owned, supported, licensed and/or marketed by Neon using the Authorized Other
Goal Source shall be a software product which meets the requirements of being
"Authorized Neon Software Product" and such other additional requirements as may
be determined by Goal at that time and shall be herein referred to as
"Authorized Other Neon Software Product". The Authorized Other Goal Source and
any such other additional requirements shall be specified by way of the attached
Exhibit A titled "Authorized Other Goal Source - Approval Sheet".
Authorized Neon Software Product and all Authorized other Neon
Software Product are referred to collectively herein as "Authorized Neon
Product".
3. GRANT OF RIGHTS TO USE SHADOW SOURCE. Neon hereby grants to Goal the
non-exclusive right to use the Shadow Source for inclusion in, in the
development of, and/or in the enhancement of, software products to be owned,
supported, licensed and/or marketed by Goal. Such software products shall not
be competitive with any existing or currently planned software product of Neon
which existing or currently planned software product of Neon is described in
Schedule B titled "Current and Planned Neon Software Product". Any software
owned, supported, licensed and/or marketed by Goal which is not competitive with
the Neon software products listed in Schedule B as they currently exist or, with
respect to planned software, as they are described therein, shall be deemed to
be "Authorized Goal Software Product". None of the Shadow Source may be used by
Goal for inclusion in, in the development of, or in the enhancement of, any
software product other than Authorized Goal Software Product or in any other way
without the express written consent of Neon.
4. USE OF OTHER NEON SOURCE. Upon request by Goal, Neon may (but shall
not be obligated to) grant to Goal the nonexclusive right to use specified Other
Neon Source ("Authorized Other Neon Source") for inclusion in, in the
development of, and/or in the enhancement of, software products to be owned,
supported, licensed and/or marketed by Goal. Any such other software product to
be owned, supported, licensed and/or marketed by Goal
2
<PAGE>
using the Authorized Other Neon Source shall be a software product which meets
the requirements of being an "Authorized Goal Software Product" and such other
additional requirements as may be determined by Neon at that time and shall be
herein referred to as "Authorized Other Goal Software Product". The Authorized
other Neon Source and any such other additional requirements shall be specified
by way of the attached Exhibit B titled "Authorized Other Neon Source - Approval
Sheet".
Authorized Goal Software Product and all Authorized other Goal Software
Product are referred to collectively herein as "Authorized Goal Product".
5. NEON PARTIES CONFIDENTIALITY. During the term of this agreement and
at all tines thereafter, the Neon Parties agree to keep confidential and not
disclose to anyone or use in any way other than as specifically permitted herein
any of the Goal Source, including any OPS Source and/or any Authorized other
Goal Source incorporated into any Authorized Neon Product, provided that this
provision shall cease to apply to any OPS Source and/or Authorized Other Goal
Source which is incorporated into any Authorized Neon Product after five years
from the date of termination of this agreement.
6. GOAL CONFIDENTIALITY. During the term of this agreement and at all
times thereafter, Goal agrees to keep confidential and not disclose to anyone or
use in any way other than as specifically permitted herein any of the Neon
Source, including any Shadow Source and/or any Authorized other Neon Source
incorporated into any Authorized Goal Software Product, provided that this
provision shall cease to apply to any Shadow Source and/or any Authorized other
Neon Source which is incorporated into any Authorized Goal Product after five
years from the date of termination of this agreement.
7. TERM AND TERMINATION. The term of this agreement shall commence on
the date hereof and continue in effect until such date as is one year after the
date of the release of Neon's first software product and thereafter until
terminated by either Goal or Neon by giving ninety (90) days written notice of
termination to the other, provided that (a) Goal may in all events terminate
this agreement at any time upon written notice to Neon in the event that
Schaeffer hereafter ceases to own or control over 50% of either the aggregate
outstanding voting stock or the aggregate outstanding equity interest in Neon,
and (b) Neon may in all events terminate this agreement at any time upon written
notice to Goal in the event that a "New Goal Party" (as defined below) hereafter
owns or controls over 50% of either the aggregate outstanding voting stock or
the aggregate outstanding equity interest in Goal. For this purpose, the term
"New Goal Party" shall mean any single individual or corporate person or groups
of individual or corporate persons acting together (excluding however any
"Existing Goal Controlling Parties"). "Existing Goal Controlling Parties" shall
mean the current Directors of Goal and the three shareholders currently owning
the largest number of outstanding shares of Goal stock.
Upon termination, all parties shall cease to have any further rights or
obligations hereunder except those which expressly survive the termination of
this agreement.
Neon's right under Sections 1 and 2 herein to use the OPS Source and Authorized
Other Goal Source, which source code has prior to that time been used, or is
then being actively used,
3
<PAGE>
pursuant to the terms of this agreement for inclusion in, in the development of,
and/or in the enhancement of, software products owned, supported, licensed
and/or marketed by Neon, shall survive termination of this agreement. All other
rights to use the OPS Source or the Authorized Other Goal Source granted
hereunder shall terminate.
Goal's right under Sections 3 and 4 herein to use the Shadow Source and
Authorized Other Neon Source, which source code has prior to that time been
used, or is then being actively used, pursuant to the terms of this agreement
for inclusion in, in the development of, and/or in the enhancement of, software
products owned, supported, licensed and/or marketed by Goal, shall survive
termination of this agreement. All other rights to use the Shadow Source or the
Authorized Other Neon Source granted hereunder shall terminate.
The parties rights and obligations under Sections 5, 6, 7, 8, 9, 10, 11, 12, 13,
14, 15, 16 and 21 shall survive termination of this agreement.
8. COMPETING PRODUCTS. Nothing herein shall restrict or prevent Goal
from acquiring, developing, licensing, supporting and/or marketing software
products which are competitive with software products of Neon, provided that
Goal shall be restricted to using the Shadow Source and the Authorized Other
Neon Source solely for inclusion in, in the development of, and/or in the
enhancement of an Authorized Goal Product. Nothing herein shall restrict or
prevent Neon from acquiring, developing, licensing, supporting and/or marketing
software products which are competitive with software products of Goal, provided
that Neon shall be restricted to using the OPS Source and the Authorized Other
Goal Source solely for inclusion in, in the development of, and/or in the
enhancement of an Authorized Neon Product.
9. SOURCE CODE DISPUTES. Notwithstanding anything to the contrary
(including section 13), if there is ever any dispute over the improper or
unauthorized use of source code by either Neon or Goal, and if by reason
thereof, the party charged with such improper use is required to discontinue use
of the disputed source code, then such party shall be provided a reasonable
period of time not to exceed nine (9) months to discontinue use of the disputed
source code and to develop replacement source code independent of and without
any use of or reference to such disputed source code."
10. NEON BOARD MEETINGS. For the purpose of assuring a reasonable level
of communication between Goal and Neon with respect to its relationship
hereunder, Goal shall have the right to have a non-voting representative present
and participating at all meetings of the board of directors of Neon. This right
shall exist for the period of five (5) years from the date hereof, and shall
continue thereafter if and for so long as this agreement is still in effect.
11. OTHER SCHAEFFER AGREEMENTS AND PROPRIETARY RIGHTS. This agreement
shall not affect any other agreements between or among any of the parties,
(which agreements include the Confidentiality and Invention Agreement between
Schaeffer and Goal, the Affirmation of Confidentiality and Invention Agreement
between Schaeffer and Goal, dated April 12, 1990, the MVS Security holders
Competition Restriction Agreement between Schaeffer and Goal, dated April 12,
1990, and any other agreements between or among any of the parties) which
agreements shall remain in full force and effect except as provided below:
4
<PAGE>
(a) Neon hereby agrees to be bound by the MVS Security holders Competition
Restriction Agreement for the same period of time that Schaeffer is
bound thereby.
(b) To the extent that any agreement between or among Schaeffer and Goal
restricts or limits Schaeffer's use of any Goal proprietary rights or
information in a manner inconsistent with the rights granted to Neon
under this agreement, the terms of this agreement shall prevail.
(c) The parties acknowledge that Schaeffer is currently an employee of
Goal, and as a result, all rights to any work performed by Schaeffer
for Goal shall belong exclusively to Goal and shall be treated as a
"work for Hire" on behalf of Goal, unless the parties agree in writing
to the contrary. Prior to commencing any work for Goal, if Schaeffer
intends to incorporate into such work software developed by him as an
employee of Neon ("Neon Proprietary Information"), Schaeffer must
first send written notice thereof to Goal's Legal Department -
Attention: General Counsel (the "Proprietary Rights Notice"). If
after Goal receives the Proprietary Rights Notice, Goal consents in
writing to Schaeffer's incorporation of Neon Proprietary Information
into work to be performed by Schaeffer for Goal as a Goal employee,
Neon shall retain title to the Neon Proprietary Information, but Goal
shall have a nonexclusive, worldwide right to use the Neon Proprietary
Information for inclusion in, in the development of, and/or in the
enhancement of software products to be owned., supported, licensed
and/or marketed by Goal.
12. SCHAEFFER GUARANTEE. Subject to Section 21, Schaeffer hereby
unconditionally guarantees all of the obligations of Neon under this agreement.
13. DEFAULT. In the event that either Goal or the Neon Parties are in
material default under any provision of this agreement, the other party shall
have the rights provided for in this Section. The non-defaulting party shall
provide written notice of any such default to the defaulting party, and the
defaulting party shall then have a period of 30 days after such written notice
in which to correct the default. If the defaulting party has not corrected the
default within such period of time, the non-defaulting party may terminate this
agreement by written notice to the defaulting party.
14. COMMUNICATIONS. Except as otherwise provided herein, notices and
other written communications by either party to the other party shall be made or
given when delivered personally to the other party (in the case of a
corporation, to the attention of the chief executive officer or any vice
president reporting to the chief executive officer) or when deposited in the
United States mail, first-class postage prepaid, and addressed to the other
party at the-address set forth for such party below its signature at the end of
this agreement (or at such other address as that party may previously have
specified in a notice to the other party).
15. ARBITRATION. Section 15 is deleted and replaced with Section 23.
5
<PAGE>
16. SUCCESSORS AND ASSIGNS. This agreement shall be binding upon and
inure to the benefit of the respective heirs, personal representatives,
successors and assigns of the parties hereto. However, no party shall have the
right to assign this agreement or any of its obligations or responsibilities
hereunder without the prior written consent of the other parties.
17. RELATIONSHIP BETWEEN PARTIES. The parties to this agreement are
independent contractors with respect hereto. No form of joint venture,
partnership or similar relationship between the parties is intended or hereby
created.
18. AMENDMENT; WAIVER; REMEDIES. No amendment or modification of any
provision of this agreement shall be effective unless in writing and signed by
the party against whom such amendment or-modification is sought to be enforced.
The failure of any party at any time or times to demand strict performance by
the other party of any of the terms, covenants or conditions set forth herein
shall not be construed as a continuing waiver or relinquishment thereof. Any
party may at any time demand strict and complete performance by any other party
of said terms, covenants and conditions.
19. SEVERABILITY. If any provision of this agreement shall be held by a
court of competent jurisdiction to be contrary to law., the remaining provisions
of this agreement shall remain in full force and effect.
20. ENTIRE AGREEMENT. This agreement constitutes the entire agreement
between the parties concerning the subject matter hereof and includes the
following which are hereby attached hereto and made a part hereof:
/ / Schedule A titled "Current and Planned Goal Software Product"
/ / Exhibit A titled "Authorized Other Goal Source Approval Sheet"
/ / Schedule B titled "Current and Planned Neon Software Product"
/ / Exhibit B titled "Authorized Other Neon Source Approval Sheet"
21. NOTIFICATION RIGHTS. At all times during the term of this agreement
and for a period of five (5) years thereafter, Neon shall provide Goal's
designated non-voting representative to its Board with reasonable advance notice
of (a) any proposed significant grant of marketing or other rights in any
Authorized Neon Product which incorporates any OPS Source or Authorized Other
Goal Source to any third party (specifically excluding end user licenses), or
(b) any proposed election to sell ownership of any Authorized Neon Product which
incorporates any OPS Source or Authorized Other Goal Source to any third party.
The purpose of this right of notification is to permit Goal the opportunity to
negotiate with Neon to sell or license the same to Goal before Neon closes the
transaction with the third party. This section creates no obligation on the
part of Neon or Goal to engage in any transaction with the other and each party
- -4MEP_--- shall be required to keep provisions of and the existence of this
section, and any information about any proposed transaction covered by this
section, confidential
6
<PAGE>
and limit knowledge thereof to those of its employees with a clear need to know.
This obligation of confidentiality shall terminate after five years from the
date of termination of this agreement.
22. RELEASE OF GUARANTEE. Schaeffer's guarantee under the Agreement shall
terminate upon the occurrence of any- of the following:
(a) Neon, in any period of four years (i) becomes publicly held (ii)
obtains an average annual cumulative volume of gross revenues equal to
or exceeding $100,000,000, and (iii) obtains an average annual
cumulative volume of pre tax net income equal to or exceeding
$10,000,000; or
(b) Schaeffer or Neon provides a substitute guarantee from a publicly held
company that has had during the previous four year period (i) an
average annual cumulative volume of gross revenue equal to or
exceeding $100,000,000, and (ii) an average annual cumulative volume
of pre tax net income equal to or exceeding $10,000,000; or
(c) Schaeffer or Neon provides a performance bond issued by a bonding
company reasonably acceptable to Goal, in the amount of $5,000,000
which bond shall have a term of 10 years or longer; or
(d) Schaeffer or Neon provides a 10 year $5,000,000 standby letter of
credit, from a financial institution reasonably acceptable to Goal, as
a substitute for Schaeffer's guarantee.
The above references to Neon in sub-section a. above is intended to specifically
include any surviving entity in a merger involving Neon. The numbers referred
to in subsections a. and b. above shall be determined by certified audited
financials conducted according to Generally Accepted Accounting Principles.
Goal shall be entitled to precondition the termination of Schaeffer's guarantee
pursuant to Sections a. and b. above on (I) supporting certified audited
financials prepared by a "Big 611 accounting firm, or on (ii) a confirming audit
to be conducted at the expense of Goal which audit, if so required, shall not be
unreasonably delayed.
23. ARBITRATION. Any dispute over the Agreement shall be arbitrated
according to the commercial arbitration rules of the American Arbitration
Association ("AAA"). Arbitration shall be conducted at the AAA Office location
determined by the Respondent. A party shall be deemed to be a Respondent
regardless of what, if any, counterclaim such Respondent may bring against the
initiating party. Parties may participate in any such arbitration by telephone
if they so choose. There shall be one arbitrator which shall be chosen
according to the rules of the AAA.
The Arbitrator shall attempt to avoid imposing unreasonable dollar penalties or
marketplace restrictions on any party, the preferred resolution to any dispute
over use of source code to be to permit the infringing party reasonable time to
replace any infringing code with independently developed non-infringing source
code. In all events, all parties shall have an express obligation of good faith
and fair dealing toward each other. In constructing remedies, the arbitrator
shall attempt to fashion remedies which produce commercially reasonable results
for all parties
7
<PAGE>
involved, and shall take into consideration the extent to which the parties have
complied with the obligation of good faith and fair dealing.
Nothing herein shall prohibit the parties from engaging in non-binding mediation
prior to commencement of any binding arbitration, although no party shall be
obligated to do so.
This section shall survive any termination of the Agreement.
24. AUDIT RIGHTS. Both Neon and Goal shall have the right to audit the
source code of the other in order to assure compliance by the other party. The
auditing party shall conduct the audit at its own expense. Either party may
require reasonable conditions on such audit in order to assure that its
proprietary rights remain protected, provided-however, Schaeffer shall not be
directly or indirectly prevented from participating in any such audit. This
section shall survive any termination of the Agreement. Such audits shall not
occur more than twice per year.
25. INITIAL RELEASE OF SHADOW. While the shadow product exists in a
pre-beta form, it has not yet been released for use by licensees. The initial
release of the Shadow Product shall mean its release for general availability to
licensees. In the event this does not occur within one year of the date of this
agreement, it shall be deemed to have occurred on the first year anniversary of
this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, this agreement is executed by the parties effective as
of the date first set forth above.
GOAL SYSTEMS INTERNATIONAL INC. NEON SYSTEMS, INC.
By; /s/ H. Neal Atei By: /s/ Peter Schaeffer
-------------------------- -----------------------------
Name: H. Neal Atei Name: Peter Schaeffer
-------------------------- -----------------------------
Title: Vice President Title: President
------------------------ ---------------------------
Address: 7965 North High Street Address: 6464 Savoy Dr., Suite 304B
Columbus, Ohio 43235 Houston, TX 77036
/s/ Peter Schaeffer
----------------------------------------------
Peter Schaeffer
Address 6464 Savoy Dr. Suite 304B
Houston, TX 77036
<PAGE>
Schedule A
Current and Planned Goal Software Product
The following software products, as described below, shall be deemed the
existing or currently planned software products of Goal. To the extent the
following descriptions are ambiguous or incomplete they shall be construed in
the light most favorable to Neon:
/ / OPS/MVS and all features of OPS/MVS such as the OCF, the IOF, the COF, OCP,
OPS/Relay, etc.
/ / SAR (Sysout Archive & Retrieval)
/ / Arise
/ / Express Delivery
/ / EPIC (for all platforms)
/ / Runtrac
/ / Jobtracc
/ / Phoenix
/ / Explore (MVS, VM, VSE, CICS, SQL/DS)
/ / VSAM Utilities
/ / Insight DB2
/ / FAQS/ASO
/ / FAQS/PCS
/ / Preference
/ / Alert (VM, VSE)
/ / Flee
/ / SAR VSE
/ / Explore SQL (for SQL/DS)
/ / Sysview
/ / IN2ITIVE
/ / a DOS Windows 3.0 training product (not yet named)
/ / a flowcharting tool for MVS J6bstream (not yet named)
/ / Sunrise
/ / PDSMAN
/ / DB-Delivery
/ / Preview
/ / FAVER/DB2
/ / The Data Storage Management software product currently being developed
pursuant to a Development and Marketing Agreement between Goal and Mission
Critical Software, Inc. The DSM product automates data and disk space
management for distributed computers.
The above software products include those enhancementsp-PS-7 that would be
reasonably foreseeable byw4;65h (as of the date this Agreement is executed) as
being necessary to keep the software products competitive in the future.
10
<PAGE>
Exhibit A
Authorized other Goal Source - Approval Sheet
Goal hereby grants to Neon the non-exclusive right to use the following
specified Other Goal Source as Authorized Other Goal Source for inclusion in, in
the development of, and/or in the enhancement of, software products to be owned,
supported, licensed and/or marketed by Neon. Any such software product to be
owned, supported, licensed and/or marketed by Neon using this Authorized Other
Goal Source shall be a software product which meets the requirements of being
"Authorized Neon Software Product" and the following additional requirements:
The Authorized Other Goal Source is:
/ /
/ /
/ /
/ /
/ /
The additional requirements are:
/ /
/ /
/ /
/ /
/ /
To the extent the above descriptions and definitions are ambiguous or incomplete
they shall be construed in the light most favorable to Neon.
GOAL SYSTEMS INTERNATIONAL INC. NEON SYSTEMS, INC.
By: /s/ H. Neal Atei By: /s/ Peter Schaeffer
--------------------------- -----------------------------
Name: H. Neal Atei Name: Peter Schaeffer
-------------------------- -----------------------------
Title: Vice President Title: President
------------------------- ---------------------------
Address: 7965 North High Street Address: 6464 Savoy Dr., Suite 304B
Columbus, Ohio 43235 Houston, TX 77036
<PAGE>
Schedule B
Current and Planned Neon Software Product
The following software products, as described below, shall be deemed the
existing or currently planned software products of Neon. To the extent the
following descriptions are ambiguous or incomplete they shall be construed in
the light most favorable to Goal:
/ / Shadow DB2 it is a user interface to DB2 which in its initial release
is compatible with DB2 commands (this includes any future
variations which interface to databases in addition to DB2,
regardless of what names these variations may be given)
.(subsequent releases may have additional or different
command compatibility and each type of compatibility could
be given a different product name)
/ / Shadow IMS it interfaces to IMS as opposed to DB2 (this is a planned
product)
/ / Shadow CICS it interfaces to CICS as opposed to DB2 (this is a planned
product)
/ / APPC MON A monitor for APPC/XVS (this is a planned product)
The above software products include those enhancements that would be reasonably
foreseeab1e (as of the date this Agreement is executed) as being necessary to
keep them competitive in the future.
12
<PAGE>
Exhibit B
Authorized other Goal Source - Approval Sheet
Neon hereby grants to Goal the non-exclusive right to use the following
specified Other Neon Source as Authorized Other Neon Source for inclusion in, in
the development of, and/or in the enhancement of, software products to be owned,
supported, licensed and/or marketed by Goal. Any such software product to be
owned, supported, licensed and/or marketed by Goal using this Authorized Other
Neon Source shall be a software product which meets the requirements of being
"Authorized Goal Software Product" and the following additional requirements:
The Authorized Other Neon Source is:
/ /
/ /
/ /
/ /
/ /
The additional requirements are:
/ /
/ /
/ /
/ /
/ /
To the extent the above descriptions and definitions are ambiguous or incomplete
they shall be construed in the light most favorable to Goal.
GOAL SYSTEMS INTERNATIONAL INC. NEON SYSTEMS, INC.
By: /s/ H. Neal Atei By: /s/ Peter Schaeffer
--------------------------- -----------------------------
Name: H. Neal Atei Name: Peter Schaeffer
-------------------------- -----------------------------
Title: Vice President Title: President
------------------------- ---------------------------
Address: 7965 North High Street Address: 6464 Savoy Dr., Suite 304B
Columbus, Ohio 43235 Houston, TX 77036
<PAGE>
Exhibit 10.19
STOCKHOLDERS AGREEMENT
This Stockholders Agreement dated as of May 19, 1993 (the "AQREEMENT") by
and among NEON Systems, Inc., a Delaware corporation (the "COMPANY"), JMI Equity
Fund, L.P., a Delaware limited partnership (the "PURCHASER"), and Peter
Schaeffer (the "STOCKHOLDER"):
WITNESSETH:
WHEREAS, the Stockholder owns certain outstanding shares of the Common
Stock, par value $.01 per share (the "COMMON STOCK"), of the Company;
WHEREAS, pursuant to the Series A Stock Purchase Agreement of even date
herewith (the "PURCHASE AGREEMENT"), the Purchaser is purchasing on the Closing
Date (as defined in the Purchase Agreement) an aggregate of 500,000 shares (the
"PREFERRED SHARES") of Series A Convertible Preferred Stock, par value $.01 per
share (the "PREFERRED STOCK"), of the Company; and
WHEREAS, the Purchaser and the Stockholder wish to provide for certain tax
and other matters and for their continuing representation on the Board of
Directors of the Company in the manner set forth below;
NOW THEREFORE, in consideration of these premises and the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. S CORPORATION STATUS. (a) The term "TAXES" as used herein means all
federal, state, local, foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs duties, or other
taxes, fees, assessments or other governmental charges of any kind whatever,
together with any interest and any penalties, additions to tax or additional
amounts with respect thereto, and the term "TAX" means any one of the foregoing
taxes. The term "RETURNS" as used herein, means all returns, declarations,
reports, statements and other documents required to be filed in respect of
taxes, and "RETURN" means any one of the foregoing returns.
(b) The Stockholder, represents and warrants to the Purchaser that:
(i) the Company and its stockholders, including the Stockholder, have made a
valid election for the Company to be treated as an "S corporation," as that term
is defined in Section 1361(a) of the Internal Revenue Code of 1986, as amended
(the "CODE"), and at all times after such election the Company has qualified as
an S corporation; (ii) the Stockholder has timely filed all returns with respect
to S corporation taxes required to be filed through the date hereof, and paid
all taxes required to be paid with respect to such filed returns; (iii) there
has not been any audit of any return filed by the Stockholder with respect to,
or which may relate to, such S corporation tax liabilities; and (iv) no such
audit of the Stockholder is in progress and the Stockholder has not been
notified by any tax authority that any such audit is contemplated or pending.
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<PAGE>
(c) The Stockholder shall not take any action that would make, or
would result in, the S corporation election of the Company becoming ineffective,
except for the transfer of the Preferred Shares at the Closing. The Stockholder
shall prepare and timely file, in a manner consistent with prior years, when due
all returns with respect to the short tax year from January 1, 1992 to and
including the Closing Date and shall timely pay any taxes and estimated taxes,
required to be paid by such Stockholder (including without limitation pursuant
to Section 6655 of the Code) after the date hereof.
(d) If it is determined, either (i) by a finding or order in
connection with any government or judicial audit or proceeding to which any
stockholder of the Company, including the Stockholder, is a party or (ii) by the
Company's independent public accountants that the Company's S corporation
election pursuant to Section 1362 of the Code was not validly in effect for any
period after such election was purportedly made, the Stockholder shall promptly
remit to the Company in cash, any tax liability (including any penalties,
additions to tax or interest assessed with respect thereto) of the Company in
connection with any taxes which may be imposed on the Company as a result of
such invalid election.
(e) Notwithstanding anything to the contrary contained in this
Agreement, the provisions of this Section 1 shall survive until the applicable
statutes of limitations with respect to any taxes contemplated hereby shall have
expired.
2. VOTING OF SHARES. In any and all elections of directors of the
Company (whether at a meeting or by written consent in lieu of a meeting), the
Purchaser and the Stockholder shall vote or cause to be voted all Shares (as
defined below) owned by him, or over which he has voting control, and otherwise
use his or its respective best efforts, so as to fix the number of directors of
the Company at five (5) and to elect (i) up to two (2) members designated by the
Purchaser, who shall be elected by the holders of the Preferred Shares, (ii) up
to two (2) members designated by the Stockholder, who shall be elected by the
holders of the Common Stock, and (iii) one (1) member designated jointly by the
Purchaser and the Stockholder, who shall not be an affiliate of the Purchaser or
of the Stockholder and who shall be elected by the holders of the Preferred
Stock and the Common Stock, voting together as a single class (the "INDEPENDENT
NOMINEE"). "SHARES" shall mean and include any and all shares of Common Stock
and/or shares of capital stock of the Company, by whatever name called, which
carry voting rights (including voting rights which arise by reason of default)
and shall include any shares now owned or subsequently acquired by the Purchaser
or the Stockholder, however acquired, including without limitation stock splits
and stock dividends.
3. TERMINATION. This Agreement shall terminate in its entirety on the
earliest of (a) the seventh anniversary of the date of this Agreement, or (b)
the closing of the Company's initial public offering of shares of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "ACT"), resulting in at least $10,000,000 of net proceeds
to the Company.
4. NO REVOCATION. The voting agreements contained herein are coupled
with an interest and may not be revoked, except by written consent of the
Purchaser and the Stockholder.
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<PAGE>
5. INDEMNIFICATION. In the event that any director elected pursuant to
Section 2 of this Agreement shall be made or threatened to be made a party to
any action, suit or proceeding with respect to which he may be entitled to
indemnification by the Company pursuant to its certificate of incorporation or
bylaws, or otherwise, he shall be entitled to be represented in such action,
suit or proceeding by counsel of his choice and the reasonable expenses of such
representation shall be reimbursed by the Company to the extent provided in or
authorized by said certificate of incorporation or by-laws. The Purchaser and
the Stockholder shall not take any action to amend any provisions of the
certificate of incorporation or by by-laws of the Company relating to
indemnification of directors, as presently in effect, without the prior written
consent of the Purchaser and the Stockholder.
6. RESTRICTIVE LEGEND. All certificates representing Shares owned or
hereafter acquired by the Stockholder or any transferee of the Stockholder bound
by this Agreement shall have affixed thereto a legend substantially in the
following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN VOTING AGREEMENTS AS SET FORTH IN A STOCKHOLDERS AGREEMENT BY
AND AMONG THE REGISTERED OWNER OF THIS CERTIFICATE, THE COMPANY AND
CERTAIN OTHER STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE OFFICERS OF THE SECRETARY OF THE
COMPANY.
7. SUCCESSORS AND ASSIGNS. This Agreement and the rights and obligations
of the Purchaser hereunder may be assigned by the Purchaser to any person or
entity to which Shares are transferred by the Purchaser, and such transferee
shall be deemed a "Purchaser" for purposes of this Agreement; PROVIDED that the
transferee provides prior written notice of such assignment to the Company.
Notwithstanding the foregoing, the Purchaser shall remain subject to the terms
and conditions of this Agreement with respect to any Preferred Shares owned by
the Purchaser following any such transfer.
8. GENERAL.
(a) SEVERABILITY. The provisions of this Agreement are severable, so
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
(b) SPECIFIC PERFORMANCE. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, the
Purchaser shall be entitled to specific performance of the agreements and
obligations of the Company and the Stockholder hereunder and to such other
injunctive or other equitable relief as may be granted by a court of competent
jurisdiction.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE GENERAL
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<PAGE>
CORPORATION LAW OF THE STATE OF DELAWARE AS TO MATTERS WITHIN THE SCOPE THEREOF
AND AS TO ALL OTHER MATTERS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
THE CONFLICTS OF LAWS THEREOF.
(d) NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at 6464 Savoy Drive, Suite 4140, Houston, Tx 77036,
Attention: President, or at such other address or addresses as may have been
furnished in writing by the Company to the Purchaser, with a copy to Curtis E.
Sahakian, Esq., 4843 Howard Street, Skokie, IL 60077; or
If to the Purchaser, at 14141 Southwest Freeway, Suite 6200, Sugar Land,
Texas 77478, Attention: Charles E. Noell, or at such address or addresses as may
have been furnished to the Company in writing by the Purchaser, with a copy to
Mark H. Burnett, Esq., Testa, Hurwitz & Thibeault, 53 State Street, Boston,
Massachusetts 02109; or
If to the Stockholder at such address or addresses as may have been
furnished to the Company in writing by such Stockholder.
Notices provided in accordance with this Section 9 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(e) COMPLETE AGREEMENT; AMENDMENTS. This Agreement constitutes the
full and complete agreement of the parties hereto with respect to the subject
matter hereof. No amendment, modification or termination of any provision of
this Agreement shall be valid unless in writing and signed by the Company, the
Purchaser and the holders of a majority, by voting power, of the Shares then
held by all Stockholders.
(f) PRONOUNS. Whenever the content may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute one Agreement binding on all the
parties hereto.
(h) CAPTIONS. Captions of sections have been added only for
convenience and shall not be deemed to be a part of this Agreement.
(i) DEFINITION OF COMPANY. As used in this Agreement the term the
"Company" shall include NEON Systems, Inc., a Delaware corporation, and its
predecessor, an Illinois corporation.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
NEON SYSTEMS, INC.
By: /s/ Peter Schaeffer
---------------------------------------
Peter Schaeffer, President
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P.
Its General Partner
By: /s/ Charles E. Noell
---------------------------------------
Charles E. Noell
A General Partner
/s/ Peter Schaeffer
---------------------------------------
Peter Schaeffer
<PAGE>
Exhibit 10.20
STOCK RESTRICTION AGREEMENT
This Stock Restriction Agreement dated as of May 19, 1993 (the "AGREEMENT")
by and among NEON Systems, Inc., a Delaware corporation (the "Company"), Peter
Schaeffer (the "STOCKHOLDER"), and JMI Equity Fund, L.P., a Delaware limited
partnership
WITNESSETH:
WHEREAS, the Stockholder is the holder of an aggregate of
shares of Common Stock, par value $.01 per share of the Company (the
"COMMON STOCK");
WHEREAS, pursuant to the terms of a Series A Stock Purchase Agreement dated
the date hereof between the Company and JMI (the "PURCHASE AGREEMENT"), JMI is
acquiring an aggregate of 500,000 shares (the "PREFERRED SHARES") of Series A
Convertible Preferred Stock, par value $.01 per share (the "PREFERRED STOCK") of
the Company; and
WHEREAS, it is a condition to the obligations of JMI under the Purchase
Agreement that this Agreement be entered into by the parties hereto, and the
parties desire to enter into this Agreement and to be bound by the provisions
hereof;
NOW, THEREFORE, in consideration of these premises and the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "INVESTOR" or "INVESTORS" shall mean and include JMI, (ii) any
partner, shareholder or affiliate of JMI who is a subsequent owner of the
Preferred Shares and (iii) any other subsequent owner of the Preferred Shares to
whom JMI shall transfer its rights hereunder pursuant to Section 6;
(b) "OFFER" shall have the meaning set forth in Section 3(a).
(c) "OFFERED SHARES" shall have the meaning set forth in Section
3(a).
(d) "PRO RATA FRACTION" shall mean the amount of Offered Shares that
each Investor is entitled to purchase under Section 3(b).
(e) "PROPOSED TRANSFEREE" shall have the meaning set forth in Section
3(a).
(f) "PURCHASER" shall have the meaning set forth in Section 4.
<PAGE>
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(g) "SHARES" shall mean and include all shares of Stock now owned or
hereafter acquired by either (i) the Stockholder or (ii) any Investor. For
purposes of Sections 3, 4 and 10, all of the Stock which an Investor has the
right to acquire from the Company upon the conversion, exercise or exchange of
any of the securities of the Company then owned by such Investor shall be deemed
to be Shares then owned by such Investor.
(h) "STOCK" shall mean and include all shares of Common Stock, and
all other securities of the Company which may be issued in exchange for or in
respect of shares of Common Stock (whether by way of stock split, stock
dividend, combination, reclassification, reorganization, or any other means).
2. PROHIBITED TRANSFERS. The Stockholder shall not sell, assign,
transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose of all or
any of his Shares except to the Company or as expressly provided in this
Agreement. Notwithstanding the foregoing, the Stockholder may transfer all or
any of his Shares (i) by way of gift to any member of his family or to any trust
for the benefit of any such family member or the Stockholder, provided that any
such transferee shall agree in writing with the Company and the Investor, as a
condition to such transfer, to be bound by all of the provisions of this
Agreement to the same extent as if such transferee were the Stockholder, or (ii)
by will or the laws of descent and distribution, in which event each such
transferee shall be bound by all of the provisions of this Agreement to the same
extent as if such transferee were the Stockholder. As used herein, the word
"family" shall include any spouse, lineal ancestor or descendant, brother or
sister.
3A. RIGHT OF FIRST REFUSAL ON DISPOSITIONS. (a) If at any time the
Stockholder desires to sell for cash all or any part of his Shares pursuant to a
bona fide offer from a third party (the "PROPOSED TRANSFEREE"), the Stockholder
shall submit a written offer (the "OFFER") to sell such Shares (the "OFFERED
SHARES") to the Investors on terms and conditions, including price not less
favorable to the Investors than those on which the Stockholder proposes to sell
such Offered Shares to the Proposed Transferee. The Offer shall disclose the
identity of the Proposed Transferee, the Offered Shares proposed to be sold, the
total number of Shares owned by the Stockholder, the terms and conditions,
including price, of the proposed sale, and any other material facts relating to
the proposed sale. The Offer shall further state that the Investors may
acquire, in accordance with the provisions of this Agreement, all or any portion
of the Offered Shares for the price and upon the other terms and conditions,
including deferred payment (if applicable), set forth therein.
(b) Each Investor shall have the absolute right to purchase that
number of Offered Shares as shall be equal to the number of Offered Shares
multiplied by a fraction (the "PRO RATA FRACTION"), the numerator of which shall
be the number of Shares then owned by such Investor and the denominator of which
shall be the aggregate number of Shares then owned by all of the Investors.
<PAGE>
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(c) Each Investor shall have a right of oversubscription such that if
any Investor fails to accept the Offer as to its Pro Rata Fraction, the other
Investors shall, among them, have the right to purchase up to the balance of the
offered Shares not so purchased. Such right of oversubscription may be
exercised by an Investor by accepting the Offer as to more than its Pro Rata
Fraction. If, as a result thereof, such oversubscriptions exceed the total
number of Offered Shares available in respect of such oversubscription
privilege, the oversubscribing Investors shall be cut back with respect to their
oversubscriptions on a pro rata basis in accordance with their respective Pro
Rata Fractions or as they may otherwise agree among themselves.
(d) If an Investor desires to purchase all or any part of the Offered
Shares, said Investor shall communicate in writing its election to purchase to
the Stockholder, which communication shall state the number of Offered Shares
said Investor desires to purchase and shall be given to the Stockholder in
accordance with Section 10 below within thirty (30) days of the date the Offer
was made. Such communication shall, when taken in conjunction with the Offer,
be deemed to constitute a valid, legally binding and enforceable agreement for
the sale and purchase of such Offered Shares (subject to the aforesaid
limitations as to an Investor's right to purchase more than its Pro Rata
Fraction). Sales of the Offered Shares to be sold to purchasing Investor
pursuant to this Section 3A shall be made at the offices of the Company on the
45th day following the date the Offer was made (or if such 45th day is not a
business day, then on the next succeeding business day). Such sales shall be
effected by the Stockholder's delivery to each purchasing Investor of a
certificate or certificates evidencing the Offered Shares to be purchased by it,
duly endorsed for transfer to such purchasing Investor, against payment to the
Stockholder of the purchase price therefor by such purchasing Investor.
(e) If the Investors do not purchase all of the Offered Shares, the
Offered Shares not so purchased may be sold by the Stockholder at any time
within ninety (90) days after the date the Offer was made, subject to the
provisions of Section 4. Any such sale shall be to the Proposed Transferee, at
not less than the price and upon other terms and conditions, if any, not more
favorable to the Proposed Transferee than those specified in the Offer. Any
Offered Shares not sold within such 90-day period shall continue to be subject
to the requirements of a prior offer pursuant to this Section 3A. If Offered
Shares are sold pursuant to this Section 3A to any purchaser who is not a party
to this Agreement, the Offered Shares so sold shall no longer be subject to this
Agreement.
(f) The Investors' right of first refusal provided in this Section 3A
shall not apply with respect to sales of Shares to the Company.
3B. RIGHT OF FIRST REFUSAL ON DISPOSITIONS. (a) If at any time the
Investors desire to sell for cash all or any part of his Shares pursuant to a
bona fide offer from a third party (the "PROPOSED TRANSFEREE"), the Investors
shall submit a written offer (the "OFFER") to sell such
<PAGE>
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Shares (the "OFFERED SHARES") to the Stockholder on terms and conditions,
including price, not less favorable to the Stockholder than those on which the
Investors propose to sell such Offered Shares to the Proposed Transferee. The
Offer shall disclose the identity of the Proposed Transferee, the Offered Shares
proposed to be sold, the total number of Shares owned by the Investors, the
terms and conditions, including price, of the proposed sale, and any other
material facts relating to the proposed sale. The Offer shall further state
that the Stockholder may acquire, in accordance with the provisions of this
Agreement, all or any portion of the Offered Shares for the price and upon the
other terms and conditions, including deferred payment (if applicable), set
forth therein.
(b) Each Stockholder shall have the absolute right to purchase that
number of Offered Shares as shall be equal to the number of Offered Shares
multiplied by a fraction (the "PRO RATA FRACTION"), the numerator of which shall
be the number of Shares then owned by such Stockholder and the denominator of
which shall be the aggregate number of Shares then owned by all of the
Stockholders.
(c) Each Stockholder shall have a right of oversubscription such that
if any Stockholder fails to accept the Offer as to its Pro Rata Fraction, the
other Stockholders shall, among them, have the right to purchase up to the
balance of the Offered Shares not so purchased. Such right of oversubscription
may be exercised by a Stockholder by accepting the Offer as to more than its Pro
Rata Fraction. If, as a result thereof, such oversubscriptions exceed the total
number of Offered Shares available in respect of such oversubscription
privilege, the oversubscribing Stockholders shall be cut back with respect to
their oversubscriptions on a pro rata basis in accordance with their respective
Pro Rata Fractions or as they may otherwise agree among themselves.
(d) If a Stockholder desires to purchase all or any part of the
Offered Shares, said Stockholder shall communicate in writing its election to
purchase to the Investors, which communication shall state the number of Offered
Shares said Stockholder desires to purchase and shall be given to the Investors
in accordance with Section 10 below within thirty (30) days of the date the
Offer was made. Such communication shall, when taken in conjunction with the
Offer, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale and purchase of such Offered Shares (subject to the
aforesaid limitations as to a Stockholder's right to purchase more than its Pro
Rata Fraction). Sales of the Offered Shares to be sold to purchasing
Stockholder pursuant to this Section 3B shall be made at the offices of the
Company on the 45th day following the date the Offer was made (or if such 45th
day is not a business day, then on the next succeeding business day). Such
sales shall be effected by the Investors, delivery to each purchasing
Stockholder of a certificate or certificates evidencing the Offered Shares to be
purchased by it, duly endorsed for transfer to such purchasing Stockholder,
against payment to the Investors of the purchase price therefor by such
purchasing Stockholder.
(e) If the Stockholder does not purchase all of the Offered Shares,
the Offered Shares not so purchased may be sold by the Investors at any time
within ninety (90) days after the date the Offer was made,
<PAGE>
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subject to the provisions of Section 4. Any such sale shall be to the Proposed
Transferee, at not less than the price and upon other terms and conditions, if
any, not more favorable to the Proposed Transferee than those specified in the
Offer. Any Offered Shares not sold within such 90-day period shall continue to
be subject to the requirements of a prior offer pursuant to this Section 3B. If
offered Shares are sold pursuant to this Section 3B to any purchaser who is not
a party to this Agreement, the Offered Shares so sold shall no longer be subject
to this Agreement.
(f) The Stockholder's right of first refusal provided in this Section
3B shall not apply with respect to sales of Shares to the Company.
4. RIGHT OF PARTICIPATION IN SALES. (a) If at any time the Stockholder
desires to sell for cash all or any part of the Shares owned by him to any
person or entity other than one or more of the Investors (the "Non-
Investor Purchaser"), each of the Stockholders shall have the right to sell
to the Non-Investor Purchaser, as a condition to such sale by the Stockholder,
at the same price per share and on the same terms and conditions as involved in
such sale by the Stockholder, the same percentage as the Shares owned by such
Investor as the Shares to be sold by the Stockholder to the Non-Investor
Purchaser represents with respect to the Shares owned by the Stockholder
immediately prior to the sale of any of his Shares to the Non-Investor
Purchaser.
(b) Each Investor wishing to so participate in any sale under this
Section 4 shall notify the Stockholder in writing of such intention as soon as
practicable after such Investor's receipt of the Offer made pursuant to Section
3, and in any event within twenty (20) days after the date the Offer was made.
Such notification shall be given to such Stockholder in accordance with Section
10.
(c) The Stockholder and each participating Investor shall sell to the
Non-Investor Purchaser all, or at the option of the Non-Investor Purchaser, any
part of the Shares proposed to be sold by them at not less than the price and
upon other terms and conditions, if any, not more favorable to the Non-Investor
Purchaser than those in the Offer provided by the Stockholder under Section 3;
PROVIDED, HOWEVER, that any purchase of less than all of such Shares by the
Non-Investor Purchaser shall be made from the Stockholder and each participating
Investor pro rata based upon the relative amount of the Shares that the
Stockholder and each participating Investor is otherwise entitled to sell
pursuant to Section 4(a).
(d) Any Shares sold by the Stockholder or a participating Investor
pursuant to this Section 4 shall no longer be subject to this Agreement.
(e) The Investor's right to participate in sales pursuant to this
Section 4 shall not apply with respect to sales of Shares to the Company.
5. TERM. This Agreement shall terminate upon the earlier of (a) the date
of the consummation of the first firm commitment underwritten public offering
pursuant to an effective registration statement on Form S-1 (or its then
equivalent) under the Securities Act of 1933, as
<PAGE>
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amended, pursuant to which the net proceeds to the Company amount to at least
$10,000,000 or (b) the seventh anniversary of the date of this Agreement.
6. FAILURE TO DELIVER SHARES. If the Stockholder becomes obligated to
sell any Shares to an Investor under this Agreement and fails to deliver such
Shares in accordance with the terms of this Agreement, such Investor may, at its
option, in addition to all other remedies it may have, send to the Stockholder
the purchase price for such Shares as is herein specified. Thereupon, the
Company upon written notice to the Stockholder, (a) shall cancel on its books
the certificate or certificates representing the Shares to be sold and (b) shall
issue, in lieu thereof, in the name of such Investor a new certificate or
certificates representing such Shares, and thereupon all of the Stockholder's
rights in and to such Shares shall terminate.
7. PUT RIGHT. In the event of any sale, transfer, assignment or other
disposition of any capital stock of the Company by a Stockholder in violation of
any provision of this Agreement, each Investor shall each have the right to
elect to cause such Stockholder to purchase, and such Stockholder shall be
obligated to purchase, from such Investor, at the same price per share and on
the same terms and conditions as involved in such sale by the Stockholder, such
number of shares of capital stock (calculated on a fully-diluted basis) equal to
the number of shares sold by such Stockholder multiplied by a fraction, the
numerator of which is the aggregate number of shares of capital stock owned by
any particular Investor desiring to sell shares to such Stockholder under this
Section 8 (calculated on a fully diluted basis) and the denominator of which is
the sum of all shares of capital stock owned by all Investors desiring to sell
shares to such Stockholder under this Section 8 (calculated on a fully-diluted
basis).
8. TRANSFER OF RIGHTS. Rights conferred herein on JMI shall only inure
to the benefit of a transferee of Preferred Shares if (a) the transferee is a
partner, shareholder or affiliate of JMI or (b) JMI assigns its rights hereunder
to any other transferee by a written instrument pursuant to which such
transferee agrees to be bound by the terms of this Agreement.
9. SPECIFIC ENFORCEMENT. The Stockholder expressly agrees that each
Investor and the Company will be irreparably damaged if this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by the Stockholder, any Investor
and the Company shall, in addition to all other remedies, each be entitled to a
temporary or permanent injunction, without showing any actual damage, and/or a
decree for specific performance, in accordance with the provisions hereof.
10. LEGEND. Each certificate evidencing any of the Shares shall bear a
legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER AND MAY NOT BE SOLD, EXCHANGED,-TRANSFERRED, PLEDGED,
HYPOTHECATED OR
<PAGE>
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OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH AND SUBJECT TO ALL THE
TERMS AND CONDITIONS OF A CERTAIN STOCK RESTRICTION AGREEMENT BY AND
AMONG THE COMPANY, THE HOLDER OF THIS CERTIFICATE AND CERTAIN OTHER
STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH THE COMPANY WILL FURNISH
TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE.
11. NOTICES. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery, on the date of postmark if mailed by
certified or registered mail, return receipt requested, or on the date sent by
telecopier or telex to the party being notified at his or its address specified
on the applicable signature page hereto or such other address as the addressee
may subsequently notify the other parties of in writing.
12. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provision hereof may be waived, modified, amended
or terminated except by a written agreement signed by the parties hereto;
PROVIDED, HOWEVER, that Investors owning at least two-thirds of the Shares owned
by all Investors may effect any such waiver, modification, amendment or
termination on behalf of all of the Investors. To the extent any term or other
provision of any other indenture, agreement or instrument by which any party
hereto is bound conflicts with this Agreement, this Agreement shall have
precedence over such conflicting term or provision.
13. SUCCESSORS GOVERNING LAW AND ASSIGNS. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE AS TO MATTERS WITHIN THE SCOPE THEREOF
AND AS TO ALL OTHER MATTERS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
THE CONFLICTS OF LAWS THEREOF. THIS AGREEMENT SHALL BE BINDING UPON THE HEIRS,
PERSONAL REPRESENTATIVES, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS OF
THE PARTIES.
14. WAIVERS. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
15. SEVERABILITY. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other
<PAGE>
-8-
provision of this Agreement, and this Agreement shall be carried out as if any
such illegal, invalid or unenforceable provision were not contained herein.
16. CAPTIONS. Captions are for convenience only and are not deemed to be
part of this Agreement.
17. CONTINUATION OF EMPLOYMENT. Nothing in this Agreement shall create an
obligation on the Company or any Investor to continue the Stockholder's
employment with the Company.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-9-
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
NEON SYSTEMS, INC.
By: /s/ Peter Schaeffer
----------------------------------
Peter Schaeffer
President
: Address: 6464 Savoy Drive Suite 4141
Houston, Texas 77063
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P. Its General
Partner
By: /s/ Charles E. Noell
Charles E. Noell
A General Partner
Address: 14141 Southwest Freeway,
Suite 6200
Sugar Land, Texas 77478
/s/ Peter Schaeffer
Peter Schaeffer
<PAGE>
Exhibit 10.21
SERVICE AGREEMENT
ENTERED INTO AS OF
DECEMBER 18, 1998
AND EFFECTIVE AS OF
MARCH 31, 1998
BY AND BETWEEN
NEON SYSTEMS, INC
AND
PEREGRINE/BRIDGE TRANSFER CORPORATION
<PAGE>
SERVICE AGREEMENT
THIS SERVICE AGREEMENT (the "AGREEMENT"), is entered into by and between
PEREGRINE/BRIDGE TRANSFER CORPORATION, a Delaware corporation ("PBTC"), and NEON
SYSTEMS, INC., a Delaware corporation ("SERVICE MANAGER") on December 18, 1998
and to be effective as of March 31, 1998 (the "EFFECTIVE DATE").
RECITAL
Service Manager has been providing certain services for PBTC, and each of
Service Manager and PBTC desires to evidence and formalize their agreements with
respect to these services.
ARTICLE 1
ENGAGEMENT OF SERVICE MANAGER
SECTION 1.1 GENERAL ENGAGEMENT. PBTC engages Service Manager as an
independent contractor to provide certain services described in this Agreement
relating to the business operations of PBTC, including without limitation with
respect to its management, record-keeping, marketing and development and other
business and operations. PBTC and Service Manager may from time to time agree
to expand or reduce the scope of services to be provided hereunder and either
party, upon request of the other, shall execute a schedule or amend any existing
schedule that evidences the scope of services then being provided hereunder.
Service Manager shall in good faith provide the services set forth in this
Agreement in accordance with normal and prudent practices and shall have the
authority to take all actions necessary or appropriate to fulfill its
obligations.
ARTICLE 2
SERVICE MANAGER DUTIES
SECTION 2.1 SERVICES. Service Manager will provide the following
services for PBTC, as and to the extent requested by PBTC:
(a) SENIOR MANAGEMENT. Provide PBTC with the time and attention of
its senior management as shall be necessary to assist PBTC in the
development and implementation of its product development and
market strategies.
(b) ACCOUNTING SERVICES. Perform all normal and customary
accounting functions for PBTC and maintain all necessary books
and records in connection therewith; and monitor the actual
monthly income and expenses of PBTC, collect revenues and pay
operating expenses, compare actual results to the relevant
operating budgets, and report to PBTC.
(c) RISK MANAGEMENT SERVICES. Assist PBTC in review of the insurable
risks of PBTC and the determination of levels of insurance
coverage; develop, administer and implement a risk management
program for PBTC; procure insurance coverage in accordance with
PBTC's instructions; and subject to
<PAGE>
PBTC's guidelines and approval, oversee the investigation and
resolution of all casualty and liability claims brought by or
against PBTC.
(d) TAX SERVICES. Prepare all state and federal income tax returns
for PBTC; prepare all sales tax filings and state unemployment
tax filings; and coordinate with PBTC and oversee any challenges,
disputes and audits of any income, sales or unemployment taxes.
(e) HUMAN RESOURCES. Provide Service Manager's standard human
resource services including implementation and oversight of
interview and hiring guidelines and services; implementation and
oversight of employment policies and procedures; conduct of
periodic employee reviews; and to the extent permitted by
applicable law and governmental regulations, employee benefits in
accordance with Service Manager's standard benefits.
(f) REGULATORY COMPLIANCE REVIEW. Assist PBTC in assuring compliance
with applicable governmental regulations (including without
limitation labor and employment regulations and the Americans
With Disabilities Act); and implementing a program to monitor
continuing compliance with governmental regulations.
(g) FINANCING SERVICES. From time to time, upon PBTC's request and
in accordance with PBTC's business plan, Service Manager shall
act as PBTC's agent in financing or refinancing indebtedness.
Service Manager shall:
(i) monitor existing financing;
(ii) negotiate and finalize existing financing renewals as
required;
(iii) monitor and negotiate any equity partner requirements on
behalf of PBTC;
(iv) negotiate any required refinancing; and
(v) negotiate any required restructuring/workout of existing
financing (debt or equity).
Although Service Manager shall make recommendations to PBTC concerning terms and
conditions of any financing or refinancing and the lender(s) to provide the same
and shall negotiate the terms thereof and shall assist in consummating the
transactions, PBTC shall have the sole authority to execute the requisite
agreements therefor.
SECTION 2.2 LEGAL SERVICES. Service Manager is authorized to engage
attorneys and other advisors as necessary to provide legal services in
connection with the day-to-day operation of PBTC, including enforcement of
contracts; review of contracts, leases and other documents; and implementing and
defending legal actions.
SECTION 2.3 RETENTION OF THIRD PARTIES. Service Manager is
authorized and empowered, as PBTC's agent, to engage and enter into contracts
with third parties to provide the services referred to
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<PAGE>
in this Article 2, and may delegate performance of its duties to third parties,
including Service Manager's subsidiaries and affiliates. Without limiting the
generality of the foregoing, the services of third parties which may be engaged
include tax services, brokerage services, data processing services, consulting
services and legal services. Service Manager shall not engage or enter into a
contract with an Affiliate (defined below) unless the compensation payable to
the Affiliate for such services does not exceed that which would be payable to a
comparably qualified third party service provider that is not affiliated with
Service Manager. For the purposes of this Agreement, an "AFFILIATE" of any
person shall mean any other person that is directly or indirectly controlling,
controlled by, or under common control with that person, where the term
"control" means the possession, directly or indirectly, of the actual power to
direct the affairs of the controlled person.
SECTION 2.4 BOOKS, RECORDS AND REPORTS.
(a) BOOKS AND RECORDS. Service Manager shall maintain at its
principal place of business, or at such other location as
it may reasonably designate, a complete and accurate set
of files, books and records of all business activities
and operations conducted by Service Manager with respect
to PBTC. All financial records shall be kept in
accordance with sound accounting principles and
practices, with such modifications as PBTC may request or
approve. During the Term (defined below) and during the
one (1) year period following the expiration or
termination of this Agreement, PBTC and its duly
authorized agents may, at reasonable times, examine,
inspect, audit, and copy Service Manager's books,
records, files, and reports pertaining to PBTC.
(b) QUARTERLY REPORTS. Service Manager shall make available
to PBTC, within 45 days after the end of each calendar
quarter, reports detailing the operation of PBTC which
shall be in the format reasonably requested by PBTC.
(c) ANNUAL REPORTS. Service Manager shall, within ninety (90)
days after the end of each calendar year, make available
to PBTC the following reports and statements, having been
prepared in accordance with sound accounting principles
(as modified at PBTC's request and with PBTC's approval):
(i) a balance sheet and statements of income and
expenses as of the end of such year; and
(ii) a cash flow statement for such year.
(d) SPECIAL REPORTS. Service Manager shall also, at PBTC's
expense, provide any other reports, summaries, statements
or schedules reasonably requested by PBTC.
ARTICLE 3
PBTC DUTIES
SECTION 3.1 INFORMATION AND COOPERATION. PBTC shall (i) furnish
Service Manager with all information in PBTC's possession reasonably necessary
to enable Service Manager to
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<PAGE>
perform its duties, and (ii) otherwise cooperate with, and assist Service
Manager in, performance of Service Manager's duties hereunder.
SECTION 3.2 APPROVAL POLICY. PBTC has delivered to Service Manager a
list of those parties empowered to approve matters requiring PBTC's approval
under this Agreement. PBTC may revise such list from time to time by delivering
written notice to Service Manager. PBTC shall cooperate with Service Manager in
granting or withholding approvals required under this Agreement in a timely
manner.
SECTION 3.3 FUNDING. PBTC shall provide all funds required to enable
Service Manager to perform its duties hereunder and for Service Manager's
compensation.
ARTICLE 4
COMPENSATION
SECTION 4.1 SERVICE FEE. For performing its servicing and
administration duties, PBTC shall pay to Service Manager a fee equal to a
reasonable cost allocation of all salaries, cost and overhead of Service Manager
for the time devoted by Service Manager and its agents and employees to
performing the duties and services herein described (the "SERVICE FEE"). Until
otherwise agreed upon by the parties and set forth in an amendment to this
Agreement, the Service Fee shall be $23,995 per month. The Service Fee shall be
payable in arrears on or before the twentieth (20th) day of each calendar month
in respect of the services provided during the preceding month. To the extent
such Service Fee is not timely paid, Service Manager may offset such overdue
amount against amounts owing by it under any other agreement to PBTC.
SECTION 4.2 REIMBURSABLE EXPENSES. Without duplication of the items
included in the allocation determination for the Service Fee, PBTC shall
reimburse Service Manager for all expenses incurred by Service Manager in
performing its duties hereunder, including, without limitation, expenses of
third parties engaged pursuant to this Agreement; travel and other out-of-pocket
expenses; and filing or other fees paid to third parties. Service Manager shall
not be reimbursed for legal fees and expenses relating to the negotiation and
preparation of this Agreement.
SECTION 4.3 ADDITIONAL SERVICES. If PBTC requests Service Manager to
perform services other than those required hereunder, such additional services,
if performed, shall be compensated separately on terms agreed upon by Service
Manager and PBTC prior to the performance of such services, which terms shall
not be (i) less favorable to Service Manager than the terms under which
qualified unaffiliated persons are then performing such services for comparable
organizations, or (ii) less favorable to PBTC than the terms under which PBTC
could obtain such services from qualified unaffiliated third persons.
SECTION 4.4 EMERGENCY EXPENDITURES. In case of an emergency, Service
Manager may make expenditures without PBTC's prior written approval if, in the
reasonable judgment of Service Manager, such expenditures are necessary to
prevent damage or material diminution in value to PBTC or to preserve the health
or safety of any person. Service Manager shall inform PBTC of any such
expenditures as soon as reasonably practicable but in no event later than the
end of the next business day succeeding the date upon which such expenditures
are made.
4
<PAGE>
ARTICLE 5
LIABILITY INSURANCE AND RISK ALLOCATION
SECTION 5.1 LIABILITY INSURANCE. Service Manager shall, at PBTC's
expense, maintain comprehensive general liability, automobile liability,
workers' compensation and other insurance to protect the interests of Service
Manager and PBTC as their interests may appear in connection with the
performance of this Agreement in accordance with the coverage, amounts and
deductibles agreed upon by PBTC and Service Manager.
SECTION 5.2 EVIDENCE OF INSURANCE. Upon request, Service Manager
shall provide to PBTC certificates of insurance or other proof evidencing the
insurance coverage required under this Article 5.
SECTION 5.3 MUTUAL WAIVER OF SUBROGATION. Each party waives on behalf
of the insurers of such party's property any and all claims or rights of
subrogation of any such insurer against the other party hereto for loss or
damage to any property so insured.
SECTION 5.4 INDEMNIFICATION.
(a) PARTIES' INDEMNITIES. Subject to Section 5.3, Service
Manager shall indemnify and defend PBTC and PBTC's
directors, officers and employees from and against any
and all loss, cost, damage, liability and expense,
including reasonable counsel fees, incurred by PBTC,
resulting from Service Manager's gross negligence,
willful misconduct, fraud or breach of this Agreement.
Except for the matters against which Service Manager has
afforded PBTC indemnity in accordance with the preceding
sentence and subject to Section 5.3, PBTC shall indemnify
and defend Service Manager and Service Manager's
directors, officers and employees from and against any
and all loss, cost, damage, liability and expense,
including reasonable counsel fees, incurred by Service
Manager and resulting from Service Manager's performance
of its duties and obligations in accordance with this
Agreement, including those which arise from Service
Manager's negligence. The provisions of this
Section 5.4(a) are not in lieu of, but are in addition
to, any other rights and obligations of an indemnified
party.
(b) NOTICE. Upon receipt by any party entitled to
indemnification under Section 5.4(a) (an "INDEMNIFIED
PARTY") of a complaint, claim or other notice of any
loss, damage or liability giving rise to a claim for
indemnification under Section 5.4(a), such Indemnified
Party shall promptly notify the party from whom
indemnification is sought (the "INDEMNIFYING PARTY"), but
failure to provide such notice shall not relieve the
Indemnifying Party from its duty to indemnify unless the
Indemnifying Party is materially prejudiced by such
failure and had no actual knowledge of such complaint,
claim or other notice.
(c) INDEMNIFICATION RIGHTS. With respect to any claim made
or threatened against any party for which such party is
or may be entitled to indemnification hereunder, the
Indemnifying Party shall have the right, upon reasonable
prior notice, in its sole discretion and at its sole
expense, but
5
<PAGE>
subject to the right of any insurance company having an
interest in the outcome of such claim to exercise any
rights it may have under any applicable insurance
coverage, to (i) participate in the investigation,
defense and settlement of such claims and (ii) control
the defense of such claim, including the right to
designate counsel and to control all negotiations,
litigation, arbitration, settlements, compromises and
appeals of any such claim, provided that the Indemnifying
Party shall have advised the Indemnified Party that such
party is entitled to be fully indemnified with respect
to' such claim. The Indemnified Party and the
Indemnifying Party shall cooperate and act in good faith
in the conduct of the defense of any claims to be
indemnified hereunder.
(d) SURVIVAL. The terms and provisions of this Section 5.4
shall survive the expiration or termination of this
Agreement.
ARTICLE 6
TERM
SECTION 6.1 TERM. This Agreement shall commence on the Effective
Date and continue unless terminated by either party giving written notice of
termination to the other at least thirty (30) days prior to the effective
termination date, unless otherwise agreed upon by the parties (the "TERM"). The
Term is subject to earlier termination as provided below.
SECTION 6.2 DUTIES ON TERMINATION OR EXPIRATION.
(a) SERVICE MANAGER'S DUTIES. Upon termination or expiration
of this Agreement, Service Manager shall within fifteen
(15) days thereafter deliver to PBTC complete copies of
all books and records of PBTC and all funds in possession
of Service Manager belonging to PBTC. Service Manager
shall also be available for a period of not less than
thirty (30) days following termination or expiration to
consult with PBTC concerning the services provided by
Service Manager under this Agreement; Service Manager
shall not receive a fee for such consultation, but shall
be reimbursed for all costs incurred in connection
therewith.
(b) PBTC'S DUTIES. PBTC shall, within five (5) days
following the end of the Term compensate Service Manager
for all fees and reimbursements due hereunder through the
date of termination or expiration.
6
<PAGE>
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 ASSIGNMENT: CHANGE OF OWNERSHIP INTEREST. Service
Manager may not, without the prior written consent of PBTC, assign this
Agreement. Service Manager may, however, from time to time delegate its duties
to Affiliates. Subject to the foregoing, this Agreement shall be binding upon,
and inure to the benefit of, Service Manager and PBTC and their respective
successors and assigns, and all references in this Agreement to "Service
Manager" and "PBTC" shall include the respective successors and assigns of such
parties permitted under this Agreement.
SECTION 7.2 NOTICES. Any notice provided for permitted to be given
hereunder shall be in writing and may be given by (i) depositing in the U.S.
Mail, first class postage prepaid and certified with return receipt requested;
(ii) reputable delivery service; or (iii) facsimile transmission with
confirmation of receipt. Notice shall be effective upon the earlier of refusal
of receipt by addressee or actual receipt at the address of the intended
addressee. The addresses of the parties, until changed by notice given as
provided herein, shall be as follows:
PBTC: Peregrine/Bridge Transfer Corporation
c/o 14100 Southwest Freeway
Suite 500
Sugar Land, Texas 77478
Telecopy Number: (281) 242-3880
Service Manager: NEON Systems, Inc.
14100 Southwest Freeway
Suite 500
Sugar Land, Texas 77478
Telecopy Number: (281) 242-3880
SECTION 7.3 SEVERABILITY. If any term or provision of this Agreement
or the application thereof to any person or circumstance shall be illegal,
invalid or unenforceable to any extent, the remainder of this Agreement, or the
application of that term or provision to persons or circumstances other than
those as to which it is held illegal, invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be legal,
valid and enforceable to the fullest extent permitted by law.
SECTION 7.4 NO WAIVER OF DEFAULT. The failure by PBTC or Service
Manager to insist upon the strict performance of any one of the terms or
conditions of this Agreement or to exercise any right, remedy or election herein
contained or permitted by law shall not constitute or be construed as waiver or
relinquishment for the future of that term, condition, right, remedy or
election, which shall continue and remain in full force and effect. All rights
and remedies that PBTC or Service Manager may have at law, in equity or
otherwise for any breach of any term or condition of this Agreement shall be
distinct, separate and cumulative rights and remedies and no one of them shall
be deemed to be in exclusion of any other right or remedy of PBTC or Service
Manager.
SECTION 7.5 ENTIRE AGREEMENT AND MODIFICATION. This Agreement
constitutes the entire agreement between the parties with respect to the matters
herein contained and any agreement hereafter made shall be ineffective unless
made in writing and signed by the parties hereto. No
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<PAGE>
provision of this Agreement shall be modified, waived or terminated except by an
instrument in writing signed by the party against whom such modification, waiver
or termination is to be enforced.
SECTION 7.6 GOVERNING LAW. This Agreement shall be governed by and
constructed in accordance with the laws of the State of Texas.
SECTION 7.7 ATTORNEYS' FEES. Should either party employ attorneys to
enforce the provisions hereof or to recover damages for the breach of this
Agreement, the non-prevailing party in any such action agrees to pay the
prevailing party all reasonable costs, damages and expenses, including
reasonable attorneys' fees, expended or incurred by the prevailing party in
connection therewith.
SECTION 7.8 RELATIONSHIP OF THE PARTIES. The relationship of PBTC
and Service Manager shall be that of principal and agent, and nothing contained
in this Agreement, nor any acts of the parties shall create the relationship of
a partnership or a joint venture, or cause the Service Manager to be responsible
in any way for the debts or obligations of PBTC or any other party.
SECTION 7.9 REPRESENTATIONS AND WARRANTIES.
(a) SERVICE MANAGER. Service Manager represents and warrants
to PBTC that (i) Service Manager is a corporation duly
organized, validly existing and in good standing under
the laws of the State of Delaware, and has all requisite
power and authority to carry on its business as now
conducted and to execute, deliver and perform this
Agreement; (ii) the execution, delivery and performance
by Service Manager of this Agreement is within its power,
has been authorized by all necessary corporate action and
does not contravene any provision of its organizational
documents; (iii) this Agreement has been duly executed
and delivered by a person authorized to do so on Service
Manager's behalf, and (iv) this Agreement constitutes the
valid and binding obligation of Service Manager.
(b) PBTC. PBTC represents and warrants to Service Manager
that (i) PBTC is a corporation, duly organized and
validly existing under the laws of the State of Delaware,
and has all requisite power and authority to carry on its
business as now conducted and to execute, deliver and
perform this Agreement; (ii) the execution, delivery and
performance by PBTC of this Agreement is within its
power, has been authorized by all necessary partnership
action and does not contravene any provision of its
organizational documents; (iii) this Agreement has been
duly executed and delivered by a person authorized to do
so on PBTC's behalf, and (iv) this Agreement constitutes
the valid and binding obligations of PBTC.
SECTION 7.10 CONFIDENTIALITY. PBTC and Service Manager shall keep
confidential all information obtained by one from the other in connection with
this Agreement. The parties shall not disclose such information to any person
(other than their respective agents, representatives and legal counsel), unless
specifically authorized in writing by the other party or if disclosure is
required by subpoena, court order, judicial decree or law, or is otherwise
required to enable Service Manager to perform its duties. This confidentiality
obligation shall not be binding on any party with respect
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<PAGE>
to information in the public domain or information that enters the public domain
through no fault of that party. The provisions of this Section 7.10 shall
survive the expiration or termination of this Agreement.
SECTION 7.11 COUNTERPARTS. This Agreement may be executed in a number
of counterparts, each of which shall be deemed an original and all of which
shall constitute one and the same Agreement.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE>
Executed as of the day and year first above written and to be effective as
of March 31, 1998.
PBTC: PEREGRINE/BRIDGE TRANSFER CORPORATION,
A DELAWARE CORPORATION
By: /s/ Charles E. Noell, III
-------------------------
Name: Charles E. Noell, III
---------------------
SERVICE MANAGER: NEON SYSTEMS, INC.,
A DELAWARE CORPORATION
By: /S/ F. Joseph Backer
--------------------
Name: F. Joseph Backer
----------------
Title: President and Chief Executive Officer
--------------------------------------
10
<PAGE>
Exhibit 10.22
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into
as of June 1, 1998 by and between Neon Systems, Inc., a Delaware corporation
(the "COMPANY"), and Wayne B.. Webb, Jr. ("WEBB") .
RECITALS:
The company desires to sell to Webb, and Webb desires to purchase from the
Company, 47,780 shares of the Company's Common Stock, par value $.01 per share
(the "COMMON STOCK"), all upon the terms and conditions set forth in this
Agreement. For and in consideration of the premises and of the mutual covenants
and agreements set forth herein, the Company and Webb agree as follows;
1. ISSUANCE, SALE AND DELIVERY OF THE SHARES OF THE COMMON STOCK. The
Company agrees to issue and sell to Webb, and Webb agrees to purchase from the
Company, 47,780 shares of the Common Stock for the purchase price of $1.80 per
share (i.e., an aggregate purchase price of $86,004), payable in immediately
available funds. Upon receipt of payment, the Company shall issue and deliver
to Webb a stock certificate in definitive form, registered in the name of Webb,
representing such shares.
EXECUTION AND DELIVERY OF STOCKHOLDERS AGREEMENT. It is a condition
precedent to the obligations of the Company under this Agreement that the
Company and Webb duly execute and deliver that certain Stockholders Agreement in
the form attached hereto as EXHIBIT-A.
REPRESENTATIONS OF THE COMPANY. The Company represents and warrants to
Webb that:
The Company is a corporation duly incorporated, validly existing and
in corporate good standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the failure to so qualify would have
a material adverse impact on the business of the Company. The Company has the
corporate power and authority to own and hold its properties and to carry on its
business, to execute, deliver and perform this Agreement and to issue, sell and
deliver the shares of Common Stock to be issued, sold and delivered by it
hereunder.
The shares of Common Stock to be issued and sold by the Company
hereunder have been duly authorized and, when issued in accordance with this
Agreement, will be validly issued, fully paid and nonassessable shares of the
capital stock of the Company with no personal liability attaching to the
ownership thereof and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company.
The company is not in violation of any term of any mortgage,
indenture, contract, agreement, instrument, judgment, decree, order, statute,
rule or regulation to which the Company
<PAGE>
is subject, which violation would have a material adverse effect on the
condition, financial or otherwise, or operations of the Company.
No consent, approval, order or authorization of, or registration,
qualification, designation declaration or filing with, any person or any
governmental authority is or will be required for the valid execution and
delivery of this Agreement by the Company or the offer, issue, sale and delivery
by the Company of the shares of Common Stock as contemplated by this Agreement,
except such as have been obtained or made. Based in part on the representations
made by Webb in section 4 of this Agreement, the offer and sale of the shares of
Common Stock hereunder to Webb will be in compliance with applicable Federal and
state securities laws.
REPRESENTATIONS AND WARRANTIES OF WEBB. TO THE COMPANY. Webb represents
and warrants to the Company that:
he is an "accredited investor" within the meaning of Rule 501 under
the Securities Act of 1933, as amended (the "SECURITIES ACT");
he has sufficient knowledge and experience in investing in companies
similar to the Company in terms of the Company's stage of developer so as to be
able to evaluate the risks and merits of his investment in the Company and he is
able financially to bear the risks thereof;
the shares of the Common Stock to be acquired by him hereunder are
being acquired for his own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof;
he understands that (i) the shares of the Common Stock to be acquired
by him hereunder have not been registered under the Securities Act or any
applicable state securities laws, (ii) such shares must he held indefinitely
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from such registration, (iii) such shares will bear a legend to
such effect and (iv) the Company will make a notation on its transfer books to
such effect;
he has received or has had access to all information which he has
considered necessary or advisable to enable him to make a decision concerning
his acquisition of the shares of the Common Stock to be acquired by him
hereunder; and
he has full power and authority to enter into and perform this
Agreement in accordance with its terms.
2. GOVERNING LAW. This Agreement shall be governed by and construes in
accordance with the laws of the State of Delaware.
3. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[The remainder of this page is intentionally left blank.)
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<PAGE>
IN WITNESS WHEREOF, the Company and Webb have executed this Agreement as of
the day and year first above written.
NEON SYSTEMS, INC.
By: /s/ F. Jospeh Backer
--------------------
F. Joseph Backer
President
/s/ Wayne E. Webb, Jr.
----------------------------------
Wayne E. Webb, Jr.
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EXHIBIT 10.23
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (this "AGREEMENT") is made and entered into as
of June 1, 1998 by and between Neon Systems, Inc., a Delaware corporation (the
"Company") and Wayne E. Webb, Jr. ("Webb"). Webb is also referred to herein as
the "COVERED STOCKHOLDER."
RECITALS
As of the date hereof, Webb is an employee of both the Company and PBTC (as
defined herein) . Pursuant to the terms of that certain Stock Purchase Agreement
dated the date hereof between the Company and Webb (the "STOCK PURCHASE
AGREEMENT"), the Company is issuing and selling 47,780 shares of its Common
Stock, par value $.01 per share, to Webb. It is a condition to the obligations
of the Company under the Stock Purchase Agreement that this Agreement be entered
into by the Company and Webb, and the Company and Webb desire to enter into this
Agreement and to be bound by the terms hereof.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINED TERMS . As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "AFFILIATE" shall mean any person or entity that directly
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with another person or entity. The term "control" shall
mean the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting securities, by contract or otherwise, and shall in any event
include the ownership or power to vote fifty percent (50%) or more of the
outstanding equity interests of such other person.
(b) "CAUSE" shall have the meaning provided therefor in Section 4(d).
(c) "COMMON STOCK" shall mean the Company's Common Stock, par value
$.01 per share.
(d) "COVERED SECURITIES" shall mean any of the following at any time
owned or held by the Covered Stockholder: the Purchased Shares and any other
securities of the Company (including, without limitation, any warrants, options
and other rights to purchase any Common Stock or other capital stock of the
Company) which may be issued in exchange for or in respect of the Purchased
Shares or any other securities the issuance of which derived directly or
indirectly from the Purchased Shares or any securities issued in exchange for or
in respect of the Purchased Shares (whether by way of stock split, stock
dividend, combination, reclassification, reorganization or any other means).
<PAGE>
(e) "INVOLUNTARY TRANSFER NOTICE" shall have the meaning set forth in
Section 2(c).
(f) "INVOLUNTARY TRANSFEREE" shall have the meaning set forth in
Section 3(e).
(g) "OFFER" shall have the meaning set forth in Section 3(b).
(h) "OFFERED SECURITIES" shall have the meaning set forth in Section
3(b).
(i) "PBTC" shall mean Peregrine/Bridge Transfer Corporation, a
Delaware corporation.
(j) "PERMISSIBLE TRANSFEREE" shall have the meaning set forth in
Section 2(a).
(k) "PROPOSED TRANSFEREE" shall have the meaning set forth in Section
3(b).
(l) "PURCHASED SHARES" shall means the 47,780 shares of the Company's
Common Stock purchased by Webb from the Company pursuant to the Stock Purchase
Agreement.
(m) "REPURCHASE EVENT" shall have the meaning set forth in Section
4(a).
(n) "REPURCHASE PERIOD" shall have the meaning set forth in Section
4(a).
(o) "REPURCHASE PRICE" shall have the meaning set forth in Section
4(c).
(p) "REPURCHASE RIGHT" shall have the treating set forth in Section
4(a.).
(q) "SPECIFIED PURCHASE PRICE" initially shall mean an amount equal
to $1.80 per share for each of the Purchased Shares. in the event of any change
in the Common Stock of the Company through merger, consolidation,
reorganization, recapitalization, stock dividend, stock, split, combination or
exchange of shares or the like, appropriate adjustments shall be made in the
Specified Purchase Price and the shares that may be acquired pursuant to the
payment thereof such that the Company will be entitled to purchase and receive
in accordance with the terms of this Agreement, for the same aggregate purchase
price, the aggregate number and kind of Covered Securities which, if it had
purchased Purchased Shares immediately prior to any such change, it would have
been entitled to receive by virtual of such change. Such adjustment shall be
made successively when any such event or change shall occur. In the event of any
such adjustment, the "Specified Purchase Price" shall be such adjusted purchase
price.
(r) "TRANSFERRED SECURITIES" shall have the meaning set forth in
Section 3(e).
2. LIMITATIONS ON TRANSFER.
(a) The Covered Stockholder agrees that he shall not sell, assign,
transfer, pledge, hypothecate, mortgage, encumber, grant a security interest in
or otherwise dispose of all or any Covered Securities except to the Company or
as expressly provided in this Agreement. Notwithstanding the foregoing, the
Covered Stockholder may transfer all or any Covered
-2-
<PAGE>
Securities by will, by the laws of descent and distribution, or in accordance
with the provisions of Sections 3 and 4, if applicable. As used in this
Agreement, the term "PERMISSIBLE TRANSFEREE" shall mean any transferee to whom a
transfer of shares is permitted by the terms of this Section 2. In the event of
any transfer by will. or by laws of descent and distribution, the Covered
Stockholder's personal representative or, in the event the Covered Stockholder
has no personal representative, the Permitted Transferee shall, promptly upon
the consummation of such transfer, provide written notice to the Company of such
transfer, which notice shall specify the date of the transfer, the number and
type of Covered Securities involved and the name and address of the Permitted
Transferee.
(b) If the Covered Stockholder transfers any Covered Securities to a
Permissible Transferee pursuant to this Section 2, such Permissible Transferee
shall take and hold such Covered Securities, and such Covered Securities shall
be, subject to this Agreement and to all of the rights, obligations and
restrictions provided herein and applicable to the Covered Stockholder and
Covered Securities. Without limiting the generality of the foregoing or any
other provision of this Agreement, any sale, transfer or encumbrance of any
Covered Securities held by a Permissible Transferee shall be subject to the
limitations on transfer and the Company's right of first refusal and Repurchase
Right provided for in this Agreement.
(c) In the event of an involuntary transfer (as defined in the
immediately succeeding sentence) of any Covered Securities to any person, the
transferee (which term, as used herein, shall include any and all transferees
and subsequent transferees of the initial transferee) shall take and hold
such Covered Securities subject to this Agreement and to all the obligations
of, and restrictions upon, the initial transferor Covered Stockholder, and
shall observe and comply with this Agreement and with such obligations and
restrictions. As used in this Section 2(c) and elsewhere in this Agreement,
the term "INVOLUNTARY TRANSFER" shall mean any transaction, proceeding or
action by or in which the Stockholder is involuntarily deprived or divested
of any right, title or interest in or to any Covered Securities (including,
without limitation, a seizure under levy of attachment or execution, transfer
to a trustee in bankruptcy or receiver or other officer or agency, or a
transfer to a state or to a public officer or agency pursuant to a statute
pertaining to escheat or abandoned property; provided, however, that the term
"INVOLUNTARY TRANSFER" shall not be deemed to include. any transfer of
Covered Securities to a Permissible Transferee of an individual Covered
Stockholder that occurs upon the death of such individual. In the event of an
involuntary transfer, or the entry of any order compelling an involuntary
transfer, of any Covered Securities to any Person, the transferor Covered
Stockholder (or, if he fails to do so, the transferee) shall forthwith give
notice (the "INVOLUNTARY TRANSFER NOTICE") to the Company stating (A) when
the involuntary transfer occurred or is to occur, (B) the circumstances
alleged to require such transfer, (C) the number and type of Covered
Securities involved, and (D) the name, address and capacity of the
transferee. If both the transferor Covered Stockholder and the transferee
fail to give the Involuntary Transfer Notice, then the Involuntary Transfer
Notice may be given by any then existing Permissible Transferee and the
Involuntary Transfer Notice so given shall contain such of the information
set forth in the immediately preceding sentence as is known to the person so
giving the Involuntary Transfer Notice. Any such involuntary transfer shall
be subject to the rights of the Company set forth in Section 3(e).
-3-
<PAGE>
(d) Notwithstanding anything to the contrary in this Agreement, no
transfer of Covered Securities permitted or required by this Agreement shall be
effected except in compliance with federal and state securities laws, including,
without limitation, the Securities Act of 1933, as amended.
3. RIGHT OF FIRST REFUSAL ON DISPOSITIONS.
(a) The provisions of this Section 3 are subject to the rights of the
Company pursuant to Section 4 hereof.
(b) If at any time the Covered Stockholder desires to sell all or any
part of his Covered Securities pursuant to a bona fide offer from a third party
(the "PROPOSED TRANSFEREE"), the Covered Stockholder shall submit a written
offer (the "OFFER") to sell such Covered Securities (the "OFFERED SECURITIES")
to the Company on terms and conditions, including price, not less favorable to
the Company than those on which the Covered Stockholder proposes to sell such
Offered Securities to the Proposed Transferee. The offer shall disclose the
identity of the Proposed Transferee. The Offered Securities proposed to be sold,
the total number of each class and series of Covered Securities owned by the
Covered Stockholder, the terms and conditions, including price, of the proposed
sale, and any other material facts relating to the proposed sale. The Offer
shall further state that the Company may acquire, in accordance with the
provisions of this Agreement, all of the Offered Securities for the price and
upon the other terms and conditions, including deferred payment (if applicable),
set forth therein. The Company shall have the absolute right to acquire all of
the Offered Securities.
(c) If the Company desires to purchase all of the Offered Securities
pursuant to the Offer, it shall communicate in writing its election to do so to
the transferring Covered Stockholder, which communication shall be given to the
transferring Covered Stockholder in accordance with Section 10 below within
fifteen (15) days after the date the offer was received by the Company. Such
communication shall, when taken in conjunction with the Offer, be deemed to
constitute a valid, legally binding and enforceable agreement for the sale and
purchase of such Offered Securities. If the Company does not accept the offer
within such time period, it shall be deemed to have rejected the Offer. Sales of
the Offered Securities to be sold to the Company pursuant to this Section 3
shall be made at the offices of the Company on the 45th day following the date
the Offer was accepted (or if such 45th day is not a business day, then on the
next succeeding business day) or at such other time and place as the
transferring Covered Stockholder and the Company may agree. Such sales shall he
effected by the transferring Covered Stockholder's delivery to the Company of a
certificate or certificates evidencing the Offered Securities to be purchased
(or, in the case of any uncertificated. securities, such instruments of transfer
as shall be acceptable to the Company), duly endorsed for transfer to the
Company against payment to the transferring Covered Stockholder of the purchase
price therefor by the Company.
(d) If the Company does not purchases all of the Offered Securities,
the Offered Securities may be sold by the transferring Covered Stockholder at
any time within one hundred days after the date the Offer was first made to the
Company pursuant to subsection (b) above; provided, however, that any such sale
shall be to the Proposed Transferee, at not less than the price and upon other
terms and conditions, if any, not more favorable to the Proposed
-4-
<PAGE>
Transferee than those specified in the Offer; and provided further, that prior
to the sale of the Offered Securities to the Proposed Transferee, the Proposed
Transferee shall execute an agreement with the Company pursuant to which the
Proposed Transferee agrees that, from and after the date of its acquisition of
the Offered Securities, it and the Offered Securities will be subject to this
Agreement and the obligations and restrictions set forth herein applicable to
the Covered Stockholder and the Covered securities. Any Offered Securities not
sold within such 100-day period shall continue to be subject to the requirements
of a prior offer pursuant, to this Section 3.
(e) If an involuntary transfer of any Covered Securities shall occur,
the Company shall have the same right of first refusal with respect to the
Covered Securities subject to such involuntary transfer (the "TRANSFERRED
SECURITIES") as if the involuntary transfer had been a proposed voluntary
transfer by the transferor Covered Stockholder governed by the foregoing
paragraphs of this Section 3, except that: (i) price to be paid for such
Transferred Securities shall be the fair market value thereof, as determined by
an independent valuation expert or investment barking firm; (ii) the periods
within which such right must be exercised shall run from the date the
Involuntary Transfer Notice is received; and (iii) such rights shall be
exercised by notice to the transferee of such Transferred Securities (the
"INVOLUNTARY TRANSFEREE") rather than to the transferor Covered Stockholder. The
closing of any purchase of Transferred Securities pursuant to this Section 3(e)
shall be in accordance with the procedures set forth in Section 3(c), except
that the date of such closing shall be the earlier of (i) the 90th day after the
date of the Involuntary Transfer Notice and (ii) any earlier date specified by
the Company. If the provisions of this Section 3(e) shall be held to be
unenforceable with respect to any particular involuntary transfer of Covered
Securities, the Company shall have a right of first refusal if the Involuntary
Transferee subsequently obtains a BONA FIDE offer for and desires to transfer
such Covered Securities, in which. event the Involuntary Transferee shall be
bound by the foregoing paragraphs of this Section 3.
4. RIGHT OF REPURCHASE.
(a) The Company shall have the right (the "REPURCHASE RIGHT") to
repurchase from the Covered Stockholder, all, but not less than all, of the
Covered Securities then owned by the Covered stockholder, upon the occurrence or
any of the events specified in Section 4(b) Below (a "REPURCHASE EVENT"). The
Repurchase Right may be exercised by the Company within 60 days following the
date that Company receives actual knowledge of such event (the "REPURCHASE
PERIOD"). The Repurchase Right shall be exercised by the Company by giving the
Covered Stockholder written notice on or before the last day of the Repurchase
Period of its intention to exercise the Repurchase Right, and together with such
notice, tendering to the Covered Stockholder an amount equal to the applicable
Repurchase Price, as determined pursuant to Section 4(c). The Company may assign
the Repurchase Right to one or more persons. Upon timely exercise of the
Repurchase Right in the manner provided in this Section 4(a), the holder shall
deliver to the Company the stock certificate or certificates representing the
shares and any other securities being repurchased, duly endorsed and free and
clear of any and all liens, charges and encumbrance. if the Covered Securities
are not purchased under the Repurchase Right, the Covered Stockholder and his or
her successor in interest, if any, will hold the Covered Securities subject to
all of the provisions of this Agreement.
-5-
<PAGE>
(b) The Repurchase Right shall be exercisable it any of the following
events shall occur:
(i) The termination at any time of Webb's employment with PBTC
and the Company, voluntarily or involuntarily, for any reason
whatsoever other than for Cause;
(ii) The termination at any time of Webb's employment with PBTC
or the Company for Cause;
(iii) The receivership, bankruptcy or other creditor's
proceeding regarding the Covered Stockholder or the taking of any of
the Covered Securities by legal process, such as a levy of execution;
(iv) Distribution of shares held by the covered Stockholder to
his or her spouse as such spouse's joint or community interest
pursuant to a decree of dissolution, operation of law, divorce,
property settlement agreement or for any other reason, except as may
be otherwise permitted by the Company; or
(v) Within one year of the termination of Webb's employment
with PBTC or the Company for any reason whatsoever (including without
limitation any resignation or termination without Cause) , the
engagement by Webb, directly or indirectly, alone or with others, in
(A) any business activity which is in competition with the Company,
PBTC or any of their respective Affiliates or (B) the solicitation of,
interference with or endeavor to entice away any employee of the
Company, PBTC or any of their respective Affiliates.
(c) The repurchase price (the "Repurchase Price") payable pursuant to
an exercise of the Repurchase Right shall be determined as follows:
(i) Subject to Section 4(c)(ii) and below, the Repurchase
Price shall be as follows:
(A) with respect to any exercise of the Repurchase Right
on or after June 2, 1998 through May 31, 1999, the Repurchase
Price shall be the Purchase Price for the Covered Securities
being repurchased;
(B) with respect to any exercise of the Repurchase Right
on or after June 1, 1999 through May 31, 2000, the Repurchase
Price shall be an amount equal to the sum of (1) the fair market
value of twenty-five percent (25%) of the Covered Securities
being repurchased and (2) the Specified Purchase Price for
seventy-five percent (75%) of the Covered Securities being
repurchased;
(C) with respect to any exercise of the Repurchase Right
on or after June 1, 2000 through May 31, 2001, the Repurchase
Price shall be an amount equal to the sum of (1) the fair market
value of fifty percent (50%) of the covered Securities being
repurchased and (2) the Specified
-6-
<PAGE>
Purchase Price for fifty percent (50%) of the Covered Securities
being repurchased;
(D) with respect to any exercise of the Repurchase Right
on or after June 1, 2001 through May 31, 2002, the Repurchase
Price shall be an amount equal to the sum of (1) the fair market
value of seventy-five percent (75%) of the Covered securities
being repurchased and (2) the Specified Purchase Price for
twenty-five percent (25%) of the Covered Securities being
repurchased; and
(E) with respect to any exercise of the Repurchase Right
on or after June 1, 2002, the Repurchase Price shall be an amount
equal to the fair market value of the Covered Securities being
repurchased.
For purposes of this Section 4(c)(i), in connection with any
repurchase of a specified percentage of the Covered Securities, the
Covered Securities to be repurchased shall be comprised of the
specified percentage of the Purchased Shares and any and all of the
Covered Securities derived directly or indirectly therefrom or from
any Securities issued in exchange for or in respect of the Purchased
Shares (whether by way of stock split, stock dividend, combination,
reclassification, reorganization or otherwise).
(ii) Subject to Section 4(c)(iii) below and notwithstanding the
provisions of paragraphs (A) through (E) of section 4(c)(i), the
Repurchase Price payable pursuant to any exercise of the Repurchase
Right following a Change of Control shall be an amount equal to the
fair market value of all of the Covered Securities being repurchased.
(iii) The Repurchase Price payable pursuant to any exercise of
the Repurchase Right (A) upon or following any termination at any time
of Webb's employment with PBTC or the Company for Cause or (B) in
respect of an event described in Section 4(b)(iv) or 4(b)(v) above
shall be an amount equal to the Specified Purchase Price for all of
the Covered Securities being repurchased.
(d) As used in this Agreement, the term "CAUSE" shall mean conduct
involving one or more of the following: (i) the substantial and continuing
failure of the Covered Stockholder, after notice thereof, to render services to
PBTC, the Company or any or their respective Affiliates in accordance with the
terms or requirements of the Covered Stockholder's employment with or engagement
by PBTC, the Company or any such Affiliate, as the case may be; (ii) disloyalty,
gross negligence, willful misconduct, dishonesty or breach of fiduciary duty to
PBTC, the Company or any of their respective Affiliates; (iii) the commission of
an act of embezzlement or fraud; (iv) deliberate disregard of the rules or
policies of PBTC, the Company or any of their respective Affiliates which
results in direct or indirect 'Loss, damage or injury to PBTC, me Company or any
such Affiliate; (v) the unauthorized disclosure of any trade secret or
confidential information, of PBTC, the Company or any of their respective
Affiliates; or (vi) the commission of an act which constitutes unfair
competition with PBTC, the Company or any of
-7-
<PAGE>
their respective Affiliates or which induces any customer or supplier to break a
contract with PBTC, the Company or any of their respective Affiliates.
(e) For purposes of any repurchase of Covered Securities pursuant
to this Section 4, the fair market value of the Covered Securities as of any
determination date shall be, in the case of any Covered Securities that are
publicly traded on the determination date, (i) the average, on the last
business day for which the prices or quotes discussed in this sentence are
available prior to the determination. date, of the high and low prices of the
covered securities on the principal national securities exchange on which
such Covered Securities are traded, if the Covered Securities are then traded
on a national securities exchange; (ii) the last reported sale price, on the
last business day prior to the determination date, of this Covered Securities
on the NASDAQ National Market List, if the Common Stock is not then traded on
a national securities exchange; or (iii) the closing bid price (or average of
bid prices), last quoted on the last business day prior to the determination
date, by an established quotation service for over-the-counter securities, if
the Covered Securities are not reported on the NASDAQ National Market List.
If the Covered Securities are not publicity traded on any determination date,
the fear market valid thereof shall be seemed to be the fair market value
thereof as determined by the Board of Directors of the Company, after taking
into consideration all factors which it deems appropriate, including, without
limitation, any recent sale and offer prices of the Covered Securities in
private transactions negotiated at arm's length. The determination by the
Board of Directors of the fair market value shall be conclusive and binding.
(f) The Repurchase Right of the Company shall include, without
limitation, the right, in accordance with this Section 4, repurchase Covered
Securities from any and all Permissible Transferees and involuntary Transferees
in the event of the occurrence of an event described in Section 4(b),
notwithstanding that such event may involve termination of Webb's employment
with PBTC and/or the Company and may not otherwise involve or affect any such
Permissible Transferee or involuntary Transferee.
5. TERM. This Agreement shall terminate upon the earlier of (a) the
tenth anniversary of the date of this Agreement or (b) the date of the
consummation of the first firm commitment underwritten, public offering
pursuant to an effective registration statement on Form S-1 (or its then
equivalent) under the Securities Act of 1933, as amended, or any Successor
statute, pursuant to which the net proceeds to the Company amount to at least
$10,000,000; provided, however, that if such a public offering occurs prior
to December 1, 1999, than this Agreement shall terminate on December 1, 1999.
6. FAILURE TO DELIVER COVERED SECURITIES. If the Covered Stockholder
becomes obligated to sell any Covered Securities to the company under this
Agreement and fails to deliver such Covered Securities in accordance with the
terms of this Agreement, the company may, at its option, in addition to all
other remedies it may have, send to the Covered Stockholder the purchase price
for such Covered Securities as is herein specified. Thereupon, the Company, upon
written notice to the Covered Stockholder, (a) shall cancel on its books any
certificate, certificates or other instruments representing the Covered
Securities to be sold and (b) shall issue, in lieu thereof, in the name of the
Company a new certificate, certificates or other instruments representing such
Covered securities, and thereupon all of the Covered Stockholder's rights in and
to such Covered Securities shall terminate.
-8-
<PAGE>
7. SPECIFIC ENFORCEMENT. The Covered Stockholder expressly agrees that
the Company will be irreparably damaged if this Agreement is not specifically
enforced. Upon a breach or threatened breach of the terms, covenants and/or
conditions of this Agreement by the Covered Stockholder, the Company shall, in
addition to all other remedies, be entitled to a temporary or permanent
injunction, without showing any actual damage, and/or a decree for specific
performance, in accordance with the provisions hereof.
8. LEGEND. Each certificate or instrument evidencing any of tire Covered
Securities shall bear a legend substantially as follows (with appropriate
changes if the Covered securities are other than shares of capital stock):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AND MAY NOT BE SOLD, EXCHANGED, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH AND SUBJECT TO ALL THE
TERMS AND CONDITIONS OF A CERTAIN STOCKHOLDERS AGREEMENT BY AND BETWEEN
THE COMPANY AND THE HOLDER OF THIS CERTIFICATE, A COPY OF WHICH THE
COMPANY WILL FURNISH TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND
WITHOUT CHARGE.
9. LOCK-UP AGREEMENT. The Covered Stockholder agrees that in connection
with an underwritten public offering of Common Stock, upon the request of, the
Company or the principal underwriter managing such public offering, the Covered
Securities may not be sold, offered for sale or otherwise disposed of without
the prior written consent of the Company or such underwriter, as the case may
be, for at least 90 days or such other period of time as the Board of Directors
may determine.
10. NOTICES. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery, on the date of postmark if mailed by
certified or registered mail, return receipt requested, or on the date sent by
telecopier or, telex to the party being, notified at his or its address
specified on the applicable signature page hereto or such other address as the
addressee may subsequently notify the other party or parties of in writing.
11. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and neither
this Agreement nor any provision hereof may he waived, modified or amended
except by a written agreement signed by the parties hereto. to the extent that
any term or other provision of any other indenture, agreement or instrument by
which any party hereto is bound conflicts with this Agreement, this Agreement
shall have precedence over such conflicting term or provision.
12. GOVERNING LAW; SUCCESSORS AND ASSIGNS. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE AS TO MATTERS WITHIN THE SCOPE THEREOF
AND AS TO ALL OTHER MATTERS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS. WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
THE CONFLICTS OF LAWS THEREOF. THIS AGREEMENT SHALL BE BINDING UPON THE
-9-
<PAGE>
HEIRS, PERSONAL REPRESENTATIVES, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND
ASSIGNS OF THE PARTIES.
13. WAIVERS. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
14. SEVERABILITY. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or tender illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
Invalid or unenforceable provision were not contained herein.
15. CAPTIONS. Captions are for convenience only and are not deemed to be
part of this Agreement.
16. NO OBLIGATION TO CREATE OR CONTINUE EMPLOYMENT RELATIONSHIP. This
Agreement shall not impose any obligation on the Company or PBTC to create or
continue to maintain an employment or consulting relationship with the Covered
Stockholder.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[The remainder of this page is intentionally left blank.]
-10-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
NEON SYSTEMS, INC.
By:/s/ F. Joseph Backer
--------------------
Name: F. Joseph Backer
----------------
Title: President
Address: 14141 Southwest Freeway
Suite 6200
Sugar Land, Texas 77478
Fax: 281/242-3880
/s/ Wayne E. Webb, Jr.
Address: 603 Las Lomas Drive
Austin, Texas 78746
512-327-7958
------------
-11-
<PAGE>
Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Six Months Ended
Years Ended March 31, September 30,
------------------------------- ------------------
1996 1997 1998 1997 1998
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average number of
common shares outstanding
during the period:
Basic 417,393 1,739,683 2,411,524 2,338,396 2,612,595
Dilutive stock options -- 843,828 1,128,617 1,153,651 1,348,542
Series A redeemable,
convertible preferred
share -- 3,125,000 3,125,000 3,125,000 3,125,000
------- --------- --------- --------- ---------
Diluted -- 5,708,511 6,665,141 6,617,047 7,086,137
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Neon Systems FSC, Inc.
Neon Systems (UK) Limited
Neon Systems GmbH
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
NEON Systems, Inc.:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Houston, Texas
December 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS & CONSOLIDATED STATEMENTS OF OPERATIONS OF THE
COMPANY AS OF MARCH 31, 1998 & SEPT. 30, 1998 & FOR EACH OF THE YEARS IN THE
THREE YEAR PERIOD ENDED MARCH 31, 1998 & THE SIX-MONTH PERIOD ENDED SEPT. 30,
1998 & IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 2,327,912
<CGS> 0
<TOTAL-COSTS> (176,123)
<OTHER-EXPENSES> 2,750,199
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (66,175)
<INCOME-PRETAX> (598,410)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (598,410)
<EPS-PRIMARY> (1.63)
<EPS-DILUTED> (1.63)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS & CONSOLIDATED STATEMENTS OF OPERATIONS OF THE
COMPANY AS OF MARCH 31, 1998 & SEPT. 30, 1998 & FOR EACH OF THE YEARS IN THE
THREE YEAR PERIOD ENDED MARCH 31, 1998 & THE SIX-MONTH PERIOD ENDED SEPT. 30,
1998 & IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,705,188
<SECURITIES> 0
<RECEIVABLES> 901,764
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,772,928
<PP&E> 464,746
<DEPRECIATION> (144,787)
<TOTAL-ASSETS> 3,092,887
<CURRENT-LIABILITIES> 1,896,940
<BONDS> 0
1,563,333
0
<COMMON> 22,604
<OTHER-SE> 578,845
<TOTAL-LIABILITY-AND-EQUITY> 3,092,887
<SALES> 0
<TOTAL-REVENUES> 7,024,652
<CGS> 0
<TOTAL-COSTS> (604,072)
<OTHER-EXPENSES> 5,621,157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (91,209)
<INCOME-PRETAX> 823,285
<INCOME-TAX> 6,865
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 816,420
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.14
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS & CONSOLIDATED STATEMENTS OF OPERATIONS OF THE
COMPANY AS OF MARCH 31, 1998 & SEPT. 30, 1998 & FOR EACH OF THE YEARS IN THE
THREE YEAR PERIOD ENDED MARCH 31, 1998 & THE SIX-MONTH PERIOD ENDED SEPT. 30,
1998 & IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,804,073
<SECURITIES> 0
<RECEIVABLES> 2,283,194
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,895,104
<PP&E> 740,929
<DEPRECIATION> (289,131)
<TOTAL-ASSETS> 6,352,170
<CURRENT-LIABILITIES> 4,922,533
<BONDS> 0
1,663,333
0
<COMMON> 25,358
<OTHER-SE> 697,789
<TOTAL-LIABILITY-AND-EQUITY> 6,352,170
<SALES> 0
<TOTAL-REVENUES> 12,014,807
<CGS> 0
<TOTAL-COSTS> (1,294,689)
<OTHER-EXPENSES> 9,361,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (85,521)
<INCOME-PRETAX> 1,470,895
<INCOME-TAX> 309,802
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,161,093
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.17
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS & CONSOLIDATED STATEMENTS OF OPERATIONS OF THE
COMPANY AS OF MARCH 31, 1998 & SEPT. 30, 1998 & FOR EACH OF THE YEARS IN THE
THREE YEAR PERIOD ENDED MARCH 31, 1998 & THE SIX-MONTH PERIOD ENDED SEPT. 30,
1998 & IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,044,312
<SECURITIES> 0
<RECEIVABLES> 3,527,334
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,093,450
<PP&E> 799,497
<DEPRECIATION> (370,159)
<TOTAL-ASSETS> 7,528,173
<CURRENT-LIABILITIES> 5,284,872
<BONDS> 0
1,713,333
0
<COMMON> 26,379
<OTHER-SE> 802,911
<TOTAL-LIABILITY-AND-EQUITY> 7,528,173
<SALES> 0
<TOTAL-REVENUES> 7,874,890
<CGS> 0
<TOTAL-COSTS> (934,849)
<OTHER-EXPENSES> (5,832,601)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (42,704)
<INCOME-PRETAX> 1,122,521
<INCOME-TAX> (415,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 707,521
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.10
</TABLE>
