<PAGE>
As filed with the Securities and Exchange Commission on June 25, 1999
Registration No. 333-78657
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Tanning Technology Corporation
(Exact name of registrant as specified in its charter)
Delaware 7379 84-1381662
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
----------------
4600 South Ulster Street, Suite 380
Denver, Colorado 80237
(303) 220-9944
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Henry F. Skelsey
Chief Financial Officer
Tanning Technology Corporation
4600 South Ulster Street, Suite 380
Denver, Colorado 80237
(303) 220-9944
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Frederick H. Fogel, Esq. William J. Whelan, III, Esq.
Fried, Frank, Harris, Shriver & Cravath, Swaine & Moore
Jacobson 825 Eighth Avenue
One New York Plaza New York, New York 10019
New York, New York 10004 (212) 474-1000
(212) 859-8000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of 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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered Per Share Price(1) Registration Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per
share.......................... 4,600,000 $11.00 $50,600,000 $14,066.80(2)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
(2) Registration fee was paid with the initial filing of the Registration
Statement.
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1999
4,000,000 Shares
[TANNING LOGO]
Tanning Technology Corporation
Common Stock
-------------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$9.00 and $11.00 per share. We have applied to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "TANN."
The underwriters have an option to purchase a maximum of 600,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Tanning
-------- ------------- -----------
<S> <C> <C> <C>
Per Share ................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Salomon Smith Barney
CIBC World Markets
ING Barings LLC
Adams, Harkness & Hill, Inc.
Prospectus dated , 1999.
<PAGE>
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Cautionary Notice Regarding Forward-Looking Statements................... 15
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 27
Management............................................................... 39
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Transactions....................................................... 52
Principal Stockholders..................................................... 54
Description of Capital Stock............................................... 56
Shares Eligible for Future Sale............................................ 59
United States Tax Consequences to Non-United States Holders................ 61
Underwriting............................................................... 64
Notice to Canadian Residents............................................... 67
Legal Matters.............................................................. 68
Experts.................................................................... 68
Where You Can Find More Information........................................ 68
Index to Consolidated Financial Statements................................. F-1
</TABLE>
----------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this prospectus.
----------------
Tanning Technology Corporation and the Tanning logo are our trademark. We
have filed for registration of this trademark.
Dealer Prospectus Delivery Obligation
Until , 1999, 25 days after the commencement of the offering, all dealers
that effect transactions in these securities, whether or not participating in
this offering, 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>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before investing in our common stock. You should read this
entire prospectus carefully.
Unless otherwise indicated, all references in this prospectus to the number
of outstanding shares of our common stock:
. give effect to an amendment of our certificate of incorporation to
increase the number of our authorized shares of common stock to 50
million and to convert our existing Class A, Class B and Class C common
stock into one class of common stock on the basis of a 1 for 3.05
reverse stock split in the case of the Class A and Class C common stock,
and a 1 for 2.67 reverse stock split in the case of the Class B common
stock, immediately prior to this offering; and
. do not include the number of shares that we will issue if the
underwriters exercise their over-allotment option.
In addition, the information in this prospectus assumes that the initial public
offering price will be $10.00 per share, the midpoint of the range disclosed on
the cover of this prospectus.
Tanning
We are an information technology services provider that architects, builds
and deploys enterprise solutions for companies throughout the world. We
specialize in large, complex, integrated solutions that incorporate online
transaction processing and very large databases. Internet technologies are a
central part of our solutions, enabling direct interaction among customers and
business partners on the World Wide Web, and among employees within
organizations on their private intranets. Our clients include Ameritech,
Blockbuster, BSkyB, E*Trade, Federal Express, Maersk Line, MCI WorldCom, R.R.
Donnelley Financial and U S WEST.
We focus on the most challenging and critical assignments in the information
technology industry. Our solutions typically involve:
. ultra-high transaction rates (up to millions per hour);
. very large databases (terabytes of information); and
. business-critical operational requirements for reliability, scalability,
flexibility and availability.
Our key solutions are:
. Electronic commerce solutions, which enable businesses to interact with
customers, suppliers and other business partners directly and sell
products and services through the Internet. For example, we designed
international extensions to E*Trade's domestic trading system to enable
it to expand its trading services into foreign countries.
. Enterprise customer relationship management solutions, which enhance a
business' ability to identify, attract, retain and support customers
using emerging and established channels such as the World Wide Web,
direct sales, telemarketing and call centers, direct mail and retail
facilities. For example, we redesigned Blockbuster's existing enterprise
architecture to effectively manage customer data and account activity
information for over 40 million customers and more than 6,000 stores.
. Core operations solutions, which improve business processes such as
billing system integration and order, claim, trade, credit card
transaction and operation transaction processing. For example, we
created an online transaction processing system for Federal Express
capable of handling 1,000
3
<PAGE>
transactions per second on a one-plus terabyte database, enabling
Federal Express to obtain information about the performance of its
package delivery system in significantly shorter time frames (hours vs.
days).
With advances in the Internet and technology, new business models and
innovative information technology solutions are emerging that can transform the
way companies run their businesses. As part of this evolution of business
models, companies are seeking value from electronic commerce, customer
relationship management and core operations solutions. We believe that we are
differentiated by our focus on, and expertise in, the architecture, complex
integration, high volume online transaction processing capabilities and very
large databases required to successfully deploy these advanced solutions. For
many clients, the systems we build are at the core of their efforts to
capitalize on information technology and the Internet.
Our company traces its history back to 1993 and is currently incorporated in
Delaware. Our principal executive office is located at 4600 South Ulster
Street, Suite 380, Denver, Colorado 80237, and our telephone number is (303)
220-9944. We maintain a site on the World Wide Web at http://www.tanning.com;
however, the information found on our website is not part of this prospectus.
4
<PAGE>
The Offering
Common stock offered by Tanning.....
4,000,000 shares.
Common stock to be outstanding
after this offering.................
19,606,002 shares or 20,206,002 shares if
the underwriters exercise their over-
allotment option in full. These shares do
not include 4,909,891 shares reserved for
issuance pursuant to options we may issue
in the future or 6,126,677 shares subject
to outstanding options, in each case
pursuant to our stock option plans, as of
June 25, 1999.
Use of proceeds..................... For general corporate purposes, including
capital expenditures and working capital.
Proposed Nasdaq symbol.............. TANN
Summary Financial Information
The following table presents our summary condensed consolidated financial
information and has been derived from our audited financial statements for the
three-year period ended December 31, 1998 and from our unaudited interim
financial statements for the three months ended March 31, 1998 and 1999, all of
which are included in another section of this prospectus, and from our
unaudited financial statements for the year ended December 31, 1995. The
information below should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to our
consolidated financial statements, each of which is included in another section
of this prospectus.
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
---------------------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
----------- ----------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $4,815 $12,809 $26,107 $33,289 $5,183 $11,305
Gross profit............ 2,798 6,240 11,385 18,348 2,295 5,813
Income (loss) from
operations............. 954 2,852 (269) 3,384 (846) 1,134
Net income (loss)....... 954 2,823 73 2,303 (471) 819
Basic and diluted
earnings (loss) per
share.................. $ 0.01 $ 0.15 $ (0.03) $ 0.05
Diluted weighted average
shares outstanding..... 13,718,710 15,232,236 14,647,552 16,323,342
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-------------------
Actual As adjusted
------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $ 7,183 $43,133
Working capital............................................. 15,587 51,537
Total assets................................................ 25,117 61,067
Long-term debt, net of current portion...................... 429 429
Total stockholders' equity.................................. 18,596 54,546
</TABLE>
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus,
including our consolidated financial statements and the related notes, before
you purchase any shares of our common stock.
Risks Related to Our Business
Inability to manage our growth could have a material adverse effect on the
quality of our services, our ability to retain key personnel, and our business
Our growth has placed significant demands on our management and other
resources. Our revenues increased approximately 28% from 1997 to 1998. Our
staff increased from 120 full-time employees at December 31, 1997 to 148 at
December 31, 1998, and to 177 at March 31, 1999. Our future success will depend
on our ability to manage our growth effectively, including:
. continuing to train, motivate, manage and retain our existing employees
and attract and integrate new employees;
. improving our business development capabilities;
. maintaining high rates of employee utilization;
. accurately estimating time and resources for engagements;
. developing and improving our operational, financial, accounting and
other internal systems and controls; and
. maintaining project quality.
Our management has limited experience managing a business of Tanning's size.
If we are unable to manage our growth and projects effectively, it could have a
material adverse effect on the quality of our services, our ability to retain
key personnel, and our business and results of operations.
In anticipation of business growth, we expect to incur costs and expend
capital. We can give no assurances that we will continue to grow, or that we
will grow at a pace that will support these costs and expenditures. To the
extent revenues do not increase at a rate commensurate with these additional
costs and expenditures, our results of operations and liquidity could be
materially and adversely affected. In addition, we expect that our plans for
increases in expenses and capital expenditures over the next two and one-half
years to support our growth could negatively impact profitability.
We must attract and retain professional staff in order to complete our projects
and obtain new projects
Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining experienced, knowledgeable professionals. If a
significant number of our current employees or any of our project managers or
senior technical personnel leave, we may be unable to complete or retain
existing projects or bid for new projects of similar scope and revenue. In
addition, former employees may compete with us in the future.
Even if we retain our current employees, our management must continually
recruit talented professionals in order for our business to grow. There is
currently a shortage of qualified project managers and senior technical
personnel in the information technology services field, and this shortage is
likely to continue. Furthermore, there is significant competition for employees
with the skills required to perform the services we offer. We cannot give any
assurances that we will be able to attract a sufficient number of qualified
employees in the future, or that we will be successful in motivating and
retaining the employees we are able to attract. If we cannot attract, motivate
and retain qualified professionals, our business, financial condition and
results of operations will suffer.
6
<PAGE>
We depend heavily on our principal clients; a significant reduction in the work
performed for any of them could harm our revenues and operating results
We derive a large portion of our services revenue from a limited number of
clients. Services revenue constitutes substantially all of our revenues. In
1997, our five largest clients accounted for approximately 81%
6--1
<PAGE>
of our services revenue, with Ameritech accounting for approximately 41% of our
services revenue and Oxford Health Plans accounting for approximately 23% of
our services revenue. In 1998, our five largest clients accounted for
approximately 70% of our services revenue, with Maersk Line accounting for
approximately 31% of our services revenue, U S WEST accounting for
approximately 12% of our services revenue and E*Trade and CSX Technology each
accounting for approximately 10% of our services revenue. In the first three
months of 1999, our five largest clients accounted for approximately 74% of our
services revenue, with Maersk Line accounting for approximately 31% of our
services revenue and U S WEST, E*Trade, and Ameritech each accounting for
approximately 12% of our services revenue. The volume of work performed for our
principal clients may not be sustained from year to year, and there is a risk
that these principal clients may not retain us in the future. Any cancellation,
deferral or significant reduction in work performed for these principal clients
or a significant number of smaller clients could have a material adverse effect
on our financial condition and results of operations. See "Business--Clients"
for more information relating to our clients.
Our clients may terminate projects before completion; this could adversely
affect our revenues and earnings
In general, our clients may terminate project engagements upon limited
notice and without significant penalty. This makes our results of operations
difficult to predict. Our clients' termination of our project engagements would
result in lower revenues and underutilized employees and, as a result, would
negatively affect our earnings. For example, a client's termination of a
significant project in the fourth quarter of 1997 adversely affected revenues,
employee utilization and earnings in the first half of 1998. For a further
discussion of the impact of this project termination, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
We may have difficulty in managing our international operations and expansion,
which could adversely affect our business
We currently have significant operations in Europe and intend to expand our
business to other regions, as attractive opportunities arise. Revenues from our
existing international operations represented 35% of services revenue in 1998
and in the first three months of 1999 and 86% of our income before income taxes
in 1998 and 55% of our income before income taxes in the first three months of
1999. We may incur significant costs in connection with our international
expansion.
There are also risks inherent in doing business in foreign countries,
including:
. changes in legal and regulatory requirements;
. enactment of export and import restrictions, tariffs and other trade
barriers;
. currency fluctuations and the on-going conversion to the euro in several
member states of the European Union;
. difficulties in staffing and managing foreign offices as a result of,
among other things, distance and language and cultural differences;
. political and economic instability;
. seasonal reductions in business activity;
. longer payment cycles and problems in collecting accounts receivable;
and
. potentially adverse tax consequences.
Any of these factors could have a material adverse effect on our business,
financial condition and results of operations.
7
<PAGE>
We may fail to accurately estimate the time and resources necessary for the
performance of our services, which could reduce the profitability of, or
result in a loss on, our projects and damage our customer relationships
To date, we have generally provided services to our clients on a time and
materials basis, although we sometimes work on a fixed-fee or capped fee
basis. In the future, we anticipate that an increasing percentage of our
client engagements will be subject to fixed-fee or other arrangements that are
not solely based on time and materials. Because we work with complex
technologies in compressed timeframes and because we have limited experience
in pricing engagements on these terms, it can be difficult to judge the time
and resources necessary to complete a project. Our failure to accurately
estimate the time and resources required for a project, or our failure to
complete our obligations in a manner consistent with the project plan upon
which our fixed-fee or other arrangements are based, could reduce the
profitability of, or result in a loss on, our projects if we are required to
devote additional resources to project engagements for which we will not
receive additional compensation, and could damage our customer relationships
and our reputation.
Quarter to quarter fluctuations in our revenues and earnings could affect the
market price of our common stock
Our revenues and earnings may vary from quarter to quarter as a result of a
number of factors, including:
. number, size and scope of client engagements commenced or completed
during a quarter;
. employee utilization rates;
. unanticipated project terminations, delays or deferrals;
. the accuracy of estimates of resources required to complete ongoing
projects; and
. the contractual terms and degree of completion of projects in which we
are engaged.
Because a high percentage of our expenses, particularly compensation and
rent, are fixed in advance of any particular quarter, any of the factors
listed above could cause significant variations in our earnings in any given
quarter. Any decline in revenues or earnings or a greater than expected loss
for any quarter could materially adversely affect the market price of our
common stock, even if not reflective of any long-term problems with our
business.
We compete in a rapidly evolving and highly competitive industry that has low
barriers to entry
The business areas in which we compete are intensely competitive and
subject to rapid technological change. We expect competition to continue and
intensify. Our competitors fall into four major categories:
. large information technology consulting services providers, such as
Andersen Consulting, KPMG, PricewaterhouseCoopers, IBM, EDS and CSC;
. mid-tier information technology services providers, such as Cambridge
Technology Partners and Sapient;
. Internet professional service providers, such as Modem Media . Poppe
Tyson, US Interactive, Proxicom, Viant and Scient; and
. internal information technology departments of current and potential
clients.
Many of our competitors have longer operating histories and client
relationships, greater financial, technical, marketing and public relations
resources, larger client bases and greater brand or name recognition than we
have. Our competitors may be able to respond more quickly to technological
developments and changes in clients' needs.
8
<PAGE>
Further, there are low barriers to entry into our business. We do not own
any technologies that preclude or inhibit competitors from entering our
industry. Existing or future competitors may independently develop and patent
or copyright technologies that are superior or substantially similar to our
technologies. The costs to develop and provide information technology
consulting services are relatively low. Therefore, we expect to continue to
face additional competition from new entrants into our industry. See
"Business--Competition" for a further discussion of competition within our
industry.
Year 2000 issues could seriously harm our business as a result of reduced
demand for our services, internal and external operations difficulties, and
potential disputes with, or liabilities to, clients
The Year 2000 problem is the potential for system and processing failures of
date-related data arising from the use of two digits by computer-controlled
systems, rather than four digits, to define the applicable year. Clients' and
potential clients' purchasing patterns may be affected by Year 2000 issues as
companies expend significant resources to correct or replace their current
systems for Year 2000 compliance. These clients and potential clients may have
fewer funds available to purchase our services, which could adversely affect
our business, financial condition and results of operations. We may experience
operations difficulties because of undetected errors or defects in the
technology we use in our internal systems. We also rely, directly and
indirectly, on the systems of business enterprises such as clients, suppliers,
utilities, creditors and financial institutions, both domestic and
international, which could be subject to operational difficulties arising out
of Year 2000 issues. In addition, we have made representations to clients
regarding Year 2000 compliance and may become involved in disputes regarding
Year 2000 problems involving solutions that we have developed or implemented.
Any failure on the part of our principal internal systems, other business'
systems or the systems that we create for our clients as a result of the Year
2000 problem could seriously harm our business, reputation, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000."
Expansion of our solutions and service offerings may not be successful and we
may lose opportunities to expand our business
In addition to growing our business within the disciplines on which we
currently focus, an element of our strategy is to expand our solutions in the
area of supply chain management and our service offerings in areas such as
business consulting, process innovation and creative design. Successful
expansion in these areas will require:
. attracting, integrating and retaining talented personnel;
. successfully marketing and delivering these services; and
. successfully establishing relationships with vendors and technology
providers.
Failure to develop additional solutions and service offerings on a timely
basis could cause us to lose opportunities for business with both existing and
potential clients. We cannot assure you that this expansion will be successful.
We may have difficulty responding to changing technology, industry standards
and client preferences, which could cause us to lose business
Our success will depend in part on our ability to develop information
technology solutions that keep pace with continuing changes in technology,
evolving industry standards and changing client preferences. We cannot give any
assurances that we will be successful in addressing these developments on a
timely basis or at all. Our failure to respond quickly and cost-effectively to
new developments could cause us to lose current and potential business
opportunities and have a material adverse effect on our business and results of
operations.
In particular, we have derived a significant portion of our revenues from
projects based primarily on:
. open system technologies, which are standards-based, non-proprietary
technologies;
9
<PAGE>
. multi-tier software architecture, in which the key layers of an
application system are separated and optimized independently to improve
performance, scalability and reliability;
. web-based architectures; and
. electronic commerce, generally.
These areas are continuing to develop and are subject to rapid change. Any
factors negatively affecting the acceptance of information processing systems
using client/server and web-based architectures could have a material adverse
effect on our business, especially if we are unable to develop skills and
replacement technologies for these types of information processing systems.
Our business may suffer if growth in the use of the Internet declines
Because Internet technologies are a central part of our solutions, our
business depends upon continued growth in the use of the Internet by our
clients, prospective clients and their customers and suppliers. Capacity
constraints caused by growth in Internet usage may, unless resolved, impede
further growth in Internet use. If the number of users on the Internet does not
increase and commerce over the Internet does not become more accepted and
widespread, demand for our services may decrease and our business and results
of operations could suffer. Factors which may affect Internet usage or
electronic commerce adoption include:
. actual or perceived lack of security of information;
. lack of access and ease of use;
. congestion of Internet traffic or other usage delays;
. inconsistent quality of service;
. increases in access costs to the Internet;
. excessive government regulation;
. uncertainty regarding intellectual property ownership;
. reluctance to adopt new business methods;
. costs associated with the obsolescence of existing infrastructure; and
. economic viability of the Internet commerce model.
Misappropriation of our intellectual property could harm our reputation, affect
our competitive position and cost us money
We believe our intellectual property, including our proprietary
methodologies, is important to our success and competitive position. If we are
unable to protect our intellectual property against unauthorized use by others,
our reputation among existing and potential clients could be damaged and our
competitive position adversely affected.
Our strategies to deter misappropriation could be inadequate in light of the
following risks:
. non-recognition of the proprietary nature of or inadequate protection of
our methodologies in the United States or foreign countries;
. undetected misappropriation of our proprietary methodologies;
. development of similar software or applications by our competitors; and
. unenforceability of the non-competition and confidentiality agreements
entered into by our key employees.
10
<PAGE>
If any of these risks materialize, we could be required to spend significant
amounts to defend our rights and our managerial resources could be diverted. In
addition, our proprietary methodologies may decline in value or our rights to
them may not be enforceable. See "Business--Intellectual property rights" for
more information concerning our intellectual property.
Others could claim that we infringe on their intellectual property rights,
which may result in substantial costs, diversion of resources and management
attention and harm to our reputation
Although we believe that our services do not infringe on the intellectual
property rights of others, we cannot give any assurances that an infringement
claim will be successfully defended. A successful infringement claim against us
could materially and adversely affect us in the following ways:
. we may be liable for damages and litigation costs, including attorneys'
fees;
. we may be enjoined from further use of the intellectual property;
. we may have to license the intellectual property, incurring licensing
fees;
. we may have to develop a non-infringing alternative, which could be
costly and delay projects; and
. we may have to indemnify clients with respect to losses incurred as a
result of our infringement of the intellectual property.
Regardless of the outcome, an infringement claim could result in substantial
costs, diversion of resources and management attention, clients' termination of
project engagements and harm to our reputation.
Our business and our client relationships may suffer if we have disputes over
our right to resell or reuse intellectual property developed for specific
clients
A portion of our business involves the development of software applications
for specific client engagements. Ownership of client-specific software is
generally retained by the client, although we retain rights to some of the
applications, processes and other intellectual property developed in connection
with client engagements. Issues relating to the rights to intellectual property
can be complicated. We cannot give any assurances that disputes will not arise
that affect our ability to resell or reuse such applications, processes and
other intellectual property, damage our relationships with our clients, divert
our management's attention or have a material adverse effect on our business,
financial condition and results of operations.
Potential acquisitions may result in, among other things, increased expenses,
difficulties in integrating target companies and diversion of management's
attention
An element of our strategy includes expanding our solutions and service
offerings and gaining access to new technologies through strategic acquisitions
and investments when attractive opportunities arise. Some of the risks that we
may encounter in implementing this element of our strategy include:
. expenses and difficulties in identifying potential targets and the costs
associated with acquisitions that are abandoned before completion;
. expenses, delays and difficulties of integrating the acquired company
into our existing organization and our company's culture;
. diversion of management's attention during the acquisition process;
. diversion of management's attention following the acquisition process
where management has options or other equity incentive rights in the
acquired company;
. expenses of amortizing the acquired company's intangible assets, which
could be significant in light of the high valuations of many companies
in the information technology industry;
. impact on our financial condition due to the timing of the acquisition;
and
11
<PAGE>
. expenses of any undisclosed or potential legal liabilities of the
acquired company, including intellectual property, employment, and
warranty and product liability-related problems.
If realized, any of these risks could have a material adverse effect on our
business, financial condition and results of operations.
We must maintain our reputation and expand our name recognition to remain
competitive
We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and expanding our client base. We also
believe that the importance of reputation and name recognition will increase
due to the growing number of information technology service providers. If our
reputation is damaged or if potential clients are not familiar with us or the
services we provide, we may become less competitive or lose our market
position. Promotion and enhancement of our name will depend largely on our
success in continuing to provide large, complex, integrated information
technology solutions. If clients do not perceive our solutions to be effective
or of high quality, our brand name and reputation will suffer.
Lack of detailed written contracts could impair our ability to collect fees,
protect our intellectual property and protect ourselves from liability to
others
We try to protect ourselves by entering into detailed written contracts with
our clients covering the terms and contingencies of the project engagement. In
some cases, however, consistent with what we believe to be industry practice,
work is performed for clients on the basis of a limited statement of work or
verbal agreements before a detailed, written contract can be finalized. To the
extent that we fail to have detailed written contracts in place, our ability to
collect fees, protect our intellectual property and protect ourselves from
liability to others may be impaired.
Concentration of ownership of our common stock may limit your ability to
influence corporate matters
Immediately following this offering, our executive officers and directors
together with Stephen Brobst and entities controlled by AEA Tanning Investors
Inc. will beneficially own approximately 82% of the outstanding shares of our
common stock.
A number of our large stockholders are parties to an agreement under which
they have agreed to vote in favor of their nominees to our board of directors.
Because they will own approximately 66% of the outstanding shares of our common
stock immediately following this offering, they will have the voting power to
cause their nominees to be elected. If our significant stockholders choose to
act or vote together on other matters, they will have the power to control the
approval of any other action requiring the approval of our stockholders,
including any amendments to our certificate of incorporation and mergers,
acquisitions or sales of all of our assets. In addition, without the consent of
these stockholders, we could be prevented from entering into transactions that
could be beneficial to us. Also, third parties could be discouraged from making
a tender offer or bid to acquire our company at a price per share that is above
the then-prevailing market price. See "Certain Transactions--Stock Purchase
Agreement, Shareholder Agreement and Registration Rights Agreement" and
"Principal Stockholders" for more information regarding the stock ownership of
our officers, directors and significant stockholders.
Government regulation and legal uncertainties relating to the Internet could
adversely affect our business
Increased regulation of the Internet might slow the growth in use of the
Internet, which could decrease demand for our services, increase our cost of
doing business or otherwise harm our business. Congress, federal regulatory
agencies and the states have recently passed legislation or taken other actions
regulating certain aspects of the Internet, including on-line content,
interaction with children, copyright infringement, user
12
<PAGE>
privacy, taxation, access charges, liability for third-party activities,
transmission of sexually explicit material, defamation, consumer protection and
jurisdiction. Foreign governments have also taken actions to regulate aspects
of the Internet, including user privacy and on-line content. In addition,
federal, state and local governmental organizations as well as foreign
governments are considering other legislative and regulatory proposals that
would regulate these and other aspects of the Internet. We do not know how
courts will interpret laws governing the Internet or the extent to which they
will apply existing laws to the Internet. Therefore, we are not certain how
existing or future laws governing the Internet or applied to the Internet will
affect our business.
Risks Related to this Offering
External factors could adversely affect the market price of our common stock
There is currently no public market for our common stock, and we cannot
assure you that an active trading market will develop or be sustained after
this offering. The initial public offering price will be determined through
negotiation between us and representatives of the underwriters and may not be
indicative of the market price for our common stock after this offering.
The market price of our common stock could fluctuate significantly as a
result of:
. our susceptibility to quarter to quarter variations in our operating
results, which may cause us to fail to meet analysts' or investors'
expectations;
. economic and stock market conditions specific to information technology
services providers;
. changes in financial estimates by securities analysts following our
stock;
. earnings and other announcements by, and changes in market evaluations
of, providers of information technology services;
. changes in business or regulatory conditions affecting information
technology services;
. announcements or implementation by us or our competitors of
technological innovations or new products or services; and
. trading volume of our common stock.
The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performance. Specifically, market prices for securities of Internet-related and
technology companies have frequently reached elevated levels, often following
their initial public offerings. These levels may not be sustainable and may not
bear any relationship to these companies' operating performances. If the market
price of our common stock reaches an elevated level following this offering, it
may materially and rapidly decline. In the past, following periods of
volatility in the market price of a company's securities, stockholders have
often instituted securities class action litigation against the company. If we
were involved in a class action suit, it could divert the attention of senior
management, and, if adversely determined, have material adverse effect on our
business and financial condition.
The sale or availability for sale of substantial amounts of our common stock
could adversely affect its market price
Sales of substantial amounts of our common stock in the public market after
the completion of this offering, or the perception that these sales could
occur, could adversely affect the market price of our common stock and could
materially impair our future ability to raise capital through offerings of our
common stock. There will be 19,606,002 shares of common stock outstanding
immediately after this offering, or 20,206,002 shares if the underwriters
exercise their over-allotment option in full. The 4,000,000 shares sold in this
offering
13
<PAGE>
will be freely tradeable without restriction or further registration under the
Securities Act, unless held by our "affiliates" as that term is defined in Rule
144 under the Securities Act. The 15,606,002 shares of common stock outstanding
prior to this offering are "restricted securities" as defined in Rule 144 and
may not be sold in absence of registration other than in accordance with Rule
144 or Rule 701 under the Securities Act or another exemption from
registration.
In connection with this offering, we, our officers and directors and some of
our stockholders have agreed, except in limited circumstances, not to sell any
shares of common stock for 180 days after completion of this offering without
the underwriters' consent; however, the underwriters may release these shares
from these restrictions at any time. We cannot predict what effect, if any,
market sales of shares held by principal stockholders or any other stockholder
or the availability of these shares for future sale will have on the market
price of our common stock. See "Shares Eligible for Future Sale" for a more
detailed description of the restrictions on selling shares of our common stock
after this offering.
The net proceeds of this offering may be allocated in ways with which you and
other stockholders may not agree
Our management has significant flexibility in applying the proceeds we
receive in this offering. Because the proceeds are not required to be allocated
to any specific investment or transaction, you cannot determine at this time
the value or propriety of our management's application of the proceeds on our
behalf and you and other stockholders may not agree with our decisions. See
"Use of Proceeds" for a more detailed description of how management intends to
apply the proceeds of this offering.
Investors in this offering will experience immediate and substantial dilution
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$7.20 per share, representing the difference between our net tangible book
value per share as of March 31, 1999, after giving effect to this offering and
the assumed public offering price of $10.00 per share. In addition, you may
experience further dilution to the extent that shares of our common stock are
issued upon the exercise of stock options. These shares will be issued at a
purchase price less than the public offering price per share in this offering.
See "Dilution" for a more complete description of how the value of your
investment in our common stock will be diluted upon the completion of this
offering.
Anti-takeover provisions of Delaware's General Corporation Law and our
certificate of incorporation could delay or deter a change in control
Amendments we intend to make to our certificate of incorporation and our
bylaws, as well as various provisions of the Delaware General Corporation Law,
may make it more difficult to effect a change in control of our company. The
existence of these provisions may adversely affect the price of our common
stock, discourage third parties from making a bid for our company or reduce any
premiums paid to our stockholders for their common stock. For example, we
intend to amend our certificate of incorporation to authorize our board of
directors to issue up to 5.0 million shares of "blank check" preferred stock
and to attach special rights and preferences to this preferred stock. The
issuance of this preferred stock may make it more difficult for a third party
to acquire control of us. We also intend to amend our certificate of
incorporation to provide for the division of the board of directors into three
classes as nearly equal in size as possible with staggered three-year terms.
This classification of the board of directors could have the effect of making
it more difficult for a third party to acquire our company, or of discouraging
a third party from acquiring control of our company. See "Description of
Capital Stock--Preferred stock," and "Description of Capital Stock--Anti-
takeover effects of our certificate of incorporation and bylaws and provisions
of Delaware law" for a more complete description of our capital stock, our
certificate of incorporation and the effects of the Delaware General
Corporation Law that could hinder a third party's attempts to acquire control
of us.
14
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" for purposes of the
Securities Act of 1933 and the Securities Exchange Act of 1934. All statements
other than statements of historical fact in this prospectus, including
statements regarding our competitive strengths, business strategy, future
financial position, budgets, projected costs and plans and objectives of
management are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "should," "intend," "estimate,"
"anticipate," "believe," "continue" or similar terminology. We can give no
assurance that the expectations reflected in forward-looking statements will
prove to have been correct. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of factors
including those set forth under the "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business"
sections, and elsewhere in this prospectus. All written and oral forward-
looking statements attributable to us are expressly qualified in their entirety
by the factors we disclose that could cause our actual results to differ
materially from our expectations. We undertake no obligation to update publicly
or revise any forward-looking statements.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $36.0
million, or approximately $41.5 million if the underwriters' over-allotment
option is exercised in full, from the sale of the shares of common stock
offered by us, at an assumed initial public offering price of $10.00 per share,
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by us.
We expect to use the net proceeds of the offering for general corporate
purposes, including:
. working capital;
. additional personnel;
. increased facilities; and
. computers and network equipment.
An element of our strategy includes expanding our solutions and service
offerings and gaining access to new technologies through strategic acquisitions
and investments when attractive opportunities arise. At the present time, we
have no understanding, commitment or agreement with respect to any acquisition
or investment. Pending these uses, we intend to invest the net proceeds from
this offering in U.S. government securities and other investment-grade,
interest-bearing instruments.
The foregoing represents our present intentions with respect to the
allocation of the net proceeds of this offering based upon our present plans
and business conditions. The occurrence of unforeseen events or changed
business conditions could result in the application of the proceeds of this
offering in a manner other than as described in this prospectus. See "Risk
Factors--Our management has broad discretion over the use of proceeds from this
offering" for a discussion of this risk.
DIVIDEND POLICY
Our board of directors has never declared or paid any cash dividends on our
common stock and does not expect to do so in the foreseeable future. We
currently intend to retain any earnings to finance the expansion and
development of our business. Our board of directors will make any future
determination of the payment of dividends based on conditions then existing,
including our earnings, financial condition and capital requirements, as well
as such economic and other conditions as the board of directors may deem
relevant. In addition, the payment of dividends may be limited by financing
agreements that we may enter into in the future.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization (1) on an actual basis as
of March 31, 1999 and (2) as adjusted to give effect to an amendment of our
certificate of incorporation to increase the number of our authorized shares of
common stock and preferred stock to 50 million and 5 million, respectively, and
to the sale of 4,000,000 shares of common stock offered hereby.
This table should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to our
consolidated financial statements, each of which is included in this
prospectus.
<TABLE>
<CAPTION>
As of March 31, 1999
------------------------
Actual As adjusted
---------- ------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents............................ $ 7,183 $ 43,133
========== ==========
Long-term debt, net of current portion............... $ 429 $ 429
Stockholders' equity:
Common stock, $0.01 par value: 23,753,631 shares
authorized, 15,498,618 shares issued and
outstanding, actual (50,000,000 shares authorized,
19,498,618 shares issued and outstanding, as
adjusted)(1)...................................... 451 491
Preferred stock, $0.01 par value: no shares
authorized, no shares issued and outstanding,
actual (5,000,000 shares authorized, no shares
issued and outstanding, as adjusted).............. -- --
Additional paid-in capital......................... 15,226 51,136
Retained earnings.................................. 2,979 2,979
Accumulated comprehensive income (loss)............ (60) (60)
---------- ----------
Total stockholders' equity....................... 18,596 54,546
---------- ----------
Total capitalization........................... $ 19,025 $ 54,975
========== ==========
</TABLE>
- --------
(1) Excludes, as of March 31, 1999, 2,852,603 shares reserved for issuance
pursuant to options we may issue in the future and 5,402,410 shares subject
to outstanding options, in each case pursuant to our stock option plans.
16
<PAGE>
DILUTION
Our net tangible book value as of March 31, 1999 was approximately $18.6
million, or $1.20 per share. Net tangible book value per share is equal to our
total tangible assets minus our total liabilities divided by the number of
shares of our common stock outstanding. Assuming we had sold the 4,000,000
shares of common stock offered hereby at an initial public offering price of
$10.00, and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, our net tangible book value at March
31, 1999 would have been approximately $54.6 million, or $2.80 per share. This
represents an immediate increase in net tangible book value of $1.60 per share
to existing stockholders and an immediate dilution of $7.20 per share to new
investors. Dilution is determined by subtracting net tangible book value per
share after this offering from the amount of cash paid by a new investor for a
share of common stock. The following table illustrates the substantial and
immediate per share dilution to new investors:
<TABLE>
<CAPTION>
Per share
------------
<S> <C> <C>
Assumed initial public offering price.......................... $10.00
Net tangible book value as of March 31, 1999................. $1.20
Increase attributable to new investors....................... 1.60
-----
Net tangible book value after this offering.................... 2.80
------
Dilution to new investors...................................... $ 7.20
======
</TABLE>
The following table summarizes as of March 31, 1999 the number of shares of
common stock purchased from us, the total consideration paid to us and the
average price per share paid by existing stockholders and by new investors at
an assumed offering price of $10.00 per share and without giving effect to the
underwriting discount and assumed offering expenses:
<TABLE>
<CAPTION>
Shares purchased Total consideration
------------------ ------------------- Average price
Number Percent Amount Percent per share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 15,498,618 79% $15,677,374 28% $ 1.01
New investors.............. 4,000,000 21 40,000,000 72 10.00
---------- --- ----------- ---
Total.................... 19,498,618 100% $55,677,374 100%
========== === =========== ===
</TABLE>
If the underwriters exercise their over-allotment option in full, the pro
forma net tangible book value per share of common stock as of March 31, 1999
would have been $2.99 per share, which would result in dilution to the new
investors of $7.01 per share, and the number of shares held by the new
investors will increase to 4,600,000, or 23% of the total number of shares to
be outstanding after this offering.
The foregoing tables assume no exercise of any outstanding stock options to
purchase common stock. As of March 31, 1999, there were outstanding options to
purchase an aggregate of 5,402,410 shares of common stock at a weighted average
exercise price of $3.60 per share under our stock option plans. If all of these
options had been exercised on March 31, 1999 before the issuance of common
stock from this offering, our net tangible book value would have been
approximately $38.0 million or $1.82 per share. On issuance of common stock
from this offering, our pro forma net tangible book value on March 31, 1999
would have been approximately $74.0 million, or $2.97 per share, the increase
in net tangible book value attributable to new investors would have been $1.15
per share and the dilution in net tangible book value to new investors would
have been $7.03 per share.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to our consolidated financial statements, each of
which is included in this prospectus. The selected financial data presented are
for the four years from our formation in February 1995 through year end 1998
and for the three months ended March 31, 1998 and March 31, 1999. The statement
of operations data for the three-year period ended December 31, 1998 and the
balance sheet information as of December 31, 1997 and 1998 are derived from our
financial statements, which have been audited by Ernst & Young LLP, independent
auditors, and are included elsewhere in this prospectus. The balance sheet data
as of December 31, 1996 are derived from our audited financial statements,
which are not included in this prospectus. The statement of operations data for
the year ended December 31, 1995 and the balance sheet data as of December 31,
1995 are derived from our unaudited financial statements, which are not
included in this prospectus. The statement of operations data for each of the
three-month periods ended March 31, 1998 and 1999, and the balance sheet
information at March 31, 1999 are derived from our unaudited financial
statements, which are included in this prospectus. In the opinion of
management, the unaudited interim financial information includes all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation of such information. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the entire year.
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
-------------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
------ ------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Services revenue........ $4,815 $12,763 $25,235 $30,313 $4,613 $11,305
Product sales........... -- 46 872 2,976 570 --
------ ------- ---------- ---------- ---------- ----------
Net revenues.......... 4,815 12,809 26,107 33,289 5,183 11,305
Project personnel
costs.................. 2,017 6,569 14,722 14,941 2,888 5,492
------ ------- ---------- ---------- ---------- ----------
Gross profit.......... 2,798 6,240 11,385 18,348 2,295 5,813
Selling, marketing and
administrative......... 574 2,055 7,856 12,178 2,321 4,679
Product development
costs.................. -- 431 1,608 2,786 820 --
Sign-on bonus related to
stock purchase
agreement.............. -- -- 2,117 -- -- --
Management fees--related
parties................ 1,270 902 73 -- -- --
------ ------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. 954 2,852 (269) 3,384 (846) 1,134
Interest income
(expense) and other,
net.................... -- (29) 130 285 96 163
------ ------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 954 2,823 (139) 3,669 (750) 1,297
Income tax provision
(benefit).............. -- -- (212) 1,366 (279) 478
------ ------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 954 $ 2,823 $ 73 $ 2,303 $ (471) $ 819
====== ======= ========== ========== ========== ==========
Basic and diluted
earnings (loss) per
share.................. $ 0.01 $ 0.15 $ (0.03) $ 0.05
========== ========== ========== ==========
Basic weighted average
shares outstanding..... 13,718,710 14,968,974 14,647,552 15,345,327
========== ========== ========== ==========
Diluted weighted average
shares outstanding..... 13,718,710 15,232,236 14,647,552 16,323,342
========== ========== ========== ==========
Gross profit from
services............... $2,798 $ 6,194 $10,513 $15,372 $1,725 $ 5,813
Income (loss) from
operations from
services............... $ 954 $ 3,238 $ 467 $ 3,194 $ (596) $ 1,134
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------ ---------------
1995 1996 1997 1998 1998 1999
------ ------ ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...... $ 47 $1,612 $ 7,769 $10,446 $ 6,361 $ 7,183
Working capital................ 840 (82) 10,204 14,005 10,002 15,587
Total assets................... 2,118 3,233 16,846 23,923 16,464 25,117
Long-term debt, net of current
portion....................... 203 1,000 -- 460 544 429
Total stockholders' equity..... 1,100 83 12,737 16,772 12,265 18,596
</TABLE>
18--1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the notes to our consolidated financial
statements, each of which is included in this prospectus. This prospectus
contains forward-looking statements relating to future events and our future
financial performance. Actual results could be significantly different from
those discussed in this prospectus. Factors that could cause or contribute to
such differences include those summarized in the section entitled "Risk
Factors," as well as those discussed in other sections of this prospectus.
Overview
Our revenue is comprised primarily of fees generated for professional
services. To date, we have generally provided services to our clients on a time
and materials basis, although we sometimes work on a fixed-fee basis. Under
time and materials contracts, we recognize revenue as services are provided.
Under fixed-fee contracts, we recognize revenue on a percentage of completion
basis. In the future, we anticipate that an increasing percentage of our client
engagements will be subject to fixed-fee or other arrangements that are not
solely based on time and materials. We are generally reimbursed for reasonable
expenses under our contracts.
Our revenue from foreign operations represents revenue for professional
services performed for clients outside the United States. Revenue from foreign
operations has made an increasing contribution to our total services revenue
and we anticipate continued growth in revenue from foreign operations. Foreign
operations represented approximately 35% of services revenues in 1998 and the
first three months of 1999 and 86% of income before income taxes in 1998 and
55% in the first three months of 1999. The higher relative profitability from
foreign operations principally arises because of better employee utilization
due to longer term projects of greater dollar value. Additionally, our foreign
operations incurred lower overhead costs as compared to our domestic operations
due to a lesser number of clients.
Sales by Tanning Technology Europe Limited, a United Kingdom subsidiary, are
currently made in U.S. dollars or its functional currency of pounds sterling.
Historically, we have not experienced material fluctuations in our results of
operations due to foreign currency exchange rate changes.
Revenue from a limited number of clients has comprised a very substantial
portion of our revenues and is expected to represent a very substantial portion
of our revenues in the foreseeable future. In 1997, our five largest clients
accounted for approximately 81% of our services revenue. In 1998, our five
largest clients accounted for approximately 70% of our services revenue. In the
first three months of 1999, our five largest clients accounted for
approximately 74% of our services revenue. Any cancellation, deferral or
significant reduction in work performed for these principal clients or a
significant number of smaller clients could have a material adverse effect on
our business, financial condition and results of operations. Historically, we
have been able to collect the applicable accounts receivable for work performed
up to the termination date from clients that have terminated projects. See
"Business--Clients."
In 1998, we had revenue from both services and, to a lesser extent, product
sales. We completed the sale of the rights to one of our software products in
the third quarter of 1998. We have shifted our business focus to concentrate
solely on generating revenues from services.
Project personnel costs represent our most significant expense and consist
primarily of salaries, bonuses and employee benefits for company personnel
dedicated to client assignments, and fees paid to subcontractors for work
performed on our projects. Subcontractors generally cost us more than our own
project personnel; consequently, we usually generate lower gross profit margins
by using subcontractors. Non-billable time incurred by our project personnel
resulting from start-up time for new hires and training time incurred to
upgrade the skills of existing staff may cause gross profit margins to
decrease. We plan to increase the number of our project personnel in order to
support our planned revenue growth.
19
<PAGE>
Selling, marketing and administrative expenses consist primarily of
salaries, bonuses and employee benefits for non-project personnel, occupancy
costs, staff recruiting costs, travel expenses, depreciation expenses and
promotional costs. Our sales and marketing costs are expected to increase as a
percentage of revenue in the future as we enhance our selling effort. We also
expect to expand geographically by opening new offices in 1999 and 2000. This
will require us to purchase office equipment and computer and networking
equipment, both of which will increase our depreciation expenses.
In anticipation of business growth, we expect to incur costs and expend
capital. We can give no assurances that we will continue to grow, or that we
will grow at a pace that will support these costs and expenditures. To the
extent revenues do not increase at a rate commensurate with these additional
costs and expenditures, our results of operations and liquidity could be
materially and adversely affected. In addition, we expect that our plans for
increases in expenses and capital expenditures over the next two and one-half
years to support our growth could negatively impact profitability.
Our predecessor is Tanning Technology Group, LLC, which was formed on
February 8, 1995 as a result of the combination of four entities affiliated
with our co-founders, Larry G. Tanning, Bipin Agarwal, Toni S. Hippeli and
Stephen Brobst. Pursuant to a stock purchase agreement entered into with AEA
Tanning Investors Inc., the managing member of TTC Investors I LLC, TTC
Investors IA LLC, TTC Investors II LLC and TTC Investors IIA LLC (together with
AEA Tanning Investors Inc., the "TTC Investors Group"), our predecessor was
converted into a Delaware corporation and the TTC Investors Group purchased,
between January 1997 and June 1998, a total of 5,696,770 shares of our common
stock for an aggregate purchase price of $14.6 million.
Results of operations
The following table presents the relative composition of revenue and
selected statements of operations data as a percentage of revenue, as well as
certain other revenue and profitability statistics.
<TABLE>
<CAPTION>
Three months
ended
Year ended December 31, March 31,
---------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Services revenue............. 100% 97 % 91% 89 % 100%
Product sales................ 0 3 9 11 0
------- ------- ------- ------ ------
Net revenues................ 100 100 100 100 100
Project personnel costs...... 51 56 45 56 49
------- ------- ------- ------ ------
Gross profit margin......... 49 44 55 44 51
Selling, marketing and
administrative.............. 16 30 37 45 41
Product development costs.... 3 6 8 16 0
Sign-on bonus related to
stock purchase agreement.... 0 8 0 0 0
Management fees--related
parties..................... 7 0 0 0 0
------- ------- ------- ------ ------
Income (loss) from
operations.................. 22 (1) 10 (16) 10
Interest income (expense) and
other, net.................. 0 0 1 2 1
------- ------- ------- ------ ------
Income (loss) before income
taxes....................... 22 (1) 11 (14) 11
Income tax provision
(benefit)................... 0 (1) 4 (5) 4
------- ------- ------- ------ ------
Net income (loss)............ 22% 0 % 7% (9)% 7%
======= ======= ======= ====== ======
Growth in net revenues....... 104 % 28% 118%
Growth in services revenue... 98 20 145
Gross profit margin from
services.................... 49% 42 51 37 % 51
Income (loss) from operations
from services............... 25 2 11 (13) 10
</TABLE>
20
<PAGE>
Comparison of three months ended March 31, 1998 and 1999
Net revenues
Our net revenues increased $6.1 million, or 118%, to $11.3 million for the
first quarter of 1999 from $5.2 million for the first quarter of 1998. Included
in the first quarter of 1998 net revenue is $0.6 million of revenue from
product sales; there was no revenue from product sales in the first quarter of
1999. The increase in services revenue of 145% reflects increases in both the
size and number of client projects as well as higher average billing rates.
During the first quarter of 1999, as compared to the first quarter of 1998, the
number of clients we provided services for increased by 27%, and our average
revenue per customer increased by 93%. The increase in services revenue from
our foreign operations also significantly contributed to this increase in
revenue. The revenue from foreign operations increased $2.9 million, or 264%,
to $4.0 million for the first quarter of 1999 from $1.1 million for the first
quarter of 1998. Revenues from our five largest clients as a percentage of
total net revenues were 74% for the first quarter of 1999 and 77% for the same
period in 1998.
Project personnel costs
Our project personnel costs increased $2.6 million, or 90%, to $5.5 million
for the first quarter of 1999 from $2.9 million for the first quarter of 1998.
The increase in project personnel costs for the first three months of 1999 was
primarily due to an increase in project personnel from 79 at March 31, 1998 to
127 at March 31, 1999, as well as higher salaries. Our gross profit margin from
services has increased from 37% for the first quarter of 1998 to 51% for the
same period in 1999, principally as a result of higher average billing rates,
increased utilization of project personnel, and a shift in staffing mix to
using fewer subcontractors and more internal project personnel.
Selling, marketing and administrative
Our selling, marketing and administrative expenses increased $2.4 million,
or 102%, to $4.7 million for the first quarter of 1999 from $2.3 million for
the first quarter of 1998. The increase in selling, marketing and
administrative expenses was primarily the result of our decision to expand our
marketing effort to support revenue growth. Our sales, marketing and
administrative staff grew from 31 employees at March 31, 1998 to 50 employees
at March 31, 1999, and staffing expenses increased to $1.5 million. Selling,
marketing and administrative expenses decreased as a percentage of net revenues
from 45% in the first quarter of 1998 to 41% for the same period in 1999 due to
increases in revenues without a proportional increase in these expenses.
Product development costs
We incurred costs associated with software product sales during the first
quarter of 1998 of $820,000, or 16% of net revenues. No such costs were
incurred in 1999.
Provision for (benefit from) income taxes
Income tax expense represents combined federal, state, and foreign taxes.
Our income tax provision increased to $0.5 million on pre-tax profits of $1.3
million at the end of the first quarter of 1999 compared to a tax benefit of
$0.3 million on pre-tax losses of $0.8 million at the end of the first quarter
of 1998. The tax benefit was recorded in the first quarter of 1998 on the pre-
tax losses in anticipation of applying the tax benefit to future tax provisions
as we generate future profits. Our effective tax rate was 37% for the first
quarter of 1999 and for the same period in 1998.
21
<PAGE>
Comparison of years ended December 31, 1997 and 1998
Net revenues
Our net revenues increased $7.2 million, or 28%, to $33.3 million in 1998
from $26.1 million in 1997. The increase in services revenue of 20% in 1998
reflects increases in both the size and number of client projects. During 1998,
as compared to 1997, the number of clients we provided services for increased
by 3%, and our average revenue per customer increased by 16%. Utilization and
revenues were adversely affected for the first half of 1998, principally as a
result of a significant project termination in the fourth quarter of 1997
following a change in the client's strategic plans due in part to regulatory
changes. This project termination negatively impacted our revenues by
approximately $5.7 million in the first half of 1998. As a result of this
termination, we generated $5.7 million less revenues from this client in the
first half of 1998 than we did in the second half of 1997, without a
proportionate decrease in project personnel costs. Utilization and revenues
improved in the second half of 1998 as new projects commenced, including
additional work for the same client. Our net revenues from foreign operations
increased $7.5 million, or 253%, from $3.0 million in 1997 to $10.5 million in
1998. In 1997, we earned revenues of $0.9 million from the sale of software
products compared to $3.0 million earned in 1998. The software sales in 1998
included the sale of the rights to certain software products. Revenues derived
from our five largest clients as a percentage of total net revenues were 65% in
1998 and 78% in 1997.
Project personnel costs
Project personnel costs increased $0.2 million, or 1%, to $14.9 million in
1998 from $14.7 million in 1997. The increase in project personnel costs in
1998 was due to an increase in project personnel from 81 at the end of 1997 to
107 at the end of 1998, which was nearly offset by a decrease in fees paid to
subcontractors. The gross profit margin from services increased from 42% in
1997 to 51% in 1998 as a result of improved utilization and a shift in staffing
mix to using fewer subcontractors and more internal project personnel.
Selling, marketing and administrative
Selling, marketing and administrative expenses increased $4.3 million, or
55%, to $12.2 million in 1998 from $7.9 million in 1997. Selling, marketing and
administrative expenses increased as a percentage of revenues from 30% in 1997
to 37% in 1998. These increases were primarily a result of our decision to
expand our selling and marketing group and the administrative staff to support
revenue growth. Also contributing to the increase in staffing expenses of $2.2
million were increases in occupancy costs of $0.6 million and increases in
depreciation expense of $0.8 million associated with fixed asset additions
during 1998. Our sales, marketing and administrative staff grew from 28
employees at the end of 1997 to 37 employees at the end of 1998.
Product development costs
We incurred costs associated with software product sales of $1.6 million in
1997 and $2.8 million in 1998, representing 6% of 1997 net revenues and 8% of
1998 net revenues. We have no plans to continue the development of software for
resale purposes.
Sign-on bonus related to stock purchase agreement
In conjunction with the stock purchase agreement entered into in early 1997,
we paid sign-on bonuses aggregating $2.1 million to some of our stockholders
and employees. This expense was a single occurrence in 1997 and was not
incurred in any other periods reported.
Management fees--related parties
We incurred management fees of $73,000 to members of our predecessor in
January 1997. No management fees were incurred after the formation of our
company in January 1997. These fees represent payment for services performed on
behalf of our predecessor. Subsequent to the formation of our company, the
22
<PAGE>
payments made to members of our predecessor are reflected in salary expenses in
selling, marketing and administrative expenses, or as project personnel cost
for billable time incurred by these employees.
Provision for (benefit from) income taxes
Our provision for income taxes increased to approximately $1.4 million on
pre-tax profits of $3.7 million for 1998 compared to a tax benefit of
approximately $0.2 million on pre-tax losses of $0.1 million in 1997. Our
effective tax rate in 1998 was 37%. The 1997 tax benefit is the result of 11
months of net (loss) from operations before taxes of $0.4 million and the
implications of a change in that status after the merger of Tanning Technology
Group, LLC into Tanning Technology Corporation on January 31, 1997. No income
taxes were paid by Tanning Technology Group since members included their
distributive shares of revenue and deductions of the limited liability company
in their personal capacities, pursuant to Subchapter K of the Internal Revenue
Code.
Comparison of years ended December 31, 1996 and 1997
Net revenues
Our net revenues in 1997 increased $13.3 million, or 104%, to $26.1 million
from $12.8 million in 1996. The increase in services revenue of 98% in 1997
reflects increases in both the size and number of client projects. During 1997,
as compared to 1996, the number of clients we provided services for increased
by 3%, and our average revenue per customer increased by 92%. Our revenues from
foreign operations increased $2.5 million, or 549%, from $0.5 million in 1996
to $3.0 million in 1997. In 1997, we earned revenues of $0.9 million from the
sale of software products compared to $46,000 earned in 1996. Revenues derived
from our five largest clients as a percentage of total net revenues were 78% in
1997 and 80% in 1996.
Project personnel costs
Project personnel costs in 1997 increased $8.2 million, or 124%, to $14.7
million from $6.5 million in 1996. The increase in project personnel costs in
1997 was primarily due to an increase in project personnel from 40 at the end
of 1996 to 81 at the end of 1997. In addition, more fees were paid to
subcontractors during 1997. The gross profit margin from services revenue
decreased from 49% in 1996 to 42% in 1997 as a result of the shift in staffing
mix to using more subcontractors.
Selling, marketing and administrative
Selling, marketing and administrative expenses in 1997 increased $5.8
million, or 282%, to $7.9 million from $2.1 million in 1996. Selling, marketing
and administrative expenses increased as a percentage of net revenues from 16%
in 1996 to 30% in 1997. These increases were primarily a result of our decision
to expand our selling and marketing group and the administrative staff to
support revenue growth. Our sales, marketing and administrative staff grew from
9 employees at the end of 1996 to 28 employees at the end of 1997. In addition
to the increase in staff expense of $3.3 million, our facilities expense
increased $0.5 million and depreciation expense increased $0.2 million.
Product development costs
We incurred costs associated with software product sales of $0.4 million in
1996 and $1.6 million in 1997, representing 3% of 1996 net revenues and 6% of
1997 net revenues.
Sign-on bonus related to stock purchase agreement
In conjunction with the stock purchase agreement entered into in early 1997,
we paid sign-on bonuses aggregating $2.1 million in order to retain the members
and certain employees of our predecessor. This expense was a single occurrence
in 1997 and was not incurred in any other periods reported.
23
<PAGE>
Management fees--related parties
We incurred management fees of approximately $902,000 in 1996 and $73,000 in
1997 to members of our predecessor, representing 7% of 1996 net revenues. These
fees represent payment for services performed on behalf of our predecessor. No
management fees were incurred after the formation of our company in January
1997, but payments to former members of our predecessor are reflected in salary
expenses in selling, marketing and administrative expenses, or as project
personnel cost for billable time incurred by these employees.
Provision for (benefit from) income taxes
Our income taxes benefit realized in 1997 was $0.2 million on pre-tax losses
of $0.1 million in 1997. No income taxes were paid by our predecessor, Tanning
Technology Group, LLC in 1996.
Quarterly results
The following table presents our unaudited quarterly results of operations
for 1998 and the first quarter of 1999. We derived these data from unaudited
consolidated financial statements, and, in the opinion of management, they
include all necessary adjustments, which consist only of normal recurring
adjustments necessary to present fairly the financial results for the periods.
Results of operations for any fiscal quarter do not necessarily indicate what
results may be for any future period.
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Services revenue........ $4,613 $5,574 $9,185 $10,941 $11,305
Product sales........... 570 58 2,309 39 --
------ ------ ------ ------- -------
Net revenues.......... 5,183 5,632 11,494 10,980 11,305
Project personnel
costs.................. 2,888 2,873 4,004 5,176 5,492
------ ------ ------ ------- -------
Gross profit.......... 2,295 2,759 7,490 5,804 5,813
Selling, marketing and
administrative......... 2,321 2,649 3,212 3,996 4,679
Product development
costs.................. 820 703 1,181 82 --
------ ------ ------ ------- -------
Income (loss) from
operations............. (846) (593) 3,097 1,726 1,134
Interest income and
other, net............. 96 31 105 53 163
------ ------ ------ ------- -------
Income (loss) before
income taxes........... (750) (562) 3,202 1,779 1,297
Income tax provision
(benefit).............. (279) (209) 1,192 662 478
------ ------ ------ ------- -------
Net income (loss)....... $ (471) $ (353) $2,010 $ 1,117 $ 819
====== ====== ====== ======= =======
Gross profit from
services............... $1,725 $2,701 $5,181 $ 5,765 $ 5,813
Income (loss) from
operations from
services............... $ (596) $ 52 $1,969 $ 1,769 $ 1,134
</TABLE>
Stock-based compensation
We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options. Under Accounting Principles Board
Opinion No. 25, because the exercise price of our employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recorded. We have adopted the disclosure-only provisions of the
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123.
24
<PAGE>
Liquidity and capital resources
Prior to January 1997, we financed our operations and investments in
property and equipment primarily through cash generated from operations,
unsecured and secured borrowings and capital lease financing. During 1997, we
issued common stock resulting in net proceeds to us of approximately $12.7
million. The proceeds were used to fund operations, purchase property and
equipment as well as to pay down $700,000 of outstanding debt during 1997.
During 1998, we financed our operations and investments in property and
equipment primarily through cash generated from operations, the sale of common
stock and, to a lesser extent, borrowings. Outstanding debt of $1.1 million was
paid off in 1998 with the net proceeds from the sale of common stock of $1.9
million. At March 31, 1999, we had a bank note outstanding of approximately
$550,000, the proceeds of which were used to acquire office furniture and
fixtures. The note bears interest at 8.71% and principal and interest payments
are payable over a 60-month term.
Cash and cash equivalents increased to $7.2 million at March 31, 1999 from
$1.6 million at December 31, 1996. The increase was primarily due to cash
provided as a result of the completion of our stock transactions and cash
provided by operations. We invest available cash in short-term liquid
investments.
We anticipate that we will expend capital to develop the infrastructure
needed to support our future growth. As a result, we expect to use cash from
operations and the net proceeds from this offering to meet capital expenditures
and working capital necessary to support our growth. We currently have no
material commitments for capital expenditures. Based on our current business
plan, we believe that the cash provided from operations, cash on hand and our
net proceeds from this offering will be sufficient to meet our cash
requirements, including for working capital and capital expenditures, at least
through the end of 2000.
Qualitative and quantitative disclosures about market risk
We provide our services to customers primarily in the United States, the
United Kingdom and Denmark. As a result, our financial results could be
affected by factors, such as changes in foreign currency exchange rates or weak
economic conditions in those foreign markets. Sales by Tanning Technology
Europe Limited, a United Kingdom subsidiary, are currently made in U.S. dollars
or its functional currency of pounds sterling. To the extent Tanning Technology
Europe has monetary assets and liabilities denominated in any currency other
than its functional currency, any significant variation in exchange rate
between the pound sterling and these other currencies could have a material
effect on our operating results. To the extent that we bill clients in a
currency other than their local currency, exchange rate fluctuations that
strengthen the currency in which we bill relative to their local currency could
make our services less competitive to such clients. To the extent we bill in
pounds sterling versus U.S. dollars, any depreciation of the pound against the
dollar would negatively affect our results of operations. Historically, we have
not experienced material fluctuations in our results of operations due to
foreign currency exchange rate changes.
Year 2000
Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
These programs were unable to distinguish properly between the year 1900 and
the year 2000, and as such, risk failure with the changing of the century. This
circumstance is frequently referred to as the "Year 2000 issue."
We rely on information technology systems, applications and devices in
several aspects of our business, including service delivery, time reporting,
and financial accounting. In this regard, we have conducted an assessment of
our information technology systems and believe that significant changes will
not be necessary in order to achieve a Year 2000 date conversion with no effect
on customers or disruption of business operations. We have obtained written
and/or verbal confirmation, either directly or through published materials,
from our major third-party software providers that those applications currently
being used are Year 2000 compliant or that revised versions that are compliant
will become available. Internally-generated applications have been
25
<PAGE>
largely tested and deemed compliant as well. Our computer hardware platforms,
principally servers, have been confirmed as Year 2000 compliant by the server
manufacturers, or have been appropriately upgraded in order to achieve
compliance. Based on currently available information, we believe that the total
expense related to these efforts will not have a material impact on our results
of operations.
In addition to our internal systems, we also rely, directly and indirectly,
on the systems of business enterprises such as clients, suppliers, utilities,
creditors and financial institutions, both domestic and international. We plan
to obtain assurances from those material third-party vendors with which we
transact business that there will be no interruption of service as a result of
the Year 2000 issue. To the extent that assurances are not given, we intend to
devise contingency plans to mitigate the negative effects on our company in the
event the Year 2000 issue results in the unavailability of services. In
addition, the failure of the accounting systems of our clients due to the Year
2000 issue could result in a delay in the payment of invoices we have issued
for services rendered. A delay in payment of invoices could have a material
negative effect on us. Although we have not yet done so, we intend to inquire
of, and obtain assurances from, our major customers regarding the compliance of
their accounting systems. We also plan to assess risks related to the potential
failure of our non-information technology systems, which include, among other
things, our climate control systems and elevators. We expect to complete our
comprehensive risk assessment and related contingency plan in the third quarter
of 1999.
Although our principal service offerings generally do not include Year 2000
remediation services, former, present and future clients could assert claims
against us related to the Year 2000 issue. There can be no assurance that all
information technology systems we have designed, developed, recommended or
deployed will be Year 2000 compliant. Any Year 2000-related failure of critical
client systems in which we were involved could result in claims being asserted
against us, regardless whether the failure is related to the services provided
by us. If asserted, liability that may result, and the time and resources used
in resolving these claims, could have a material adverse effect on us.
26
<PAGE>
BUSINESS
Overview
We are an information technology services provider that architects, builds
and deploys enterprise solutions for companies throughout the world. We
specialize in large, complex, integrated solutions that incorporate online
transaction processing and very large databases. Internet technologies are a
central part of our solutions, enabling direct interaction among customers and
business partners on the World Wide Web, and among employees within
organizations on their private intranets. Our clients include Ameritech,
Blockbuster, BSkyB, E*Trade, Federal Express, Maersk Line, MCI WorldCom, R.R.
Donnelley Financial and U S WEST.
Our key solutions are:
. electronic commerce solutions;
. enterprise customer relationship management solutions; and
. core operations solutions.
Industry background
The explosive growth in demand for information technology service providers
in the 1990s has been driven by corporate recognition that information
technology can be used to achieve competitive advantage. GartnerGroup's
Dataquest, an information technology market research firm, estimates that the
worldwide information technology services market will grow from approximately
$361 billion in 1998 to approximately $722 billion by 2003.
Within the overall information technology services market, some segments are
experiencing particularly rapid growth. For example, according to International
Data Corporation, an information technology market research firm, the market
for Internet services will grow from $7.8 billion in 1998 to $78.6 billion in
2003, representing a compound annual growth rate of 59%. In addition, AMR
Research, Inc., an information technology market research firm, predicts that
the market for customer relationship management services will grow from $404
million in 1997 to $4.0 billion in 2002, representing a compound annual growth
rate of 58%.
With advances in the Internet and information technology, companies are
transforming the way they run their businesses and manage information. New
business models and innovative information technology solutions are emerging
that create business value by:
. compiling and coordinating customer information and contacts across the
enterprise and all customer channels;
. profiling and scoring customers and performing predictive selling in
real-time, which involves understanding each customer's needs and
preferences so that the most appropriate products and services can be
offered during a particular online interaction;
. integrating the business operations and content of business partners;
. coordinating the complex business transactions of the supply chain;
. providing dynamic personalized content to web page users; and
. enabling complex transaction processing systems that support core
business operations.
As part of this evolution of business models, today's electronic commerce,
customer relationship management and core operations solutions must be
architected and deployed to function reliably in an environment of rapidly
growing website traffic, numbers of customers, order volumes, customer service
inquiries and other business transactions. Advanced information technology
solutions must also be built with
27
<PAGE>
the flexibility required to rapidly add features and functions, accommodate new
content and business partners and support modified business processes as the
business environment becomes more competitive. These advanced business
solutions must address the following technology challenges:
. dramatic increases in the volume of data and transactions processed;
. the emergence of rich data types, including text, images, video and
sound;
. the evolution of batch to online processing to support real-time
customer interactions;
. improved performance and response times to support real-time customer
access from a variety of technology environments;
. improved reliability, accuracy and security of transactions;
. integration of legacy systems and databases across the enterprise; and
. high degrees of integration among applications, networks and platforms
within a company as well as among diverse business enterprises.
Many information technology service providers focus on the less technically
demanding areas of creative web design and simple transaction systems.
Moreover, they do not have the skills to design a solution with the required
scalability, flexibility and performance characteristics, or to deploy it in an
environment that may combine many generations of computing platforms and
technologies, all while facing the demands of real-time business operations.
Their solutions are often cobbled together from software packages, custom
software components and legacy systems, and fail to provide for the enormous
growth in transaction and data volumes that are experienced after going to
market. Forrester Research, an information technology research firm, cites
recent high-visibility web site outages at a number of electronic commerce
leaders in support of its conclusion that many of today's electronic commerce
solutions are unreliable, unscalable and deliver service levels that are not
adequate for online commerce.
We believe that we are differentiated by our focus on, and expertise in, the
architecture, complex integration, high volume online transaction processing
capabilities and very large databases required to successfully deploy advanced
electronic commerce, customer relationship management and core operations
solutions. As a result, we believe that we are particularly well positioned to
benefit from the growing demand for these skills.
The Tanning Difference
We believe that the following capabilities and characteristics differentiate
us from other information technology service providers.
Large, complex solutions
We specialize in architecting, developing and deploying large and complex
business-critical solutions that require high degrees of integration across
diverse portfolios of applications and technologies. Clients that seek to
transform their businesses with advanced electronic commerce, customer
relationship management and core operations solutions rely on the systems we
build to run their businesses without failure. Our solutions typically involve
ultra-high transaction rates (up to millions per hour) in online transaction
processing environments and very large databases (terabytes of information). We
believe that we are able to address our clients' greatest information
technology challenges because we are able to extend the accepted performance
and feasibility limits of leading-edge technologies. For many clients, the
systems we build are at the core of their efforts to capitalize on information
technology and the Internet.
Business-value driven
We focus on delivering solutions to our clients' business challenges, not
simply on technology. These solutions provide value to our clients by enhancing
their ability to communicate with their customers and
28
<PAGE>
business partners, allowing our clients to offer new or enhanced products and
services, and providing them opportunities for revenue enhancement and cost
reductions. We align technology deployment with business objectives and
processes and plan deployments in phases to deliver business benefits rapidly.
Through extensive business analysis and work with clients to define and
articulate their business goals and constraints, we are able to discern a
project's critical business requirements before proceeding to technology
considerations.
Architecture-based solutions
Our architecture-based approach enables us to provide large and complex
integrated solutions that accommodate our clients' goals in a rapidly changing
business environment. Our overall architecture identifies the component and
technology frameworks required for the successful construction and deployment
of our solutions. Through rigorous systems analysis, we design solutions that
address requirements for:
. reliability, to ensure accurate processing and robust backup and
recovery;
. scalability, to accommodate the rapid growth associated with electronic
commerce, customer relationship management and core operations solutions
under changing business conditions;
. full time availability (24 hours a day and 7 days a week);
. performance, to deliver the required end-user response times and
transaction rates;
. flexibility, to accommodate new functions and interfaces;
. complex interfaces to, and coexistence with, legacy systems, software
packages and departmental solutions in a heterogeneous technology
environment;
. transaction and data integration, both within a company's business and
among the company and its trading partners; and
. the ability to dynamically change features, services or product
offerings based on real-time Internet customer interaction.
Deployment-focused
We deliver high-value business solutions that are deployment-focused, rather
than development-focused. Our deployment focus allows us to architect and
design solutions for successful roll-out to, and use by, the hundreds,
thousands and potentially millions of users of that system. We focus on
deployment to ensure that our solution is constructed for scalable performance,
reliable and consistent service levels, and high levels of flexibility and
longevity. We identify performance and service level requirements in the early
stages of the solution process, architect and design the system so that it will
meet these requirements and benchmark and develop proofs of concept to ensure
that our solution will work before construction of the application begins.
Benchmarking is a process of evaluating the performance of alternative system
configurations and components in order to determine which approach would best
meet the client's goals. We develop proofs of concept in order to demonstrate
the feasibility of our innovative architectures and combinations of components
as well as emerging technologies.
The project lifecycles of many information technology service providers and
companies do not adequately address the constraints of interfaces or the
challenges of operating the system in the intended environment. Consequently,
clients often engage us to "rescue" systems that were unsuccessfully developed
or deployed. We believe our focus on deployment allows us to deliver successful
projects and business value for our clients and constitutes a significant
competitive advantage. As a result, since 1993, we have established a strong
track record of repeat business from large corporations throughout the world,
including Ameritech, Maersk Line, R.R. Donnelley Financial and BSkyB.
29
<PAGE>
Experienced and talented staff
Today's complex, data-intensive business solutions require broad, as well as
deep, technology skills to successfully tackle the technological challenges and
integration complexities typically encountered. We staff our projects based on
our philosophy that there is no substitute for experience, in contrast to the
common approach of relying on primarily inexperienced staff and building a
heavily "leveraged" staffing model that depends on methodology rather than
experience to guide the judgments and activities of project teams. Our
information technology professionals have an average of more than twelve years
of industry experience. Our breadth of skills comes from the experience our
staff has with four generations of technology--mainframe and parallel
processing environments, minicomputers, client/server architectures and web
technology architectures. Our depth of skills began with our early work in
benchmarking large applications and databases that required multi-tier software
architecture, in which the key layers of an application system are separated
and optimized independently to improve performance, scalability and
reliability.
Our employees have expertise in a broad range of competencies, including
project management, business analysis, object modeling, architecture, software
development, database modeling and administration, quality assurance,
integration and testing, architecture and performance tuning, and system and
network management. We believe our staff is recognized in the industry for its
rich capabilities in building applications that deal with high transaction
volumes and very large database requirements.
Flexible pricing
We offer clients a choice of the most appropriate pricing model for a
particular engagement. Many of our engagements are based on time and materials
pricing, particularly in situations where the parameters of a project or
particular phase of a project cannot yet be specified. In other situations, a
client may prefer a fixed price/fixed time contract in order to cap its costs
while retaining guaranteed delivery of a solution. We offer flexible pricing
options to accommodate our clients' goals as well as to provide the most
appropriate pricing model for the project.
Strategy
Our strategy for growth centers around scaling our capabilities in
architecting, developing and deploying large, complex, business-critical
enterprise solutions. We will continue to identify areas of growing demand for
these types of solutions and differentiate ourselves based upon our experience,
capabilities and references. These areas may take the form of geographic
regions, industries or solution areas.
To achieve our objectives, we plan to:
. Maintain our leading edge capabilities
We believe that our clients choose to work with us because of our
reputation for successfully handling information technology's most
challenging assignments. A key source for new and advanced capabilities
is our experience in developing solutions that are innovative, and of
industry-leading scale and complexity. For example, we deployed a
solution for Blockbuster that assembled customer data and account
activity information for over 40 million customers and 6,000 stores.
The solution involved terabytes of information and difficult
integration issues, including hardware design and configuration,
database architecture, fault tolerance and operations support. We plan
to continue to actively manage our portfolio of client engagements to
ensure that we work on complex assignments that will allow us to refine
and advance our capabilities on an ongoing basis. We also believe that
our reputation for working on the industry's most difficult assignments
will assist us in continuing to recruit professionals who further add
to our skills and knowledge base. In addition, we intend to continue
and expand our practice of coordinating with our business and
technology partners to share expertise and innovations.
30
<PAGE>
. Expand our solutions and service offerings
We intend to increase our focus on rapidly growing solution areas in
which we believe our expertise is relevant. For example, building off
of our successful engagements with Federal Express and Blockbuster, we
intend to develop an enhanced presence in the area of supply chain
management. We also intend to expand our service offerings in areas
such as business consulting, process innovation and creative design. In
addition, our strategy includes expanding our solutions and service
offerings and gaining access to new technologies through strategic
acquisitions and investments when attractive opportunities arise.
Although we believe that the areas in which we currently specialize are
among the fastest growing and critical in the information technology
industry, we believe that our ability to provide expanded integrated
service offerings will allow us to establish relationships with a
greater range of clients who have a need for our expertise and to
engage them earlier in the determination of their business needs.
. Expand our vertical industry focus
We intend to organize our sales and marketing efforts in the
industries in which there is significant potential demand for our
services and expertise. We intend to organize industry practice groups
in sales and marketing because we believe that businesses seek out
service providers who are familiar with the types of issues faced by
their industry and who are conversant with the language of the
industry. Currently, we are formally organized in telecommunications,
an industry in which we have a significant amount of experience. We
plan to organize industry practice groups in other high growth
industries such as media and entertainment, financial services,
healthcare, and logistics and transportation as our business in these
industries grows.
. Expand our relationships with existing clients and develop new clients
We intend to base our growth on long-term client relationships,
rather than on a project-by-project approach. Our client relationship
philosophy is that clients will choose to do business with us based on
the quality of our work, the value of our advice and solutions, and the
level of trust and respect that develops over time. Expanding our
existing client relationships will allow us to jointly plan future
projects and, in particular, develop large, multiyear engagements. This
will improve our ability to forecast projects, thereby helping us to
manage growth. We will continue to assign each of our clients a
relationship manager who will be responsible for ensuring that the
client is satisfied with the services we are providing. Relationship
managers work with their clients in an advisory capacity to clarify and
prioritize their business needs and secure additional high value
projects, based upon their in-depth knowledge of each client's business
and information technology needs.
We also intend to develop new clients through multiple channels
including our sales force, industry analysts, marketing events and
public relations, as well as through relationships with hardware and
software suppliers. Our dedicated sales and marketing team will allow
us to focus on solutions common across industries and will seek out
opportunities for entry-level service offerings such as assessments and
"rescue missions." We will also expand our relationships with hardware
and software suppliers such as IBM, Sun Microsystems, Hewlett Packard
and others to identify project opportunities consistent with our
capabilities and to provide us with client leads.
. Continue to attract and retain experienced, knowledgeable professionals
We have consistently attracted and retained leading information
technology talent interested in solving our industry's toughest
challenges. We plan to continue to recruit experienced staff from
consulting companies, corporate information technology organizations
and the benchmarking and product development centers of the industry's
leading hardware and software product companies. We expect that our
talented staff will also continue to provide us with employee
referrals, which have accounted for over 50% of our new recruits in the
last three years. We intend to continue to promote
31
<PAGE>
a company culture that has allowed us to maintain an annual retention
rate of technical personnel in excess of 92% over the last three years,
which we believe is a key competitive advantage in an industry beset by
a talent shortage.
. Serve clients globally
We plan to expand our services and solution capabilities to client
locations around the world. Our expansion will be revenue-based--we
intend to open additional offices primarily where we have existing
clients in the geographic region. We believe this will enable us to
develop closer relationships with and provide more convenience to our
clients who are increasingly seeking service providers with global
presence and experience deploying solutions that address issues of
multiple currencies and languages, infrastructure diversity and around-
the-clock operations. We also expect that global expansion will allow
us to capitalize on high growth geographic regions and diversify our
revenue base.
. Expand our infrastructure for growth
We plan to continue our commitment to growth by making investments
in recruitment and retention, staff development, sales and marketing,
management information systems and other areas of infrastructure. We
have created a "Knowledge Net" on our internal computer network in
order to accumulate and make readily available to our employees (1)
expertise we have derived from our engagements, (2) best practices and
(3) a repository of information that can be used in sales, marketing
and service delivery. We intend to expand our formal employee
orientation program and to assist our technical staff in managing their
career paths. We also intend to improve our scalable global information
systems, in order to more effectively manage client lead generation and
tracking, sales forecasting, project profitability and employee
utilization. We believe that these investments will provide a
foundation for the continued expansion of our client and revenue base.
The Tanning Approach
The Tanning Approach flows directly from the Tanning Difference--we are
business-value driven, architecture-based and deployment-focused. We emphasize
rigorous business alignment during our assessment and architecture phases, and
address critical performance and operational requirements during our
architecture and development phases to ensure successful system deployment and
operation.
The Tanning Approach is composed of distinct phases, and each phase can be
adapted to the unique needs and requirements of an individual project. Each
phase also builds upon the deliverables of the previous phase. Our approach is
designed to deliver business value rapidly, by delivering the results in
several successive installments, rather than committing to extended projects
where business deliverables are produced only at the end of a protracted period
of time. This approach is also flexible, because not all phases are required by
every project. The following diagram illustrates the Tanning Approach.
[THE FOLLOWING IS REPRESENTED BY A GRAPHIC]
System
Development
Enterprise /
Assessment System Deployment Operational
Architecture Package Support
Component
Integration
Our clients typically engage us in one of two alternative project scenarios.
The first is a strategic initiative in which we are engaged to help architect,
develop and deploy a new high-value business solution. Strategic
32
<PAGE>
initiatives begin with an assessment and continue sequentially through the
phases of the Tanning Approach. The second is a "rescue mission," where the
client engages us to turn around a troubled or failed project. Typically, in
this type of situation, the system has been or is being constructed but is not
meeting the client's expectations. Rescue missions begin with an assessment,
but proceed through a modified version of the Tanning Approach that builds on
the useful work completed by the prior project effort, and proceeds to
emphasize those elements of the Tanning Approach that will successfully deploy
an improved solution. In a rescue mission, we will leverage the existing
information about the system, perform design reviews, and provide deployment
and operational support services to get the system into production.
Assessment
Every project begins with an assessment. Each assessment results in a clear
definition of the client's business problem, a set of recommendations and an
outline of the next steps as well as a statement of the project's contemplated
business benefits. The assessment and the presentation of its results to our
client is a key entry level service offering that enables us to demonstrate our
capabilities and serves as a platform for establishing a more extensive project
engagement and a continuing client relationship.
Assessments typically address one or more of the following:
. business case and business requirements;
. enterprise architecture;
. systems architecture;
. application design;
. development processes;
. integration testing processes;
. application migration considerations;
. deployment considerations; and
. operational readiness considerations.
Enterprise/system architecture
A well-defined architecture provides a critical foundation for the
successful definition, development, deployment and operation of information
technology systems. Enterprise architectures address the entire portfolio of
applications and technologies across the enterprise, while system architectures
address the more focused scope of a specific application or system. The
architecture is particularly critical when an iterative, phased approach for
development and deployment is used because it provides a rational framework for
each of the components and subsystems, as they are developed and deployed. A
well-defined architecture and technical framework greatly reduces the effort
and risk associated with the integration of components and subsystems because
each of the subsystems is integrated using proven interfaces and methods. We
deliver the architecture phase of the Tanning Approach to our clients either as
part of a specific application or solution project, or alternatively, as a
stand-alone engagement that addresses the entire enterprise architecture or
specific components of it.
An architecture is also more than just an inventory of vendors and
standards. It specifies all of the subsystems and components required to deploy
an effective information technology system. Further, this architecture defines
the dependencies and interfaces between the components and the functional,
operational and performance requirements of each subsystem and component.
The architecture phase of the Tanning Approach also focuses on identifying
and mitigating the major risks involved in the project. It can include building
proofs of concept for high-risk system components and new
33
<PAGE>
technologies. Benchmarking may be performed to identify and resolve major
system bottlenecks for performance. Prototypes may also be developed to
visualize key user scenarios, functions or processes to make sure that there is
consensus in their definition and that the project is resolving the key
business issues and delivering the expected business value. Prototypes are also
used to validate and test critical components of the architecture. This phase
also involves detailing aspects of the architecture that need further
definition before beginning component development.
Phased development and product integration
This stage of the Tanning Approach is characterized by phased design,
development and testing of various individual components (including user and
system interfaces) of the final business solution. If software packages or
technology components will be integrated into the solution, then this phase
also includes their integration. The phased system components are typically
organized into releases that deliver meaningful business value in rapid time
frames. We use standard methodologies and tools to conduct and document the
design and development of system releases. Each system release goes through
integration testing, as part of our quality assurance, to ensure that the
components function properly as a complete system.
Deployment services
The deployment phase of the Tanning Approach is designed to ensure the
successful deployment of the completed software into the client's computing
environment where it will support real-world business activities. Deployment
addresses issues related to systems management, data center operations and
performance testing to ensure that the system will provide the performance
demanded by business users and defined in the system service level agreements.
Our deployment phase typically includes a period where any systems or
components being replaced are run in parallel with the new system to ensure
proper operation before converting to the exclusive use of the new system.
Operational support services
The operational support phase of the Tanning Approach gives clients the
opportunity to engage us for ongoing maintenance and support of applications
and systems. We can also provide both remote and local system administration to
ensure proper operation, maintenance and enhancement of systems.
34
<PAGE>
Client solutions
The following chart illustrates some of the solutions that we have created
for our clients.
Federal Express--a global overnight delivery service provider
<TABLE>
<S> <C> <C> <C>
Challenge: Enable Federal Express to more Solution: We worked with Federal Express to
efficiently manage the flow of develop a comprehensive intranet
millions of packages globally system for reporting measures of
package volume and flow
efficiency for its global package
delivery operations in a timely
manner. We created an online
transaction processing system
capable of handling 1,000
transactions per second on a one-
plus terabyte database. As a
result, Federal Express is able
to obtain information about the
performance of its package
delivery system in significantly
shorter timeframes (hours vs.
days).
</TABLE>
Blockbuster--the world's leading retail chain of video rental stores
<TABLE>
<S> <C> <C> <C>
Challenge: Help Blockbuster understand its Solution: We redesigned Blockbuster's
customer demographics and existing enterprise architecture
purchase patterns in order to and created a new system that
stock movies according to allows Blockbuster to assemble
regional tastes and to customer data and account
more accurately target customer activity information for over 40
promotions million customers and more than
6,000 stores. The system enables
Blockbuster to measure demand for
specific products at the single
store level and therefore to
predict minimum stock
requirements. As a result, the
system supports the ability of
Blockbuster to advertise "In
Stock Or It's Free."
</TABLE>
E*Trade--a leading online brokerage firm
<TABLE>
<S> <C> <C> <C>
Challenge: Assist E*Trade in building a Solution: We designed international
global brand by creating a extensions to E*Trade's domestic
standardized platform for its trading system, enabling support
international expansion for multiple languages and the
ability to handle diverse
character sets and content types.
We deployed this system in Sweden
as the first stage of E*Trade's
international expansion. The new
system can accommodate rapid
business growth because the
system architecture was designed
to handle significantly greater
numbers of transactions than
currently experienced by E*Trade.
The "look and feel" of the user
interface of the new system and
the set of features and functions
offered to the user are
standardized across different
countries to facilitate global
brand recognition.
</TABLE>
<TABLE>
<S> <C>
</TABLE>
35
<PAGE>
Maersk Line--a leading worldwide ocean container transportation corporation
<TABLE>
<S> <C> <C> <C>
Challenge: Help Maersk Line improve customer Solution: We developed a solution for
service across over 400 offices Maersk Line that enabled them to
in exploit best practices in
nearly every country around the customer service globally. The
world solution was architected to allow
adoption of global customer
service practices while enabling
regional and country specific
work practice variations. The
solution was deployed to function
with their then-existing global
infrastructure. The first version
of this system was developed and
deployed within six months in
Asia, Africa, Europe and North
and South America.
</TABLE>
Clients
The following is a representative list of our clients for 1998 and the
current year.
<TABLE>
<S> <C>
Ameritech Janus Capital
Ameritrade Maersk Line
Blockbuster MCI WorldCom
BSkyB MelDisco Footstar
CableTel Oxford Health Plans
CSX Technology The Polk Company
E*Trade Qwest
Energis R.R. Donnelley Financial
Federal Express TeleDanmark
The Hartford U S WEST
</TABLE>
In 1997, our five largest clients accounted for approximately 81% of our
services revenue, with Ameritech accounting for approximately 41% of our
services revenue and Oxford Health Plans accounting for approximately 23% of
our services revenue. In 1998, our five largest clients accounted for
approximately 70% of our services revenue, with Maersk Line accounting for
approximately 31% of our services revenue, U S WEST accounting for
approximately 12% of our services revenue and E*Trade and CSX Technology each
accounting for approximately 10% of our services revenue. In the first three
months of 1999, our five largest clients accounted for approximately 74% of our
services revenue, with Maersk Line accounting for approximately 31% of our
services revenue and U S WEST, E*Trade, and Ameritech each accounting for
approximately 12% of our services revenue. We believe that we will continue to
derive a significant portion of our revenue from a limited number of clients.
Any cancellation, deferral or significant reduction in work performed for these
principal clients or a significant number of smaller clients could have a
material adverse effect on our business, financial condition and results of
operations.
Marketing and sales
We market and sell our services through multiple channels including our
sales force, long-term client relationships, relationships with industry
analysts, marketing events and public relations. We also cultivate
relationships with hardware and software suppliers such as IBM, Sun
Microsystems, Hewlett Packard and others to identify project opportunities
consistent with our capabilities and to provide us with client leads. For
example, some of these suppliers maintain sales forces in the hundreds and
thousands with a significant
36
<PAGE>
presence at large companies around the world. These suppliers also introduce us
to clients and assist in our efforts to secure business opportunities. In
return, we provide them with solution capabilities, which are of high
importance to their clients.
While our marketing channels and relationships with hardware and software
suppliers are used to generate business with new accounts, we also have an
organization of relationship managers who are responsible for managing
relationships with existing clients. Relationship managers seek to ensure
client satisfaction, the successful delivery of projects and are able to
identify additional opportunities for our services at a client site.
Competition
The information technology services business is intensely competitive and
subject to rapid technological change. We expect the competition to continue
and intensify. Our competitors fall into four major categories:
. large information technology consulting services providers, such as
Andersen Consulting, KPMG, PricewaterhouseCoopers, IBM, EDS and CSC;
. mid-tier information technology services providers, such as Cambridge
Technology Partners and Sapient;
. Internet professional service providers, such as Modem Media . Poppe
Tyson, US Interactive, Proxicom, Viant and Scient; and
. internal information technology departments of current and potential
clients.
Many of our competitors have longer operating histories and client
relationships, greater financial, technical, marketing and public relations
resources, larger client bases and greater brand or name recognition than we
have.
In addition, there are low barriers to entry into our business. We do not
own any technologies that preclude or inhibit competitors from entering our
industry. Existing or future competitors may independently develop and patent
or copyright technologies that are superior or substantially similar to our
technologies. The costs to develop and to provide information technology
services are relatively low. Therefore, we expect to continue to face
additional competition from new entrants into our industry.
We believe that the principal competitive factors in our business, in
relative importance, are:
. client value and service;
. the reputation and experience of professionals delivering solutions;
. the success and reliability of the delivered solution;
. technical knowledge and creative skills; and
. the ability to attract and retain professionals.
We believe that we presently compete favorably with respect to each of these
factors. The market for our services is evolving, however, and we cannot be
certain that we will compete successfully in the future.
Employees
As of March 31, 1999, we had 177 employees. We believe our relationship with
our employees is satisfactory. None of our employees is represented by a union.
Generally, our employees are retained on an at-will basis.
37
<PAGE>
Intellectual property rights
Our success is dependent, in part, upon our proprietary processes,
components, and other intellectual property rights. We do not have any patents
or patent applications pending. We rely on a combination of trade secret,
nondisclosure and other contractual agreements, and copyright and trademark
laws, to protect our proprietary rights. Existing trade secret and copyright
laws afford us only limited protection. We enter into confidentiality
agreements with our employees, generally require that our consultants and
clients enter into similar agreements, and limit access to and distribution of
our proprietary information. In addition, we have entered into non-competition
agreements with certain of our key employees. There can be no assurance that
the steps we have taken in this regard will be adequate to deter
misappropriation of our proprietary information or that we will be able to
detect unauthorized use and take appropriate steps to enforce our intellectual
property rights.
A portion of our business involves the development of software applications
for specific client engagements. Ownership of client-specific software is
generally retained by the client, although we retain some rights to the
applications, processes and intellectual property developed in connection with
client engagements.
Facilities
Our principal headquarters is located in Denver, Colorado and comprises
23,598 square feet. The lease for our headquarters expires in April 2000 and we
have the option to extend the term to April 2005. We are opening an
approximately 50,000 square-foot new headquarters in Denver, Colorado in the
third quarter of 1999. We also have offices in Phoenix, Arizona; Stamford,
Connecticut; Tampa, Florida; Atlanta, Georgia; Boston, Massachusetts; Portland,
Oregon; Chertsey, England; and Hyderabad, India. We do not own any real estate.
We do not consider any specific leased location to be material to our
operations, and we believe that equally suitable alternative locations are
available in all areas where we currently do business.
Legal proceedings
We are not a party to any pending material legal proceedings.
38
<PAGE>
MANAGEMENT
Directors and executive officers
The following table contains information regarding our executive officers
and directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Larry G. Tanning........ 52 Chairman of the Board, President and Chief Executive Officer
Bipin Agarwal........... 38 Director and Senior Vice President of Consulting
Operations--North America
Henry F. Skelsey........ 41 Director, Executive Vice President and Chief Financial Officer
John N. Piccone......... 39 Vice President and Chief Operating Officer
P. Tracy Currie......... 37 Vice President--International
Louis A. D'Alessandro... 44 Vice President--Technical Services
Mark W. Tanning......... 46 Vice President--Human Resources and Administration
Philip A. Purver........ 40 Vice President--European Operations
Katherine L. Scherping.. 39 Treasurer and Director of Finance
Mark S. Whitfield....... 40 Corporate Controller
Wesley A. Light......... 51 Secretary
Mark W. Reinhardt....... 46 Assistant Secretary
Toni S. Hippeli......... 51 Director
Christopher P. Mahan.... 32 Director
Joseph P. Roebuck....... 63 Director
Michael E. Shanahan..... 46 Director designee
</TABLE>
Larry G. Tanning, a co-founder of Tanning, has been our Chairman of the
Board, President and Chief Executive Officer since January 1997 and served as
the President of our predecessor entities from July 1993. Mr. Tanning has a
B.S. degree in marketing from the University of Minnesota and a M.S. equivalent
degree in business management with the American Management Association in New
York, New York. Larry Tanning and Mark Tanning are brothers.
Bipin Agarwal, a co-founder of Tanning, has been our Senior Vice President
of North American Consulting Operations since July 1998. He has been a director
since our incorporation in January 1997. From August 1997 until June 1998 he
was our Senior Vice President of Business Development and Architecture
Practice. Mr. Agarwal was responsible for our consulting services and those of
our predecessors from July 1994 until August 1997. Mr. Agarwal has a M.S.
degree in computer science from Roorkee University, India.
Henry F. Skelsey has been our Executive Vice President and Chief Financial
Officer since September 1998. He has been a director since our incorporation in
January 1997. From March 1988 until August 1998, Mr. Skelsey was a Managing
Director of AEA Investors Inc., the parent of the managing member of TTC
Investors I LLC, TTC Investors II LLC, TTC Investors IA LLC and TTC Investors
IIA LLC (collectively, the "TTC Investors Group"), which are beneficial owners
of our common stock. Since August 1998, Mr. Skelsey has acted as a consultant
to AEA Investors Inc. Mr. Skelsey is also a director of Dal-Tile International
Inc. and Rand McNally & Company. Mr. Skelsey has a M.B.A. from the Darden
School at the University of Virginia and a B.S. degree in economics and finance
from George Mason University.
John N. Piccone joined Tanning as our Vice President--Strategy and Marketing
in April 1999 and is now serving as our Vice President and Chief Operating
Officer. From November 1993 until January 1999, Mr. Piccone served as a Senior
Vice President at Cambridge Technology Partners, an information technology
consulting services company. He was a member of Cambridge Technology Partners's
executive committee from October 1997 until January 1999. Mr. Piccone has a
B.S. degree in chemical engineering from the Massachusetts Institute of
Technology.
39
<PAGE>
P. Tracy Currie has been our Vice President--International since October
1998. Mr. Currie was our Vice President--Service Delivery from May 1996 until
October 1998. Mr. Currie was the Director of UNIX Computing at McKesson
Corporation, a healthcare company, from March 1995 until April 1996 and he was
McKesson's Manager of Client Network Computing from August 1993 until March
1995. Mr. Currie has a B.S. degree in computer science engineering from Montana
State University.
Louis A. D'Alessandro has been our Vice President--Technical Services since
October 1997. Mr. D'Alessandro served as Vice President of Technology
Implementation at Fidelity Investments, a mutual fund company, from September
1996 until October 1997. He was the Eastern Region Consulting Manager at
Informix Software, a relational database manufacturing service company, from
February 1996 until September 1996. He was the National Director of Systems
Engineering at Pyramid Technology Corporation, a computer hardware
manufacturer, from October 1988 until January 1996. Mr. D'Alessandro has a B.S.
degree and a M.S. degree in computer science from the City University of New
York.
Mark W. Tanning has been our Vice President--Human Resources and
Administration since January 1997. He was the Director of Human Resources at HB
Fuller Company, a multinational specialty chemicals company, from July 1988
until December 1996 and the Director of International Human Resources at HB
Fuller from June 1986 until July 1988. Mr. Tanning has B.A. and M.A. degrees in
economics and business administration from the University of Minnesota. Mr.
Tanning also has a professional certification degree from the Wharton School
and has done post-graduate studies in industrial relations. Mark Tanning and
Larry Tanning are brothers.
Philip A. Purver has been our Vice President--European Operations since
March 1999. Mr. Purver served as Commercial Vice President--Europe at Cambridge
Technology Partners from December 1998 until March 1999 and Director of Sales--
Europe from December 1997 until December 1998. He was Cambridge Technology
Partners' Western European Director of Sales from October 1995 until December
1997. Mr. Purver was the Sales Director for Easel UK Limited, a software
development company, from August 1994 until October 1995. From 1993 until
August 1994, he was in charge of international business development at Legent
P.L.C., a software development company. Mr. Purver has a BSc. in mathematics
and geography from Exeter University, England.
Katherine L. Scherping has been our Treasurer and Director of Finance since
April 1999. Prior to that, she served as Director of Internal Reporting and
Technical Accounting at AT&T Broadband & Internet Services (formerly Tele-
Communications, Inc.), a television cable services provider, from April 1998
until April 1999. Ms. Scherping was the Corporate Controller at ADT Security
Services, Inc. (formerly Alert Centre Inc.), a security alarm monitoring
company, from January 1996 until September 1997. She was ADT's Treasurer from
July 1993 until January 1996. Ms. Scherping has a B.S. degree in accounting
from Northern Illinois University.
Mark S. Whitfield has been our Corporate Controller since May 1997. Mr.
Whitfield served as Director, Corporate Controller at St. Ives Laboratories
Inc., a manufacturer and distributor of personal care products, from June 1988
until November 1996. Mr. Whitfield has a B.A. degree in economics and public
relations from Syracuse University and a M.B.A. from California State
University.
Wesley A. Light has been our Secretary and Senior Advisor since January
1997. Mr. Light was our General Counsel from July 1997 until September 1998 and
served as Senior Advisor with our predecessor from April 1996 until January
1997. From May 1995 to April 1996, he worked as a professional mediator under
the business name "Resolve! Mediation Services" and served as President of his
own company, Gadcom, Inc. Mr. Light was a solo practitioner from 1973 until May
1995 and has been a professional mediator since 1995. He served as the Mayor of
Crested Butte, Colorado from 1989 to 1991. Mr. Light has a B.A. degree in
American Institutions from the University of Wisconsin and a J.D. from the
University of Colorado.
40
<PAGE>
Mark W. Reinhardt has been an Assistant Secretary since February 1999 and
has been a staff attorney with us since July 1998. Prior to joining Tanning, he
was a solo practitioner from November 1996 until July 1998. Mr. Reinhardt was a
Senior Attorney at Philips Electronics North America Corporation, an
electronics manufacturer, from 1991 until November 1996 and was General Counsel
to Philips Laser Magnetic Storage, a manufacturer of computer storage devices,
from 1988 to November 1996. Mr. Reinhardt has a J.D. from the University of
Chicago, a B.S.E. from Duke University and a S.M. degree in engineering and
applied physics from Harvard University.
Toni S. Hippeli, a co-founder of Tanning, has been with us since November
1994. She has been a Director since our incorporation in January 1997 and had
been a managing partner of our predecessor since January 1995. Ms. Hippeli has
been the owner of Hippeli Enterprises, a business and financial consulting firm
and a beneficial owner of our common stock, since December 1991. From October
1982 until selling the company to BMC Software in July 1991, Ms. Hippeli was
the co-founder and President of Integrity Solutions, a mainframe computer
software company. Ms. Hippeli has a B.A. degree in psychology from the
University of Colorado.
Christopher P. Mahan has been a Director since our incorporation in January
1997. Mr. Mahan has been a Principal at AEA Investors Inc. since December 1997
and has been associated with AEA Investors Inc. since August 1991. AEA
Investors Inc. is the parent of the managing member of the entities
constituting the TTC Investors Group, which are beneficial owners of our common
stock. From August 1989 to August 1991, Mr. Mahan was a consultant with Bain &
Company, a management consulting company. Mr. Mahan is also a Director of Rand
McNally & Company. Mr. Mahan has a B.A. degree in economics and history from
Amherst College.
Joseph P. Roebuck has been a Director since April 1999. Mr. Roebuck has been
Vice President--Strategic Sales of Sun Microsystems Inc., a computer hardware
company, since November 1998. He was Vice President of Worldwide Sales at Sun
Microsystems from June 1990 until November 1998. Mr. Roebuck joined Sun
Microsystems in 1983 as the Vice President of Sales. Mr. Roebuck has a B.A. in
business administration from Cornell University.
Michael E. Shanahan will be joining our board of directors upon the
completion of this offering, and currently serves as a consultant to us.
Mr. Shanahan has been the Vice President of Football Operations for the Denver
Broncos, a National Football League franchise, since April 1999. He has been
the coach and general manager of the Broncos since January 1995. Mr. Shanahan
has a B.A. degree and a M.A. degree from Eastern Illinois University.
Stephen Brobst, a co-founder of Tanning, is a Tanning Fellow. Mr. Brobst
works with our clients on the development of technology strategies and systems
architectures. Mr. Brobst has taught graduate courses at Boston University and
the Massachusetts Institute of Technology in database design and parallel
computer architecture. He performed his Masters and Ph.D research at the
Massachusetts Institute of Technology in the area of load-balancing and
resource allocation for parallel computing architectures. He also holds a
M.B.A. with joint course and thesis work at the Harvard Business School and the
M.I.T. Sloan School of Management.
41
<PAGE>
He received a B.S. in electrical engineering and computer science from the
University of California at Berkeley and was bestowed the Bechtel Engineering
Award for academic excellence upon graduation. Mr. Brobst is not currently an
employee or an officer of our company.
Board of directors
Our board of directors is currently composed of six directors. We intend to
expand the board of directors to seven directors upon completion of this
offering. The new director will be Michael E. Shanahan.
We intend to amend our certificate of incorporation to divide the board of
directors into three classes: Class I, whose terms will expire at the annual
meeting of stockholders to be held in 2000, Class II, whose terms will expire
at the annual meeting of stockholders to be held in 2001, and Class III, whose
terms will expire at the annual meeting of stockholders to be held in 2002. The
initial Class I directors will be Toni S. Hippeli and Michael E. Shanahan. The
initial Class II directors will be Christopher P. Mahan and Joseph P. Roebuck.
The initial Class III directors will be Larry G. Tanning, Bipin Agarwal and
Henry F. Skelsey. At each annual meeting of stockholders beginning in 2000, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election.
In addition, our certificate of incorporation will provide that the
authorized number of directors may be changed only by resolution of the board
of directors. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the total number of
directors.
Committees of the board of directors
Our committees consist of an audit committee and a compensation committee.
The audit committee recommends the annual appointment of our auditors with whom
the audit committee reviews the scope of audit and non-audit assignments and
related fees, accounting principles we use in financial reporting, internal
auditing procedures and the adequacy of our internal control procedures. During
1998, the audit committee was composed of Bipin Agarwal, Toni S. Hippeli and
Christopher P. Mahan. Following this offering, the audit committee will consist
of . The compensation committee reviews and approves the compensation and
benefits for our key executive officers, administers our employee benefit plans
and makes recommendations to the board of directors regarding grants of stock
options and other incentive compensation arrangements. During 1998, our
compensation committee was composed of Larry G. Tanning, Bipin Agarwal and
Henry F. Skelsey, all of whom are employees of Tanning. Following this
offering, the compensation committee will consist of .
Compensation of directors
Directors who are also our employees receive no additional compensation for
their services as directors. Directors who are not our employees will not
receive a fee for attendance in person at meetings of our board of directors or
committees of our board of directors, but they will be reimbursed for travel
expenses and other out-of-pocket costs incurred in connection with the
attendance of meetings. Directors who are not our employees or employees of AEA
Investors Inc. will be eligible to receive options to purchase our common stock
in connection with their appointment to our board of directors.
In connection with his election to the board of directors, we granted Mr.
Roebuck options to purchase 49,108 shares of our common stock at an exercise
price of $5.35 per share. Options to purchase 16,369 shares were immediately
exercisable and were exercised; the remaining options will vest over the next
four years.
In connection with his engagement as a consultant and his agreement to
become a director upon completion of this offering, we granted Mr. Shanahan
options to purchase 49,108 shares of our common stock at an exercise price of
$5.35 per share. Options to purchase 16,369 shares were immediately exercisable
and were exercised; the remaining options will vest over the next four years.
42
<PAGE>
Executive officers
Our board of directors appoints our executive officers. Our executive
officers serve at the discretion of our board of directors.
Employment and non-competition agreements
We have entered into an employment agreement with Larry G. Tanning,
effective upon completion of this offering, providing for his employment as our
President and Chief Executive Officer. Pursuant to the agreement, Mr. Tanning
is entitled to an annual salary of $295,000, and is eligible to receive an
annual performance-based bonus determined by the compensation committee of the
board of directors, which for fiscal 1999 is based upon attainment of
performance targets involving the following: (1) global revenue, (2) global
earnings (before deductions for interest and taxes), (3) common stock price
appreciation, and (4) management and organizational objectives. For fiscal
1999, if we attain our target performance goals, Mr. Tanning's bonus will equal
approximately 55% of his base salary.
If we terminate Mr. Tanning's employment without cause (as defined in the
employment agreement), we are required to pay Mr. Tanning (1) any unpaid
portion of his annual salary earned through the date of termination, (2) the
annual bonus for the fiscal year immediately preceding the fiscal year of
termination to the extent not already paid, and (3) during a period of twelve
months following termination, an amount equal to his annual salary at the time
of termination. Mr. Tanning is also subject to customary non-competition, non-
solicitation and non-disclosure covenants.
We have entered into an employment agreement with Bipin Agarwal effective
upon completion of this offering. Pursuant to the agreement, Mr. Agarwal is
entitled to an annual salary of $275,000, and is eligible to receive an annual
performance-based bonus determined by the compensation committee of the board
of directors, which for fiscal 1999 is based upon attainment of performance
targets involving the following: (1) global revenue, (2) global earnings
(before deductions for interest and taxes), (3) common stock price
appreciation, and (4) management and organizational objectives. For fiscal
1999, if we attain our target performance goals, Mr. Agarwal's bonus will equal
approximately 55% of his base salary.
If we terminate Mr. Agarwal's employment without cause (as defined in the
employment agreement), we are required to pay to Mr. Agarwal (1) any unpaid
portion of his annual salary earned through the date of termination, (2) the
annual bonus for the fiscal year immediately preceding the fiscal year of
termination to the extent not already paid, and (3) during a period of twelve
months following termination, an amount equal to his annual salary at the time
of termination. Mr. Agarwal is also subject to customary non-competition, non-
solicitation and non-disclosure covenants.
We have entered into an employment agreement with P. Tracy Currie dated June
1, 1997. Pursuant to the agreement, Mr. Currie is entitled to an annual salary
of $250,000, and is eligible to receive an annual bonus of between 13% and 80%
of his annual salary upon attainment of performance goals, which is based upon
attainment of performance targets involving the following: (1) revenue, and (2)
earnings (before deductions for interest, taxes, depreciation and
amortization). If we attain 100% of our target performance goals for a fiscal
year, Mr. Currie's bonus for that fiscal year will equal approximately 55% of
his base salary. Pursuant to the agreement, Mr. Currie was granted an option to
acquire 70,389 shares of common stock at a purchase price of $2.90 per share.
One-fourth of the shares subject to the option vested on each of June 1, 1997,
February 1, 1998, and February 1, 1999. The remaining one-fourth is scheduled
to vest on February 1, 2000.
If we constructively terminate (as defined in the employment agreement) Mr.
Currie's employment after he completes one year of continuous service, we are
required to provide to Mr. Currie six months of annual base salary and benefits
coverage continuation. If we constructively terminate Mr. Currie's employment
after three years of continuous service or after a change in control of our
company, we are required to provide to Mr. Currie one year of base salary and
benefits coverage continuation. The employment agreement also contains
customary non-competition, non-solicitation and non-disclosure covenants.
43
<PAGE>
We have also entered into an employment and expatriate assignment agreement
with Mr. Currie dated November 15, 1998, specifying the terms and conditions of
his employment while on an expatriate assignment in London, England. Pursuant
to the expatriate agreement, Mr. Currie is entitled to the same base salary and
bonus schedule as under his employment agreement, and he is entitled to
additional compensation primarily to make up for cost of living differentials
while working in London.
We have entered into an employment agreement with Louis A. D'Alessandro
dated February 1, 1999. Pursuant to the agreement, Mr. D'Alessandro is entitled
to an annual salary of $175,000, and for fiscal 1999 is eligible to receive an
annual bonus of between 16% and 87% of his annual salary upon attainment of
performance goals, which for fiscal 1999 is based upon attainment of
performance targets involving the following: (1) domestic revenue, (2) domestic
technical services cost as a percentage of revenue, (3) domestic earnings
(before deductions for interest and taxes), and (4) management and
organizational objectives. Mr. D'Alessandro is guaranteed a minimum bonus of
$48,125 for 1999.
Under the agreement, Mr. D'Alessandro was granted an option to acquire
16,369 shares of our common stock at a per share purchase price of $3.82, which
vest over four years based on continuous employment. Mr. D'Alessandro was also
granted an option to acquire 91,669 shares of common stock at a per share
purchase price of $3.82, which vest (up to a maximum of 19,643 shares in each
of 1999 and 2000 and 52,382 shares in 2001) based upon Mr. D'Alessandro's
attainment of the performance goals on which his cash bonus is based. Whether
or not vested based on the attainment of performance goals, all of the
performance-based options will become exercisable based on continued employment
on December 1, 2003. The employment agreement also contains customary non-
competition, non-solicitation, and non-disclosure covenants.
We have entered into a separation agreement and release with Tom Stack dated
May 14, 1999, providing for his resignation from our company. Pursuant to the
agreement, Mr. Stack will continue to receive his 1999 base salary and
commission draw, and will receive benefits continuation, in each case, through
January 31, 2000, and a one-time lump-sum payment of $10,000. Mr. Stack will
continue through November 17, 2001 to vest in options to purchase shares of our
common stock that he presently holds (at which time he is scheduled to have
completed the vesting requirements for 57,293 shares), on the condition that he
complies with various non-competition, non-solicitation and related covenants.
If the options so vest, Mr. Stack will be eligible to exercise his vested stock
options through November 17, 2002.
44
<PAGE>
Executive compensation
The table below summarizes information concerning the compensation paid by
Tanning during 1998 to Tanning's Chief Executive Officer and Tanning's four
other most highly paid executive officers, who are collectively defined as the
"Named Executive Officers":
Summary compensation table
<TABLE>
<CAPTION>
Annual compensation
-----------------------
Other Annual Securities LTIP All other
Name and principal position Salary Bonus Compensation underlying options payouts compensation(1)
- --------------------------- ---------- --------- ------------ ------------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Tanning......... $ 480,000(2) $ 28,720 -- -- -- $2,467
Chairman of the Board,
President and Chief
Executive Officer
Bipin Agarwal ........... $ 450,000(2) -- -- -- -- $ 955
Director and Senior Vice
President of Consulting
Operations--North
America
P. Tracy Currie.......... $ 250,000 $ 24,000 $60,606(3) 384,682 $30,000(4) $2,130
Vice President--
International
Louis A. D'Alessandro.... $ 160,000 $ 69,452 $25,235(5) 157,147 -- $ 480
Vice President--
Technical Services
Thomas J. Stack(6)....... $ 268,239(7) $ 35,000 -- 91,669(8) -- $ 300
Vice President--Western
Regional Sales
</TABLE>
- --------
(1) Represents group term life insurance premiums paid by us.
(2) Mr. Tanning and Mr. Agarwal have agreed to reduce their annual salary to
$295,000 and $275,000, respectively, effective upon completion of this
offering. See "--Employment and non-competition agreements."
(3) Includes a $21,975 housing allowance for local housing while on expatriate
assignment in London, England. See "--Employment and non-competition
agreements."
(4) Represents an amount paid in connection with meeting time deadlines for a
project engagement.
(5) Includes $23,000 paid to Mr. D'Alessandro by us as reimbursement for
closing costs and other expenses incurred by Mr. D'Alessandro, in
connection with the sale of a home in Boston, Massachusetts and the
purchase of a home in Denver, Colorado.
(6) Mr. Stack is no longer employed by us. See "--Employment and non-
competition agreements."
(7) Includes $108,239 in sales commissions.
(8) In connection with Mr. Stack's resignation, 58,930 of these options were
canceled.
45
<PAGE>
Option grants in fiscal 1998
The following table sets forth information regarding stock options granted
during 1998 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
Individual grants
---------------------------------------------------
Potential realized value
at assumed annual
Number of Percent of rates of stock
securities total options price appreciation
underlying granted to Exercise or for option term
options employees base price Expiration -------------------------
Name granted in fiscal 1998 (per share)* date 5% 10%
- ---- ---------- -------------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Tanning........ -- -- -- -- -- --
Bipin Agarwal........... -- -- -- -- -- --
P. Tracy Currie......... 57,293(1) 1.5% $3.82 06/08/08 $ 137,639 $ 348,805
327,389(2) 8.5 3.82 07/23/08 786,512 1,993,176
Louis A. D'Alessandro... 49,108(3) 1.3 3.82 06/08/08 117,976 298,974
108,038(4) 2.8 3.82 12/01/08 259,548 657,746
Thomas J. Stack......... 32,739(5) 0.9 3.82 06/08/08 78,651 199,318
58,930(6) 1.5 3.82 N/A -- --
</TABLE>
- --------
* The stock option exercise price was established based on the fair market
value of the underlying common stock, as determined by our board of
directors, taking into account the price per share we received in sales of
our common stock to the TTC Investors Group made in proximity to the time of
these option grants.
(1) One-fourth of the shares subject to the option vested on the date of grant.
One-fourth of the shares subject to the option are scheduled to vest on
June 9, 1999, 2000 and 2001, respectively.
(2) One-fourth of the shares subject to the option vested on the date of grant.
One-fourth of the shares subject to the option are scheduled to vest on
July 24, 1999, 2000 and 2001, respectively.
(3) One-fourth of the shares subject to the option vested on the date of grant.
One-fourth of the shares subject to the option are scheduled to vest on
June 9, 1999, 2000 and 2001, respectively
(4) Sixteen thousand three hundred sixty-nine of the shares subject to the
option vest solely on the basis of employment with our company (4,092 on
December 1, 1999, 2000, 2001 and 2002, respectively). Up to 19,643 of the
shares subject to the option vest based upon the attainment of performance
goals in 1999. Of those shares that become performance-vested, one-fourth
become time-vested on December 1, 1999, 2000, 2001 and 2002, respectively.
Up to 19,643 of the shares subject to the option vest based upon the
attainment of performance goals in 2000. Of those shares that become
performance vested, one-fourth become time-vested on December 1, 2000,
2001, 2002 and 2003, respectively. Up to 52,382 of the shares subject to
the option vest based upon the attainment of performance goals in 2001. Of
those shares that become performance-vested, one-fourth become time-vested
on December 1, 2001, 2002, 2003 and 2004, respectively. Whether or not
vested based on the attainment of performance goals, all of the
performance-based options will become exercisable based on continued
employment on December 1, 2003.
(5) In connection with Mr. Stack's resignation, Mr. Stack will continue to vest
in these options through November 17, 2001, on the condition that he
complies with various non-competition, non-solicitation and related
covenants during the vesting period.
(6) In connection with Mr. Stack's resignation, these options were canceled.
46
<PAGE>
Aggregate option exercises in fiscal 1998 and fiscal year-end option values
The following table sets forth information concerning the value of
unexercised in-the-money options held by the Named Executive Officers as of
December 31, 1998.
There was no public trading market for our common stock at December 31,
1998. Accordingly, these values of exercisable and unexercisable in-the-money
options have been calculated on the basis of the fair market value of our
common stock at December 31, 1998 ($3.82 per share) as determined by our board
of directors, less the applicable exercise price per share multiplied by the
number of shares underlying the options.
<TABLE>
<CAPTION>
Value of unexercised
Number of securities in-the-money
underlying unexercised options at
Shares options at fiscal year-end fiscal year-end
acquired on Value --------------------------------- -------------------------
Name exercise realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Tanning........ -- -- -- -- -- --
Bipin Agarwal........... -- -- -- -- -- --
P. Tracy Currie......... -- -- 131,365(1) 323,706(2) $32,378 $32,378
Louis A. D'Alessandro... -- -- 40,924(3) 165,331(4) 22,590 22,590
Thomas J. Stack......... -- -- 14,324(5) 101,900(6) 5,647 16,943
</TABLE>
- --------
(1) The per share exercise price of these options was $2.90 for options to
acquire 35,194 shares of common stock, and $3.82 for options to acquire
96,170 shares of common stock.
(2) The per share exercise price of these options was $2.90 for options to
acquire 35,194 shares of common stock, and $3.82 for options to acquire
288,511 shares of common stock.
(3) The per share exercise price of these options was $2.90 for options to
acquire 24,554 shares of common stock, and $3.82 for options to acquire
12,277 shares of common stock.
(4) The per share exercise price of these options was $2.90 for options to
acquire 24,554 shares of common stock, and $3.82 for options to acquire
144,870 shares of common stock.
(5) The per share exercise price of these options was $2.90 for options to
acquire 6,138 shares of common stock, and $3.82 for options to acquire
8,185 shares of common stock.
(6) The per share exercise price of these options was $2.90 for options to
acquire 18,416 shares of common stock, and $3.82 for options to acquire
83,484 shares of common stock. In connection with Mr. Stack's resignation,
58,930 of these options with an exercise price of $3.82 per share were
canceled.
Tanning Technology Corporation Amended 1999 Employee Stock Purchase Plan
On , 1999, our board of directors adopted and our stockholders approved
the Tanning Technology Corporation Amended 1999 Qualified Stock Purchase Plan,
which will become effective upon completion of this offering. We intend to
administer the plan so that it qualifies as an employee stock purchase plan
under Section 423 of the Internal Revenue Code. The maximum number of shares of
Common Stock available for awards under the 1999 Stock Purchase Plan is .
The purpose of the plan is to strengthen our company by providing our
employees and our subsidiaries' employees the opportunity to acquire a
proprietary interest in our company through the purchase of shares of our
common stock at a discount. These purchases will be funded through regular
payroll deductions of up to 15% of a participant's gross cash wages for each
pay period during an offering period. Each full-time employee may participate
in the plan. An offering period to purchase shares of our common stock will
begin on the date on which Tanning and the underwriters agree on the price per
share in this offering and end on December 31, 1999. Thereafter, offering
periods will commence on each January 1 and July 1.
On the first day of each offering period, each participant is deemed to have
been granted an option to purchase a number of shares of common stock which
will have an aggregate purchase price equal to a percentage designated by the
participant (between 1 and 15 percent) of his gross cash wages during such
47
<PAGE>
offering period. The purchase price for such shares will be the lower of 85% of
the fair market value of the shares on the first day and the last day of the
offering period. The maximum number of shares of common stock that a
participant may purchase during an offering period is . Each participant
will automatically purchase shares on the last day of the offering period.
A participant may reduce the percentage of payroll deductions once during an
offering period. A participant may discontinue payroll deductions at any time
during an offering period. If a participant discontinues payroll deductions, he
may request that amounts previously withheld be returned without interest.
The plan will be administered by the compensation committee of the board of
directors. Its determinations will be conclusive and binding. The board of
directors may amend or terminate the plan at any time; however, no such
amendment or termination may adversely effect outstanding options. Termination
of the plan will cause the termination of the then current offering period.
Tanning Technology Corporation 1999 Stock Option Plan
On , the board of directors adopted and our stockholders approved our
1999 Stock Option Plan, which will become effective upon completion of this
offering.
The 1999 Stock Option Plan provides for the granting of incentive stock
options to our employees and nonqualified stock options to our employees,
consultants and directors. The maximum number of shares of common stock
available for awards under the 1999 Stock Option Plan is .
The following is a summary description of the 1999 Stock Option Plan.
Overview
The 1999 Stock Option Plan provides our employees, consultants and directors
with an opportunity to purchase our shares. The purpose of the plan is to
retain the services of the optionees and to incentivize them to devote maximum
efforts to our success and to align their interests with those of our
stockholders.
Administration
The 1999 Stock Option Plan will be administered by a committee of the board
of directors that consists of at least two non-employee members. The
compensation committee of the board of directors is expected to serve as the
committee.
Generally, the committee (1) will select those persons to whom options will
be granted, and (2) will determine the terms and conditions of options,
including the purchase price per share and the vesting provisions. The
committee will interpret the plan and its determinations will be final. The
committee will have the authority to make amendments or modifications to
outstanding options consistent with the plan's terms.
Eligible individuals
Any of our current or future employees, consultants or directors will be
eligible to participate in the 1999 Stock Option Plan. There are approximately
individuals currently eligible to participate in the plan.
Shares subject to the 1999 Stock Option Plan
The maximum number of shares available for the granting of options under the
1999 Stock Option Plan is . The maximum number of shares that an eligible
individual may receive in respect of options granted in any calendar year is
. If any option is exercised by tendering shares, either actually or by
attestation as full or partial payment of the exercise price, the maximum
number of shares available under the plan will be increased by the number of
shares so tendered. Whenever any outstanding option expires, is canceled, is
settled in cash or is otherwise terminated without having been exercised, the
shares allocable to the expired, canceled, settled or otherwise terminated
portion of the option may again be the subject of an option grant.
48
<PAGE>
Options will be designated as either incentive stock options, or ISOs, which
are intended to qualify for special tax treatment, or nonqualified stock
options. No employee may receive ISOs in respect of more than 1,000,000 shares
of common stock. The per share exercise price of any option will be fixed by
the committee at the time the option is granted. The per share exercise price
of any ISO may not be less than 100% of the fair market value on the date the
option is granted or 110% in the case of an ISO granted to a 10% stockholder.
Each option is exercisable at such dates and in such installments as determined
by the committee. Each option will be for a term will be determined by the
committee.
Except as otherwise determined by the committee, options will not be
transferable except by will or the laws of descent and distribution.
The purchase price for shares acquired pursuant to the exercise of an option
must be paid in full concurrently with the exercise of the option. The purchase
price may be paid in cash, or as otherwise determined by the committee.
In the event of a merger of Tanning with or into another corporation, or the
sale of substantially all of our assets, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
parent or subsidiary of the successor corporation; provided, however, that the
options shall remain subject to all of the conditions, restrictions and
performance criteria which were applicable to such options prior to such
assumption or substitution. In the event that the successor corporation refuses
to assume the option or substitute an equivalent option, the optionee shall
have the right to exercise the option as to all of the shares subject to the
option, including shares as to which it would not otherwise be exercisable. If
an option is exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, our company's secretary shall notify the optionee
that the option shall be fully exercisable for a period of fifteen (15) days
from the date of such notice, and the option shall terminate upon the
expiration of such period. For the purposes of this paragraph, the option shall
be considered assumed if, following the merger or sale of assets, the option
confers the right to purchase or receive, for each share subject to the option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets for each share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares).
Termination of employment
Each option agreement will set forth the terms and conditions applicable to
the option upon a termination of employment of the optionee.
No additional rights
An optionee will not have any rights to the underlying shares until the
option is properly exercised. The 1999 Stock Option Plan does not give any
person any rights with respect to shares except as provided in the plan. The
plan does not limit in any way our right to terminate anyone's employment. It
is also not evidence of any agreement or understanding that we will employ any
person at any particular rate of compensation or for any particular period of
time.
Income tax withholding
When an optionee recognizes taxable income in connection with the receipt of
shares under the 1999 Stock Option Plan, the optionee must pay us an amount
equal to the federal, state and local income taxes and other amounts as may be
required by law to be withheld by us prior to the issuance of such shares. We
may deduct from any payment an amount equal to the withholding taxes in
satisfaction of an optionee's obligation to pay withholding taxes. If permitted
by the committee, in satisfaction of the obligation to pay withholding taxes,
the optionee may elect to have withheld a portion of the shares then issuable
to him or her having an aggregate fair market value equal to the withholding
taxes.
49
<PAGE>
Adjustments upon change in capitalization
In the event of a change in capitalization, the committee will adjust the
maximum number and class of shares or other stock or securities with respect to
which options may be granted under the 1999 Stock Option Plan or to any
eligible individual in any calendar year and the number and class of shares or
other stock or securities which are subject to outstanding options and the
purchase price therefor.
Effect of liquidation
In the event of our liquidation, the 1999 Stock Option Plan and the related
options issued will continue in effect in accordance with their respective
terms. Following such a liquidation, each optionee will be entitled to receive
in respect of each share subject to any outstanding option, upon the exercise
of the option, the same number and kind of stock, securities or other
consideration that each holder of a share was entitled to receive in the
liquidation in respect of a share; provided that such stock, securities or
other consideration will remain subject to all of the provisions which were
applicable to the option prior to such liquidation.
Pooling transactions
In the event of a transaction which is intended to constitute a pooling
transaction, we may take such actions as are specifically recommended by an
independent accounting firm to the extent reasonably necessary to assure that
the transaction will qualify as a pooling transaction. These actions may affect
the terms and conditions of awards under the 1999 Stock Option Plan.
Multiple agreements
The terms of any option under the 1999 Stock Option Plan will be set forth
in an agreement between us and the optionee.
Amendment and termination
The 1999 Stock Option Plan terminates on the day preceding the tenth
anniversary of its adoption. The board of directors or the committee may at any
time and from time to time amend, modify, suspend or terminate the 1999 Stock
Option Plan. However, no such amendment, modification, suspension or
termination may adversely alter any outstanding options without the consent of
the optionee. In addition, amendments may require stockholder approval.
Federal income tax consequences
In general, an optionee will not recognize taxable income upon the grant or
exercise of an ISO and we will not be entitled to any business expense
deduction. However, upon the exercise of an ISO, the excess of the fair market
value on the date of exercise of the shares received over the exercise price of
the option will be treated as an adjustment to alternative minimum taxable
income (unless the shares are sold in the same taxable year as exercise). In
order for the exercise of an ISO to qualify as an ISO, an optionee generally
must be an employee of Tanning or a subsidiary from the date the ISO is granted
through the date three months before the date of exercise or one year preceding
the date of exercise in the case of an optionee whose employment is terminated
due to disability. The employment requirement does not apply where an
optionee's employment is terminated upon death.
If an optionee held the shares acquired upon exercise of an ISO for more
than two years after the date of grant and for more than one year after the
date of exercise, when the optionee disposes of the shares, the difference, if
any, between the sales price of the shares and the exercise price of the option
will be treated as long-term capital gain. If an optionee disposes of the
shares prior to satisfying these holding period requirements, the optionee will
recognize ordinary income at the time of the sale, generally in an amount equal
50
<PAGE>
to the excess of the fair market value of the shares at the time of exercise
over the exercise price of the option. The balance of any gain realized will be
short-term or long-term capital gain. If the optionee sells the shares prior to
satisfying the holding period requirements at a price below fair market value
at the time the option was exercised, the amount of ordinary income will be
limited to the amount realized on the sale over the exercise price of the
option. In general, if we comply with applicable income reporting requirements,
we will be allowed a business expense deduction to the extent an optionee
recognizes ordinary income.
In general, an optionee who receives a nonqualified stock option will not
recognize income at the time of the grant of the option. Upon exercise of a
nonqualified stock option, an optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the shares on the date
of exercise over the exercise price of the option. The basis in the shares
acquired upon exercise of a nonqualified stock option will equal fair market
value of such shares at the time of exercise. The holding period of the shares
for capital gain purposes will begin on the date of exercise. In general, if we
comply with applicable income reporting requirements, we will be entitled to a
business expense deduction in the same amount as the optionee recognizes
ordinary income. In the event of a sale of the shares received upon the
exercise of a nonqualified stock option, any appreciation or depreciation after
the exercise date generally is taxed as capital gain or loss. However, any gain
will be subject to reduced tax rates if the shares were held for more than
twelve months.
This discussion assumes that at the time of exercise, the sale of the shares
would not subject an optionee to liability under Section 16(b) of the Exchange
Act. Special rules may apply with respect to persons who may be subject to
Section 16(b). Optionees who are or may become subject to Section 16(b) should
consult with their own advisors.
Excise taxes
Under certain circumstances, the accelerated vesting or exercise of options
in connection with a change in control of Tanning may be deemed an "excess
parachute payment" for purposes of the golden parachute tax provisions of
Section 280G of the Internal Revenue Code. To the extent it is so considered,
an optionee may be subject to a 20% excise tax and we may be denied a tax
deduction.
51
<PAGE>
CERTAIN TRANSACTIONS
Stock Purchase Agreement, Shareholder Agreement and Registration Rights
Agreement
Tanning, Tanning's founders, and the TTC Investors Group are parties to a
stock purchase agreement dated as of December 24, 1996, as amended. Under this
agreement, the TTC Investors Group purchased an aggregate of 5,696,770 shares
of our common stock for an aggregate consideration of $14.6 million.
The parties to the stock purchase agreement have entered into an amended and
restated shareholder agreement dated July , 1999, which provides, among other
things:
. the TTC Investors Group may nominate one director to our board of
directors;
. Courtney Rose Corporation, which is controlled by Larry G. Tanning, and
WinSoft Corporation, which is controlled by Bipin Agarwal, each may
nominate one director to our board of directors;
. the TTC Investors Group may appoint one member to each of the audit and
compensation committees; and
. all of the parties to the shareholder agreement have agreed to vote the
shares of common stock owned by them in favor of each other's nominees.
The rights of each person mentioned above will terminate when such person no
longer owns at least ten percent of our common stock.
The parties to the stock purchase agreement and Mr. Skelsey entered into an
amended and restated registration rights agreement dated July , 1999, which
provides, among other things:
. the TTC Investors Group has the right to require the filing of one
registration statement with the SEC during any 12 month period to
register for sale shares of our common stock owned by it;
. holders of a majority of the shares of our common stock held by
Tanning's founders and Mr. Skelsey have the right to require the filing
of a short-form registration statement with the SEC during any 12 month
period to register for sale shares of our common stock owned by them;
. Tanning has the right to participate in any of the registrations
described above and sell shares of its common stock under such
registration to the extent of % of the shares to be sold in the
offering; and
. all parties to the registration rights agreement have rights to
participate in registration statements filed by Tanning for the sale of
common stock in an underwritten offering for its own account, subject to
the ability of the underwriters to limit the number of shares included
in the registration and giving priority to issuances by Tanning.
The existence and exercise of these registration rights may make it more
difficult for us to arrange future financing and may have an adverse effect on
the market price of our common stock.
Transactions with Directors and Officers
On September 1, 1998, Mr. Skelsey, a Director, joined Tanning as Executive
Vice President and Chief Financial Officer. In connection with his employment,
we granted Mr. Skelsey options to purchase 1,628,760 shares of our common stock
at an exercise price of $3.82. Options to purchase 407,190 shares were
immediately exercisable and the remaining options will vest over the next three
years. Mr. Skelsey exercised 261,911 of these options in February 1999.
Upon completion of this offering, we will lend on a recourse basis to each
of Larry G. Tanning and Bipin Agarwal $250,000. These loans were entered into
in connection with a significant reduction in the compensation of Messrs.
Tanning and Agarwal pursuant to their revised employment agreements. The loans
will bear interest at the lowest rate permitted by the IRS to avoid the
imputation of interest income. The principal and all accrued interest on the
loans will be repayable after two years.
52
<PAGE>
In 1996 and 1997, we repaid approximately $490,000 of remaining principal on
notes evidencing financing arrangements entered into in 1995 with Hippeli
Enterprises, Inc., Toni S. Hippeli Unitrust and V. Jerome Nickerson Unitrust.
Toni S. Hippeli, one of our directors and the managing member of our
predecessor, owns 50% of the capital stock of Hippeli Enterprises, Inc. and V.
Jerome Nickerson, Ms. Hippeli's husband, owns the remaining 50%. Hippeli
Enterprises, Inc. is a significant stockholder of Tanning. Ms. Hippeli and Mr.
Nickerson are co-trustees of both Toni S. Hippeli Unitrust and V. Jerome
Nickerson Unitrust.
In connection with an agreement entered into between our company and Mr.
Nickerson as of January 1997, Mr. Nickerson received a commission on the sale
of a software product by one of our subsidiaries in the amount of approximately
$100,000, of which approximately $85,000 has been paid, and $15,000 of which
will be paid between now and September 1, 2000. In addition, Mr. Nickerson also
received approximately $18,000 in wage compensation in 1998.
We have employed Adesh Gupta, a brother-in-law of Bipin Agarwal, as a
Practice Leader since January, 1997 and as a Consultant from October, 1994
until January, 1997. Mr. Agarwal is one of our directors and our Senior Vice
President of Consulting Operations--North America, and also controls WinSoft
Corporation, which is a significant stockholder of Tanning. In 1998, Mr. Gupta
received approximately $245,000 in compensation.
On April 7, 1997, we granted Mr. Gupta an option to acquire 327,389 shares
of our common stock at a per share purchase price of $2.90 per share. Of these
options, 245,542 vested upon the grant, 16,369 vested on April 7, 1998, 32,739
vested on April 7, 1999 and the remaining 32,739 will vest on April 7, 2000. On
June 9, 1998, we granted Mr. Gupta an additional option to acquire 65,478
shares of our common stock at a per share purchase price of $3.82 per share.
One-fourth of the shares subject to this option vested on June 9, 1999, and the
remaining three-fourths will vest in equal installments on each of June 9,
2000, 2001 and 2002.
Mark W. Tanning, brother of Larry G. Tanning, has served as our Vice
President--Human Resources and Administration since January 1997. Larry Tanning
is our Chairman of the Board, President and Chief Executive Officer, and also
controls Courtney Rose Corporation, which is a significant holder of our stock.
In 1998, Mark Tanning received $212,280 in compensation. In addition, we have
entered into an employment agreement with Mark Tanning dated February 1, 1999.
Pursuant to the agreement, Mr. Tanning receives an annual salary of $180,000,
and for fiscal 1999 is eligible to receive a bonus of between 16% to 87% of his
annual salary upon attainment of performance goals, which is based upon the
attainment of performance targets involving the following: (1) global revenue,
(2) global earnings (before deductions for interest and taxes), and (3)
management and organizational objectives.
Under the employment agreement, Mr. Tanning was granted an option to acquire
91,667 shares of our common stock at a per share purchase price of $3.82, which
vests (up to a maximum of 19,643 shares in 1999, 32,738 shares in 2000, and
39,286 shares in 2001) based upon Mr. Tanning's attainment of the performance
goals on which his cash bonus is based. Whether or not vested based on the
attainment of performance goals, all of the performance-based options will
become exercisable based on continued employment on December 1, 2003. The
employment agreement also contains customary non-competition, non-solicitation,
and non-disclosure covenants. Mr. Tanning was also granted an option to
purchase 49,107 shares of our common stock at a purchase price of $2.90 per
share. One-fourth of the shares subject to the option vested on each of June 1,
1997, February 1, 1998, and February 1, 1999. The remaining one-fourth is
scheduled to vest on February 1, 2000.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of our common stock as of June 25, 1999 and as adjusted to reflect the sale of
our common stock offered hereby by (1) each person (or group within the meaning
of Section 13(d)(3) of the Exchange Act) known by us to own beneficially 5% or
more of our common stock, (2) our directors and Named Executive Officers and
(3) all of our directors and executive officers as a group.
As used in this table, "beneficial ownership" means the sole or shared power
to vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed to be the beneficial owner of securities that can
be acquired within 60 days from the date of this prospectus through the
exercise of any option, warrant or right. Shares of common stock subject to
options, warrants or rights that are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the ownership percentage of
the person holding such options, warrants or rights, but are not deemed
outstanding for computing the ownership percentage of any other person. The
amounts and percentages are based upon 15,606,002 shares of common stock
outstanding as of June 25, 1999, and 19,606,202 shares of common stock
outstanding as of the completion of this offering, respectively.
In the table below, unless otherwise noted, the address of our significant
stockholders is c/o our company.
<TABLE>
<CAPTION>
Number of shares
of common stock
beneficially owned Percentage owned Number of Number of
prior to and -------------------------------- exercisable excluded
Name after offering Prior to offering After offering options(1) options(2)
- ---- ------------------ ----------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
TTC Investors I LLC(3).. 984,237 6.3% 5.0% -- --
TTC Investors II
LLC(3)................. 4,143,022 26.5 21.1 -- --
AEA Tanning Investors
Inc.(3)................ 5,696,770 36.5 29.0 -- --
Courtney Rose
Corporation............ 3,715,240 23.8 18.9 -- --
Larry G. Tanning(4)..... 3,715,240 23.8 18.9 -- --
WinSoft Corporation..... 2,322,021 14.9 11.8 -- --
Bipin Agarwal(5)........ 2,322,021 14.9 11.8 -- --
Stephen Brobst.......... 2,322,021 14.9 11.8 -- --
Hippeli Enterprises,
Inc.................... 1,161,010 7.4 5.9 -- --
Toni S. Hippeli(6)...... 1,161,010 7.4 5.9 -- --
Henry F. Skelsey(7)..... 407,190 2.6 2.1 145,279 1,221,570
P. Tracy Currie......... 245,133 1.6 1.2 245,133 209,938
Louis A. D'Alessandro... 54,183 * * 53,201 153,054
Thomas J. Stack(8)...... 22,508 * * 22,508 34,785
Christopher P.
Mahan(7)(9)............ -- * * -- --
Joseph P. Roebuck....... 16,369 * * -- 32,739
Michael E.
Shanahan(10)........... 16,369 * * -- 32,739
All directors and
executive officers as a
group (16
persons)(11)........... 8,092,697 51.8 41.2 598,714 2,208,647
</TABLE>
- --------
*Represents beneficial ownership of less than one percent.
(1) Shows shares of our common stock issuable upon exercise of options that
are currently exercisable or are exercisable within 60 days of June 25,
1999 and that are included in the total number of shares beneficially
owned.
(2) Shows shares of our common stock issuable upon exercise of options that
will not be exercisable within 60 days of June 25, 1999 and that are not
included in the total number of shares beneficially owned.
54
<PAGE>
(3) AEA Tanning Investors Inc. is the managing member of TTC Investors I LLC,
TTC Investors II LLC, TTC Investors IA LLC, which holds 108,986 shares of
our common stock, and TTC Investors IIA LLC, which holds 460,525 shares of
our common stock, and accordingly may be deemed to beneficially own the
shares held by these entities. AEA Tanning Investors Inc. is a wholly
owned subsidiary of AEA Investors Inc. The address for each member of the
TTC Investors Group is c/o AEA Investors Inc., Park Avenue Tower, 65 East
55th Street, New York, New York 10022.
(4) Includes 3,715,240 shares that Mr. Tanning is deemed to beneficially own
as the controlling investor of Courtney Rose Corporation.
(5) Includes 2,322,021 shares that Mr. Agarwal is deemed to beneficially own
as the controlling investor of WinSoft Corporation.
(6) Includes 1,161,010 shares that Ms. Hippeli is deemed to beneficially own
as a controlling investor of Hippeli Enterprises. Ms. Hippeli and her
husband, Jerome Nickerson, each own 50% of the outstanding shares of
common stock of Hippeli Enterprises. Mr. Nickerson disclaims beneficial
ownership of the shares of our common stock owned by Hippeli Enterprises.
(7) Mr. Skelsey and Mr. Mahan are each members of two of the limited liability
companies constituting the TTC Investors Group. Neither Mr. Skelsey nor
Mr. Mahan has voting or investment power over the shares of common stock
owned by the TTC Investors Group as a result of the memberships and
therefore neither is deemed to have beneficial ownership of the shares as
a result of the memberships. Each of Mr. Skelsey's and Mr. Mahan's
indirect ownership interest in our company through his memberships in the
limited liability companies constituting the TTC Investors Group is less
than one percent.
(8) Mr. Stack is no longer employed by us. See "Management--Employment and
non-competition agreements."
(9) Mr. Mahan's total excludes 5,696,770 shares of our common stock owned by
the TTC Investors Group. Mr. Mahan is a director of AEA Tanning Investors.
Mr. Mahan disclaims beneficial ownership of the shares beneficially owned
by the TTC Investors Group.
(10) Mr. Shanahan has agreed to serve on our board of directors upon
completion of this offering.
(11) See footnotes 4 through 6 above.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
We intend to amend our certificate of incorporation and bylaws prior to the
completion of this offering. The forms of our certificate of incorporation and
bylaws will be filed as exhibits to the registration statement of which this
prospectus is a part. The following summarizes the terms and provisions of our
capital stock upon the closing of this offering. The summary is not complete,
and you should read the forms of our certificate of incorporation and bylaws.
Upon the closing of this offering, our authorized capital stock will consist
of 50 million shares, $0.01 par value per share, of common stock and 5 million
shares, par value $0.01 per share, of preferred stock.
Common stock
Each share of our common stock will be identical in all respects and will
entitle its holder to the same rights and privileges enjoyed by all other
holders of shares of common stock and will subject them to the same
qualifications, limitations and restrictions to which all other holders of
common stock will be subject.
Voting rights
Holders of our common stock will be entitled to one vote per share on all
matters to be voted on by our stockholders. Holders of common stock will not
have cumulative rights, so that holders of a plurality of the shares of common
stock present at a meeting at which a quorum is present will be able to elect
all of our directors eligible for election in a given year. The holders of a
majority of the voting power of the issued and outstanding common stock will
constitute a quorum.
Dividends
Holders of our common stock will be entitled to receive ratably such
dividends, if any, as are declared by our board of directors out of funds
legally available for the declaration of dividends, subject to the preferential
rights of any holder of preferred stock that may from time to time be
outstanding.
Liquidation
Upon our liquidation, dissolution or winding up, the holders of our common
stock will be entitled to share pro rata in the distribution of all of our
assets available for distribution after satisfaction of all of our liabilities
and the payment of the liquidation preference of any preferred stock that may
be outstanding.
Other provisions
The holders of our common stock will have no preemptive or other
subscription rights to purchase common stock, and there will be no redemptive
rights or sinking fund provisions.
Preferred stock
Our board of directors will be authorized to issue preferred stock in one or
more series and to establish the number of shares to be included in each series
and to fix the designations, powers, preferences and rights of the shares of
each series and any qualifications, limitations or restrictions of each series.
Because the board of directors will have the power to establish the preferences
and rights of the shares of any series of preferred stock, it may afford the
holders of any series of preferred stock preferences, powers and rights,
including voting rights, senior to the rights of the holders of common stock.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Tanning.
56
<PAGE>
Limitation on directors' liabilities
Our certificate of incorporation will limit the liability of our directors
to us and our stockholders to the fullest extent permitted by Delaware law.
Specifically, our directors will not be personally liable for money damages for
breach of fiduciary duty as a director, except for liability
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, which
concerns unlawful payments of dividends, stock purchases or redemptions;
and
. for any transaction from which the director derived an improper personal
benefit.
Anti-takeover effects of our certificate of incorporation and bylaws and
provisions of Delaware law
Our certificate of incorporation, bylaws and Section 203 of the Delaware
General Corporation Law contain provisions that may make the acquisition of
control of Tanning by means of a tender offer, open market purchase, proxy
fight or otherwise, more difficult.
Section 203 of the Delaware General Corporation Law
We must comply with the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns,
or, in some cases, within three years prior, did own, 15% or more of the
corporation's voting stock. Under Section 203, a business combination between
Tanning and an interested stockholder is prohibited unless it satisfies one of
the following three conditions:
. our board of directors must have previously approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, shares owned by (1) persons who are directors and also
officers and (2) employee stock plans, in some instances; and
. the business combination is approved by our board of directors and
authorized at an annual or special meeting of the stockholders by the
affirmative vote of the holders of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
Staggered board
Our certificate of incorporation will provide that the number of directors
shall be fixed from time to time by a resolution of our board of directors. Our
certificate of incorporation will also provide that the board of directors
shall be divided into three classes. The members of each class of directors
will serve for staggered three-year terms. As permitted by the Delaware General
Corporation Law, the members of our classified board of directors will only be
removable from office by our stockholders for cause. Vacancies on the board of
directors shall be filled by a majority of the remaining directors, or by a
sole remaining director, or by our stockholders if the vacancy was caused by
the action of our stockholders.
57
<PAGE>
Advance notice provision
Our certificate of incorporation and bylaws will provide that stockholders
must follow an advance notification procedure to nominate candidates for the
board of directors and to propose business to be conducted at an annual
meeting.
Special meetings of stockholders; written consent provision
Our certificate of incorporation will provide that special meetings of our
stockholders may be called only by the board of directors, the chairman of the
board or the president. Our certificate of incorporation will also remove our
stockholders' ability to act by written consent. These provisions may render it
more difficult for stockholders to take action opposed by the board of
directors.
Adoption, amendment or repeal of bylaws
Our certificate of incorporation will limit the ability of our stockholders
to adopt, amend or repeal our bylaws. Specifically, any adoption, amendment or
repeal of a bylaw by our stockholders will require passage by a supermajority
vote.
Supermajority approvals
The provisions of our certificate of incorporation referred to above will
not be able to be altered without supermajority approval by our stockholders.
Transfer agent and registrar
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, 19,606,002 shares of common stock will be
outstanding or 20,206,002 shares if the underwriters exercise their over-
allotment option in full. Of these shares, the 4,600,000 shares of common
stock, assuming the underwriters exercise their over-allotment option in full,
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless held by an "affiliate" of Tanning
as that term is defined in Rule 144 under the Securities Act. All of the shares
of common stock outstanding prior to this offering are "restricted securities,"
as such term is defined under Rule 144. These shares are restricted securities
because they were issued in private transactions not involving a public
offering and may not be sold in the absence of registration other than in
accordance with Rule 144 or Rule 701 under the Securities Act or another
exemption from registration. This prospectus may not be used in connection with
any resale of shares of common stock acquired in this offering by Tanning
Affiliates.
We, our officers and directors and our existing stockholders have agreed not
to offer, sell, contract to sell, announce their intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any additional
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days
after the date of this prospectus, except in our case for grants of employee
stock options pursuant to the terms of any stock option plans in effect on the
date of this prospectus, issuances of securities pursuant to the exercise of
employee stock options outstanding on the date of this prospectus, employee
stock purchases pursuant to the terms of a plan in effect on the date of this
prospectus or the issuance of shares pursuant to the exercise of any other
stock options outstanding on the date of this prospectus.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of common stock are aggregated), including persons who may
be deemed Tanning Affiliates, would be entitled to sell within any three-month
period a number of shares of common stock that does not exceed the greater of
(1) one percent of the then-outstanding shares of common stock, which
equals approximately 1,960,600 shares immediately after this offering,
and
(2) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.
Sales under Rule 144 are also subject to certain restrictions as to the
manner of sale, notice requirements and the availability of current public
information about us. In addition, under Rule 144(k), if a period of at least
two years has elapsed since the later of the date restricted securities were
acquired from us or the date they were acquired from a Tanning Affiliate, a
stockholder who is not a Tanning Affiliate at the time of sale and who has not
been a Tanning Affiliate for at least three months prior to the sale would be
entitled to sell shares of common stock in the public market immediately
without compliance with the foregoing requirements under Rule 144. Rule 144
does not require the same person to have held the securities for the applicable
periods. The foregoing summary of Rule 144 is not intended to be a complete
description.
In addition, any employee, director or officer of, or consultant to Tanning
who acquired shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits non-
affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits Tanning Affiliates to sell their Rule 701 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.
Immediately following this offering, none of the 15,606,002 "restricted
securities" will be available for immediate sale in the public market pursuant
to Rule 144(k). Beginning 90 days after the date of this prospectus, and
without consideration of the contractual restrictions described above,
shares acquired
59
<PAGE>
upon exercise of options issued under our stock option plans and purchases
under our employee stock purchase plans will be outstanding and eligible for
sale in reliance upon Rule 701. Additional shares may be available if options
are exercised in the 180-day period following the date of this prospectus.
Shares of our common stock issued in reliance on Rule 701 may be resold by
holders who are not Tanning Affiliates under Rule 144 without compliance with
the holding period, amount and notice limitations and by holders who are
Tanning Affiliates under Rule 144 without compliance with the holding period
limitation. Following this offering, we intend to file a registration statement
on Form S-8 under the Securities Act to register shares of common stock
reserved or to be available for issuance pursuant to our stock option plans.
Shares of common stock acquired upon exercise of options issued under our stock
option plans generally will be available for sale in the open market by holders
who are not Tanning Affiliates and, subject to the volume and other applicable
limitations of Rule 144, by holders who are Tanning Affiliates, unless such
shares are subject to the contractual restrictions described above.
Simultaneously with the effectiveness of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act to register shares
of our common stock reserved for issuance under our employee stock purchase
plan. Shares of our common stock issued under our employee stock purchase plan
generally will be available for sale in the open market by holders who are not
Tanning Affiliates and, subject to the volume and other applicable limitations
of Rule 144, by holders who are Tanning Affiliates, unless such shares are
subject to the contractual restrictions described above.
Tanning, Tanning's founders, the TTC Investors Group and Mr. Skelsey are
parties to an amended and restated registration rights agreement dated July ,
1999, which provides the parties with the right to register the sale of shares
owned by them. These rights cover a significant amount of the shares of our
common stock and will also cover any shares obtained by parties to the
registration rights agreement. Registration of these shares of our common stock
would permit the sale of these shares without regard to the restrictions of
Rule 144. For a further discussion of these registration rights, see "Certain
Transactions--Stock Purchase Agreement, Shareholder Agreement and Registration
Rights Agreement."
Prior to this offering, there has been no public market for our common
stock. No information is currently available and we cannot predict the timing
or amount of future sales of shares, or the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price of our common stock prevailing from time to time. Sales of
substantial amounts of our common stock (including shares issuable upon the
exercise of stock options) in the public market after the lapse of the
restrictions described above, or the perception that such sales may occur,
could materially adversely affect the prevailing market prices for our common
stock and our ability to raise equity capital in the future. See "Risk
Factors--Risks Related to this Offering--The sale or availability for sale of
substantial amounts of our common stock could adversely affect its market
price."
60
<PAGE>
UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common
stock by a Non-U.S. Holder. As used in this prospectus, the term "Non-U.S.
Holder" is a person other than:
. a citizen or individual resident of the United States,
. a corporation or partnership created or organized in or under the laws
of the United States or of any political subdivision of the United
States, other than a partnership treated as foreign under U.S. Treasury
regulations,
. an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source, or
. a trust, in general, if it is subject to the primary supervision of a
court within the United States and the control of one or more U.S.
persons.
An individual may, subject to certain exceptions, be treated as a resident
of the United States for U.S. federal income tax purposes, instead of a
nonresident, by, among other things, being present in the United States for at
least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year--counting for
these purposes all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days
present in the second preceding year. Residents are subject to U.S. federal tax
as if they were U.S. citizens.
This discussion does not consider:
. U.S. state and local or non-U.S. tax consequences,
. specific facts and circumstances that may be relevant to a particular
Non-U.S. Holder's tax position, including, if the Non-U.S. Holder is a
partnership, that the U.S. tax consequences of holding and disposing of
our common stock may be affected by certain determinations made at the
partner level,
. the tax consequences for the shareholders, partners or beneficiaries of
a Non-U.S. Holder,
. special tax rules that may apply to certain Non-U.S. Holders, including
without limitation, banks, insurance companies, dealers in securities
and traders in securities, or
. special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a "straddle," "hedge" or "conversion
transaction."
The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, applicable Treasury regulations, and administrative and judicial
interpretations, all as of the date of this prospectus, and all of which may
change, retroactively or prospectively. The following summary is for general
information. Accordingly, each Non-U.S. Holder should consult a tax advisor
regarding the U.S. federal, state, local and non-U.S. income and other tax
consequences of acquiring, holding and disposing of shares of our common stock.
Dividends
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of common stock, dividends paid to a Non-U.S.
Holder of common stock generally will be subject to withholding of U.S. federal
income tax at a 30% rate, or such lower rate as may be provided by an
applicable income tax treaty. Non-U.S. Holders should consult their tax
advisors regarding their entitlement to benefits under a relevant income tax
treaty.
61
<PAGE>
Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment, or in the case of an individual, a
"fixed base," in the United States, as provided in that treaty ("U.S. trade or
business income"), are generally subject to U.S. federal income tax on a net
income basis at regular graduated rates, but are not generally subject to the
30% withholding tax if the Non-U.S. Holder files the appropriate U.S. Internal
Revenue Service form with the payor. Any U.S. trade or business income received
by a Non-U.S. Holder that is a corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as specified by an applicable income tax treaty.
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes
of determining the applicability of a tax treaty rate. For dividends paid after
2000:
. a Non-U.S. Holder of common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements;
. in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information, including a U.S. taxpayer identification number; and
. look-through rules will apply for tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit
of any excess amounts withheld by filing an appropriate claim for a refund with
the IRS.
Gain on disposition of common stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
. the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate Non-U.S.
Holder;
. the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for more than 182 days in the
taxable year of the disposition and meets certain other requirements;
. the Non-U.S. Holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to certain U.S. expatriates; or
. we are or have been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of the five-
year period ending on the date of disposition or the period that the
Non-U.S. Holder held our common stock.
Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in a trade or business.
Tanning believes that it has not been, is not currently, and does not
anticipate becoming, a "U.S. real property holding corporation" for U.S.
federal income tax purposes. The tax relating to stock in a "U.S. real property
holding corporation" will not apply to a Non-U.S. Holder whose holdings, direct
and indirect, at all times during the applicable period, constituted 5% or less
of the common stock, provided that the common stock was regularly traded on an
established securities market.
Federal estate tax
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.
62
<PAGE>
Information reporting and backup withholding tax
We must report annually to the IRS and to each Non-U.S. Holder the amount of
dividends paid to that holder and the tax withheld with respect to those
dividends. Copies of the information returns reporting those dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
Under certain circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends paid prior to 2001 to an address outside the
United States. For dividends paid after 2000, however, a Non-U.S. Holder of
common stock that fails to certify its Non-U.S. Holder status in accordance
with applicable U.S. Treasury Regulations may be subject to backup withholding
at a rate of 31% on payments of dividends.
The payment of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker or through a non-U.S. branch of a
U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of common stock to or through a non-U.S. office of a non-U.S. broker will not
be subject to backup withholding or information reporting unless the non-U.S.
broker is a "U.S. related person." In the case of the payment of proceeds from
the disposition of common stock by or through a non-U.S. office of a broker
that is a U.S. person or a "U.S. related person," information reporting, but
currently not backup withholding, on the payment applies unless the broker
receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files that the holder is a Non-U.S. Holder and the broker has no actual
knowledge to the contrary. For this purpose, a "U.S. related person" is:
. a "controlled foreign corporation" for U.S. federal income tax purposes;
. a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from activities that are effectively
connected with the conduct of a U.S. trade or business; or
. effective after 2000, a foreign partnership if, at any time during the
taxable year, (A) at least 50% of the capital or profits interest in the
partnership is owned by U.S. persons, or (B) the partnership is engaged
in a U.S. trade or business.
Effective after 2000, backup withholding may apply to the payment of
disposition proceeds by or through a non-U.S. office of a broker that is a U.S.
person or a "U.S. related person" unless certain certification requirements are
satisfied or an exemption is otherwise established and the broker has no actual
knowledge that the holder is a U.S. person. Non-U.S. Holders should consult
their own tax advisors regarding the application of the information reporting
and backup withholding rules to them, including changes to these rules that
will become effective after 2000.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.
63
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Salomon Smith Barney
Inc., CIBC World Markets Corp., ING Baring Furman Selz LLC, and Adams,
Harkness & Hill, Inc., are acting as representatives, the following respective
numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriters shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation................................
Salomon Smith Barney Inc. ............................................
CIBC World Markets Corp. .............................................
ING Barings LLC.......................................................
Adams, Harkness & Hill, Inc. .........................................
Total...............................................................
---------
4,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or this
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 600,000 additional shares of common stock at the initial
public offering price less the underwriting discounts and commissions. This
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the discounts and commissions and estimated
expenses that we will pay.
<TABLE>
<CAPTION>
Total
-----------------------------
Without With
Per share over-allotment over-allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
paid by us........................... $ $ $
Expenses payable by us................ $ $ $
</TABLE>
The underwriters have informed us that they do not expect sales to accounts
over which they exercise discretionary authority to exceed 5% of the common
stock being offered.
We, our officers and directors and our existing stockholders have agreed
not to offer, sell, contract to sell, announce their intention to sell, pledge
or otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any additional
shares of our common stock or securities convertible into to exchangeable or
exercisable for any shares of our common stock without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days
after the date of this
64
<PAGE>
prospectus, except in our case for grants of employee stock options pursuant to
the terms of any plan in effect on the date of this prospectus, issuances of
securities pursuant to the exercise of employee stock options outstanding on
the date of this prospectus, employee stock purchases pursuant to the terms of
a plan in effect on the date of this prospectus or the issuance of shares
pursuant to the exercise of any other stock options outstanding on the date of
this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to 200,000 shares of common stock for employees and certain other
persons associated with Tanning who have expressed an interest in purchasing
common stock in this offering. The number of shares available for sale to the
general public in this offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq National
Market under the symbol "TANN."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives, and does not reflect the market price for
the common stock following the offering. Among the principal factors considered
in determining the initial public offering price will be:
. the information in this prospectus and otherwise available to the
representatives;
. market conditions for initial public offerings;
. the history of and prospects for the industry in which we will compete;
. our past and present operations;
. our past and present earnings and current financial position;
. the ability of our management;
. our prospects for future earnings;
. the present state of our development and our current financial
condition;
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies;
. the general condition of the securities markets at the time of this
offering; and
. other relevant factors.
We can offer no assurance that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to this offering or that an active trading market for the
common stock will develop and continue after this offering.
The representatives may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Exchange Act.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
65
<PAGE>
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by that
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of our common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
66
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to Tanning and the dealer from whom
such purchase confirmation is received that: (1) such purchaser is entitled
under applicable provincial securities laws to purchase such common stock
without the benefit of a prospectus qualified under such securities laws, (2)
where required by law, that such purchaser is purchasing as principal and not
as agent, and (3) such purchaser has reviewed the text above under "Resale
restrictions."
Rights of action (Ontario purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of legal rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under
the same prospectus exemption.
Taxation and eligibility for investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
67
<PAGE>
LEGAL MATTERS
Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), New York, New York will pass upon the validity of
the issuance of the shares of common stock offered hereby. The underwriters
have been represented by Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of Tanning Technology Corporation at
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock being offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to Tanning and the shares of common stock offered by this
prospectus, reference is made to the registration statement, including its
exhibits and schedules. Statements made in this prospectus to any contract or
other document are not necessarily complete and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract or document. You may review a copy of the registration statement,
including its exhibits and schedules, at the SEC's public reference room,
located at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New York
10048 or on the Internet at http://www.sec.gov. You may obtain a copy of this
registration statement from the SEC's public reference room upon payment of
prescribed fees. Please call the SEC at (800) SEC-0330 for further information
on the operation of the public reference room.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance with the Exchange
Act, we will file periodic reports, proxy statements and other information with
the SEC.
68
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 and at March 31,
1999 (unaudited)......................................................... F-3
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996 and for the periods ended March 31, 1999 and 1998
(unaudited).............................................................. F-5
Consolidated Statements of Stockholders'/Members' Equity for the years
ended December 31, 1998, 1997 and 1996 and for the period ended March 31,
1999 (unaudited)......................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 and for the periods ended March 31, 1999 and 1998
(unaudited).............................................................. F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Tanning Technology Corporation
We have audited the accompanying consolidated balance sheets of Tanning
Technology Corporation as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders'/members' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tanning
Technology Corporation at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Denver, Colorado
February 26,
1999, except
for Note 4, as
to which the
date is May
17, 1999
F-2
<PAGE>
TANNING TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............. $ 7,768,636 $10,446,111 $ 7,183,218
Accounts receivable--trade, net of
allowance for doubtful accounts of
$300,464, $956,656 and $685,714 at
December 31, 1997, December 31, 1998
and March 31, 1999, respectively..... 5,357,057 9,225,153 13,181,568
Accounts receivable--other............ 106,306 152,743 253,228
Income taxes receivable............... 603,500 -- --
Deferred income taxes................. 314,152 417,315 558,209
Prepaid expenses and other assets..... 77,206 344,867 362,956
----------- ----------- -----------
Total current assets.................... 14,226,857 20,586,189 21,539,179
Property and equipment, at cost:
Computer equipment.................... 1,733,839 2,081,553 2,276,574
Office furniture and equipment........ 1,117,970 1,342,097 1,452,385
Computer software..................... 211,477 917,757 1,045,597
Leasehold improvements................ 179,215 258,484 379,074
----------- ----------- -----------
3,242,501 4,599,891 5,153,630
Less accumulated depreciation and
amortization......................... (636,184) (1,384,859) (1,668,807)
----------- ----------- -----------
2,606,317 3,215,032 3,484,823
Deposits and other long-term assets..... 12,948 121,854 93,437
----------- ----------- -----------
Total assets............................ $16,846,122 $23,923,075 $25,117,439
=========== =========== ===========
</TABLE>
F-3
<PAGE>
TANNING TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS--(Continued)
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Liabilities and stockholders'/members'
equity
Current liabilities:
Accounts payable...................... $ 1,094,373 $ 1,554,871 $ 1,861,699
Accrued compensation.................. 1,410,116 2,280,842 1,599,651
Accrued distribution to former
members.............................. -- 165,257 165,257
Other accrued liabilities............. 457,863 629,190 317,856
Deferred revenue...................... 45,000 400,146 375,000
Income taxes payable.................. 15,223 1,432,518 1,511,205
Current portion of long-term debt..... 1,000,000 118,670 121,014
----------- ----------- -----------
Total current liabilities............... 4,022,575 6,581,494 5,951,682
Deferred income taxes................... 86,867 87,291 98,205
Long-term debt, net of current portion.. -- 460,183 428,766
Minority interest....................... -- 22,062 43,235
Commitments and contingencies...........
Stockholders'/members' equity:
Common stock:
Class A shares, $0.01 par value:
Authorized shares--9,520,293
Issued and outstanding shares--
9,520,293 at December 31, 1997,
December 31, 1998 and March 31,
1999............................... 58,159 290,795 290,795
Class B shares, $0.01 par value:
Authorized shares--5,696,770
Issued and outstanding shares--
5,127,259 at December 31, 1997;
5,696,770 at December 31, 1998 and
March 31, 1999..................... 26,700 151,376 151,376
Class C shares, $0.01 par value:
Authorized shares--8,536,568
Issued and outstanding shares--none
at December 31, 1997 and 1998;
281,555 at March 31, 1999.......... -- -- 8,600
Additional paid-in capital............ 12,800,772 14,178,203 15,226,603
Retained earnings (deficit)........... (143,543) 2,159,428 2,978,635
Accumulated comprehensive income
(loss)............................... (5,408) (7,757) (60,458)
----------- ----------- -----------
Total stockholders'/members' equity..... 12,736,680 16,772,045 18,595,551
----------- ----------- -----------
Total liabilities and
stockholders'/members' equity.......... $16,846,122 $23,923,075 $25,117,439
=========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
TANNING TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Services revenue........ $12,762,915 $25,235,268 $30,313,139 $4,613,213 $11,305,049
Product sales........... 46,150 872,038 2,975,417 569,800 --
----------- ----------- ----------- ---------- -----------
Net revenues............ 12,809,065 26,107,306 33,288,556 5,183,013 11,305,049
Operating expenses:
Project personnel
costs................ 6,569,108 14,722,065 14,941,164 2,888,509 5,492,295
Selling, marketing and
administrative
expenses............. 2,054,581 7,855,759 12,177,973 2,320,677 4,678,763
Product development
costs................ 431,000 1,608,178 2,785,723 819,858 --
Management fees--
related parties...... 901,932 73,000 -- -- --
Sign-on bonus related
to stock purchase
agreement............ -- 2,117,664 -- -- --
----------- ----------- ----------- ---------- -----------
Total operating
expenses........... 9,956,621 26,376,666 29,904,860 6,029,044 10,171,058
----------- ----------- ----------- ---------- -----------
Income (loss) from
operations............. 2,852,444 (269,360) 3,383,696 (846,031) 1,133,991
Other income (expense):
Interest income....... 10,648 291,292 333,195 89,894 120,003
Interest expense...... (89,397) (69,765) (81,576) (16,387) (12,039)
Other................. 49,260 (90,589) 33,979 23,008 54,850
----------- ----------- ----------- ---------- -----------
Income (loss) before
provision for (benefit
from) income taxes..... 2,822,955 (138,422) 3,669,294 (749,516) 1,296,805
Provision for (benefit
from) income taxes..... -- (211,829) 1,366,323 (278,820) 477,598
----------- ----------- ----------- ---------- -----------
Net income (loss)....... $ 2,822,955 $ 73,407 $ 2,302,971 $ (470,696) $ 819,207
=========== =========== =========== ========== ===========
Basic earnings (loss)
per share.............. $ 0.01 $ 0.15 $ (0.03) $ 0.05
=========== =========== ========== ===========
Basic weighted average
shares outstanding..... 13,718,710 14,968,974 14,647,552 15,345,327
=========== =========== ========== ===========
Diluted earnings (loss)
per share.............. $ 0.01 $ 0.15 $ (0.03) $ 0.05
=========== =========== ========== ===========
Diluted weighted average
shares outstanding..... 13,718,710 15,232,236 14,647,552 16,323,342
=========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
TANNING TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'/MEMBERS' EQUITY
<TABLE>
<CAPTION>
Class A Class B Class C
Member common stock common stock common stock Additional Retained
contributions Accumulated ------------------ ------------------ -------------- paid-in earnings
(distributions) earnings Shares Amount Shares Amount Shares Amount capital (deficit)
--------------- ----------- --------- -------- --------- -------- ------- ------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1995............ $ 145,424 $ 954,176 -- $ -- -- $ -- -- $ -- $ -- $ --
Member
distributions... (3,852,063) -- -- -- -- -- -- -- -- --
Net income...... -- 2,822,955 -- -- -- -- -- -- -- --
Foreign currency
translation..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income..........
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance,
December 31,
1996............ (3,706,639) 3,777,131 -- -- -- -- -- -- -- --
Member
distributions... (977,455) -- -- -- -- -- -- -- -- --
Member
contributions,
net............. 838,565 -- -- -- -- -- -- -- -- --
Net income and
comprehensive
income for month
ended January
31, 1997........ -- 216,950 -- -- -- -- -- -- -- --
Conversion to C
corporation and
sale of common
stock........... 3,845,529 (3,994,081) 9,520,293 2,763 3,657,342 927 -- -- 9,233,851 --
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance, January
31, 1997........ -- -- 9,520,293 2,763 3,657,342 927 -- -- 9,233,851 --
Stock split,
March 17, 1997.. -- -- -- 55,396 -- 17,927 -- -- (73,323) --
Sale of common
stock........... -- -- -- -- 1,469,917 7,846 -- -- 3,640,244 --
Net loss for the
11 months ended
December 31,
1997............ -- -- -- -- -- -- -- -- -- (143,543)
Foreign currency
translation..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income (loss)...
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance,
December 31,
1997............ -- -- 9,520,293 58,159 5,127,259 26,700 -- -- 12,800,772 (143,543)
Stock split,
April 30, 1998.. -- -- -- 232,636 -- 109,476 -- -- (342,112) --
Sale of common
stock........... -- -- -- -- 569,511 15,200 -- -- 1,884,800 --
Distribution to
former members
of Tanning
Technology
Group, LLC...... -- -- -- -- -- -- -- -- (165,257) --
Net income...... -- -- -- -- -- -- -- -- -- 2,302,971
Foreign currency
translation..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income..........
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance,
December 31,
1998............ -- -- 9,520,293 290,795 5,696,770 151,376 -- -- 14,178,203 2,159,428
Exercised stock
options
(unaudited)..... -- -- -- -- -- -- 281,555 8,600 1,048,400 --
Net income for
three months
ended March 31,
1999
(unaudited)..... -- -- -- -- -- -- -- -- -- 819,207
Foreign currency
translation
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income
(unaudited).....
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance, March
31, 1999
(unaudited)..... $ -- $ -- 9,520,293 $290,795 5,696,770 $151,376 281,555 $8,600 $15,226,603 $2,978,635
=========== ========== ========= ======== ========= ======== ======= ====== =========== ==========
<CAPTION>
Total
Accumulated stockholders'/
comprehensive members'
income (loss) equity
------------- --------------
<S> <C> <C>
Balance,
December 31,
1995............ $ -- $ 1,099,600
Member
distributions... -- (3,852,063)
Net income...... -- 2,822,955
Foreign currency
translation..... 12,079 12,079
--------------
Comprehensive
income.......... 2,835,034
------------- --------------
Balance,
December 31,
1996............ 12,079 82,571
Member
distributions... -- (977,455)
Member
contributions,
net............. -- 838,565
Net income and
comprehensive
income for month
ended January
31, 1997........ -- 216,950
Conversion to C
corporation and
sale of common
stock........... (12,079) 9,076,910
------------- --------------
Balance, January
31, 1997........ -- 9,237,541
Stock split,
March 17, 1997.. -- --
Sale of common
stock........... -- 3,648,090
Net loss for the
11 months ended
December 31,
1997............ -- (143,543)
Foreign currency
translation..... (5,408) (5,408)
--------------
Comprehensive
income (loss)... (148,951)
------------- --------------
Balance,
December 31,
1997............ (5,408) 12,736,680
Stock split,
April 30, 1998.. -- --
Sale of common
stock........... -- 1,900,000
Distribution to
former members
of Tanning
Technology
Group, LLC...... -- (165,257)
Net income...... -- 2,302,971
Foreign currency
translation..... (2,349) (2,349)
--------------
Comprehensive
income.......... 2,300,622
------------- --------------
Balance,
December 31,
1998............ (7,757) 16,772,045
Exercised stock
options
(unaudited)..... -- 1,057,000
Net income for
three months
ended March 31,
1999
(unaudited)..... -- 819,207
Foreign currency
translation
(unaudited)..... (52,701) (52,701)
--------------
Comprehensive
income
(unaudited)..... 766,506
------------- --------------
Balance, March
31, 1999
(unaudited)..... $(60,458) $18,595,551
============= ==============
</TABLE>
See accompanying notes.
F-6
<PAGE>
TANNING TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)....... $ 2,822,955 $ 73,407 $ 2,302,971 $ (470,696) $ 819,207
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Loss on disposal of
equipment............. -- -- 128,609 -- --
Depreciation and
amortization.......... 150,055 443,977 916,699 179,286 283,948
Deferred income
taxes................. -- (227,285) (102,739) (43,656) --
Minority interest...... -- -- 22,062 -- 21,173
Changes in operating
assets and
liabilities:
Accounts receivable--
trade............... (2,575,031) (5,036,989) (3,868,096) (321,469) (3,956,415)
Accounts receivable--
other............... -- (54,442) (46,437) 44,148 (100,485)
Income taxes
receivable.......... -- (603,500) 603,500 (433,770) --
Prepaid expenses and
other assets........ (124,649) 6,634 (267,661) (19,287) (18,089)
Deposits and other
long-term assets.... 6,901 744 (108,906) (516) 28,417
Accounts payable..... 265,540 746,104 460,498 (266,362) 306,828
Accrued
compensation........ 257,783 1,072,000 870,726 (539,592) (681,191)
Deferred revenue..... -- 45,000 355,146 63,750 (25,146)
Other accrued
liabilities......... 461,331 (265,892) 171,327 (8,578) (311,334)
Income taxes
payable............. -- 15,223 1,417,295 199,560 (51,293)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 1,264,885 (3,785,019) 2,854,994 (1,617,182) (3,684,380)
Investing activities
Purchase of property and
equipment, net......... (858,702) (1,899,060) (1,654,023) (441,292) (553,739)
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities... (858,702) (1,899,060) (1,654,023) (441,292) (553,739)
Financing activities
Principal payments under
capital lease
obligations............ (189,364) (40,471) -- -- --
Principal payments on
long-term debt......... -- (700,000) (1,073,478) -- (29,073)
Principal payments on
notes payable--related
parties................ (363,455) -- -- -- --
Borrowings on long-term
debt................... 1,700,000 -- 652,331 652,331 --
Exercise of stock
options................ -- -- -- -- 1,057,000
Proceeds from issuance
of common stock........ -- 12,725,000 1,900,000 -- --
Distributions to
members, net........... -- (138,890) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... 1,147,181 11,845,639 1,478,853 652,331 1,027,927
Effect of exchange rate
on cash................ 12,079 (5,408) (2,349) (1,110) (52,701)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 1,565,443 6,156,152 2,677,475 (1,407,253) (3,262,893)
Cash and cash
equivalents at
beginning of period.... 47,041 1,612,484 7,768,636 7,768,636 10,446,111
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................. $ 1,612,484 $ 7,768,636 $10,446,111 $ 6,361,383 $ 7,183,218
=========== =========== =========== =========== ===========
Supplemental disclosures
of cash flow
information
Cash paid for interest.. $ 35,866 $ 40,026 $ 163,897 $ 16,387 $ 12,039
Cash paid for income
taxes.................. -- 603,723 30,686 -- 478,324
</TABLE>
Supplemental disclosures of noncash investing and financing transactions
During 1997 and 1996, the Company distributed $977,455 and $3,852,063,
respectively, of its accounts receivable to its members.
See accompanying notes.
F-7
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1998 and 1999 is unaudited)
1.BUSINESS AND ORGANIZATION
Tanning Technology Corporation (the "Company") is an information technology
services provider that architects, builds and deploys enterprise solutions for
corporations throughout the world. The Company specializes in large, complex,
integrated solutions that incorporate online transaction processing and very
large databases. Internet technologies are a central part of the Company's
solutions, enabling direct interaction among customers and business partners on
the World Wide Web and among employees within organizations on their private
intranets.
Tanning Technology Group, LLC ("TTG") was formed under the laws of the state
of Colorado on February 8, 1995, as a result of the combination of Courtney
Rose Corporation, WinSoft Corporation, Strategic Technologies and Systems, and
Hippeli Enterprises. The assets and liabilities contributed by the members were
recorded at historical cost as reflected on the accounts of the respective
entities prior to the formation of TTG.
On December 24, 1996, TTG entered into a Stock Purchase Agreement with AEA
Tanning Investors Inc. (AEA Tanning Investors Inc., together with certain
limited liability companies of which it is the managing member, the "TTC
Investors Group"). As a result of this agreement, on January 31, 1997 TTG
effected a series of transactions whereby TTG was merged into Tanning
Technology Corporation, a Delaware corporation newly formed in conjunction with
this transaction. The membership interests of the members of TTG were converted
into shares of Class A common stock of the Company. On the same date, the TTC
Investors Group purchased 3,657,342 shares of Class B common stock from the
Company for $9,076,910 and purchased directly from the former members of TTG
$3,648,090 of accounts receivable that had been distributed to the members of
TTG (see Note 7). On June 6, 1997, the TTC Investors Group purchased an
additional 1,469,917 shares of Class B common stock from the Company for
$3,648,090, which was comprised of $3,126,636 cash and accounts receivable with
a value of $521,454. On June 9, 1998, the TTC Investors Group purchased an
additional 569,511 shares of Class B common stock from the Company for
$1,900,000.
The Company's wholly-owned direct subsidiaries include Nextek Software Corp.
and a United Kingdom subsidiary, Tanning Technology Europe Limited ("TTEL").
During 1998, the Company established a 51% owned Indian subsidiary, Tanning
Technology India Pvt Ltd ("TTI"). The operating results of TTI are not material
to the consolidated results of operations. Nextek Software Corporation sold the
rights to certain developed software during 1998 and has no current plans for
future product sales.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany transactions
have been eliminated.
Limited Liability Company ("LLC")
An LLC is an unincorporated association of two or more persons, whose
members have limited personal liability for the obligations or debts of the
entity. For federal income tax purposes, the Company was classified as an LLC
through January 31, 1997, at which time the Company converted from an LLC to a
C Corporation.
F-8
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Substantially all of the Company's contracts are billed on a time and
materials basis. Under time and materials contracts, the Company recognizes
revenue as services are provided. In addition, the Company is generally
reimbursed for reasonable expenses incurred under its contracts. The Company
recognizes revenue for fixed price contracts on a percentage of completion
basis. The Company recognizes revenue from its software sales in accordance
with the provisions of the American Institute of Certified Public Accountants'
Statement of Financial Position 97-2, Software Revenue Recognition, which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions.
Cash and Cash Equivalents
The Company considers all highly liquid investments (including money market
accounts) with a maturity of three months or less when purchased to be cash
equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization,
which includes amortization of assets under capital leases, is based on the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Computer equipment.................................... 5 years
Office furniture and equipment........................ 7 years
Computer software..................................... 3 years
Leasehold improvements................................ Lesser of the life
of the improvement
or the related asset
</TABLE>
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 109, Accounting for Income Taxes,
which requires that the Company account for income taxes using the liability
method. Under SFAS No. 109, deferred income taxes are provided for temporary
differences in recognizing certain income and expense items for financial
reporting and tax reporting purposes. Upon completion of the merger of TTG with
the Company (see Note 1), the LLC status was terminated and the Company began
providing for current and deferred income taxes as a C corporation.
Accordingly, the consolidated statement of income for the year ended December
31, 1997 includes a one-time credit (included in benefit from income taxes) of
approximately $70,000 to record the related deferred tax asset. Prior to the
conversion to a C corporation, no provision for income taxes was provided since
members included their distributive shares of revenue and deductions of the
limited liability company in their personal capacities, pursuant to election
under Subchapter K of the Internal Revenue Code.
Foreign Currency Translation
The financial statements of TTEL are prepared in pound sterling and
translated into U.S. dollars based on the current exchange rate at the end of
the period for the balance sheet and a weighted-average rate for the period on
the statement of income. Translation adjustments are reflected as foreign
currency translation adjustments within comprehensive income in
stockholders'/members' equity and accordingly have no effect on net income.
Transaction adjustments for TTEL are included in income. Foreign currency
transaction adjustments are not material to income.
F-9
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents,
receivables, payables and accrued expenses approximate fair value due to the
short maturity of these instruments. The fair value of the Company's long-term
debt approximates carrying value and was estimated by discounting future cash
flows using rates currently available for debt with similar terms and remaining
maturities.
Sales to Significant Customers
The Company provides services to a small number of customers. Two customers
accounted for 31% each of total revenues in 1996. Two customers accounted for
40% and 22%, respectively, of total revenues in 1997. Two customers accounted
for 28% and 11%, respectively, of total revenues in 1998. Four customers
accounted for 31%, 12%, 12% and 12%, respectively, of total revenues for the
first three months of 1999. The Company performs periodic credit evaluations of
its customers' financial condition and collateral generally is not required.
Overall credit losses are within management's expectations.
Accounting Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provisions of
SFAS No. 123.
Earnings Per Share
The Company has adopted the provisions of SFAS No. 128, Earnings Per Share.
SFAS 128 requires entities to present both basic earnings per share ("EPS") and
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
(loss) available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity. Potential
dilution of securities exercisable into common stock was computed using the
treasury stock method based on the average fair market value of the stock. EPS
for 1996 is not presented since there were no shares outstanding due to the
Company's status as an LLC. The following table reflects the basic and diluted
weighted average shares.
<TABLE>
<CAPTION>
Years ended December 31 Three months ended March 31
----------------------- ---------------------------
1997 1998 1998 1999
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted-average shares
outstanding.............. 13,718,710 14,968,974 14,647,552 15,345,327
Dilutive impact of options
outstanding.............. -- 263,262 -- 978,015
----------- ----------- ------------- -------------
Weighted-average shares
and potential dilutive
shares outstanding....... 13,718,710 15,232,236 14,647,552 16,323,342
=========== =========== ============= =============
</TABLE>
F-10
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassifications
Certain of the prior year amounts have been reclassified to conform with the
1998 presentation.
Interim Financial Information
The financial statements as of and for the three months ended March 31, 1998
and 1999, are unaudited; however, they include all adjustments (consisting of
normal recurring adjustments) considered necessary by management for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the entire year.
3.LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
---------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Note and security agreements with bank,
interest at 8.71%, principal and
interest payable over sixty equal
monthly installments.................... $ -- $578,853 $549,780
Unsecured loan, interest at 6%, principal
and accrued interest paid in full in
1998.................................... 1,000,000 -- --
Less current portion..................... (1,000,000) (118,670) (121,014)
---------- -------- --------
Long-term debt........................... $ -- $460,183 $428,766
========== ======== ========
</TABLE>
The proceeds from the note and security agreements (the "Notes") totaling
$652,331 were used by the Company to purchase office furniture and fixtures.
The Notes are collateralized by the purchased assets.
4.STOCKHOLDERS'/MEMBERS' EQUITY
On May 17, 1999, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of shares of
its common stock. In connection with the planned initial public offering, the
Company intends to effect a 1 for 3.05 reverse stock split of its Class A and
Class C common shares; and a 1 for 2.67 reverse stock split of its Class B
common shares, and each share of Class A, Class B and Class C common stock will
be converted into one class of voting common stock. All references to common
shares in the accompanying financial statements reflect the Company's
anticipated reverse stock splits, but not the conversion to one class of common
stock, retroactively applied to all periods presented.
On March 17, 1997, the Board of Directors declared a 21.053:1 stock split of
the Company's Class A and B common stock, effected in the form of a stock
dividend of 20.053 shares of Class A and B common stock for each one share
issued and outstanding. Class A and B common stock issued and additional paid-
in capital as of December 31, 1997 have been restated to reflect this split.
The number of shares issued at December 31, 1997, after giving effect to both
the purchases by the TTC Investors Group and the stock splits, was 9,520,293,
5,127,259 and 0 of Class A, B and C common stock, respectively.
Effective April 30, 1998, the Board of Directors declared a 5:1 stock split
of the Company's Class A and B common stock, effected in the form of a stock
dividend of 4 shares of Class A and B common stock for each one share issued
and outstanding. The split was effected so that no change was made to the par
value of all
F-11
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
outstanding shares. In conjunction with the stock split, each outstanding stock
option granted under the Stock Option Plan was also increased while the
exercise price of each stock option was decreased by the corresponding 5:1
ratio.
In July 1998, the number of authorized shares of Class C nonvoting common
stock was increased to 8,536,568. The number of shares issued at December 31,
1998, after giving effect to both the stock splits and the purchases by the TTC
Investors Group, was 9,520,293, 5,696,770 and 0 of Class A, B and C common
stock, respectively. As of March 31, 1999 there were 9,520,293, 5,696,770 and
281,555 shares issued and outstanding of Class A, B and C common stock,
respectively.
5.INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Provision for (benefit from) income taxes:
Current:
Federal........................................... $ -- $ 268,823
State............................................. 2,903 68,352
Foreign........................................... 12,553 1,131,887
--------- ----------
Total current....................................... 15,456 1,469,062
Deferred:
Federal........................................... (194,058) (86,379)
State............................................. (33,227) (16,360)
--------- ----------
Total deferred...................................... (227,285) (102,739)
--------- ----------
Provision (benefit) from income taxes................. $(211,829) $1,366,323
========= ==========
</TABLE>
The components of the deferred tax benefit, which arise from timing
differences between financial and tax reporting, are presented below:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ---------
<S> <C> <C>
Allowance for uncollectible accounts................. $ (121,328) $(237,109)
Accrued bonuses...................................... (141,330) 141,330
Accrued vacation..................................... (20,770) (10,462)
Deferred revenue..................................... (18,171) 8,364
Foreign tax credit................................... (12,553) --
Net operating loss carryforward...................... (41,215) 41,215
Accelerated depreciation............................. 130,752 (43,461)
Deferred state income taxes.......................... (2,670) 17,139
Organization costs................................... -- (19,755)
---------- ---------
$(227,285) $(102,739)
========== =========
</TABLE>
F-12
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Variation from the federal statutory rate is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Expected provision for (benefit from) federal
income taxes at statutory rate of 34%............. $ (47,063) $1,247,561
Election of C corporation status................... (69,681) --
Tanning Technology Group, LLC income nontaxable due
to LLC status..................................... (86,780) --
Permanent differences.............................. -- 25,892
State tax benefit, net of federal benefit.......... (8,305) 34,315
Other.............................................. -- 58,555
---------- ----------
$(211,829) $1,366,323
========== ==========
</TABLE>
The components of the net deferred income tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for uncollectible accounts.................... $121,328 $358,436
Accrued bonuses......................................... 141,330 --
Accrued vacation........................................ 20,770 31,232
Deferred revenue........................................ 18,171 9,807
Foreign tax credit...................................... 12,553 12,553
Net operating loss carryforward......................... 41,215 --
Other................................................... 2,670 19,756
-------- --------
358,037 431,784
Deferred tax liabilities:
Deferred state income taxes............................. -- 14,469
Accelerated depreciation................................ 130,752 87,291
-------- --------
Deferred tax asset, net................................... $227,285 $330,024
======== ========
</TABLE>
For the year ended December 31, 1998, income before income taxes for
domestic and foreign operations was $521,137 and $3,148,157, respectively. For
the year ended December 31, 1997, income (loss) before income taxes for
domestic and foreign operations was $164,074 and $(302,496), respectively.
6.LEASES
The Company leases equipment and office space. Rental expense under
operating leases included in selling, marketing and administrative expenses was
$1,153,562, $601,341 and $250,593 for the years ended December 31, 1998, 1997,
and 1996, respectively.
The following represents the future minimum lease payments for all
noncancelable operating leases at December 31, 1998:
<TABLE>
<S> <C>
1999........................................................... $1,654,502
2000........................................................... 1,731,424
2001........................................................... 1,390,055
2002........................................................... 1,407,827
2003........................................................... 1,437,480
----------
Total minimum lease payments................................... $7,621,288
==========
</TABLE>
During 1997, all capital leases, which were substantially with members of
the Company, were paid in full.
F-13
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7.RELATED PARTY TRANSACTIONS
In conjunction with the Stock Purchase Agreement with the TTC Investors
Group (see Note 1), the Company entered into employment agreements with certain
stockholders of the Company on January 31, 1997. These employment agreements
are for three years and consist of annual minimum salary payments of $950,000
(in the aggregate for the employees who are party to these agreements) plus
annual bonuses, as defined. In connection with the initial public offering, the
Company intends to amend these agreements to change the annual salary payments
to $570,000 (in the aggregate for the employees who are party to these
agreements) plus annual bonuses. In addition, in February 1997 the Company paid
sign-on bonuses totaling $1,573,212 to certain stockholders of the Company and
$544,452 to certain employees of the Company.
On January 24, 1997, TTG distributed $977,455 of accounts receivable
balances which were generated from January 1997 sales in the United States, to
its members. The amount distributed of $977,455 is included in member
distributions in the accompanying consolidated statement of
stockholders'/members' equity.
Effective December 31, 1998, the Company agreed to distribute $165,257 to
the former members of TTG. This distribution was for reimbursement of taxes
paid by the members resulting from the conversion of an LLC to a C Corporation
on January 31, 1997.
The Company incurred management fees of $0, $73,000, and $901,932 to certain
of its members for the years ended December 31, 1998, 1997, and 1996,
respectively.
Receivable balances, owed to the Company by employees, totaled $66,024,
$60,753 and $68,566 at December 31, 1998 and 1997, and March 31, 1999,
respectively.
8.COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into an agreement with two individuals
whereby these individuals would receive commissions and royalties earned on
sales made by Nextek Software Corporation as defined in the agreement. The
Company incurred royalty and commission expenses of $104,569 and $28,210
related to this agreement for the years ended December 31, 1998 and 1997,
respectively.
9.EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan under Section 401(k) of the
Internal Revenue Code. Employees age twenty-one or older are eligible to
participate in the plan upon employment with the Company and may elect to defer
up to 15 percent of their annual compensation up to the maximum amount as
determined by the Internal Revenue Service. Under the retirement plan
agreement, the Company, at its discretion, may make voluntary contributions to
the plan. Each employee must complete one year of service, as defined, in order
to receive any voluntary contributions made by the Company. Total employer
contributions to the plan for the two-month period ended March 31, 1999 were
$38,626. No employer contributions were made to the plan in either 1998 or
1997.
10.STOCK OPTIONS
Effective February 1, 1997, the Company adopted the Tanning Technology
Corporation Stock Option Plan (the "1997 Plan"). Under the provisions of the
1997 Plan, nonqualified stock options may be granted by a committee of the
Board of Directors at its discretion to key employees, officers or independent
contractors of the Company. The Company's 1997 Plan authorized the grant of
options for up to 3,289,094 shares of Class C nonvoting common stock. All
awards are for the right to purchase one share of Class C nonvoting common
F-14
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock at a price to be determined by the committee. Generally, all options vest
over a period of 3-4 years. All options, once vested, are exercisable until
February 1, 2007, at which time the 1997 Plan shall terminate.
Effective July 24, 1998, the Company adopted the Tanning Technology
Corporation 1998 Stock Option Plan (the "1998 Plan"). The 1998 plan, which
carries similar terms and conditions as the 1997 plan, authorizes the grant of
options for up to 5,247,474 shares of Class C nonvoting common stock. All
options granted under the 1998 Plan, once vested, are exercisable until July
24, 2008, at which time the 1998 Plan shall terminate.
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes option-pricing
model with the following weighted average assumptions for 1998 and 1997,
respectively: risk-free interest rates of 4.64%-5.36% and 5.77%; dividend
yields of 0; volatility factors of 0 and a weighted-average expected life of
the option of 5 years.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma net income (loss) and earnings per share was as follows:
<TABLE>
<CAPTION>
Year ended December
31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Net income (loss)................................... $(149,000) $2,047,000
========= ==========
Basic earnings (loss) per share..................... $ (0.01) $ 0.14
========= ==========
Diluted earnings (loss) per share................... $ (0.01) $ 0.13
========= ==========
</TABLE>
F-15
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the Company's stock option activity, and related information,
for the year ended December 31, 1998, follows:
<TABLE>
<CAPTION>
Weighted-average
Options exercise price
--------- ----------------
<S> <C> <C>
Outstanding January 1, 1997...................... -- $ --
Granted.......................................... 1,934,869 2.90
Exercised........................................ -- --
Forfeited........................................ (130,956) 2.90
---------
Outstanding December 31, 1997.................... 1,803,913 2.90
Granted.......................................... 3,846,330 3.79
Exercised........................................ -- --
Forfeited........................................ (318,386) 2.90
---------
Outstanding December 31, 1998.................... 5,331,857 3.57
Granted.......................................... 352,108 4.25
Exercised........................................ (281,555) 3.76
Forfeited........................................ -- --
---------
Outstanding March 31, 1999....................... 5,402,410 3.60
=========
Exercisable at December 31, 1997................. 356,445 2.90
=========
Exercisable at December 31, 1998................. 1,106,780 3.36
=========
</TABLE>
The weighted-average fair value of options granted during the years ended
December 31, 1998 and 1997, was $0.86 and $0.73, respectively. The range of
exercise prices for options outstanding as of December 31, 1998, is $2.90-
$3.82. The weighted-average remaining contractual lives of outstanding options
is 9.3 years.
11.SEGMENT REPORTING
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 requires a business enterprise, based upon a management
approach, to disclose financial and descriptive information about its operating
segments. Operating segments are components of an enterprise about which
separate financial information is available and regularly evaluated by the
chief operating decision maker(s) of an enterprise. Under this definition, the
Company operated as a single segment for all years and periods presented.
SFAS 131 also requires the disclosure of certain financial information
pertaining to geographic areas. Long-lived assets located outside of the United
States are not material. Information about the Company's revenues by geographic
area is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
----------------------- --------------
1996 1997 1998 1998 1999
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenues from external customers:
United States....................... $12,352 $23,139 $22,811 $4,089 $ 7,319
Denmark............................. -- 1,532 9,595 845 3,476
UK and other Europe................. 457 1,436 883 249 510
------- ------- ------- ------ -------
Total............................... $12,809 $26,107 $33,289 $5,183 $11,305
======= ======= ======= ====== =======
</TABLE>
F-16
<PAGE>
TANNING TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12.EMPLOYEE STOCK PURCHASE PLAN
In March 1999, the Company established the Tanning Technology Corporation
1999 Qualified Stock Purchase Plan (the "Plan"). The Company intends that the
Plan qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code. Employees scheduled to work at least 20 hours per week
and who have completed at least three months of continuous full-time employment
in the service of the Company are eligible to participate in the Plan. Under
the Plan, eligible employees can purchase shares, subject to limitations, of
the Company's Class C nonvoting common stock at a discount not to exceed 15% of
the market price as defined. No purchases were made as of March 31, 1999. On
April 15, 1999, the Company issued 59,094 shares of Class C nonvoting common
stock in conjunction with this plan.
F-17
<PAGE>
[TANNING LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth expenses and costs payable by Tanning (other
than underwriting discounts and commissions) expected to be incurred in
connection with the issuance and distribution of the securities described in
this registration statement. All amounts are estimated except for the
Securities and Exchange Commission's registration fee and the National
Association of Securities Dealers' filing fee.
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
Registration fee under Securities Act........................... $15,985
NASD filing fee................................................. 6,250
The Nasdaq National Market fees................................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Printing and engraving expenses................................. *
Registrar and transfer agent fees............................... *
Miscellaneous expenses.......................................... *
-------
Total......................................................... $
=======
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits and proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation--a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such action, and the statute requires court approval
before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's certificate of incorporation, bylaws, disinterested director
vote, stockholder vote, agreement, or otherwise.
Tanning's bylaws currently, and Tanning's certificate of incorporation and
bylaws, as they will be amended and restated immediately prior to this
offering, require Tanning to indemnify to the fullest extent authorized by the
DGCL any person made or threatened to be made a party to an action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he or she or a person of whom he or she is the legal
representative is or was a director of the officer of Tanning or is or was
serving at the request of Tanning as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans maintained
or sponsored by Tanning. Tanning will also be able to grant indemnification to
its other employees or agents. The amended and restated certificate of
incorporation and bylaws will also require Tanning to advance expenses, as
incurred, to its directors, officers and other agents and employees in
connection with a legal proceeding, to the fullest extent permitted by the
DGCL, subject to certain limited exceptions. The amended and restated
certificate of incorporation and bylaws will also permit Tanning to enter into
indemnification agreements with its directors and officers and to obtain
director and officer liability insurance.
II-1
<PAGE>
As permitted by Section 102(b)(7) of the DGCL, Tanning's certificate of
incorporation eliminates the liability of a director to the corporation or its
stockholders for monetary damages for such breach of fiduciary duty as a
director, except for liabilities arising (a) from any breach of the director's
duty of loyalty to the corporation or its stockholders; (b) from acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (c) under Section 174 of the DGCL; or (d) from any
transaction from which the director derived an improper personal benefit.
Tanning has obtained primary and excess insurance policies insuring its
directors and officers and those of its subsidiaries against certain
liabilities they may incur in their capacity as directors and officers. Under
these policies, the insurer, on behalf of Tanning, may also pay amounts for
which Tanning has granted indemnification to the directors or officers.
Additionally, reference is made to the Underwriting Agreement that will be
filed as Exhibit 1.1 to this registration statement, which provides for
indemnification by the Underwriters of Tanning, its directors and officers who
sign the registration statement and persons who control Tanning, under certain
circumstances.
Item 15. Recent Sales of Unregistered Securities.
Since January 31, 1997, we have issued and sold the securities listed below.
All sales were made in reliance on Section 4(2) of the Securities Act and/or
Regulation D or Rule 701 promulgated under the Securities Act and were made
without general solicitation or advertising. All share numbers set forth below
reflect the stock splits described in Note 1 to the Financial Statements, which
are included in the prospectus.
1. On January 31, 1997, we issued and sold 3,657,342 shares of common
stock to the "TTC Investors Group," which consists of TTC Investors I
LLC, TTC Investors IA LLC, TTC Investors II LLC and TTC Investors IIA
LLC, for aggregate consideration of $9,076,910.
2. On June 6, 1997, we issued and sold 1,469,917 shares of common stock to
the TTC Investors Group for aggregate consideration of $3,648,090.
3. On June 9, 1998, we issued and sold 569,511 shares of common stock to
the TTC Investors Group for aggregate consideration of $1,900,000.
4. We have granted stock options to employees, consultants, directors and
other service providers pursuant to our 1997 stock option plan and our
1998 stock option plan and we have sold common stock pursuant to
options exercised under this plan.
5. We have issued and sold common stock to our employees pursuant to our
1999 stock purchase plan.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of Tanning, as amended and restated*
3.2 Bylaws of Tanning, as amended and restated*
4.1 Form of certificate of common stock*
4.2 Form of Amended and Restated Registration Rights Agreement by and
among Tanning, Courtney Rose Corporation, WinSoft Corporation, Hippeli
Enterprises, Inc., Larry Tanning, Bipin Agarwal, Toni Hippeli, Stephen
Brobst, Henry Skelsey, AEA Tanning Investors Inc., TTC Investors I
LLC, TTC Investors II LLC, TTC Investors IA LLC and TTC Investors IIA
LLC*
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
10.1 Stock Purchase Agreement, dated as of December 24, 1996, by and among
Tanning Technology Group, L.L.C., Courtney Rose Corporation, WinSoft
Corporation, Hippeli Enterprises, Inc., Stephen Brobst, Larry Tanning,
Bipin Agarwal, Toni Hippeli and AEA Tanning Investors Inc.
10.2 Supplement to Stock Purchase Agreement, dated as of January 31, 1997
10.3 Amendment No. 1 to Stock Purchase Agreement, dated as of June 9, 1998,
by and among Tanning, Courtney Rose Corporation, WinSoft Corporation,
Hippeli Enterprises, Inc., Stephen Brobst, Larry Tanning, Bipin
Agarwal, Toni Hippeli, AEA Tanning Investors Inc., TTC Investors I
LLC, TTC Investors II LLC, TTC Investors IA LLC and TTC Investors IIA
LLC
10.4 Employment, Confidentiality and Non-Competition Agreement between
Tanning and Larry Tanning, dated as of June , 1999*
10.5 Promissory Note, dated as of July , 1999, in the amount of $250,000,
made by Larry Tanning in favor of Tanning*
10.6 Employment, Confidentiality and Non-Competition Agreement between
Tanning and Bipin Agarwal, dated as of June , 1999*
10.7 Promissory Note, dated as of July , 1999, in the amount of $250,000,
made by Bipin Agarwal in favor of Tanning*
10.8 Employment, Confidentiality and Non-Competition Agreement between
Tanning and P. Tracy Currie, dated as of June 1, 1997*
10.9 Employment and Expatriate Assignment Agreement between Tanning and P.
Tracy Currie, dated November 15, 1998*
10.10 Employment, Confidentiality and Non-Competition Agreement between
Tanning and Louis A. D'Alessandro, dated as of February 1, 1999*
10.11 Employment, Confidentiality and Non-Competition Agreement between
Tanning and Henry F. Skelsey, dated as of July 16, 1998*
10.12 Employment, Confidentiality and Non-Competition Agreement between
Tanning and John Piccone, dated as of April 1, 1999*
10.13 Employment, Confidentiality and Non-Competition Agreement between
Tanning and Mark Tanning, dated as of January 1, 1999*
10.14 Employment, Confidentiality and Non-Competition Agreement between
Tanning and Philip Purver, dated as of April 15, 1999*
10.15 Separation Agreement and Release between Tanning and Thomas J. Stack,
dated as of May 14, 1999*
10.16 Stock Option Plan*
10.17 1998 Stock Option Plan*
10.18 1999 Qualified Stock Purchase Plan, as amended*
10.19 1999 Stock Option Plan*
10.20 Form of Amended and Restated Shareholder Agreement by and among
Tanning, Courtney Rose Corporation, WinSoft Corporation, Hippeli
Enterprises, Inc., Larry Tanning, Bipin Agarwal, Toni Hippeli, AEA
Tanning Investors Inc., TTC Investors I LLC, TTC Investors II LLC, TTC
Investors IA LLC and TTC Investors IIA LLC*
10.21 Lease Agreement, dated as of January 31, 1995, between HD Delaware
Properties, Inc. and Tanning for premises at 4600 South Ulster Street
10.22 Amendment No. 1 to Lease, dated as of September 15, 1995, by and
between HMS Office, Limited Partnership and Tanning for premises at
4600 South Ulster Street
10.23 Amendment No. 2 to Lease, dated as of March 6, 1996, by and between
HMS Office, L.P. and Tanning for premises at 4600 South Ulster Street
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
10.24 Amendment No. 3 to Lease, dated as of November 27, 1996, by and
between HMS Office, L.P. and Tanning for premises at 4600 South Ulster
Street
10.25 Amendment No. 4 to Lease, dated as of July 11, 1997, by and between
HMS Office, L.P. and Tanning for premises at 4600 South Ulster Street
10.26 Lease, dated as of June 3, 1998, by and between Denver Hines
Development, LLC and Tanning for premises at 4600 South Syracuse
Street
10.27 Amendment No. 1 to Lease, dated as of March 11, 1999, by and between
Denver Hines Development, LLC and Tanning for premises at 4600 South
Syracuse Street
10.28 Amendment No. 2 to Lease, dated as of May 28, 1999, by and between
Denver Hines Development, LLC and Tanning for premises at 4600 South
Syracuse Street
21.1 Subsidiaries of Tanning
23.1 Consent of Ernst & Young LLP
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 5.1 above)*
24.1 Power of Attorney (included on signature page of this registration
statement)**
27.1 Financial data schedule**
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(2) For purposes of determining any liability under the Securities Act of
1933, 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 registrant 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.
(3) For the purpose of determining any liability under the Securities Act of
1933, 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 Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Denver, State of Colorado, on June 25, 1999.
TANNING TECHNOLOGY CORPORATION
/s/ Larry G. Tanning
By: __________________________________
Larry G. Tanning
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Larry G. Tanning President, Chief Executive
- ------------------------------ Officer and Director June 25, 1999
Larry G. Tanning (Principal Executive
Officer)
Executive Vice President,
* Chief Financial Officer and
- ------------------------------ Director (Principal
Henry F. Skelsey Financial and Accounting
Officer)
Director
*
- ------------------------------
Bipin Agarwal
Director
*
- ------------------------------
Toni S. Hippeli
Director
*
- ------------------------------
Christopher P. Mahan
Director
*
- ------------------------------
Joseph P. Roebuck
/s/ Larry G. Tanning June 25, 1999
*By: ____________________
Larry G. Tanning
Attorney-in-fact
II-5
<PAGE>
Report of Independent Auditors on Schedule
Board of Directors and Stockholders
Tanning Technology Corporation
We have audited the consolidated financial statements of Tanning Technology
Corporation as of December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998, and have issued our report thereon dated
February 26, 1999 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Denver, Colorado
February 26, 1999
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
--------------
Charged
Beginning to Ending
Balance Deductions Expense Other Balance
--------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Period Ending December 31, 1996
Allowance for Doubtful Accounts... $ -- $ -- $ -- -- $ --
Period Ending December 31, 1997
Allowance for Doubtful Accounts... $ -- $234,323 $534,787 -- $300,464
Period Ending December 31, 1998
Allowance for Doubtful Accounts... $300,464 $111,395 $767,587 -- $956,656
</TABLE>
S-2
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
__________________________________________________
STOCK PURCHASE AGREEMENT
among
TANNING TECHNOLOGY GROUP, L.L.C.,
COURTNEY ROSE CORPORATION,
WINSOFT CORPORATION,
HIPPELI ENTERPRISES, INC.,
STEPHEN BROBST,
LARRY TANNING,
BIPIN AGARWAL,
TONI HIPPELI
and
AEA TANNING INVESTORS INC.
Dated as of December 24, 1996
_________________________________________________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
<S> <C> <C>
ARTICLE I ISSUANCE AND SALE OF SHARES....................................................2
Section 1.1 Issuance of Shares..........................................................2
Section 1.2 Consideration...............................................................2
ARTICLE II CLOSING; ISSUANCE OF SHARES; PAYMENT OF PURCHASE PRICE.........................2
Section 2.1 Closing.....................................................................2
Section 2.2 Issuance of the AEA Shares and Cash Payment.................................2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE TANNING PARTIES..........................2
Section 3.1 Organization................................................................3
Section 3.2 Authority...................................................................3
Section 3.3 Ownership of the Company....................................................4
Section 3.4 Subsidiaries and Equity Interests...........................................4
Section 3.5 Capitalization of New Tanning...............................................5
Section 3.6 The AEA Shares..............................................................5
Section 3.7 No Conflicts; Consents......................................................5
Section 3.8 Financial Statements; No Undisclosed Liabilities............................6
Section 3.9 Absence of Changes..........................................................7
Section 3.10 Title to Assets.............................................................7
Section 3.11 Compliance with Laws........................................................7
Section 3.12 Permits.....................................................................8
Section 3.13 Taxes.......................................................................8
Section 3.14 Litigation..................................................................10
Section 3.15 Contracts...................................................................10
Section 3.16 Broker's and Finder's Fee...................................................11
Section 3.17 Employee Benefit Plans......................................................11
Section 3.18 Patents, Trademarks, Trade Names, Etc.......................................13
Section 3.19 Insurance...................................................................13
Section 3.20 New Tanning.................................................................14
Section 3.21 Affiliate Matters...........................................................14
Section 3.22 Information.................................................................14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AEA..........................................14
Section 4.1 Organization................................................................14
Section 4.2 Authority...................................................................15
Section 4.3 No Conflicts; Consents......................................................15
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 4.4 Broker's and Finder's Fee...................................................15
ARTICLE V COVENANTS......................................................................15
Section 5.1 Cooperation by the Company..................................................15
Section 5.2 Conduct of Business.........................................................16
Section 5.3 Access......................................................................17
Section 5.4 No Solicitation.............................................................17
Section 5.5 Required Notices............................................................17
Section 5.6 New Tanning.................................................................18
Section 5.7 Merger......................................................................18
Section 5.8 Audited Financial Statements................................................18
Section 5.9 Related Agreements..........................................................18
ARTICLE VI CONDITIONS TO AEA'S OBLIGATIONS................................................19
Section 6.1 Representations, Warranties and Covenants of the Tanning Parties............19
Section 6.2 No Prohibition..............................................................19
Section 6.3 Consents....................................................................19
Section 6.4 Merger......................................................................19
Section 6.5 Certificates and Resolutions................................................20
Section 6.6 Board Approval..............................................................20
Section 6.7 Shareholders Agreement......................................................20
Section 6.8 Asset Purchase Agreement....................................................20
Section 6.9 Employment Agreements.......................................................20
Section 6.10 Audited Financial Statements................................................20
Section 6.11 Legal Opinion...............................................................20
Section 6.12 Pyramid.....................................................................20
Section 6.13 New Tanning.................................................................20
Section 6.14 Counterpart.................................................................20
Section 6.15 Confidentiality and Assignment Agreements...................................20
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE TANNING PARTIES...........................21
Section 7.1 Representations, Warranties and Covenants of AEA............................21
Section 7.2 No Prohibition..............................................................21
Section 7.3 Consents....................................................................21
Section 7.4 Employment Agreements.......................................................21
Section 7.5 Shareholders Agreement......................................................21
Section 7.6 Related Transaction.........................................................21
</TABLE>
-ii-
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
ARTICLE VIII TERMINATION....................................................................22
Section 8.1 Termination.................................................................22
Section 8.2 Effect on Obligations.......................................................22
ARTICLE IX INDEMNIFICATION................................................................22
Section 9.1 Losses......................................................................22
Section 9.2 Indemnification by the Original Members and Principals......................22
Section 9.3 Indemnification by AEA......................................................23
Section 9.4 Claims......................................................................24
Section 9.5 Limitations on Indemnification..............................................25
Section 9.6 Exclusive Remedy............................................................25
ARTICLE X MISCELLANEOUS..................................................................25
Section 10.1 Survival....................................................................25
Section 10.2 Expenses....................................................................26
Section 10.3 Exclusive Agreement; No Third-Party Beneficiaries...........................26
Section 10.4 Governing Law, Etc..........................................................26
Section 10.5 Successors and Assigns......................................................27
Section 10.6 Publicity...................................................................27
Section 10.7 Severability................................................................27
Section 10.8 Notices.....................................................................27
Section 10.9 Counterparts; Facsimile Signatures..........................................28
Section 10.10 Interpretation..............................................................28
Section 10.11 Amendment...................................................................29
Section 10.12 Extension; Waiver...........................................................29
Section 10.13 Other Transaction Structures................................................29
</TABLE>
-iii-
<PAGE>
DEFINED TERMS
Term Section
- ---- -------
AEA................................................................ Preamble
AEA Shares ........................................................ Recitals
Affiliate ......................................................... 3.15
Agreement.......................................................... Preamble
Asset Purchase Agreement........................................ 5.9
Audited Financial Statements ...................................... 5.8
Balance Sheet...................................................... 3.8(a)
Brobst ............................................................ Preamble
Cash Payment ................................................... 9.2(d)
Closing............................................................ 2.1
Closing Date ...................................................... 2.1
Code............................................................ 3.13
Company ........................................................... Preamble
Company Benefit Plans.............................................. 3.17(a)
Confidentiality Agreement.......................................... 5.3
Courtney .......................................................... Preamble
Debt............................................................... 3.15(i)
Environmental Law ................................................. 3.11
Employment Agreements .......................................... 5.9
Environmental Matter ............................................. 3.11
ERISA Affiliate .................................................. 3.17(b)
Fair Value......................................................... 9.2(e)
Fees and Expenses ................................................. 10.2
Financial Statements .............................................. 3.8(a)
GAAP .............................................................. 3.8(a)
-iv-
<PAGE>
Governmental Entity ............................................... 3.7
Hippeli ........................................................... Preamble
Income Tax ........................................................ 3.13
Indemnified Party ................................................. 9.4(a)
Indemnifying Party................................................. 9.4(a)
Intellectual Property Rights ...................................... 3.18
Laws .............................................................. 3.11
Lien .............................................................. 3.10
Litigation ........................................................ 3.14
Loss .............................................................. 9.1
Losses ............................................................ 9.1
Material Adverse Effect ........................................... 3.1
Material Contracts ................................................ 3.15
Merger ............................................................ Recitals
Merger Agreement .................................................. 5.9
New Tanning ....................................................... Recitals
Original Members .................................................. Preamble
Patents and Copyrights and Trademarks ............................. 3.18
Permits ........................................................... 3.12
Person ............................................................ 3.1
Principals ........................................................ Preamble
Proposals ......................................................... 5.4
Purchase Price .................................................... 1.2
Related Agreements................................................. 5.9
Return............................................................. 3.13
Shareholders Agreement ............................................ 5.9
Stock Payment ..................................................... 9.2(e)
-v-
<PAGE>
Subsidiary ........................................................ 3.1
Tanning Entities................................................... 3.13
Tanning Parties.................................................... Preamble
Tax................................................................ 3.13
Third Party Claims ................................................ 9.4(a)
Units ............................................................. 3.3
WinSoft............................................................ Preamble
-vi-
<PAGE>
Schedules
---------
3.3(a) Ownership of Company
3.3(b) Ownership of Courtney, Hippeli and WinSoft
3.4 Subsidiaries
3.5 Capitalization
3.7 Conflicts
3.8 Financial Statements
3.9 Absence of Changes
3.10 Title to Assets
3.11 Compliance with Laws
3.12 Permits
3.13 Taxes
3.14 Litigation
3.15 Contracts
3.17 Employee Benefit Plans
3.18 Patents
3.19 Insurance
4.3 No Conflicts
5.2 Conduct of Business
7.3 Consents
-vii-
<PAGE>
Exhibits
--------
1 Capitalization
2 Shareholders Agreement
3 Employment Agreements
4 Transaction Modifications
-viii-
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of December 24,
--------
1996, among Tanning Technology Group, L.L.C., a Colorado limited liability
company (the "Company"), Courtney Rose Corporation, a Colorado corporation
-------
("Courtney"), WinSoft Corporation, a Colorado corporation ("WinSoft"), Hippeli
- ---------- -------
Enterprises, Inc., a Colorado corporation ("Hippeli"), Stephen Brobst ("Brobst")
------- ------
(Courtney, WinSoft, Hippeli and Brobst are collectively referred to herein as
the "Original Members"), Larry Tanning, Bipin Agarwal, Toni Hippeli (Larry
----------------
Tanning, Bipin Agarwal, Toni Hippeli and Stephen Brobst are collectively
referred to herein as the "Principals" and the Company, Larry Tanning, Bipin
----------
Agarwal, Stephen Brobst, Toni Hippeli and the Original Members, are collectively
referred to herein as the "Tanning Parties") and AEA Tanning Investors Inc., a
---------------
Delaware corporation ("AEA").
---
WHEREAS, immediately prior to the Closing (as defined below), the
Company will merge (the "Merger") with and into Tanning Technology Corporation,
------
a Delaware corporation to be newly formed in connection with the transactions
contemplated hereby ("New Tanning"), with New Tanning being the surviving
-----------
entity, and New Tanning shall, by virtue of the Merger, own and be the successor
to all of the assets, properties, rights and liabilities of any kind of the
Company (except as otherwise expressly provided for herein) (following the
Merger, the term the "Company" as used herein, shall include New Tanning);
WHEREAS, immediately following the Merger, the Original Members of the
Company will own, in the aggregate, all of the issued and outstanding shares of
capital stock of New Tanning; and
WHEREAS, immediately following the Merger, AEA desires to purchase
from New Tanning and the Original Members desire to cause New Tanning to issue
and sell to AEA, that number of shares of common stock of New Tanning (bearing
the liquidation preference described in Exhibit 1) which will, upon their
issuance, constitute 32% of the issued and outstanding common stock of New
Tanning (the "AEA Shares") on the terms and conditions set forth in this
----------
Agreement.
NOW THEREFORE, the parties hereto hereby agree as follows:
-1-
<PAGE>
ARTICLE I
ISSUANCE AND SALE OF SHARES
---------------------------
Section 1.1 Issuance of Shares. On the terms and subject to the
------------------
conditions of this Agreement, at the Closing, the Original Members shall cause
New Tanning to issue, transfer, deliver and sell to AEA and AEA shall purchase
and accept from New Tanning, the AEA Shares for the consideration specified
below in Section 1.2.
Section 1.2 Consideration. On the terms and subject to the conditions of
-------------
this Agreement, in consideration for the sale of the AEA Shares, at the Closing,
AEA will pay or cause to be paid to New Tanning the amount of $13,000,000 (the
"Purchase Price"), as adjusted pursuant to Section 10.2.
- ---------------
ARTICLE II
CLOSING; ISSUANCE OF SHARES; PAYMENT OF PURCHASE PRICE
------------------------------------------------------
Section 2.1 Closing. Subject to the terms and conditions of this
-------
Agreement, the consummation of the purchase and sale of the AEA Shares (the
"Closing") shall take place at the offices of Ireland, Stapleton, Pryor &
-------
Pascoe, P.C., 1675 Broadway, Suite 2600, Denver, Colorado 80202, at 10:00 a.m.,
local time, on January 24, 1997, or at such other time, date or place as is
agreed to in writing by the parties hereto. The date on which the Closing shall
occur is hereafter referred to as the "Closing Date."
------------
Section 2.2 Issuance of the AEA Shares and Cash Payment. At the Closing,
-------------------------------------------
(i) the Original Members shall cause New Tanning to deliver to AEA certificates
representing the AEA Shares, duly authorized and issued in blank, free and clear
of all Liens (as defined in Section 3.10) and restrictions of any kind (except
for those imposed by the Shareholders Agreement (as defined below) and
applicable securities laws) and (ii) AEA shall deliver, or cause to be
delivered, to New Tanning, the Purchase Price by wire transfer of immediately
available funds, to an account or accounts designated at least two days prior to
the Closing Date by New Tanning in a written notice to AEA.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE TANNING PARTIES
-----------------------------------------------------
The Tanning Parties hereby represent and warrant to AEA as follows:
-2-
<PAGE>
Section 3.1 Organization. Each of Courtney, WinSoft, Hippeli, and each
------------
Subsidiary is a corporation duly organized and validly existing under the laws
of its respective jurisdiction of incorporation and has all requisite power and
authority to enable it to own, lease or otherwise hold its properties and assets
and to carry on its business as it is now being conducted. The Company is a
limited liability company duly organized and validly existing under the laws of
the State of Colorado and has all requisite power and authority to enable it to
own, lease or otherwise hold its properties and assets and to carry on its
business as it is now being conducted. Upon its incorporation, New Tanning will
be a corporation duly organized and validly existing under the laws of the State
of Delaware and will have all requisite corporate power and authority to enable
it to own, lease or otherwise hold its properties and assets and the properties
and assets of the Company after the Merger and to carry on its business as it
will be conducted after its incorporation and after the Merger. WinSoft,
Hippeli, Courtney, and each Subsidiary are duly qualified to do business and are
in good standing as foreign corporations in all jurisdictions where the nature
of the property owned or leased by them, or the nature of the business conducted
by them, makes such qualification necessary, except where such lack of
qualification would not have a material adverse effect on the business, assets,
condition (financial or otherwise), results of operations or prospects of the
Company and the Subsidiaries taken as a whole or on the ability of any of the
Tanning Parties to consummate the transactions contemplated hereby and by the
Related Agreements (a "Material Adverse Effect"). The Company is duly qualified
-----------------------
to do business and is in good standing as a foreign limited liability company in
all jurisdictions where the nature of the property owned or leased by it, or the
nature of the business conducted by it, makes such qualification necessary,
except where such lack of qualification would not have a Material Adverse
Effect. New Tanning will be on the Closing Date duly qualified to do business
and in good standing as a foreign corporation in all jurisdictions where the
nature of the property owned or leased by it and by the Company, or the nature
of the business conducted by it or by the Company make such qualification
necessary, except where such lack of qualification would not have a Material
Adverse Effect. True and complete copies of the governing documents of the
Company, each of the Subsidiaries, Courtney, WinSoft and Hippeli have previously
been made available to AEA. As used in this Agreement, the term "Subsidiary"
----------
shall mean any Person, with respect to which the Company owns 50% or more of the
capital stock or other equity interests of such Person, the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such Person, directly or through one or more Subsidiaries. As
used in this Agreement, "Person" shall mean any individual, firm, corporation,
------
partnership, limited liability company, trust, joint venture, Governmental
Entity (as defined in Section 3.7) or other entity.
Section 3.2 Authority. Each of the Tanning Parties has full power and
---------
authority to execute and deliver this Agreement and, to the extent it is a party
thereto, the Related
-3-
<PAGE>
Agreements, to perform all its respective obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and, to the extent it is a party
thereto, the Related Agreements, by each of the Tanning Parties and the
consummation by each of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary action (corporate or otherwise) of each.
This Agreement has been duly and validly executed and delivered by each of the
Tanning Parties and constitutes, and, as of the Closing, each of the Related
Agreements will have been duly and validly executed and delivered by each of the
Tanning Parties, to the extent a party thereto and will constitute, the valid
and binding obligation of each, enforceable against each in accordance with its
terms, except to the extent such enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws relating to creditors' rights generally and to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law). As used in this Agreement, "Related Agreements" shall have the meaning
------------------
set forth in Section 5.9.
Section 3.3 Ownership of the Company. (a) The outstanding equity
------------------------
interests of the Company consist of 10,000 units of limited liability company
interests (the "Units"). The Original Members are the record and beneficial
-----
owners of all of the Units (as set forth on Schedule 3.3(a)) free and clear of
any Liens, except as set forth on Schedule 3.3(a). Except for such Units, there
are no outstanding units, securities or interests or securities convertible
into, exchangeable for, or carrying the right to acquire, or any voting
agreements with respect to, any voting units, securities or interests of the
Company, or subscriptions, warrants, options, rights or other arrangements or
commitments obligating the Company or any Original Member to issue or acquire
any of its voting units, securities or interests or any ownership interest
therein.
(b) Except as set forth on Schedule 3.3(b), Larry Tanning, Toni
Hippeli and Bipin Agarwal, respectively, each own all of the capital stock of
Courtney, Hippeli and WinSoft, free and clear of any Liens. All of the issued
and outstanding shares of capital stock of each of Courtney, Hippeli and WinSoft
are validly issued, fully paid and nonassessable.
Section 3.4 Subsidiaries and Equity Interests. Schedule 3.4 sets forth a
---------------------------------
list of all direct or indirect Subsidiaries of the Company. The Company owns,
either directly or indirectly through one or more Subsidiaries, all of the
capital stock of the Subsidiaries free and clear of any Liens. All of the issued
and outstanding shares of capital stock of each Subsidiary is validly issued,
fully paid and nonassessable. There are outstanding no securities convertible
into, exchangeable for, or carrying the right to acquire, or any voting
agreements with respect to, any equity securities of any of the Subsidiaries, or
subscriptions, warrants, options, rights or other arrangements or commitments
obligating any Subsidiary to issue or acquire any of its equity securities or
any ownership interest
-4-
<PAGE>
therein. Except as set forth in Schedule 3.4, the Company does not own, directly
or indirectly any capital stock of, or other equity interests in, any Person,
and is not a member of, or participant in, any partnership, joint venture or
similar Person or entity.
Section 3.5 Capitalization of New Tanning. Immediately following the
-----------------------------
Merger, (i) the Original Members will own all of the issued and outstanding
capital stock of New Tanning, free and clear of any Liens, (ii) all of the
issued and outstanding shares of capital stock of New Tanning will be validly
issued, fully paid and nonassessable and (iii) the authorized capital stock of
New Tanning shall be divided into classes and have the rights and privileges
(including with respect to liquidation preferences) as set forth on Exhibit 1
(except for modifications which do not affect the economic, voting or other
substantial rights of such capital stock). Except as set forth on Schedule 3.5,
on the Closing Date, there will be outstanding no securities convertible into,
exchangeable for, or carrying the right to acquire, or any voting agreements
with respect to, any equity securities of New Tanning, or subscriptions,
warrants, options, rights or other arrangements or commitments obligating New
Tanning or any Original Member to issue or acquire any of its equity securities
or any ownership interest therein.
Section 3.6 The AEA Shares. Upon delivery to AEA at the Closing of
--------------
certificates representing the AEA Shares, and upon receipt by New Tanning of the
Purchase Price, good and valid title to the AEA Shares will pass to AEA, free
and clear of all Liens and restrictions of any kind (except for those imposed by
the Shareholders Agreement and applicable securities laws). Upon the issuance of
the AEA Shares at the Closing, the AEA Shares will, upon their issuance,
constitute 32% of the issued and outstanding common stock of New Tanning, will
have the rights and privileges (including with respect to liquidation
preferences) as set forth in Exhibit 1 (except for modifications which do not
affect the economic, voting or other substantial rights of such capital stock)
and will be validly issued, fully paid and nonassessable. Other than as provided
for in this Agreement or any other agreement entered into by AEA, the AEA Shares
are not, and upon their issuance will not be, subject to any voting trust
agreement or other contract, agreement, arrangement, commitment or
understanding, including any such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting, dividend rights
or other disposition of the AEA Shares other than the Shareholders Agreement.
Section 3.7 No Conflicts; Consents. Except as set forth in Schedule 3.7,
----------------------
the execution and delivery by each of the Tanning Parties of this Agreement,
and, to the extent they are a party thereto, the Related Agreements, and the
consummation of the transactions contemplated hereby and thereby will not (i)
violate, conflict with, result in a breach of, or default under, or permit the
termination of, or require consent under any agreement, obligation or commitment
to which any of the Tanning Parties is bound, or to which any of its properties
or assets is subject (including, without limitation, the Material
-5-
<PAGE>
Contracts (as defined in Section 3.15)), (ii) violate any provision of any
applicable law, rule or regulation to which any of the Tanning Parties is
subject, (iii) violate any order, judgment or decree applicable to any of the
Tanning Parties, or (iv) conflict with, or result in a breach of or default
under, any term or condition of the governing documents of the Company,
Courtney, WinSoft or Hippeli. No consent, license, approval, waiver, expiration
of waiting period or authorization of, or registration or declaration with, any
federal, state, local or foreign government or any court of competent
jurisdiction, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental Entity") is
-------------------
required to be obtained or made by any of the Tanning Parties in connection with
the execution, delivery and performance of the transactions contemplated by this
Agreement or the Related Agreements. To the knowledge of the Company, except as
set forth in Section 3.7, no creditor, employee, client, customer or other
Person having a business relationship with the Company or any Subsidiary intends
to change (in a manner adverse to the Company) such relationship because of the
issuance and sale of the AEA Shares or the transactions contemplated hereby or
by the Related Agreements.
Section 3.8 Financial Statements; No Undisclosed Liabilities. (a) The
-------------------------------------------------
Company has delivered to AEA balance sheets of the Company dated as of December
31, 1995 and September 30, 1996 and statements of income and cash flow of the
Company for the year ending December 31, 1995 and for the nine months ending
September 30, 1996 (such financial statements are herein referred to as the
"Financial Statements"). Except as set forth on Schedule 3.8, the Financial
--------------------
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") and present fairly, in all material respects, the financial
----
position of the Company as of their respective dates, and the results of its
operations and its cash flows for each of the periods indicated therein. All
customer accounts receivable of the Company and the Subsidiaries, whether
reflected on the most recent balance sheet contained in the Financial Statements
(the "Balance Sheet") or subsequently created, have arisen from bona fide
-------------
transactions in the ordinary course of business. To the knowledge of the
Company, all such customer accounts receivable are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for doubtful
accounts reflected on the Balance Sheet.
(b) The Company and the Subsidiaries have no liabilities or
obligations of any kind (whether absolute, accrued, contingent, determined,
determinable or otherwise), except to the extent such liabilities or obligations
(i) are fully reflected as liabilities or reserved for on the Balance Sheet,
(ii) are expressly disclosed in any Schedule hereto, (iii) are liabilities or
obligations incurred since the date of the Balance Sheet in the ordinary course
of business consistent with past practice and not in violation of any of the
terms of this Agreement or (iv) do not exceed, individually or in the aggregate,
$200,000.
-6-
<PAGE>
Section 3.9 Absence of Changes. Except as set forth on Schedule 3.9,
------------------
since September 30, 1996 the business of the Company and the Subsidiaries has
been conducted in the ordinary course of business consistent with past practice
in all material respects, and (i) there have been no changes in the business,
assets or liabilities or prospects of the Company or the Subsidiaries which
individually or in the aggregate have had, or could reasonably be expected to
have, a Material Adverse Effect, and (ii) there has not been any transaction or
event of the type restricted or prohibited by Section 5.2 which, if such
transaction or event occurred after the date hereof, would constitute a
violation of Section 5.2 of this Agreement.
Section 3.10 Title to Assets. The Company and the Subsidiaries have good
---------------
title to all of the assets and properties which they purport to own (except for
assets and properties sold, consumed or otherwise disposed of in the ordinary
course of business since September 30, 1996) free and clear of all Liens, except
(a) as set forth in Schedule 3.10, (b) Liens for taxes not yet due, and (c)
Liens which do not interfere with the use or value of the asset affected
thereby. The Company and the Subsidiaries do not own any real property. As used
in this Agreement, "Lien" shall mean all liens, claims, charges, security
----
interests, pledges, mortgages, rent charges, covenants, easements, restrictions,
provisions, consents, licenses or other encumbrances, obligations or
restrictions or rights or claims of others (including without limitation, any
options or similar rights) of any character whatsoever which impair the relevant
Person's right, title or interest in, or the value, use or enjoyment of, the
asset subject thereto except, with respect to securities, Liens imposed by
applicable securities laws.
Section 3.11 Compliance with Laws. (a) Except as set forth in the
--------------------
Schedule 3.11, the Company and the Subsidiaries have been and are in compliance
in all material respects with all applicable federal, state, local and foreign
laws (including statutes and judicial and administrative decisions, orders and
decrees), rules and regulations ("Laws"), including, without limitation, those
----
relating to Environmental Matters (as defined below), occupational health and
safety and employment practices and matters. The Company has not received notice
of any noncompliance by the Company or any Subsidiary with any Laws. Except as
set forth on Schedule 3.11, there are no conditions, events, circumstances,
facts, activities, practices, incidents, actions or omissions, that (i) may
interfere with or prevent continued compliance by the Company with Environmental
Laws (as defined below), or (ii) may give rise to any liability or other
obligation of or form the basis for a claim under any Environmental Law against
the Company. As used herein, the term "Environmental Matter" means any matter
--------------------
arising out of or relating to the environment, safety or health or the
production, storage, handling, use, emission, release, discharge or disposal of
any substance, product or waste which may cause damage or require remediation or
other costs to be incurred. As used herein, the term "Environmental Law" means
-----------------
any Law relating to Environmental Matters.
-7-
<PAGE>
(b) Each Original Member and Principal represents that it has not
received written notice of noncompliance by the Company or any Subsidiary with
any Laws.
Section 3.12 Permits. Schedule 3.12 sets forth a true and complete list
-------
of all material licenses, permits and authorizations ("Permits") which are
-------
necessary for the conduct of the business of the Company and the Subsidiaries.
Except as set forth in Schedule 3.12, all such Permits are validly held by the
Company or a Subsidiary, the Company and the Subsidiaries have complied in all
material respects with all terms and conditions relating to such Permits and the
same will not be subject to suspension, modification, revocation or nonrenewal
as a result of the execution and delivery of this Agreement or the Related
Agreements or the consummation of the transactions contemplated hereby and
thereby. The Company has not received notice nor otherwise has any knowledge
that any Governmental Entity intends to cancel or terminate any such Permits and
no consent or approval of any Governmental Entity is required under any such
Permit in connection with the transactions contemplated by this Agreement or the
Related Agreements. All such Permits which are held in the name of an employee,
officer, member, or agent or otherwise on behalf of the Company or any
Subsidiary shall be deemed included under this Section 3.12.
Section 3.13 Taxes. (a) For the purposes of this Agreement, the following
-----
terms shall have the following meanings:
(i) "Code" means the Internal Revenue Code of 1986, as amended.
----
(ii) "Income Tax" or "Income Taxes" means any federal, state, local
---------- ------------
or foreign income, franchise or similar Tax and, in each instance, any interest,
penalties or additions to tax attributable to such Tax and any damages, costs,
expenses, fees or other liability arising from such Tax;
(iii) "Return" means any report, return, statement, estimate,
------
declaration, notice, form or other information required to be supplied to a
taxing authority in connection with Taxes.
(iv) "Tax" or "Taxes" means taxes of any kind, levies or other like
--- -----
assessments, customs, duties, imposts, charges or fees, including, without
limitation, income, gross receipts, ad valorem, value added, excise, real or
personal property, asset, sales, use, license, payroll, transaction, capital,
net worth and franchise taxes, estimated taxes, withholding, employment, social
security, workers compensation, utility, severance, production, unemployment
compensation, occupation, premium, windfall profits, transfer and gains taxes or
other governmental taxes imposed or payable to the
-8-
<PAGE>
United States, or any state, county, local or foreign government or subdivision
or agency thereof, and, in each instance, such term shall include any interest,
penalties or additions to tax attributable to any such Tax and any damages,
costs, expenses, fees or other liability arising from such Tax.
(b) Except as set forth on Schedule 3.13, the Company and its
Subsidiaries and any predecessors thereof (the "Tanning Entities") have (i)
----------------
timely filed in accordance with all applicable laws all material Returns
required to be filed, (ii) paid all Taxes shown to have become due pursuant to
such Returns and (iii) paid all Taxes for which a notice of, or assessment or
demand for, payment has been received or which are otherwise due and payable.
All Returns filed by the Tanning Entities with respect to Taxes were true and
correct in all material respects as of the date on which they were filed or as
subsequently amended to the date hereof, and all Taxes for which the Tanning
Entities have been or may be liable have been paid. Except as set forth on
Schedule 3.13, complete copies of all material Returns of the Tanning Entities
that have been filed since the inception of the Tanning Entities have been made
available to AEA prior to the date hereof. Prior to the date hereof, the
Tanning Entities have provided to AEA copies of all revenue agent's reports and
other written assertions of deficiencies or other liabilities for Taxes of the
Tanning Entities with respect to past periods for which the limitations period
has not run. Except as set forth on Schedule 3.13, (A) all amounts required to
be collected or withheld by the Tanning Entities with respect to Taxes have been
duly collected or withheld and any such amounts that are required to be remitted
to any taxing authority have been duly remitted, (B) the Company has, at all
times since its inception, qualified as a partnership for federal, state, and
local Income Tax purposes (rather than an association taxable as a corporation)
and has filed all Returns consistent with this characterization, (C) there is no
action, suit, proceeding, investigation, audit, claim or assessment pending or
proposed with respect to any liability for Tax or with respect to any Return for
which the Tanning Entities could be liable, (D) there are no waivers or
extensions of any applicable statute of limitations for the assessment or
collection of Taxes for which the Tanning Entities could be liable which remain
in effect, (E) no taxing authority in a jurisdiction where a Tanning Entity does
not file Returns has made a claim, assertion or threat that such Tanning Entity
is or may be subject to taxation by such jurisdiction, (F) Schedule 3.13
contains a list of states, territories and jurisdictions (whether foreign or
domestic) in which the Tanning Entities have filed income, franchise, or sales
and use Returns for all taxable periods ending after December 31, 1991, and (G)
the Tanning Entities have not agreed to, and are not required to include in
income, any adjustment pursuant to section 481(a) of the Code (or similar
provisions of other law or regulations) by reason of a change in accounting
method or otherwise, nor do the Tanning Entities have any knowledge that the
Internal Revenue Service (or other taxing authority) has proposed, or is
considering, any such change in accounting method.
-9-
<PAGE>
Section 3.14 Litigation. Except as set forth in Schedule 3.14, there is
----------
no suit, legal or administrative action or arbitration pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary
("Litigation"), nor are there any judgments, decrees or orders of any
----------
Governmental Entity binding on the Company or any Subsidiary. There are no
pending or, to the knowledge of the Company, threatened governmental
investigations or inquiries or proceedings concerning the Company or the
business or operations of the Company.
Section 3.15 Contracts. Except as set forth in Schedule 3.15 and except
---------
for the Related Agreements, neither, the Company, nor any Subsidiary is party to
or is bound by, and none of the properties, assets or operations of each is
subject to, any agreement, contract, lease, license, commitment or instrument
each that is of a type described below:
(a) any lease agreement (whether as lessor or lessee) relating to real
property or personal property, other than those lease agreements which do
not in any case provide for a rental of more than $10,000 per year;
(b) any license agreement, assignment or contract (whether as licensor
or licensee, assignor or assignee and whether written or oral) relating to
any Intellectual Property Rights (as defined in Section 3.18);
(c) any agreement with any of its employees or consultants;
(d) any agreement, contract, lease, commitment or instrument with any
party, including any customer or supplier, (i) providing for any payment in
excess of $20,000 by any party thereto or (ii) which does not contemplate
performance within 12 months;
(e) any collective bargaining or other agreement with any labor union;
(f) any agreement relating to the acquisition or disposition of any
business, corporation or other legal entity or a material amount of assets
(by way of merger, consolidation, purchase, sale or otherwise);
(g) any agreement granting any Person a Lien on any of its assets or
properties, including, without limitation, any factoring agreement or
agreement for the assignment of accounts receivable or inventory;
(h) any agreement that creates a joint venture or partnership with any
other Person;
-10-
<PAGE>
(i) any indenture, mortgage, note, bond or other evidence of
indebtedness, any credit or similar agreement under which it has borrowed
any money, and any guarantee of or agreement to acquire any such
obligation, of any other Person ("Debt");
----
(j) any agreement which restricts it from entering into any new or
existing line of business or any agreement which contains geographic
restrictions on its ability to conduct business activities (including a
covenant not to compete);
(k) any agreement, contract or other arrangement with any Principal,
any Original Member or any Affiliate of an Original Member;
(l) any guarantee of third party obligations; or
(m) any other agreement which is material to the business or financial
condition of the Company and the Subsidiaries.
Except as set forth in Schedule 3.15, all agreements, contracts, leases,
licenses, commitments or instruments of the Company or any Subsidiary listed or
required to be listed in Schedule 3.15 (collectively, the "Material Contracts")
------------------
are valid, binding and in full force and effect and are enforceable by the
Company or a Subsidiary in accordance with its terms. Except as set forth in
Schedule 3.15, (a) the Company and the Subsidiaries have performed all material
obligations required to be performed by them to date under the Material
Contracts, and are not (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect thereunder, and
(b) to the knowledge of the Company, no other party to any of the Material
Contracts is (with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder. Correct and
complete copies of all written Material Contracts (and true and complete
summaries of all oral Material Contracts) have been made available to AEA prior
to the date hereof. As used in this Agreement, "Affiliate" means, (i) with
---------
respect to a Person, any other Person directly or indirectly controlling,
controlled by, or under common control with such other Person or (ii) with
respect to any individual, any individual in such other individual's immediate
family.
Section 3.16 Broker's and Finder's Fee. The Company has not employed any
-------------------------
broker, finder, or financial intermediary in connection with the transactions
contemplated by this Agreement or the Related Agreements that would be entitled
to a broker's, finder's or similar fee or commission in connection therewith.
Section 3.17 Employee Benefit Plans. (a) Schedule 3.17 contains a true
----------------------
and complete list of each plan, policy, practice, agreement or other
arrangement, or commitment therefor, providing for compensation, termination
pay, performance awards,
-11-
<PAGE>
equity-related awards, fringe benefits or other employee benefits of any kind
pursuant to which the Company, any of the Subsidiaries or any ERISA Affiliate
has or may have any liability, contingent or otherwise (each, a "Company Benefit
---------------
Plan").
- ----
(b) Neither the Company nor any of the Subsidiaries has or has ever
had any ERISA Affiliates (other than the Company or a Subsidiary). "ERISA
-----
Affiliate" shall mean any Person which is (or at any relevant time was) a member
- ---------
of a "controlled group of corporations" with, under "common control" with, or a
member of any "affiliated service group" with or otherwise required to be
aggregated with, the Company or any of the Subsidiaries as set forth in Section
414(b), (c), (m) or (o) of the Code or Section 4001(a)(14) of Employee
Retirement Income Security Act of 1974, as amended.
(c) The Company and each of the Subsidiaries has performed all
obligations required to be performed by it under each Company Benefit Plan and
each Company Benefit Plan has been established and maintained in accordance with
its terms and in compliance with all applicable laws, statutes, orders, rules
and regulations. There are no actions, proceedings, arbitrations, suits or
claims (other than routine claims for benefits) pending, or to the knowledge of
the Company, threatened or anticipated, with respect to any Company Benefit
Plan. No Company Benefit Plan is under audit or investigation by the Internal
Revenue Service, the Department of Labor or the Pension Benefit Guaranty
Corporation, and to the knowledge of the Company, no such audit or investigation
is pending or threatened.
(d) Each Company Benefit Plan intended to qualify under Section 401 of
the Code is, and since its inception has been, so qualified. No circumstances
exist which would adversely affect this qualification. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Company Benefit Plan.
(e) The execution of, and performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) (i) constitute an event under any Company
Benefit Plan, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits, or (ii)
result in the triggering or imposition of any restrictions or limitations on the
right of the Company or any of the Subsidiaries to amend or terminate any
Company Benefit Plan.
(f) With respect to each Company Benefit Plan which is a "welfare
plan" (within the meaning of Section 3(1) of ERISA), all claims incurred
(including claims incurred but not reported) thereunder are (i) insured pursuant
to a contract of insurance whereby the insurance company bears any risk of loss
with respect to such
-12-
<PAGE>
claims; or (ii) covered under a contract with a health maintenance organization
(an "HMO") pursuant to which the HMO bears the liability for such claims.
---
Section 3.18 Patents, Trademarks, Trade Names, Etc. Schedule 3.18 sets
-------------------------------------
forth, as of the date hereof, all registered United States and foreign patents,
trademarks, trade names, copyrights and applications therefor which are held or
used by the Company and the Subsidiaries (the "Patents, Copyrights and
-----------------------
Trademarks"). Except as set forth in Schedule 3.18, (i) the Company is the sole
- ----------
owner of the Patents, Copyrights, Trademarks shop rights, inventions,
discoveries, improvements, drawings, designs, patterns, processes, formulae,
trade secrets, proprietary rights and data, ideas and know-how, whether or not
patentable or registrable, owned, used, or held for use by the Tanning Parties
in connection with the Company's business ("Intellectual Property Rights"); (ii)
----------------------------
to the knowledge of the Company, none of the Intellectual Property Rights is
being infringed upon or appropriated by others; (iii) all Patents, Copyrights
and Trademarks have been duly registered or filed in the United States Patent
and Trademark Office or in the appropriate office in other jurisdictions, and
such registrations have been properly maintained and renewed in accordance with
all applicable laws, rules, and regulations and all fees associated therewith
have been paid; (iv) the Company has not received notice of any claim or demand
of any Person pertaining to any prosecution, suit, action or proceeding pending
or threatened, that challenges the exclusive right of the Company to use any of
the Intellectual Property Rights; (v) no aspect of the Intellectual Property
Rights is subject to any outstanding order, ruling, decree, judgment or
stipulation by or with any court, arbitrator or administrative agency; (vi) the
Company is not engaged in any Litigation, and, to the knowledge of the Company,
no Litigation is threatened, with respect to the use of any of the Intellectual
Property Rights; and (vii) to the knowledge of the Company, the conduct of the
Company and the Subsidiaries as now being conducted does not, and as currently
proposed to be conducted, will not, infringe or otherwise conflict with, any
patents, trademarks, service marks, trade names, copyrights or other
intellectual property or proprietary rights of others.
Section 3.19 Insurance. Schedule 3.19 sets forth, as of the date hereof,
---------
a correct and complete list of all of the material policies of insurance and
fidelity or surety bonds with respect to the Company. All such policies are in
full force and effect, all premiums due and payable thereon have been paid
(other than retroactive or retrospective premium adjustments that are not yet,
but may be, required to be paid with respect to any period ending prior to the
Closing Date), and no notice of cancellation or termination has been received
with respect to any such policy which has not been replaced on substantially
similar terms prior to the date of such cancellation. There are no claims by the
Company or any Subsidiary as to which any insurance company is denying liability
or defending under a reservation of rights or similar causes. The activities and
operations of the Company and the Subsidiaries have been conducted in a manner
so as to conform in all material respects to all applicable provisions of such
insurance policies and, except as set
-13-
<PAGE>
forth in Schedule 3.19, proper notice of all known claims that the Company
reasonably believes it has under such insurance policies, has been given to the
providers of such insurance policies.
Section 3.20 New Tanning. New Tanning (i) will be a newly formed
-----------
corporation and will not have (other than the assets and liabilities of the
Company following the Merger and nominal amounts contributed as its initial
capitalization) any assets or liabilities of any kind and (ii) will not have
conducted any business or operations, except in each case as contemplated by
this Agreement.
Section 3.21 Affiliate Matters. No Original Member or other Affiliate of
-----------------
the Company or any Principal has any interest in any property (real or personal,
tangible or intangible) or contract used in or pertaining to the business of the
Company and no Original Member or other Affiliate of the Company or any
Principal has any direct or indirect ownership interest or economic interest in
any Person with which the Company or any Subsidiary competes (except that
Stephen Brobst d/b/a Strategic Technologies & Systems may have competed in the
past with the Company) or with which it has a business relationship. After
giving effect to the Merger, the assets of New Tanning will include all of the
assets necessary to the conduct of the Company's business as presently
conducted.
Section 3.22 Information. To the knowledge of the Company, none of (a)
-----------
this Agreement (including the Schedules and Exhibits hereto), (b) the agreements
(including, without limitation, the Related Agreements), certificates and other
instruments executed and delivered by or on behalf of any of the Tanning Parties
in connection with the execution of this Agreement or the Closing or (c) the
Financial Statements and, when delivered, the Audited Financial Statements
contain (or in the case of the Audited Financial Statements, will contain) any
material misstatement of fact or omit any material fact necessary to be stated
in order to make the statements therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AEA
-------------------------------------
AEA hereby represents and warrants to each of the Tanning Parties as
follows:
Section 4.1 Organization. AEA is a corporation duly organized and validly
------------
existing under the laws of Delaware and has all requisite corporate power and
authority to enable it to own, lease or otherwise hold its properties and assets
and to carry on its business as it is now being conducted. AEA is duly qualified
to do business and is in good standing as a foreign corporation in all
jurisdictions where the nature of the property
-14-
<PAGE>
owned or leased by it, or the nature of the business conducted by it, makes such
qualification necessary and the absence of such qualification would materially
hinder or impair the consummation of the transactions contemplated hereby.
Section 4.2 Authority. AEA has full power and authority to execute and
---------
deliver this Agreement, to perform all its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by AEA, and the consummation of the transactions contemplated
hereby, have been duly authorized by all necessary action of AEA. This Agreement
has been duly and validly executed and delivered by AEA and constitutes the
valid and binding obligation of AEA, enforceable against AEA in accordance with
its terms, except to the extent such enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws relating to creditors' rights generally and to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
Section 4.3 No Conflicts; Consents. Except as set forth in Schedule 4.3,
----------------------
the execution and delivery by AEA of this Agreement and the consummation of the
transactions contemplated hereby will not (i) violate any provision of any
applicable law, rule or regulation to which AEA is subject, (ii) violate any
order, judgment or decree applicable to AEA, or (iii) conflict with, or result
in a breach of or default under, any term or condition of the charters or by-
laws of AEA, except, in each case, as would not hinder or impair the
consummation of the transactions contemplated hereby. No consent, license,
approval, waiver, expiration of waiting period or authorization of, or
registration or declaration with, any Governmental Entity is required to be
obtained or made by AEA in connection with the execution, delivery and
performance by AEA of the transactions contemplated by this Agreement.
Section 4.4 Broker's and Finder's Fee. AEA has not employed any broker,
-------------------------
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement or the Related Agreements that would be entitled
to a broker's, finder's or similar fee or commission in connection therewith.
ARTICLE V
COVENANTS
---------
Each of the Tanning Parties hereby covenants and agrees with AEA as
follows:
Section 5.1 Cooperation by the Company. (a) From the date hereof and
prior to the Closing, the Tanning Parties shall use all reasonable efforts, and
will cooperate with
-15-
<PAGE>
AEA, to secure all necessary consents, approvals, authorizations, exemptions and
waivers from third parties as shall be required in order to enable the Tanning
Parties to effect the transactions contemplated hereby (including taking such
actions as may be required to cause the representations and warranties contained
herein to be true and complete), and shall otherwise use all reasonable efforts
to cause the consummation of such transactions in accordance with the terms and
conditions hereof.
(b) Further Assurances. At any time or from time to time after the
------------------
Closing, the Tanning Parties shall execute and deliver any further instruments
or documents and take all such commercially reasonable further action as AEA may
reasonably request in order to consummate the transactions contemplated hereby.
Section 5.2 Conduct of Business. (a) Except as set forth in Schedule 5.2
-------------------
or otherwise expressly permitted by the terms of this Agreement or the Related
Agreements, or except as AEA may otherwise consent to in writing, from the date
hereof to the Closing, the Company and each Subsidiary will, and the Tanning
Parties will cause the Company and each of the Subsidiaries to, (i) in all
material respects, conduct its business only in the ordinary course in
substantially the same manner as presently conducted; (ii) preserve intact its
business organization; (iii) maintain its properties, machinery and equipment in
sufficient operating condition and repair to enable it to conduct its business
in all material respects in the manner in which its business is currently
conducted; (iv) continue all existing insurance policies (or comparable
insurance) in full force and effect; and (v) preserve its relationships with its
suppliers, customers, licensors and licensees and others having business
dealings with the Company and the Subsidiaries.
(b) Except as set forth in Schedule 5.2, or otherwise expressly
permitted by the terms of this Agreement or the Related Agreements, or except as
AEA may otherwise consent to in writing, from the date hereof to the Closing,
the Company and each Subsidiary will not, and the Tanning Parties will cause the
Company and each of the Subsidiaries not to (i) increase the rate or terms of
compensation payable or to become payable by the Company or any of its
Subsidiaries to any of their respective directors, officers, members, managers,
or key employees, or increase the rate or terms of any bonus, pension or other
employee benefit plan covering any of their respective directors, officers,
members, managers, or key employees, except, in each case, increases occurring
in the ordinary course of business in accordance with their respective customary
practices (including normal periodic performance reviews and related
compensation and benefit increases) or as required by any pre-existing Material
Contract; (ii) except as set forth on Schedule 5.2 (which shall describe the
parties' understanding with respect to the distribution of certain accounts
receivable and certain of the Company's accrued profits), declare or pay any
dividend or make any other distribution to its members or stockholders whether
or not in respect of any equity interests; (iii) amend its Operating Agreements,
Articles of Organization, Certificate of Incorporation or by-laws, as
applicable; (iv)
-16-
<PAGE>
redeem or otherwise acquire any of its equity interests or issue any equity
interests or any option, warrant or right relating thereto or any securities
convertible into or exchangeable for any equity interests; (v) adopt or amend in
any material respect, any Company Benefit Plan, except as required by law; (vi)
incur or assume any Debt; (vii) permit, allow, or suffer any of its assets to
become subjected to any Lien or other material restriction of any nature; (viii)
settle, compromise or waive any claims or rights of substantial value
(including, without limitation, effecting any settlement or resolution of
matters relating to NexTek); (ix) pay, loan or advance any amount to, or sell,
transfer or lease any assets to, or enter into any agreement or arrangement with
any Original Member, any Affiliate of an Original Member or any Principal; or
(x) agree, whether in writing or otherwise, to do any of the foregoing.
Section 5.3 Access. From the date hereof and prior to the Closing, the
------
Tanning Parties shall provide AEA with such information as AEA may from time to
time reasonably request with respect to the Company and the Subsidiaries and the
transactions contemplated by this Agreement and the Related Agreements and
provide AEA and its representatives reasonable access during regular business
hours and upon reasonable notice to the properties, books and records of the
Company and the Subsidiaries as AEA may from time to time reasonably request.
All such information and access shall be subject to the terms and conditions of
the letter agreement dated October 17, 1996 between AEA and the Company (the
"Confidentiality Agreement").
- --------------------------
Section 5.4 No Solicitation. From and after the date hereof, each of the
---------------
Tanning Parties shall not, and shall cause its respective officers, directors,
equity holders, employees and representatives not to, solicit offers, inquiries
or proposals (collectively, "Proposals") from, or disclose information to, or
negotiate or participate in discussions with, others in connection with the
possible sale, transfer or other disposition of all or any part of the Company
or any interest in the Company. The Tanning Parties agree to promptly inform AEA
of the identity of any party making a Proposal or any inquiry relating to a
potential Proposal, and the nature and terms of such Proposal or inquiry, and to
keep AEA informed as to the status thereof.
Section 5.5 Required Notices. At all times prior to the Closing, each of
----------------
the Tanning Parties shall promptly, upon obtaining knowledge thereof, give
written notice to AEA of (i) any facts or circumstances or the occurrence of any
event or the failure of any event to occur, which will, or could reasonably be
expected to, result in a Material Adverse Effect, (ii) any failure by any of the
Tanning Parties to comply in all material respects with any covenant, condition
or agreement contained in this Agreement, (iii) any complaints, investigations,
proceedings or hearings of any Governmental Entity with respect to the Company
or this Agreement, (iv) any institution or threat of institution of any
litigation or similar action or (v) the occurrence of any event which will or
could reasonably be expected to result in the failure by the Tanning Parties to
satisfy any
-17-
<PAGE>
condition set forth in Articles VI and VII. During the period from the date of
this Agreement to the Closing Date, the Company and the Original Members will
cause one or more of each of their representatives to be reasonably available to
confer on a regular basis with representatives of AEA to report on the general
status of the ongoing operations of the Company and the Subsidiaries.
Section 5.6 New Tanning. (a) Prior to the Closing Date, the parties agree
-----------
that they will cause New Tanning to be incorporated in the State of Delaware by
causing a certificate of incorporation which reflects the capital structure
described in Exhibit 1 and which is otherwise reasonably acceptable to the
parties to be filed with the Secretary of State of the State of Delaware and by
adopting by-laws reasonably acceptable to the parties.
(b) From the date of its incorporation until the Closing, the Tanning
Parties will cause New Tanning not to take any action whatsoever without the
prior written consent of AEA.
Section 5.7 Merger. The Tanning Parties will take all actions necessary
------
to effect the Merger on or prior to the Closing Date and cause New Tanning to
execute a counterpart signature page to this Agreement.
Section 5.8 Audited Financial Statements. At least three business days
----------------------------
prior to the Closing Date, the Company shall deliver to AEA (a) audited balance
sheets of the Company dated December 31, 1995 and September 30, 1996 and
statements of income and cash flow of the Company for the nine months ending
September 30, 1996, in each case audited by Ernst & Young LLP (the "Audited
-------
Financial Statements") and (b) statements of income and cash flow of the Company
- --------------------
for the year ending December 31, 1995, which will be subject to a review report
of Ernst & Young LLP (the "Reviewed Financial Statements"). The Audited
-----------------------------
Financial Statements and the Reviewed Financial Statements will be prepared in
accordance with GAAP and present fairly, in all material respects, the
consolidated financial position of the Company and the Subsidiaries as of their
respective dates, and the results of their consolidated operations and cash
flows for each of the annual periods ended on such dates.
Section 5.9 Related Agreements. The parties shall use all reasonable
------------------
efforts and negotiate in good faith to enter into the following agreements as
promptly as practicable and in any event prior to the Closing Date
(collectively, the "Related Agreements"):
------------------
(a) An Agreement and Plan of Merger (the "Merger Agreement") between
----------------
the Company and New Tanning effecting the Merger in form and substance
reasonably satisfactory to the parties hereto.
-18-
<PAGE>
(b) A Shareholders Agreement (the "Shareholders Agreement") among New
----------------------
Tanning, the Original Members and AEA which reflects the terms set forth in
Exhibit 2 and is otherwise reasonably satisfactory to the parties thereto.
(c) Employment Agreements between New Tanning and the employees of New
Tanning listed in Exhibit 3 which reflect the terms set forth in Exhibit 3 and
which are otherwise reasonably satisfactory to such employees, AEA and New
Tanning (the "Employment Agreements").
---------------------
(d) Asset Purchase Agreement (the "Asset Purchase Agreement") between
------------------------
New Tanning and Brobst pursuant to which New Tanning will acquire the assets of
Strategic Technologies & Systems which is reasonably satisfactory to New
Tanning, Brobst and AEA.
ARTICLE VI
CONDITIONS TO AEA'S OBLIGATIONS
-------------------------------
The obligation of AEA to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction (or waiver, where
permissible) at or prior to the Closing of all of the following conditions:
Section 6.1 Representations, Warranties and Covenants of the Tanning
--------------------------------------------------------
Parties. Each of the Tanning Parties shall have complied in all material
- -------
respects with all of their agreements and covenants contained herein to be
performed on or prior to the Closing Date, and all the representations and
warranties of the Tanning Parties contained herein shall be true in all material
respects on and as of the Closing Date with the same effect as though made on
and as of the Closing Date. AEA shall have received a certificate executed by
the Tanning Parties, dated as of the Closing Date, certifying as to the
fulfillment of the conditions set forth in this Section 6.1.
Section 6.2 No Prohibition. No statute, rule or regulation or order of
--------------
any court or administrative agency shall be in effect which prohibits the
parties from consummating the transactions contemplated hereby.
Section 6.3 Consents. All consents, approvals, authorizations, exemptions
--------
and waivers from any Governmental Entity or any third party that shall be
required in connection with the transactions contemplated hereby, including
those set forth in Schedule 3.7 hereof, shall have been obtained.
Section 6.4 Merger. The Company and New Tanning shall have effected the
------
Merger in accordance with the Merger Agreement.
-19-
<PAGE>
Section 6.5 Certificates and Resolutions. AEA shall have received copies,
----------------------------
in form and substance reasonably satisfactory to it, of such certificates of
good standing, board resolutions, officers and secretaries' certificates,
resignations of officers and directors, revocations of powers of attorney and
other documents (including waivers and releases from the Original Members and
the Principals) with respect to the Tanning Parties as AEA or its counsel shall
reasonably request.
Section 6.6 Board Approval. The Board of Directors of AEA Investors Inc.
--------------
shall have approved this Agreement, the Related Agreements and the transactions
contemplated hereby and thereby.
Section 6.7 Shareholders Agreement. New Tanning and each Original Member
----------------------
shall have entered into the Shareholders Agreement.
Section 6.8 Asset Purchase Agreement. Brobst and New Tanning shall have
------------------------
entered into the Asset Purchase Agreement.
Section 6.9 Employment Agreements. The employees listed in Exhibit 3
---------------------
shall have entered into the Employment Agreements.
Section 6.10 Audited Financial Statements. The Audited Financial
----------------------------
Statements and the Reviewed Financial Statements shall have been delivered in
accordance with Section 5.8 and shall not differ materially from the Financial
Statements and shall not otherwise be inconsistent in any material respect with
the information regarding the Company provided by the Tanning Parties or their
representatives to AEA or its Affiliates or representatives.
Section 6.11 Legal Opinion. AEA shall have received an opinion from
-------------
Ireland, Stapleton, Pryor & Pascoe, P.C., addressed to AEA, in form and
substance reasonably satisfactory to AEA.
Section 6.12 Pyramid. Simultaneously with the Closing, AEA shall receive
-------
evidence satisfactory to it that all Liens held by Pyramid Technology
Corporation in Units of the Company shall have been released and discharged.
Section 6.13 New Tanning. New Tanning shall have been formed in
-----------
accordance with Section 5.6(a) pursuant to documentation satisfactory to AEA.
Section 6.14 Counterpart. New Tanning shall have executed the counterpart
-----------
to this Agreement referred to in Section 5.7.
Section 6.15 Confidentiality and Assignment Agreements. The Company shall
-----------------------------------------
have obtained work-made-for-hire and intellectual property assignment agreements
from
-20-
<PAGE>
such consultants, and Confidentiality and Assignment Agreements (as defined
on Schedule 3.15(c)) from such employees as AEA and the Company agree are
necessary and appropriate.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE TANNING PARTIES
----------------------------------------------------
The obligation of the Tanning Parties to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction (or waiver,
where permissible) at or prior to the Closing of all of the following
conditions:
Section 7.1 Representations, Warranties and Covenants of AEA. AEA shall
------------------------------------------------
have complied in all material respects with its agreements and covenants
contained herein to be performed on or prior to the Closing Date, and the
representations and warranties of AEA contained herein shall be true in all
material respects on and as of the Closing Date with the same effect as though
made on and as of the Closing Date. The Company shall have received a
certificate executed by or on behalf of AEA, dated as of the Closing Date,
certifying as to the fulfillment of the conditions set forth in this Section
7.1.
Section 7.2 No Prohibition. No statute, rule or regulation or order of
--------------
any court or administrative agency shall be in effect which prohibits the
parties from consummating the transactions contemplated hereby.
Section 7.3 Consents. All consents, approvals, authorizations, exemptions
--------
and waivers from governmental agencies set forth in Schedule 7.3 shall have been
obtained.
Section 7.4 Employment Agreements. New Tanning shall have entered into
---------------------
the Employment Agreements in accordance with Section 5.9(c).
Section 7.5 Shareholders Agreement. AEA shall have entered into the
----------------------
Shareholders Agreement in accordance with Section 5.9(b).
Section 7.6 Related Transaction. The parties shall have agreed on a term
-------------------
sheet for implementing the transaction described in the second numbered
paragraph of the Letter of Intent, dated October 22, 1996, executed in
connection with the transactions contemplated hereby.
-21-
<PAGE>
ARTICLE VIII
TERMINATION
-----------
Section 8.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing,
(a) by the mutual written consent of the parties hereto; or
(b) by either AEA, on the one hand, or the Tanning Parties, on
the other hand, if the Closing shall not have occurred on or before
February 28, 1997.
Section 8.2 Effect on Obligations. Termination of this Agreement pursuant
---------------------
to this Article VIII shall terminate all rights and obligations of the parties
hereunder and none of the parties shall have any liability to the other parties
hereunder, except that Sections 10.2, 10.4 and 10.6, the Confidentiality
Agreement, the last sentence of Section 5.3 and this Section 8.2 shall remain in
effect, and provided that nothing herein shall relieve any party from liability
for any breach of any covenant or agreement in this Agreement prior to such
termination.
ARTICLE IX
INDEMNIFICATION
---------------
Section 9.1 Losses. For purposes of this Agreement, the terms "Loss" or
------
"Losses" shall mean each and all of the following items to the extent actually
------
incurred: claims, losses, liabilities, damages, judgments, fines, penalties,
amounts paid in settlement and reasonable costs and expenses incurred in
connection therewith (including, without limitation, interest which is imposed
in connection therewith, costs and expenses of suits and proceedings, and
reasonable fees and disbursements of counsel).
Section 9.2 Indemnification by the Original Members and Principals. (a)
------------------------------------------------------
Subject to Section 9.5, the Original Members and the Principals shall indemnify
and hold harmless AEA, its shareholders and Affiliates, their respective
officers, directors, shareholders, successors and permitted transferees and
assigns from and against any and all Losses based upon, arising out of, or
resulting from, any of the following:
(i) any breach by any of the Tanning Parties of any of the
representations or warranties made by the Tanning Parties in this
Agreement; or
-22-
<PAGE>
(ii) any failure by any of the Tanning Parties to perform any of
its covenants or agreements contained in this Agreement.
(b) AEA shall give any notice pursuant to this Article IX (and subject
to the terms of Section 9.4) to each Original Member and Principal. Each of the
Original Members and Principals hereby appoints Wes Light as their
representative for the purpose of administering all indemnity procedures and to
act on behalf of the Original Members and Principals for all purposes of this
Article IX and Section 10.6.
(c) Any obligation of the Original Members or Principals arising under
this Article IX may be satisfied, at the option of the Original Member or
Principal satisfying such obligation, with (x) a Cash Payment, (y) a Stock
Payment, or (z) any combination of a Cash Payment and a Stock Payment.
(d) For purposes of this Article IX, "Cash Payment" shall mean a
------------
payment in an amount equal to the amount of the obligation, or portion thereof,
to be satisfied by such Cash Payment.
(e) For purposes of this Article IX, "Stock Payment" shall mean a
-------------
payment of an amount of common stock of New Tanning the Fair Value of which is
equal to the amount of the obligation, or portion thereof, to be satisfied by
such Stock Payment. For purposes of this Article IX, "Fair Value" of a share of
----------
common stock of New Tanning shall be the per share price paid for the AEA
Shares, pursuant to this Agreement.
(f) For purposes of any indemnification made pursuant to Section
9.2(a)(i), any Loss arising out of a breach of a representation or warranty
contained in Sections 3.1, 3.2, 3.3(b), 3.7, or 3.11(b) to the extent such
representation or warranty relates solely to the status, actions or inaction of
any Principal or Original Member and is made by a Principal or Original Member,
acting on its own behalf and not on behalf of the Company, shall only be the
several (and not joint) obligation of such Original Member or Principal; it
being understood and agreed that indemnification for any other Loss shall be the
joint and several obligation of all of the Tanning Parties (other than the
Company).
Section 9.3 Indemnification by AEA. (a) Subject to Section 9.5, AEA shall
----------------------
indemnify and hold harmless each Original Member, each Principal, successors,
and permitted transferees and assigns from and against any and all Losses based
upon or resulting from any of the following:
(i) any breach by AEA of any of the representations or warranties
made by AEA in this Agreement; or
-23-
<PAGE>
(ii) any failure by AEA to perform any of its covenants or
agreements contained in this Agreement.
(b) Any obligation of AEA arising under this Article IX may be
satisfied, at the option of AEA, with (x) a Cash Payment, (y) a Stock Payment or
(z) any combination of a Cash Payment and a Stock Payment.
Section 9.4 Claims. (a) When a party seeking indemnification under
Sections 9.2 or 9.3 (the "Indemnified Party") receives notice of any claims made
-----------------
by third parties ("Third Party Claims") or has any other claim for
-------------------
indemnification other than a Third Party Claim, which is to be the basis for a
claim for indemnification hereunder, the Indemnified Party shall give prompt
written notice thereof to the other party or parties (the "Indemnifying Party")
------------------
reasonably indicating (to the extent known) the nature of such claims and the
basis thereof; provided, however, that failure of the Indemnified Party to give
the Indemnifying Party prompt notice as provided herein shall not relieve the
Indemnifying Party of any of its obligations hereunder unless and only to the
extent that the Indemnifying Party shall have been prejudiced thereby. Upon
notice from the Indemnified Party, the Indemnifying Party may, but shall not be
required to, assume the defense of any such Third Party Claims, including its
compromise or settlement, and the Indemnifying Party shall pay all reasonable
costs and expenses thereof and shall be fully responsible for the outcome
thereof; provided, however, that in such case, the Indemnifying Party shall have
-------- -------
no obligation to pay any further costs or expenses of legal counsel of the
Indemnified Party thereafter incurred in connection with such defense. No
compromise or settlement in respect of any Third Party Claims may be effected by
the Indemnifying Party without the Indemnified Party's prior written consent
(which consent shall not be unreasonably withheld or delayed), unless the sole
relief is monetary damages that are paid in full by the Indemnifying Party (and
satisfactory releases are delivered to the Indemnified Party). The Indemnifying
Party shall give notice to the Indemnified Party as to its intention to assume
the defense of any such Third Party Claims within thirty (30) days after the
date of receipt of the Indemnified Party's notice in respect of such Third Party
Claims. If an Indemnifying Party does not, within thirty (30) days after the
Indemnified Party's notice is given, give notice to the Indemnified Party of its
assumption of the defense of the Third Party Claims, the Indemnifying Party
shall be deemed to have waived rights to control the defense thereof. If the
Indemnified Party assumes the defense of any Third Party Claims because of the
failure of the Indemnifying Party to do so in accordance with this Section 9.4,
it may do so in such reasonable manner as it may deem appropriate, and the
Indemnifying Party shall pay all reasonable costs and expenses of such defense.
The Indemnifying Party shall have no liability with respect to any compromise or
settlement thereof effected without its prior written consent (which consent
shall not be unreasonably withheld or delayed), unless the sole relief granted
was equitable relief for which the Company would have no liability or to which
the Company would not be subject.
-24-
<PAGE>
(b) Notwithstanding the foregoing, with respect to any Third Party
Claim that the Indemnifying Party is defending, the Indemnified Party shall have
the right to retain separate counsel to represent it and the Indemnifying Party
shall pay the fees and expenses of such separate counsel if there are conflicts
that make it reasonably necessary for separate counsel to represent the
Indemnified Party and the Indemnifying Party.
Section 9.5 Limitations on Indemnification. (a) The provisions for
------------------------------
indemnity under Sections 9.2(a) and 9.3(a), as the case may be, shall be
effective only when the aggregate amount of all Losses for which indemnification
is sought from the Original Members and the Principals, on the one hand, or AEA,
on the other, under Sections 9.2(a) or 9.3(a), respectively, exceeds $200,000,
in which case the Indemnified Party shall be entitled to indemnification for all
of the Indemnified Party's Losses in excess thereof.
(b) In no event shall the Original Members and the Principals, on the
one hand, or AEA, on the other, be liable for an amount, in the aggregate,
greater than $6,500,000 for all claims made against it under Sections 9.2(a) or
9.3(a), as the case may be.
(c) Notwithstanding the foregoing, Losses arising out of a breach of
Sections 3.13 or 3.17(b) or any intentional failure to perform any covenant or
agreement contained in this Agreement shall be indemnified without regard to
this Section 9.5.
Section 9.6 Exclusive Remedy. Except as expressly provided otherwise in
----------------
this Agreement, following the Closing, the indemnification provisions set forth
in this Article IX shall be the sole and exclusive remedy of the parties hereto
for damages for breaches of representations and warranties and covenants and
other agreements.
ARTICLE X
MISCELLANEOUS
-------------
Section 10.1 Survival. All representations and warranties by the parties
--------
herein shall survive the Closing until (and no claim for indemnification in
respect of a breach thereof shall be made following) the earlier of (i) the
approval by the Audit Committee of the Board of Directors of New Tanning of the
audit of the financial statements of the Company and the Subsidiaries for the
fiscal year ended December 31, 1997 or (ii) an initial public offering by New
Tanning, except in all cases with respect to and to the extent of any claims of
which written notice specifying, in reasonable detail (to the extent known), the
nature and amount of the claims has been given by AEA to the Original Members
and the Principals, or by the Original Members and the Principals to AEA, as the
case may be, prior to such expiration, which claims shall survive without
limitation as to time, and except in all cases with respect to losses arising
out of Sections 3.13 and 3.17(b), which shall survive without limitation as
-25-
<PAGE>
to time. Nothing in this Agreement is intended to impose any time limitations in
connection with covenants or agreements which are not to be performed at or
prior to the Closing.
Section 10.2 Expenses. Except as otherwise provided herein, each party
--------
hereto shall pay all fees and expenses incurred by it in connection with this
Agreement and the transactions contemplated hereby, including fees and expenses
of its accountants and counsel ("Fees and Expenses"); provided however, that the
Purchase Price shall be reduced by the amount of Fees and Expenses incurred by
AEA or on its behalf (such reduction not to exceed $275,000).
Section 10.3 Exclusive Agreement; No Third-Party Beneficiaries. This
-------------------------------------------------
Agreement, the Related Agreements (including the Schedules and all Exhibits
hereto and thereto), and the Confidentiality Agreement constitute the sole
understanding of the parties with respect to the subject matter hereof and any
verbal or written communication between the parties prior to the adoption of
this Agreement shall be deemed merged herein and of no further force and effect.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, express or implied, is intended to confer on any Person other
than the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
Section 10.4 Governing Law, Etc. This Agreement shall be construed in
------------------
accordance with and governed by the laws of the State of Delaware applicable to
agreements made and to be performed wholly within such jurisdiction. Each of the
parties hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the State of Delaware and of the United
States of America in each case located in the County of New Castle for any
Litigation arising out of or relating to this Agreement and the transactions
contemplated hereby (and agrees not to commence any Litigation relating thereto
except in such courts), and further agrees that service of any process, summons,
notice or document by U.S. registered mail to its respective address set forth
in Section 10.8 shall be effective service of process for any Litigation brought
against it in any such court. Each of the parties hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any Litigation
arising out of this Agreement or the transactions contemplated hereby in the
courts of the State of Delaware or the United States of America in each case
located in the County of New Castle and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such Litigation brought in any such court has been brought in an
inconvenient forum.
-26-
<PAGE>
Section 10.5 Successors and Assigns. The terms and conditions of this
----------------------
Agreement and the Related Agreements shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto;
provided, however, that this Agreement may not be assigned (by operation of law
- -------- -------
or otherwise) by any Tanning Party without the prior written consent of AEA, and
any such assignment shall be void and of no force or effect; and provided
further that AEA may, at its election, assign all or part of its rights under
this Agreement (including the right to acquire the AEA Shares) to any Affiliate
of AEA or any related entities formed for the purpose of the transactions
contemplated by this Agreement, but no such assignment of this Agreement or any
of the rights or obligations hereunder shall relieve AEA of any of its
obligations under this Agreement.
Section 10.6 Publicity. No public release or announcement concerning the
---------
transactions contemplated hereby or by the Related Agreements shall be issued by
any party without the prior consent of the other parties hereto (which consent
shall not be unreasonably withheld), except as such release or announcement may
be required by law or the rules or regulations of any United States or foreign
securities exchange, in which case the party required to make the release or
announcement shall give the other parties notice in advance of such issuance.
Section 10.7 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any adverse
manner to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner so that the
transactions contemplated hereby are fulfilled to the greatest extent possible.
Section 10.8 Notices. Any notice, request, instruction or other document
-------
to be given hereunder by any party hereto to any other party shall be in writing
and shall be given (and will be deemed to have been duly given upon receipt) by
delivery in person, by electronic facsimile transmission, cable, telegram, telex
or other standard forms of written telecommunications, by overnight courier or
by registered or certified mail, postage prepaid:
(a) If to any of the Tanning Parties, to:
Tanning Technology Corporation
4600 South Ulster Street, Suite 380
Denver, Colorado 80237
-27-
<PAGE>
Attention: Toni Hippeli
Telecopy: 303 220-9958
with a copy to:
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway
Suite 2600
Denver, Colorado 80202
Attention: Susan L. Oakes, Esq.
Telecopy: 303 623-2062
(b) If to AEA, to:
AEA Tanning Investors Inc.
c/o AEA Investors Inc.
Park Avenue Tower
65 East 55th Street
New York, New York 10022
Attention: Christine J. Smith, Esq.
Telecopy: 212 702-0518
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Frederick H. Fogel, Esq.
Telecopy: 212 859-4000
or at such other address for a party as shall be specified by
like notice.
Section 10.9 Counterparts; Facsimile Signatures. This Agreement may be
----------------------------------
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute but one and the same
agreement. Delivery of a photocopy or transmission by telecopy of a signed
signature page of this Agreement shall constitute delivery of such signed
signature page; provided, however, that each party shall provide each other
party an originally executed copy of such signature page as promptly as
practicable.
Section 10.10 Interpretation. When a reference is made in this Agreement
--------------
to Articles, Sections, Schedule or Exhibits, such reference is to an Article or
a Section of, Schedule to, or an Exhibit to, this Agreement, unless otherwise
indicated. The table of
-28-
<PAGE>
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, they shall be understood to be followed by the words "without
limitation." Whenever used in this Agreement, "to the Company's knowledge" shall
mean the knowledge of Larry Tanning, Stephen Brobst, Toni Hippeli, and Bipin
Agarwal. Whenever used in this Agreement "to the knowledge of an Original
Member" shall mean the knowledge of any shareholder or shareholders of such
Original Member.
Section 10.11 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed on behalf of each of the parties.
Section 10.12 Extension; Waiver. At any time the parties may extend the
-----------------
time for the performance of any of the obligations or other acts of the other
parties, waive any inaccuracies in the representations and warranties contained
in this Agreement and waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument signed on
behalf of such party. The waiver by any party hereto of a breach of any
provision hereunder shall not operate to be construed as a waiver of any prior
or subsequent breach of the same or any other provision hereunder.
Section 10.13 Other Transaction Structures. The parties agree to
----------------------------
cooperate and to develop and implement alternative legal structures to those
described in this Agreement and the Related Agreements (including the Merger) if
necessary to address legal, accounting or other considerations, it being
understood that any alternative legal structure shall not alter the economic
rights and obligations of the parties hereto or the commercial substance of the
intended transactions. In particular, if the parties determine that in order to
achieve the result intended to be achieved by the Merger, it is necessary to
cause the Company to merge with and into a Delaware limited liability company
and then cause such Delaware limited liability company to merge with and into
New Tanning, the parties shall effect such transaction. The parties agree that
the terms of this Agreement shall be modified to implement the terms set forth
in Exhibit 4.
-29-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each
of the parties hereto as of the date first above written.
TANNING TECHNOLOGY GROUP, L.L.C.
/s/ Toni Hippeli
-----------------------------
By: Toni Hippeli
Title: Managing Member
COURTNEY ROSE CORPORATION
/s/ Larry Tanning
-----------------------------
By: Larry Tanning
Title: President
WINSOFT CORPORATION
/s/ Bipin Agarwal
-----------------------------
By: Bipin Agarwal
Title: President
HIPPELI ENTERPRISES, INC.
/s/ Toni Hippeli
------------------------------
By: Toni Hippeli
Title: President
STEPHEN BROBST
/s/ Stephen Brobst *
------------------------------
* Subject to the Letter Agreement dated as of January 29, 1997, among Tanning
Technology Group, L.L.C., a Colorado limited liability, Courtney Rose
Corporation, a Colorado corporation, WinSoft Corporation, a Colorado
corporation, Hippeli Enterprises, Inc., a Colorado corporation, Larry Tanning,
Bipin Agarwal, Toni Hippeli and Stephen Brobst.
-30-
<PAGE>
LARRY TANNING
/s/ Larry Tanning
-------------------------------
BIPIN AGARWAL
/s/ Bipin Agarwal
-------------------------------
TONI HIPPELI
/s/ Toni Hippeli
-------------------------------
AEA TANNING INVESTORS INC.
/s/ Henry F. Skelsey
-------------------------------
By: Henry F. Skelsey
Title:
-31-
<PAGE>
COUNTERPART TO THE STOCK PURCHASE AGREEMENT
Tanning Technology Corporation, a Delaware corporation, hereby assumes,
as successor to Tanning Technology Group, L.L.C., a Colorado limited liability
company ("TTG"), all the rights and obligations of TTG with respect to the Stock
---
Purchase Agreement and the transactions contemplated thereby, dated December 24,
1996, by and among TTG, Courtney Rose Corporation, a Colorado Corporation
("Courtney"), WinSoft Corporation, a Colorado corporation ("WinSoft"), Hippeli
- ---------- -------
Enterprises, Inc., a Colorado corporation ("Hippeli"), Stephen Brobst, Larry
-------
Tanning, Bipin Agarwal, Toni Hippeli and AEA Tanning Investors Inc., a Delaware
corporation ("AEA"), as supplemented by the Letter Agreement, dated January 29,
---
1997, by and among TTG, Courtney, WinSoft, Hippeli, Stephen Brobst, Larry
Tanning, Bipin Agarwal, Toni Hippeli and AEA.
TANNING TECHNOLOGY CORPORATION
/s/ Larry G. Tanning
------------------------------------
By: Larry G. Tanning
Title: President
-32-
<PAGE>
Exhibit 1
---------
Principal terms of Capitalization of New Tanning
------------------------------------------------
New Tanning will be structured with three classes of capital stock
(classes A, B, and C). The Original Members will hold the A Shares, which will
have (prior to the exercise of any options) 68% of the vote and profits; AEA
will hold the B Shares (the "AEA Shares," as defined in the Stock Purchase
Agreement) which will have (prior to the exercise of any options) 32% of the
vote and profits; and, upon the exercise of the options, the option holders will
receive the C Shares (which will not be voting shares). Upon liquidation,
dissolution, disposition of all or substantially all of the stock or assets of
New Tanning or similar transactions, the B Shares will receive the first $13
million, then the A Shares will receive the next $27,625,000, then, if any C
Shares are outstanding, they will receive the amount paid for such C Shares, and
next, all classes will share pro-rata.
-33-
<PAGE>
Exhibit 2
---------
Principal Terms of the Shareholders Agreement
---------------------------------------------
1. Parties. New Tanning, the Original Members and AEA.
-------
2. Principal Terms.
---------------
2.1 Governance. Management decisions will be made by a majority of the
----------
Board of Directors. Board representation will be proportionate to
ownership interest (i.e. AEA will have the right to appoint 1/3 of the
----
board members). Notwithstanding the foregoing, the following actions
would require the approval of a majority of the Board, including at
least one AEA director:
. Acquisitions or dispositions of assets or operations outside the
ordinary course; dissolution, liquidation, mergers or other
extraordinary transactions.
. The issuance of private or public equity or public debt of New
Tanning.
. The incurrence by New Tanning of significant indebtedness ($5
million or more).
. Any related party transactions (including employment agreements
with any 5% equity holders or affiliates of 5% equity holders).
. Any material change in management (including appointment or removal
of senior management) or compensation arrangements.
. Amendments or modifications to New Tanning's governing documents or
terms of securities or other interests.
. Any declaration of dividends or other distributions (including
redemptions of stock).
. Other corporate actions of similar significance outside the
ordinary course.
2.2 Information.
-----------
-34-
<PAGE>
. New Tanning will provide annual and monthly financial statements to
AEA in a form satisfactory to AEA, together with annual budgets and
operating plans (including balance sheets and statements of cash
flows).
. New Tanning will provide AEA access to New Tanning's books and
records.
2.3 Committees. AEA will have the right to designate one member on each
----------
committee of the Board.
2.4 Transfer. No equity holder will be permitted to transfer (directly or
--------
indirectly) its interest in New Tanning without the approval of the
holders of 80% of the voting shares (including the transferor) of the
equity interests in New Tanning. "Tag along" rights (which grant to
all shareholders the right to participate, pro rata, in any transfer)
and "drag along" rights (which provide that if shareholders holding
80% of the shares choose to sell at least substantially all of the
shares they own, they can require the other shareholders to sell the
same percentage of their shares) would apply to any such approved
sale.
2.5 Registration Rights.
-------------------
. AEA will have the right to one demand registration right in each 12
month period beginning on the 24 month anniversary of the Closing.
This right includes the right to require a primary IPO by New
Tanning, as well as the right to demand registration of shares held
by the AEA investor participants.
. AEA and the Original Members will have customary "piggy-back" and
S-3 registration rights.
. Piggy-back and S-3 registration rights will be subject to standard
marketability restrictions.
-35-
<PAGE>
Exhibit 3
---------
Principal terms of Employment Agreements
----------------------------------------
1. Parties. New Tanning and the following employees of New Tanning:
-------
Larry Tanning
Bipin Agarwal
2. Principal Terms.
---------------
2.1 Term -- 3 years.
----
2.2 Compensation -- base salary plus bonus structure as well as bonuses at
------------
Closing as set forth on Schedule 1.
2.3 Benefits -- to be agreed.
--------
2.4 Exclusivity -- during the term, the employee shall devote his full
-----------
business efforts and time to New Tanning and shall not render services
to any other person or entity without the prior written consent of the
Board of Directors.
2.5 Non-Competition; Non-Solicitation -- will contain standard non-
---------------------------------
competition and non-solicitation provisions covering the term of the
Agreement.
2.6 Confidentiality; Trade Secrets -- Confidentiality/trade secret
------------------------------
provisions will conform to those contained in the the Company's form
"Employment, Confidentiality and Non-Competition" agreement.
2.7 Termination -- if terminated without cause, employee entitled to
-----------
receive base salary over remainder of the term.
-36-
<PAGE>
Exhibit 4
---------
Transaction Modification Term Sheet
-----------------------------------
The parties agree that the terms of the Stock Purchase Agreement to
which this Exhibit is attached shall be modified to implement the terms set
forth below:
1. At the Closing, AEA will purchase 9/13 of the AEA Shares (the "Initial AEA
Shares") for $9,000,000 in cash.
2. AEA will purchase up to $4,000,000 of current accounts receivable of the
Company (valued at face) (the "Accounts Receivable") from the Original
Members.
3. The Company will act as the collection agent to collect the Accounts
Receivable on AEA's behalf.
4. AEA shall purchase the 4/13 of the AEA Shares which it did not purchase on
the Closing Date (the "Remaining AEA Shares") at a date no later than the
four month anniversary of the Closing Date (which, at AEA's option, may be
any earlier date after the Closing Date) for cash and Accounts Receivable
(valued at face) equal to $4,000,000. The Remaining AEA Shares shall be
purchased on the same terms and conditions as the Initial AEA Shares.
-37-
<PAGE>
EXHIBIT 10.2
January 31, 1997
AEA Tanning Investors Inc.
c/o AEA Investors Inc.
Park Avenue Tower
65 East 55th Street
New York, New York, 10022
Dear Sirs:
This letter agreement supplements and amends the Stock Purchase Agreement
(the "Stock Purchase Agreement"), dated as of December 24, 1996, among Tanning
------------------------
Technology Group, L.L.C., Courtney Rose Corporation, WinSoft Corporation,
Hippeli Enterprises Inc., Stephen Brobst, Larry Tanning, Bipin Agarwal, Toni
Hippeli and AEA Tanning Investors Inc. ("AEA"). Except as set forth herein, all
---
terms used but not defined herein shall have the meanings ascribed to them in
the Stock Purchase Agreement.
1. Initial Purchase.
----------------
Pursuant to Exhibit 4 of the Stock Purchase Agreement, on the terms and
conditions contained in the Stock Purchase Agreement, at the Closing, AEA
(and/or its designee) will pay to New Tanning $9,076,910, and New Tanning will
issue and sell to AEA (and/or its designee) 92,730.716 shares of Class B Common
Stock of New Tanning (the "Initial AEA Shares").
------------------
2. Subsequent Purchases.
--------------------
At or prior to the four month anniversary of the Closing Date, AEA (and/or
its designee) shall purchase from New Tanning and New Tanning shall issue and
sell to AEA (and/or its designee), on the terms and conditions contained in the
Stock Purchase Agreement, 37,269.284 shares of Class B Common Stock of New
Tanning (which constitute the AEA Shares which AEA did not purchase at the
Closing, and which, taken together with the Initial AEA Shares, shall, when
issued, equal 32% of the issued and outstanding shares of common stock of New
Tanning) (the "Remaining AEA Shares"). AEA shall have the right to purchase
--------------------
such Remaining AEA Shares at such times and in such amounts as it determines
(provided that all such Remaining AEA Shares shall be purchased no later than
the four month anniversary of the Closing Date). The aggregate consideration
for such Remaining Shares shall equal $3,648,090. Such amount may be paid in
the form of cash or accounts receivable or rights to unbilled fees of New
Tanning or its predecessor (valued at face in all events). If the Remaining AEA
Shares are
<PAGE>
purchased in more than one transaction, such aggregate consideration shall be
allocated among purchases as determined by AEA. All references to the AEA Shares
in the Stock Purchase Agreement shall be deemed to refer to the Initial AEA
Shares and the Remaining AEA Shares.
3. Conditions to Closing.
---------------------
AEA hereby waives (i) compliance by Stephen Brobst with Section 5.9(d) of
the Stock Purchase Agreement, (ii) fulfillment of the condition set forth in
Section 6.3 of the Stock Purchase Agreement as it relates to the Lease Agreement
for Richfield Tower at Metropoint between HD Delaware Properties, Inc. and the
Company, and (iii) fulfillment of the condition set forth in Section 6.8 of the
Stock Purchase Agreement.
The Tanning Parties hereby waive fulfillment of the condition set forth in
Section 7.6 of the Stock Purchase Agreement.
4. NexTek.
------
Pursuant to Section 5.2(b) of the Stock Purchase Agreement, except as
agreed to in writing by AEA, from the date of the Stock Purchase Agreement to
the Closing, the Company and each Subsidiary agreed, and the Tanning Parties
agreed to cause the Company and each of the Subsidiaries, not to, inter alia,
effect any settlement or resolution of matters relating to NexTek. The Company
and each of the Tanning Parties hereby agree that such agreement shall survive
the Closing indefinitely.
Except as expressly modified hereby, all of the terms and provisions of the
Stock Purchase Agreement shall remain in full force and effect.
<PAGE>
Please indicate your agreement with the foregoing by signing below. This
letter agreement may be signed in any number of counterparts, each of which
shall be deemed an original, but all of which, when taken together, shall
constitute one instrument.
Sincerely,
Tanning Technology Group, L.L.C.
/s/ Toni Hippeli
------------------------------------
By: Toni Hippeli
Title: Manager
/s/ Larry Tanning
------------------------------------
Larry Tanning (for himself and on behalf of
Courtney Rose Corporation)
/s/ Bipin Agarwal
------------------------------------
Bipin Agarwal (for himself and on behalf of
WinSoft Corporation)
/s/ Toni Hippeli
------------------------------------
Toni Hippeli (for herself and on behalf of Hippeli
Enterprises, Inc.)
/s/ Stephen A. Brobst
------------------------------------
Stephen Brobst
AGREED AND ACCEPTED:
AEA Tanning Investors Inc.
/s/ Christopher P. Mahan
- -------------------------------
By: Christopher Mahan
Title: Vice President
<PAGE>
EXHIBIT 10.3
TANNING TECHNOLOGY CORPORATION
AMENDMENT NO. 1 TO
STOCK PURCHASE AGREEMENT
This Amendment (this "Amended Agreement") to the Stock Purchase
Agreement, dated as of December 24, 1996 and as supplemented by Letter Agreement
dated January 31, 1997 (the "Existing Agreement"), is entered into on this 9th
day of June 1998, by and among Tanning Technology Corporation, a Delaware
corporation (the "Company"), Courtney Rose Corporation, Winsoft Corporation, and
Hippeli Enterprises, Inc. (the "Original Members"), Stephen Brobst, Larry
Tanning, Bipin Agarwal, and Toni Hippeli (the "Principals"), each of AEA Tanning
Investors, Inc., TTC Investors I LLC, TTC Investors II LLC (the "Existing
Purchasers), and each of TTC Investors IA LLC and TTC Investors IIA LLC
(collectively, the "1998 Purchasers") (the Existing Purchasers and the 1998
Purchasers to be referred to herein as the "Purchasers" and each individually, a
"Purchaser").
RECITALS
WHEREAS, pursuant to the Existing Agreement, the Existing Purchasers
purchased and the Company sold 130,000 shares of Class B Common Stock; and
WHEREAS, in March 1997, the Company effected a 21.053 to 1 stock split
of its Class A Common Stock, Class B Common Stock and Class C Common Stock (the
"1997 Split"); and
WHEREAS, the Company has adopted and filed with the Secretary of State
of the State of Delaware a Certificate of Amendment to its Certificate of
Incorporation in the form set forth on Exhibit A, which authorized an increase
---------
in the number of Class B Common Stock to 15,204,450 shares and effected a 5 to 1
stock split of its Class A Common Stock, Class B Common Stock and Class C Common
Stock (the "1998 Split"); and
WHEREAS, the 1998 Purchasers desires to purchase and the Company
desires to sell to the 1998 Purchasers 1,520,000 shares of the Company's Class B
Common Stock (the "1998 Shares") pursuant to this Amended Agreement; and
WHEREAS, the parties hereto have agreed to amend the Existing
Agreement to provide for the purchase of the 1998 Shares by the 1998 Purchasers.
<PAGE>
AGREEMENT
In consideration of the mutual promises, covenants and conditions set
forth below, the parties mutually agree as follows:
I. TERMS USED
The term "Company" in the Existing Agreement shall refer to Tanning
Technology Corporation, a Delaware corporation, as successor in interest to
Tanning Technology Group, L.L.C., a Colorado limited liability company.
II. PURCHASE AND SALE OF STOCK
A. Certificate of Amendment. The Company shall have adopted and
------------------------
filed with the Secretary of State of Delaware on or before the Subsequent
Closing Date (as defined below), a Certificate of Amendment to its Certificate
of Incorporation ("Certificate of Amendment"), substantially in the form
attached hereto as Exhibit A, which, among other things, authorizes an increase
---------
in the number of shares of Class B Common Stock to 15,204,450 shares (which
increase reflects both the 1997 Split and the 1998 Split).
B. Issuance and Sale. Subject to the terms and conditions in this
-----------------
Amended Agreement, the Company shall issue and sell to the 1998 Purchasers at
the Subsequent Closing (as defined below) the 1998 Shares at a purchase price of
$1.25 per share.
111. CLOSING OF PURCHASE AND SALE
A. Subject to the conditions to closing set forth in the Existing
Agreement, as amended below, the consummation of the purchase and sale of the
1998 Shares shall take place (the "Subsequent Closing") at the offices of
Ireland, Stapleton, Pryor & Pascoe, P.C., 1675 Broadway, Suite 2600, Denver,
Colorado 80202, on the date of this Amended Agreement, at 9:00 a.m. or such
other place, date, and time as may be mutually agreed to by the Company and the
1998 Purchasers (the "Subsequent Closing Date").
B. At the Subsequent Closing, the parties hereto shall execute
counterpart signature pages to this Amended Agreement, Amendment No. 1 to the
Shareholders Agreement and Amendment No. 1 to the Registration Rights Agreement,
and the Company shall deliver to the 1998 Purchasers, upon tender of the
purchase price of U.S. $1,900,000.00 in the form of cash, check or wire-
transferred funds, certificates representing the 1998 Shares.
-2-
<PAGE>
IV. OTHER AGREEMENTS
A. The parties to the Existing Agreement hereby agree and acknowledge
that the terms and conditions (including all representations, warranties and
covenants) of the Existing Agreement remain in full force and effect.
B. The parties hereto acknowledge and agree that except for the
specific representations and warranties of the Company set forth on Exhibit B
---------
hereto, the representations and warranties of the Company, the Original Members
and the Principals contained in the Existing Agreement are made on and as of the
date of the Existing Agreement and the Closing Date only, and shall not be made
as of the date hereof.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to the Stock Purchase Agreement to be executed as of the day and year first
written above.
THE COMPANY TANNING TECHNOLOGY CORPORATION, a
Delaware corporation
By: /s/ Larry G. Tanning
----------------------------------
Its: President
----------------------------------
Address:
4600 South Ulster Street, Suite 380
Denver, Colorado 80237
1998 PURCHASERS: TTC INVESTORS IA LLC
By AEA Tanning Investors Inc.,
its managing member
By: /s/Christopher P. Mahan
----------------------------------
Name: Christopher Mahan
Title: Vice President
TTC INVESTORS IIA LLC
By AEA Tanning Investors Inc.,
its managing member
By: /s/Christopher P. Mahan
----------------------------------
Name: Christopher Mahan
Title: Vice President
ORIGINAL MEMBERS: COURTNEY ROSE CORPORATION
By: /s/Larry G. Tanning
----------------------------------
Name: Larry Tanning
Title: President
WINSOFT CORPORATION
-4-
<PAGE>
By: /s/Bipin Agarwal
----------------------------------
Name: Bipin Agarwal
Title: President
HIPPELI ENTERPRISES, INC.
By: /s/Toni Hippeli
----------------------------------
Name: Toni Hippeli
Title: President
PRINCIPALS:
/s/Stephen A. Brobst
----------------------------------
Stephen Brobst
/s/Larry Tanning
----------------------------------
Larry Tanning
/s/Bipin Agarwal
----------------------------------
Bipin Agarwal
/s/Toni Hippeli
----------------------------------
Toni Hippeli
EXISTING PURCHASERS: AEA TANNING INVESTORS INC.
By: /s/Christopher P. Mahan
------------------------------
Name: Christopher Mahan
Title: Vice President
TTC INVESTORS I LLC
By AEA Tanning Investors Inc.,
its managing member
By: /s/Christopher P. Mahan
------------------------------
Name: Christopher Mahan
Title: Vice President
-5-
<PAGE>
TTC INVESTORS II LLC
By AEA Tanning Investors Inc.,
its managing member
By: /s/Christopher P. Mahan
------------------------------
Name: Christopher Mahan
Title: Vice President
-6-
<PAGE>
EXHIBIT 10.21
LEASE AGREEMENT
FOR
RICHFIELD TOWER AT METROPOINT
DENVER, COLORADO
BETWEEN
HD DELAWARE PROPERTIES, INC.,
AS LANDLORD
AND
TANNING TECHNOLOGY CORPORATION
AS TENANT
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. BASIC LEASE PROVISIONS, EXHIBITS AND DEFINITIONS.......................1
2. DEMISE.................................................................4
3. BASE RENT..............................................................5
4. ADDITIONAL RENT........................................................5
5. CONSTRUCTION AND POSSESSION............................................5
6. OCCUPANCY OF PREMISES..................................................7
7. SERVICES PROVIDED BY LANDLORD..........................................7
8. REPAIRS................................................................9
9. ADDITIONS AND ALTERATIONS.............................................10
10. COVENANT AGAINST LIENS...............................................11
11. INSURANCE............................................................11
12. FIRE OR CASUALTY.....................................................12
13. WAIVER OF CLAIMS - INDEMNIFICATION...................................13
14. NONWAIVER............................................................14
15. CONDEMNATION.........................................................14
16. ASSIGNMENT AND SUBLETTING............................................15
17. SURRENDER OF POSSESSION..............................................15
18. PERSONAL PROPERTY....................................................16
19. HOLDING OVER.........................................................16
20. ESTOPPEL CERTIFICATE.................................................16
21. OBLIGATIONS TO MORTGAGEES............................................17
22. CERTAIN RIGHTS RESERVED BY LANDLORD..................................17
23. RULES AND REGULATIONS................................................19
24. DEFAULT AND REMEDIES.................................................19
25. EXPENSES OF ENFORCEMENT..............................................22
26. COVENANT OF QUIET ENJOYMENT..........................................22
27. SECURITY DEPOSIT.....................................................22
28. REAL ESTATE BROKER...................................................23
29. MISCELLANEOUS........................................................23
30. LIMITATIONS ON LANDLORD'S LIABILITY..................................26
- i -
<PAGE>
31. .....NOTICES.........................................................26
RIDER NO. 1 OPTION TO EXTEND
- ii -
<PAGE>
LEASE AGREEMENT
RICHFIELD TOWER AT METROPOINT
This LEASE AGREEMENT (this "Lease") is made as of the 31st day of January, 1995,
between HD DELAWARE PROPERTIES, INC., a Delaware corporation (the "Landlord"),
and TANNING TECHNOLOGY CORPORATION, a Colorado corporation, whose present
address Is 9025 East Kenyon Avenue, Suite 312, Denver, Colorado 80237 (the
"Tenant").
1. BASIC LEASE PROVISIONS, EXHIBITS AND DEFINITIONS
A. Basic Lease Provisions.
The following are certain basic lease provisions which are part of,
and in certain instances referred to in subsequent provisions of this
Lease:
(1) Term: Five (5) years and two (2) months, beginning on March 1,
1995 ("Commencement Date") or any deferred Commencement Date that
may apply under Exhibit C. When the Commencement Date has been
determined, Landlord and Tenant will execute a certificate
specifying same and the last day of the Term ("Termination
Date").
(2) Base Rent: Seventy-nine Thousand Five Hundred Forty-Two and
No/100 Dollars ($79,542.00) per annum (based on $20.25 per square
foot of the Rentable Area of the Premises per annum), payable in
equal monthly installments of Six Thousand Six Hundred Twenty-
Eight and 50/100 Dollars ($6,628.50).
(3) Operating Expense and Tax Base Amount: The amount of Operating
Expenses and Taxes payable during calendar year 1995.
(4) Permitted Use: General office use and for no other purpose.
(5) Rentable Area of the Premises: 3,928 square feet located on the
3rd floor, known as suite 380.
(6) Tenant's Proportionate Share: one and four hundred eighty-nine
thousandths percent (1.489%), subject to adjustment as provided
in Section 1C(12).
(7) Building Percentage: 100 percent (100%), subject to adjustment as
provided in Section 1C(4).
(8) Security Deposit: Six Thousand Six Hundred Twenty-Eight and
50/100 Dollars ($6,628.50).
(9) Broker: Andrew J. Clark.
B. Exhibits
The Exhibits listed below shall be attached to this Lease and be
deemed incorporated in this Lease by this reference. In the event of
any inconsistency between such Exhibits and the terms and provisions
of this Lease, the terms and provisions of the Exhibits shall control.
The Exhibits to this Lease are:
Exhibit A - Legal Description of the Land
Exhibit B - Plan Delineating the Premises
- 1 -
<PAGE>
Exhibit C - Tenant Construction Agreement.
Exhibit D - Rules and Regulations
Exhibit E - Parking
Rider No. 1 Option to Extend
C. Definitions.
In this Lease (including this Section) the following defined terms
have the meanings indicated:
(1) "Additional Buildings" means any and all buildings (other than
the Building) which may be constructed or located from time to
time on the Land.
(2) INTENTIONALLY OMITTED.
(3) "Building" means that fourteen floor office and commercial
building containing approximately 263,719 square feet of rentable
area commonly known as Richfield Tower at METROPOINT, 4600 South
Ulster Street, Denver, Colorado, located on the Land and in which
the Premises are located.
(4) "Building Percentage" means that percentage obtained from time to
time by dividing the Rentable Area of the Building by the sum of
the Rentable Area of the Building and the Rentable Area of those
portions of any Additional Buildings that are occupied by tenants
(provided, however, that at such time as eighty percent (80%) of
the Rentable Area of any Additional Building is occupied by
tenants, the full Rentable Area of such Additional Building shall
be included in the foregoing calculation). For any Calendar Year
in which the Rentable Area used to calculate the Building
Percentage changes, the Building Percentage shall be calculated
based on the average of such Rentable Area during such Calendar
Year, taking into account the date(s) on which the change occurs.
The Building Percentage shall initially be that percentage set
forth in Section 1A(9).
(5) "Calendar Year" means any twelve month period, January through
December, which contains any part of the Term of this Lease.
(6) "Complex" means the Land, the Building and all other Improvements
on the Land from time to time, including any variations or
additions thereto, but excluding the Additional Buildings.
(7) "Land" means the real property legally described on Exhibit A,
less any portion or portions thereof that may be conveyed
separately from the Building by Landlord from time to time, plus
any additional real property located proximate thereto that may
be operated in conjunction therewith by Landlord from time to
time.
(8) "Operating Expenses" means all expenses, costs and disbursements
(other than those expressly excluded below) of every kind and
nature paid or incurred by Landlord in owning, operating,
managing, leasing, equipping, securing, protecting, insuring,
heating, cooling, ventilating, lighting, repairing, replacing,
renewing, cleaning, maintaining, and providing water, sewer and
other utilities to, the
- 2 -
<PAGE>
Building plus the Building Percentage of such expenses, costs and
disbursements paid or incurred by Landlord with respect to the
Land, the parking structure and other improvements in the Complex
(exclusive of Additional Buildings). Operating Expenses shall not
include ground rent and principal and interest payments on loans
made to Landlord, costs required to be capitalized for federal
income tax purposes (except as provided below), leasing
commissions, "Taxes" (as defined in Section 1C(11) below), or
costs related solely to any Additional Buildings at the Complex;
however, Operating Expenses shall include costs required to be
capitalized for federal income tax purposes that are (i) incurred
in order to conform to changes subsequent to the date of this
Lease in any applicable laws, ordinances, rules, regulations or
orders of any governmental or quasi-governmental authority having
jurisdiction over the Complex, or (ii) intended to reduce
Operating Expenses or the rate of increase in Operating Expenses;
such costs shall be charged by Landlord to Operating Expenses in
equal annual installments over the useful life of the items for
which such costs are incurred (as reasonably determined by
Landlord) together with interest on the balance of the
unamortized cost at the rate stated by The First National Bank of
Chicago as its corporate base rate at the time each such cost was
incurred by Landlord.
(9) "Premises" means that portion of the Building identified as such
on Exhibit B and containing the Rentable Area set forth in
Section 1A(7). The Premises do not include, and Landlord hereby
excludes and reserves for its sole and exclusive use, any and
all: janitor closets, stairways and stairwells; fan, mechanical,
electrical, telephone and similar rooms (other than those
installed for Tenant's exclusive use); elevator, pipe and other
vertical shafts, flues and ducts; all areas above the acoustical
ceiling and below the finished floor covering installed in the
Premises; and other areas not shown on Exhibit B as being part of
the Premises.
(10) "Rentable Area" means area in square feet, calculated by
Landlord's architect, whose determination shall be conclusive.
(11) "Taxes" means all real estate and personal property taxes and
assessments (general, special or otherwise) and license fees,
levied or assessed by any federal, state, county or local
government or by any other taxing district or authority upon or
with respect to the Building, the maintenance equipment and
vehicles, elevators, building machinery and other personal
property owned or leased by Landlord and necessary for the
operation of the Building, plus the Building Percentage of such
real estate and personal property taxes and assessments upon or
with respect to the Land, the parking structure and other
improvements in the Complex and similar personal property
necessary for the operation of the Complex. Notwithstanding the
foregoing, Taxes shall not include taxes and assessments on the
improvements included in any Additional Buildings or any personal
property used solely in connection with any Additional Buildings.
Should any governmental authority having jurisdiction over the
Complex impose an income or franchise tax or a tax on rents in
substitution, in whole or in part, for such real estate or
personal property taxes or in lieu of any increase in such taxes,
such income, franchise or rent tax shall be deemed to constitute
Taxes
- 3 -
<PAGE>
hereunder. Taxes shall include all special taxes and special
assessments, installments of which are required to be paid during
any Calendar Year, and all fees and costs, including attorneys'
fees and expenses, incurred by Landlord in seeking to reduce, or
limit the increase in, any Taxes, regardless of whether any
reduction or limitation is obtained. All references to Taxes for
a particular year shall be deemed to refer to Taxes levied,
assessed or otherwise imposed for such year without regard to
when such Taxes are payable.
(12) "Tenant's Proportionate Share" means that percentage obtained
from time to time by dividing the Rentable Area of the Premises
by the Rentable Area of the Building. For any Calendar Year in
which the Rentable Area used to calculate the Tenant's
Proportionate Share changes, the Tenant's Proportionate Share
shall be calculated based on the average of such Rentable Area
during such Calendar Year, taking into account the date(s) on
which the change occurs. The Tenant's Proportionate Share shall
initially be that percentage set forth in Section 1A(8).
Notwithstanding the foregoing provisions, during any portion of
the Term that the Building is not fully occupied, the Tenant's
Proportionate Share with respect to those Operating Expenses
which are variable depending upon occupancy (such as janitorial
costs) shall be equitably adjusted so as to attribute to Tenant
its fair share of such variable Operating Expenses, but shall not
be adjusted with respect to any Operating Expenses which are not
variable depending upon occupancy (such as liability insurance
and landscape maintenance). If Landlord should lease any premises
in the Building on a net lease" or similar basis such that
Landlord is not obligated to furnish to the tenant(s) of such
premises any of the services described in Section 7, then, with
respect to those items of Operating Expenses that would have been
incurred by Landlord had Landlord been required to furnish all of
the services described in Section 7 to such premises, such
premises shall be deemed "unoccupied" for purposes of the
preceding sentence depending upon occupancy (such as liability
insurance and landscape maintenance).
(13) "Term" means the term of this Lease which shall commence on the
date set forth in Section 1A(1) or the later date to which such
commencement may be extended pursuant to Section 5C (the
"Commencement Date") and shall terminate on the date set forth in
Section 1A(2) or the later date to which such termination may be
extended pursuant to Section 5C (the "Termination Date"), unless
terminated earlier or extended further as provided in this Lease.
Certain additional defined terms are used in this Lease; such terms have
the meanings set forth in the sections of this Lease where the definitions of
such terms appear.
2. DEMISE
In consideration of the keeping, observance and performance by Tenant of
the provisions, covenants and agreements contained in this Lease and the
payment by Tenant of the rents herein reserved, Landlord hereby demises and
leases to Tenant and Tenant hereby takes from Landlord, the Premises for
the Term hereof, subject to the terms and conditions of this Lease and
existing covenants, conditions, restrictions, easements and encumbrances
affecting the same.
- 4 -
<PAGE>
3. BASE RENT
Commencing on the Commencement Date and thereafter during the Term, Tenant
covenants and agrees to pay the rent described in this Section 3 (the "Base
Rent") in accordance with the provisions hereof. Base Rent during each
Calendar Year shall be payable in monthly installments as set forth in
Section 1A(2), in advance on or before the first day of each and every
month during the Term. If the Term commences other than on the first day of
a month or ends other than on the last day of a month, Base Rent for such
month shall be prorated. Upon the execution hereof, Tenant shall pay the
monthly installment for the first full month of the Term for which Base
Rent is due. All payments of Base Rent and other "Rent" (as defined below)
shall be made at such place as Landlord may from time to time designate to
Tenant in writing, without any demand, set-off or deduction whatsoever.
Notwithstanding anything to the contrary contained herein, Landlord hereby
waives payment of Base Rent for the first two (2) months of the initial
Term of this Lease.
4. ADDITIONAL RENT
In addition to paying the Base Rent specified in Section 3 hereof, Tenant
shall pay as "Additional Rent" the amounts described in this Section 4. The
Base Rent, the Additional Rent and all other amounts payable by Tenant to
Landlord pursuant to this Lease are sometimes herein collectively referred
to as the "Rent."
Tenant shall pay to Landlord as Additional Rent an amount (the "Operating
Expense and Tax Escalation Amount") for each Calendar Year equal to the total of
the amount by which Tenant's Proportionate Share of Operating Expenses and Taxes
for such Calendar Year exceeds the Operating Expense and Tax Base Amount. The
Operating Expense and Tax Escalation Amount for each Calendar Year shall be paid
in estimated monthly installments. The amount of the estimated monthly
installments shall be reasonably estimated and adjusted from time to time by
Landlord by written notice to Tenant. As promptly as practicable following the
close of each Calendar Year, Landlord shall deliver to Tenant its statement
specifying the amount of Operating Expenses and Taxes for such Calendar Year,
the total estimated installments paid by Tenant for such Calendar Year and the
actual Operating Expense and Tax Escalation Amount for such Calendar Year. If
such statement shows that the actual Operating Expense and Tax Escalation Amount
exceeds the total estimated payments by Tenant, Tenant shall pay the deficiency
to Landlord within thirty (30) days after delivery of such statement. If such
statement shows that Tenant's estimated payments exceed the Operating Expense
and Tax Escalation Amount, the overage shall be credited against the next
accruing amounts due from Tenant under this Lease and the balance, if any, shall
be refunded to Tenant. All estimated monthly installments of Additional Rent due
under this Section shall be payable in advance, commencing on the Commencement
Date and thereafter on the first day of each and every month during the Term at
the same place as Base Rent. Tenant's obligation to pay the Additional Rent
provided for in this Section 4 which is accrued but not paid for periods prior
to the expiration or termination of the Term shall survive such expiration or
termination. For any Calendar Year which does not fall entirely within the Term,
Tenant shall be obligated to pay only a pro-rata share of the Operating Expense
and Tax Escalation Amount as hereinabove determined based on the number of days
of the Term falling within the Calendar Year in question.
5. CONSTRUCTION AND POSSESSION.
A. Landlord's Obligations
Landlord will proceed to complete the Premises in accordance with the
Tenant Construction Agreement attached hereto as Exhibit C and tender
the Premises to Tenant upon substantial completion of Landlord's
obligations thereunder. The Premises shall be accepted by Tenant when
tendered, provided the following conditions have been satisfied:
- 5 -
<PAGE>
(1) Those common areas of the Building necessary to permit Tenant's
safe occupancy and use of the Premises, including all building
systems necessary for the performance of Landlord's service
obligations under Section 7 hereof, shall be substantially
complete; and
(2) A Certificate of Occupancy or similar written approval shall have
been issued by the appropriate governmental authority permitting
occupancy of the Premises.
Landlord and Tenant agree that all alterations, improvements and additions made
to the Premises pursuant to the Tenant Construction Agreement, whether paid for
by Landlord or Tenant, shall without compensation to Tenant become Landlord's
property upon installation and shall remain Landlord's property at the
expiration of the Term or sooner termination of this Lease. period of such
occupancy prior to the scheduled Commencement Date at the rates set forth in
Section 3 and Section 4 hereof, pro-rated for the portion of Premises so
occupied. Under no circumstances shall the occurrence of any of the events
referred to in this Section 58 be deemed to accelerate the Termination Date.
C. Failure to Complete
If Landlord fails to substantially complete its obligations under the
Tenant Construction Agreement and tender the Premises to Tenant in
accordance with Section 5A on or before the originally scheduled
Commencement Date set forth in Section 1A(1), Landlord will not be in
default or liable in damages to Tenant, nor will the obligations of
Tenant hereunder be affected, provided, however, that:
(1) the Commencement Date shall automatically be extended by one day
for each day of the period beyond the date set forth in Section
1A(1) that Landlord fails to so substantially complete its
obligations, less any portion of that period attributable to
Tenant's delays as more particularly described in the Tenant
Construction Agreement, and the Termination Date shall
automatically be extended by the same number of days that the
Commencement Date is so extended (except that if such extension
would result in the Termination Date occurring on other than the
last day of a calendar month, the Termination Date shall be
extended by the additional number of days required in order for
the Termination Date to occur on the last day of a calendar
month); and
(2) if the full Premises are not tendered to Tenant in accordance
with Section 5A on or before the date 6 months after the date set
forth in Section 1A(1) (plus any period of delay caused by Tenant
as described in the Tenant Construction Agreement), Tenant shall
have the right to terminate this Lease and all obligations and
rights created hereby by delivering written notice of termination
to Landlord not more than thirty (30) days after such date.
Upon a termination under subparagraph (2) above, each party shall, upon the
other's request, execute and deliver an agreement in recordable form containing
a release and surrender of all right, title and interest in and to this Lease;
neither Landlord nor Tenant shall have any further obligations to each other,
including without limitation, any obligations to pay for work previously
performed in the Premises; all improvements to the Premises shall become and
remain the property of Landlord; and Landlord shall refund to Tenant any sums
paid to Landlord by Tenant in connection with this Lease, including without
limitation any payments to Landlord of construction costs for the Premises. Such
postponement of the commencement of the Term and such termination
- 6 -
<PAGE>
and refund right shall be in full settlement of all claims that Tenant might
otherwise have against Landlord by reason of the Landlord's failure to
substantially complete its obligations under the Tenant Construction Agreement
by the date set forth in Section 1A(1).
D. Punch List
The Tenant's taking possession of any portion of the Premises shall be
conclusive evidence that such portion of the Premises was in good
order and satisfactory condition when the Tenant took possession,
except as to items contained on a punch list to be prepared after an
inspection made and signed by representatives of Landlord and Tenant
when Tenant takes possession. Landlord shall not be responsible for
any items of damage caused by Tenant, its agents, independent
contractors or suppliers. No promise of the Landlord to alter, remodel
or improve the Premises or the Building or Complex and no
representation respecting the condition of the Premises or the
Building or Complex have been made by the Landlord to the Tenant other
than as may be contained in this Lease or in the Tenant Construction
Agreement.
6. OCCUPANCY OF PREMISES.
A. Use
Tenant shall use and occupy the Premises only for the use described in
Section 1A(6) (the "Tenant's Use").
B. Compliance
Tenant shall not use or permit the use of the Premises or the Complex
or any part thereof for any purpose prohibited by law. Tenant shall,
at its sole expense, comply with and conform to all of the
requirements of all governmental authorities having jurisdiction over
the Complex which relate in any way to the condition, use and
occupancy of the Premises (other than structural and system repairs as
described in Section 7A(1), which are the responsibility of the
Landlord) throughout the entire Term of this Lease.
7. SERVICES PROVIDED BY LANDLORD.
A. Description of Standard Services
Landlord will furnish for Tenant and the Premises, subject to the
other provisions of this Section 7, the following services:
(1) repair and maintenance of all structural elements of the Building
and all general mechanical and electrical systems installed in
the Building by Landlord, but excluding any systems installed in
the Premises for Tenant's exclusive use. The cost of such repair
and maintenance shall be included in Operating Expenses unless
otherwise provided in this Lease or unless caused by the act or
omission of Tenant, its agents, employees, contractors, licensees
or invitees, in which latter case such cost shall be paid by
Tenant within fifteen (15) days after written demand therefor;
(2) heating, ventilating and air conditioning (heating or cooling as
required by the seasons), without special request from Tenant,
from 8:00 a.m. to 6:00 p.m. on Monday through Friday, except
holidays, at temperatures and in amounts as may, in the sole
judgment of the Landlord, be reasonably required for comfortable
use and occupancy under normal business operations with
"Customary Office Equipment" (as used in this Lease, "Customary
Office Equipment" shall include typewriters, adding machines,
calculators, dictation recorders, small reproduction machines and
similar devices and
- 7 -
<PAGE>
equipment but shall not include any machines, devices or
equipment that adversely affect the temperature otherwise
maintained in the Premises such as, e.g., data processing,
computer or heavy-duty reproduction equipment). If Tenant shall
require such heat, ventilation or air conditioning outside the
hours and days specified above (the "After Hours HVAC"), Landlord
will furnish the same for the hours specified in a request from
Tenant (an "HVAC Request") and for this service Tenant will pay
Landlord, upon receipt of Landlords statement, the hourly rate
reasonably determined by Landlord from time to time; provided,
however, that Tenant shall not be required to pay any such charge
for heating, ventilation or air conditioning requested by Tenant
in an HVAC Request for the hours from 8:00 a.m. to 1:00 p.m. on
Saturdays (except holidays). Any HVAC Request by Tenant shall be
made in such a manner and at such time as Landlord may from time
to time establish for HVAC Requests, and Tenant acknowledges and
agrees that Landlord may require that HVAC Requests be made by
Tenant's authorized employees by direct code or card access to
the computer system controlling the Building's mechanical system.
As of the date of this Lease, Landlord's charge for After Hours
HVAC is thirty-five and No/100 Dollars ($35.00) per hour, with a
minimum charge of two (2) hours. Tenant acknowledges that
Landlord shall have the right to change such After Hours HVAC
rate from time to time as reasonably determined by Landlord;
(3) cold water for lavatory and toilet purposes, refrigerated water
for drinking purposes and tempered water for lavatory purposes;
all water service to be supplied from the regular supply of water
to the Building at points of supply provided for general use of
tenants of the Building through fixtures installed by Landlord;
(4) janitorial services to the Premises comparable to those
janitorial services provided to tenants of similar first-class
office buildings in the Denver metropolitan area;
(5) passenger elevators for access to and from the floor(s) on which
the Premises are located, shuttle elevators for access to the
parking garage, and freight elevator service but only when
scheduled through the manager of the Building;
(6) toilet facilities in common with other tenants on the floors
occupied by Tenant;
(7) electric lighting for all public areas and special service areas
of the Building as reasonable and standard for first-class office
buildings, including replacement of light bulbs and tubes;
(8) replacement of light bulbs in those Building standard lighting
fixtures installed in the Premises; and
(9) electrical current at the Building standard of 2 watts per
rentable square foot of the Premises for normal business
operations within the Premises for regular business hours during
a normal business week (including lighting for the Premises and
for Customary Office Equipment).
- 8 -
<PAGE>
B. Additional Services
Landlord shall not be obligated to furnish any services or utilities
other than those stated in Section 7A above. If Tenant should require
electric current, water or any other energy in excess of the amounts
provided by Landlord pursuant to Section 7A above, such excess
electric, water or other energy requirement shall be supplied only
with the consent of Landlord, which consent shall not be unreasonably
withheld. If Landlord grants such consent, Tenant shall, on demand,
pay all costs of meter service and installation of facilities
necessary to measure and furnish the required excess capacity. Tenant
shall also pay the entire cost of such additional electricity, water
or other energy so required in the event Tenant installs any machines,
equipment or devices in the Premises that do not constitute Customary
Office Equipment and such machines, equipment or devices cause the
temperature in the Premises, or any part thereof, to exceed the
temperatures the Building's mechanical system would be able to
maintain in the Premises were it not for such machines, equipment or
devices, then Landlord reserves the right to install supplementary air
conditioning units in the Premises, and the costs thereof, including
the cost of installation and the cost of operation and maintenance
thereof, shall be paid by Tenant to Landlord upon demand.
Notwithstanding anything to the contrary contained herein, if Tenant
should require electric current in excess of 2 watts per rentable
square foot of the Premises, and Landlord installs a submeter for the
Premises to measure such excess electricity use as set forth herein,
Landlord shall provide Tenant with a monthly cost summary detailing
Tenant's electrical usage based on Tenant's meter reading performed by
the Public Service Company of Colorado (or its successor) and Tenant
shall pay Landlord for such excess electrical use pursuant to such
summary upon receipt of invoice. Landlord, in its sole discretion,
shall have the right to, at all times, alter any and all utilities and
the equipment relating thereto.
C. Interruption of Services
Landlord does not warrant that the services provided for in this
Section 7 will be free from any irregularity or stoppage. Landlord
will use due diligence to resume the service upon any irregularity or
stoppage; provided, however, no irregularity or stoppage of any of
these services will create any liability for Landlord, constitute an
eviction, actual or constructive, of Tenant, or cause any abatement of
the Rent payable under this Lease or in any manner or for any purpose
relieve Tenant from any of its obligations under this Lease.
8. REPAIRS.
A. Repairs Within the Premises
Subject to the terms of Sections 7A(1), 12 and 15 hereof, Tenant
will, at Tenant's own expense, keep the Premises in good order, repair
and condition at all times during the Term. Except for damage caused
by Landlord, its employees, agents or contractors, Tenant shall
promptly and adequately repair all damage to the Premises and replace
or repair all damaged or broken fixtures and appurtenances, under the
supervision and subject to the approval of the Landlord. All work done
by Tenant or its contractors (which contractors shall be subject to
Landlord's reasonable approval and shall not conflict with any union
affiliation of Landlord's contractors) shall be done in a first-class
workmanlike manner using only, grades of materials at least equal in
quality to those which are included in Landlords standard improvements
for the Building and shall comply with all insurance requirements and
all applicable laws and ordinances and rules and regulations of
governmental departments or agencies. At Landlord's option, Landlord
may require that all work required
- 9 -
<PAGE>
to be performed by Tenant under this Section 8A be performed by
Landlord or Landlord's contractor at Tenant's expense, in which case
Tenant shall pay Landlord the cost of any such work, including an
amount sufficient to reimburse Landlord for overhead and related
expenses, forthwith upon being billed for the same as additional Rent
hereunder.
B. Landlord's Entry
If the Tenant fails to do so within a reasonable period of time or if
Landlord deems such action necessary because of an actual or suspected
emergency, Landlord may, but need not, make the repairs and
replacements described in Section 8A, and Tenant shall pay Landlord
the cost thereof, including an amount sufficient to reimburse Landlord
for overhead and related expenses, forthwith upon being billed for
same as additional Rent hereunder. Landlord may, but shall not be
required to, enter the Premises at all reasonable times on prior
notice (except in cases of actual or suspected emergency, in which
case no prior notice shall be required) for the purpose of inspecting,
repairing or maintaining the same. Landlord shall take reasonable
steps in connection with such entry to minimize any disruption to
Tenant's business or its use of the Premises.
C. Notice of Damage
Tenant shall give prompt notice to Landlord of (a) any fire or other
casualty in the Premises, (b) any damage to or defect in the Premises,
including the fixtures, equipment and appurtenances thereof, for the
repair of which Landlord might be responsible and (c) any damage to or
defect in any parts or appurtenances of the Building's sanitary,
electrical, heating, air conditioning, elevator or other systems
located in or passing through the Premises or any part thereof.
Landlord shall have no repair obligations whatsoever absent such
notice or actual knowledge of such condition.
9. ADDITIONS AND ALTERATIONS
Tenant shall not, without the prior written consent of Landlord,
make any alterations, improvements or additions to the Premises. If
Landlord consents to such alterations, improvements or additions, it may
impose such conditions with respect thereto as Landlord deems appropriate,
including, without limitation, requiring Tenant to furnish Landlord with
insurance against liabilities which may arise out of such work, security
for Tenant's obligations to pay for such work, plans and specifications for
Landlords approval prior to commencement of construction, copies of all
permits necessary for such work and "as built" plans after completion of
such work together with a complete breakdown of the cost of such work as
required for purposes of Landlord's insurance or self-insurance. The work
necessary to make any alterations, improvements or additions to the
Premises shall be done at Tenants expense by employees of or contractors
hired by Landlord. Tenant shall promptly pay, when due, the cost of all
such work and of all decorating required by reason thereof. Tenant shall
also pay to Landlord an amount sufficient, in Landlord's reasonable
judgment, to reimburse Landlord for all of its overhead and related
expenses allocable to such work. Upon completion, Tenant shall deliver to
Landlord, to the extent not previously received by Landlord, evidence of
payment, contractors' affidavits and full and final waivers of all liens
for labor, services or materials. All alterations, improvements and
additions to the Premises, whether temporary or permanent in character,
made or paid for by Landlord or Tenant shall without compensation to Tenant
become Landlord's property upon installation. All such alterations,
improvements and additions shall, unless Landlord had expressly requested
or approved their removal when Landlord consented to their installation (in
which case Tenant shall remove the same as provided in Section 17), remain
Landlord's property upon termination of this Lease by lapse of time or
otherwise
- 10 -
<PAGE>
and shall be relinquished to Landlord in good condition, ordinary wear and
tear excepted.
10. COVENANT AGAINST LIENS
Tenant covenants and agrees not to suffer or permit any lien of mechanics
or materialmen or others to be placed against the Complex or the Premises
with respect to work or services claimed to have been performed for or
materials claimed to have been furnished to Tenant or the Premises. In case
any such lien attaches, Tenant covenants and agrees to cause it to be
immediately released and removed of record, unless Tenant has a good faith
dispute as to the validity of such lien in which case Tenant may contest
such lien by appropriate proceedings so long as Tenant deposits with
Landlord a bond or other security in an amount reasonably acceptable to
Landlord which may be used by Landlord to release such lien if Tenant's
contest is abandoned or is unsuccessful. Upon final determination of any
permitted contest, Tenant shall immediately pay any judgment rendered and
cause the lien to be released.
11. INSURANCE.
A. Waiver of Subrogation
Landlord and Tenant each hereby waive any and every claim for recovery
from the other for any and all loss of or damage to the Complex or the
Premises or to the contents thereof, which loss or damage is of a type
insurable under "all risk" hazard insurance policies available at the
time such loss or damage was sustained. Inasmuch as this mutual waiver
will preclude the assignment of any such claim by subrogation (or
otherwise) to an insurance company (or any other person), Landlord and
Tenant each agree to give written notice of the terms of this mutual
waiver to each insurance company which has issued, or in the future
may issue, a policy of hazard insurance to such party. Each party
shall also have each such insurance policy properly endorsed, if
necessary, to prevent the invalidation of such insurance coverage by
reason of such waiver. If Landlord adopts a plan of self-insurance
with respect to those portions of the Building Landlord may be
obligated to repair or restore under Section 12A (and Landlord
reserves the right to adopt such a plan) Landlord's waiver of claims
contained in the first sentence of this paragraph will continue to be
effective as long as Tenant's waiver of subrogation remains in effect.
B. Coverage
Tenant agrees, at its cost, to obtain and keep in force during the
Term the following described insurance, provided that Landlord may
from time to time require reasonable increases in the limits set forth
below:
(1) Liability Insurance. Comprehensive general liability insurance
with combined single limits of not less than $2,000,000 for
personal injury and property damage occurring in or about or
related to the use of the Premises and assumed contractual
liability with respect to Tenant's obligations under Section 13,
and employer's liability Insurance with limits of at least
$500,000.
(2) Tenant's Personal Property. An "all risk" hazard insurance policy
in the amount equal to the full replacement cost of Tenant's
office furniture, trade fixtures, office equipment, merchandise
and all other items of Tenant's property on the Premises.
(3) Worker's Compensation and Tenant's Contractors. A worker's (or
workmen's) compensation insurance policy in at least the amount
required by law. In addition, Tenant shall require any of
Tenant's contractors that will perform work on the Premises to
deliver to
- 11 -
<PAGE>
Landlord, prior to the commencement of such work, certificates of
insurance evidencing that such contractors carry contractor's
liability insurance in the amount of at least $500,000 and
worker's (or workmen's) compensation insurance in at least the
amount required by law.
(4) Form of Policies. All policies evidencing the coverage required
under this Section 11B shall be issued by carriers with a rating
of A-VII or better by Best's Key Rating Guide and licensed to do
business in the State of Colorado and shall provide that (a) the
coverage is primary and non-contributing to any insurance that
may be carried by Landlord; (b) the coverage cannot be canceled,
modified, reduced, or otherwise materially changed except after
thirty (30) days' prior written notice to Landlord; and (c)
Landlord, Homart Holding Company of Delaware Inc., Homart
Development Co. and any other person or entity that Landlord may
designate from time to time as additional insureds (except that
such parties need not be so named in Tenant's worker's
compensation policy). Tenant shall furnish Landlord with true
copies of all policies or certificates of insurance evidencing
such coverage promptly on receipt.
C. Avoid Action Increasing Rates
Tenant shall comply with all applicable laws and ordinances, all
orders and decrees of court and all requirements of other governmental
authorities, and shall not, directly or indirectly, make any use of
the Premises which may thereby be prohibited or be dangerous to person
or property or which may jeopardize any insurance coverage, or may
increase the cost of insurance or required additional insurance
coverage. In no event shall Tenant permit in the Premises flammables
such as gasoline, turpentine, kerosene, naphtha and benzene, or
explosives or any other article of intrinsically dangerous nature, and
in no event shall Tenant, its agents, employees or invitees bring such
flammables or other articles into the Complex. If by reason of the
failure of Tenant to comply with the provisions of this Section 11C,
(i) any insurance coverage is jeopardized, Landlord shall have the
option to terminate this Lease or (ii) insurance premiums are
increased, Landlord may require Tenant to make immediate payment of
the increased insurance premium as additional Rent hereunder.
12. FIRE OR CASUALTY.
A. Restoration - Cancellation upon Major Damage
If the Premises or the Building shall be damaged by fire or other
casualty Landlord shall, promptly after learning of such damage,
notify Tenant in writing of Landlord's estimate of the time necessary
to repair or restore such damage. If Landlord reasonably estimates
that repair or restoration of all of such damage that was caused to
the Premises or to any other portion of the Building necessary for
Tenant's occupancy cannot be completed within one hundred eighty (180)
days from the date of such damage, then Tenant shall have the option
to terminate this Lease. If such damage, in Landlord's opinion, has
rendered all or a substantial portion of the Premises or the Building
untenantable, Landlord shall have the option to terminate this Lease.
Any option to terminate granted hereunder must be exercised by written
notice to the other party given within ten (10) days after Landlord
delivers to Tenant the notice of estimated repair time. If either
party exercises its option to terminate this Lease, the Term shall
expire and this Lease shall terminate ten (10) days after notice of
termination is delivered; provided, however, that Rent for the period
commencing on the date of such
- 12 -
<PAGE>
damage until the date this Lease terminates shall be reduced to the
reasonable value of any use or occupation of the Premises by Tenant
during such period. If neither party so terminates this Lease, then
Landlord shall repair and restore such damage with reasonable
promptness, subject to delays for insurance adjustments and delays
caused by matters beyond Landlord's control. Landlord shall have no
liability to Tenant and Tenant shall not be entitled to terminate this
Lease in the event such repairs and restoration are not in fact
completed within the time period estimated by Landlord.
B. Rent Abatement
In the event any fire or casualty damage renders the Premises
untenantable and if this Lease shall not be terminated pursuant to
Section 12A hereof by reason of such damage, then Rent shall abate
during the period beginning with the date of such damage and ending
with the date when Landlord has substantially completed its
obligations under this Section 12. Such abatement shall be in an
amount bearing the same ratio to the total amount of Rent for such
period as the untenantable portion of the Premises bears to the entire
Premises. In no event will Landlord be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in
any way from damage caused by fire or other casualty or the repair of
such damage, provided however that, to the extent Tenant remains in
possession of a portion of the Premises, Landlord will take all
reasonable steps to minimize the disruption to Tenant's business and
use of such portion of the Premises during the period of repair.
13. WAIVER OF CLAIMS - INDEMNIFICATION
(a) To the extent not prohibited by law, Landlord and its parent and
affiliated corporations, its and their partners, venturers, directors,
officers, agents, servants and employees shall not be liable for, and
Tenant waives all claims for, any damages to person or property, or
resulting from the loss of use thereof, or any loss of profits or damages
from business interruption, sustained by Tenant or by Tenant's officers,
agents, servants or employees due to the Building or the Complex or any
part thereof or any appurtenances thereof becoming out of repair, or due to
the happening of any accident or event in or about the Building or Complex,
or due to any act or neglect of any tenant or occupant of the Building or
Complex or of any other person. This provision shall apply particularly
(but not exclusively) to damage caused by gas, electricity, snow, frost,
steam, sewage, sewer gas or odors, fire, water or by the bursting or
leaking of pipes, faucets, sprinklers, plumbing fixtures, and windows, and
shall apply without distinction as to the person whose act or neglect was
responsible for the damage and whether the damage was due to any of the
causes specifically enumerated above or to some other cause of an entirely
different kind. Tenant further agrees that all personal property upon the
Premises, or upon loading docks, receiving and holding areas or parking
areas, of the Building or the Complex, shall be at the risk of Tenant only,
and that Landlord shall not be liable for any loss or damage thereto or
theft thereof. Without limitation of any other provisions hereof and to the
extent not prohibited by law, Tenant agrees to defend, protect, indemnity
and save harmless Landlord and its parent and affiliated corporations, its
and their partners, venturers, directors, officers, agents, servants and
employees from and against all fines, suits, costs, demands, actions,
judgments, claims, liabilities, losses, damages or expenses ("Liabilities")
made or asserted against or incurred by an Indemnitee and attributable to
the negligence, willful misconduct or breach of this Lease by Tenant or its
officers, servants, agents, employees, contractors, suppliers, workmen or
invitees. If any such proceeding is brought against an Indemnitee, Tenant
will retain counsel reasonably satisfactory to Landlord to defend the
Indemnitee at Tenant's sole cost and
- 13 -
<PAGE>
expense. All such costs and expenses, including attomeys' fees and court
costs, shall be a demand obligation owing by Tenant to Landlord. Tenant's
obligations under this Section shall survive the termination or expiration
of this Lease;
(b) Landlord will Indemnify and hold and save Tenant, its affiliates and
their respective Employees harmless from all Liabilities to the extent such
Liabilities shall arise directly and solely from Landlord's gross negligence or
intentional act or omission. If any such proceeding is brought against an
indemnitee, Landlord will retain counsel reasonably satisfactory to Tenant to
defend the indemnitee at Landlord's sole cost and expense. All such costs and
expenses, including reasonable attorneys' fees and court costs, shall be a
demand obligation owing by Landlord to Tenant. Landlord's obligations under this
Section shall survive the termination or expiration of this Lease.
14. NONWAIVER
No waiver of any provision of this Lease shall be implied by any failure of
Landlord to enforce any remedy on account of the violation of such
provision even if such violation be continued or repeated subsequently, and
no express waiver shall affect any provision other than the one specified
in such waiver and that one only for the time and in the manner
specifically stated.
15. CONDEMNATION
If the whole or substantially the whole of the Building, the Premises or
the parking facilities in the Complex is taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by
right of eminent domain or is sold to the condemning authority in lieu of
condemnation, then this Lease will terminate as of the date when physical
possession of the Building, the Premises or the parking facilities in the
Complex is taken by the condemning authority. If less than the whole or
substantially the whole of the Building, the Premises or the parking
facilities in the Complex is thus taken or sold and if, after such partial
taking, in Landlords' reasonable judgment, alteration or reconstruction of
the Complex is not economically justified, Landlord (whether or not the
Premises are affected thereby) may terminate this Lease by giving written
notice to Tenant within sixty (60) days after the taking. If over fifty
percent (50%) of the Premises is thus taken or sold, Tenant may terminate
this Lease if, and only if, in Tenant's reasonable judgment, the Premises
cannot be operated by Tenant in an economically viable fashion because of
such partial taking. Such termination by Tenant must be exercised by
written notice to Landlord given not later than sixty (60) days after
Tenant is notified of the taking of the Premises. Termination by Landlord
or Tenant shall be effective as of the date when physical possession of the
applicable portion of the Complex, the Building or the Premises is taken by
the condemning authority. If neither Landlord nor Tenant elects to
terminate this Lease upon a partial taking of a portion of the Premises,
the Rent payable under this Lease will be diminished by an amount allocable
to the portion of the Premises which was so taken or sold. If this Lease is
not terminated upon a partial taking, Landlord will, at Landlord's sole
expense, promptly restore and reconstruct the Complex, the Building and the
Premises to substantially their former condition to the extent that the
same may be feasible. Landlord in no event shall be required to spend for
such restoration or reconstruction an amount in excess of the net amount
received by Landlord as compensation or damages for the part of the
Complex, the Building or the Premises so taken. As between the parties to
this Lease, Landlord will be entitled to receive all of the compensation
awarded upon a taking of any part or all of the Complex, the Building or
the Premises including any award for the value of any unexpired term of
this Lease and Tenant will not be entitled to and expressly waives all
claim to any compensation for the unexpired term of this Lease. The
foregoing shall not in any way restrict Tenant from asserting a claim in a
separate proceeding against the condemning authority (if and to the extent
permitted by law) for any damages resulting from the taking of Tenant's
trade
- 14 -
<PAGE>
fixtures or for moving expenses or business relocation expenses incurred as
a result of such condemnation.
16. ASSIGNMENT AND SUBLETTING
Tenant shall not, without the prior written consent of Landlord, (i)
assign, convey or mortgage this Lease or any interest hereunder; (ii)
suffer to occur or permit to exist any assignment of this Lease, or any
lien upon Tenant's interest, voluntarily, involuntarily or by operation of
law; (iii) sublet the Premises or any part thereof; or (iv) permit the use
of the Premises by any parties other than Tenant and its employees. For
purposes of the preceding sentence, any change in ownership of Tenant or of
any guarantor of Tenant's obligations under this Lease (a "Guarantor")
shall be deemed to be an assignment of this Lease; a "change in ownership"
shall be deemed to have occurred (a)(i) for a publicly traded corporation,
when there is a change of effective control; (ii) for any other entity, in
the event of any circumstance where the voting interest of any party or
group of parties increases or decreases by more than one-third of the
entire voting interest; or (b) upon the distribution of over fifty percent
(50%) of any entity's assets, or if the value of assets sold (net of
undistributed consideration received) exceeds fifty percent (50%) of asset
value. Landlord's consent to any assignment, subletting or transfer shall
not constitute a waiver of Landlord's right to withhold its consent to any
future assignment, subletting or transfer.
Tenant shall give Landlord written notice of any proposed sublease or
assignment which notice shall contain the name of the proposed sublessee or
assignee and proposed principal terms thereof. With respect to any proposed
assignment of all of Tenant's interest under this Lease or any proposed sublease
of all of the Premises, which proposed assignment or sublease is to occur
subsequent to eighteen months after the Commencement Date, Landlord agrees that
it shall not unreasonably withhold its consent to such assignment or sublease;
provided, however, that reasonable grounds for the withholding of consent shall
include, without limitation, the proposed assignee's or subtenant's insufficient
financial capacity or business experience to perform Tenant's obligations under
this Lease or its poor business reputation.
Upon any assignment or subletting by Tenant, (i) the original Tenant and
any Guarantor shall not be released from any covenant or obligation under this
Lease, and (ii) Landlord shall be entitled to receive and collect, either from
Tenant or directly from the assignee or subtenant, all of the consideration, if
any, that the assignee or subtenant is required to pay for the use and enjoyment
of Tenant's rights under this Lease in addition to the amounts payable by Tenant
to Landlord hereunder (whether payable by such assignee or subtenant in monthly
installments, in a lump sum, or otherwise).
17. SURRENDER OF POSSESSION
Upon the expiration of the Term or upon the termination of Tenant's
right of possession, Tenant shall forthwith surrender the Premises to
Landlord in good order, repair and condition, ordinary wear and damage by
fire or other casualty excepted. All alterations, improvements and
additions to the Premises, made or paid for by Landlord or Tenant, shall
without compensation to Tenant become Landlord's property upon
installation. Except as provided in Section 9 to the contrary, all such
alterations, improvements and additions shall remain Landlord's property at
the termination of this Lease by lapse of time or otherwise and shall be
relinquished to Landlord in good condition, ordinary wear and damage by
fire or other casualty excepted. Tenant agrees to remove at the termination
of the Term or of its right of possession the following items of property:
office furniture, trade fixtures, office equipment and all other items of
Tenant's property or temporary improvements on the Premises, and Tenant
shall pay to Landlord upon demand the cost of repairing any damage to the
Premises and to the Building caused by any such removal. If Tenant shall
fail or
- 15 -
<PAGE>
refuse to remove any such property from the Premises, Tenant shall be
conclusively presumed to have abandoned the same, and title thereto shall
thereupon pass to Landlord without any cost either by set-off, credit,
allowance or otherwise, and Landlord may at its option accept the title to
such property or at Tenant's expense may (i) remove the same or any part in
any manner that Landlord shall choose, and (ii) store, destroy or otherwise
dispose of the same without incurring liability to Tenant or any other
person.
18. PERSONAL PROPERTY.
A. Responsibility
Tenant shall be solely responsible for all costs and expenses related
to personal property used or stored in the Premises. Without limiting
the foregoing, Tenant shall pay any taxes or other governmental
impositions levied upon or assessed against such personal property, or
upon Tenant for the ownership or use of such personal property, on or
before the due date for payment thereof. Such personal property taxes
or impositions are not included in Taxes or the Tax Base Amount.
B. Landlord's Lien
In addition to any statutory landlord's lien and in order to secure
payment of all Rent and other sums of money becoming due from Tenant,
and to secure payment of any damages or loss which Landlord may suffer
by reason of the breach by Tenant of any covenant, agreement or
condition contained in this Lease, Tenant hereby grants to Landlord a
security interest in and an express contractual lien upon all goods,
wares, equipment, fixtures, furniture, improvements and other personal
property of Tenant presently or which may hereafter be situated on the
Premises and all Proceeds therefrom. Tenant's Personal property may
not be removed from the Premises without Landlord's consent until all
arrearages in Rent as well as any and all other sums of money then due
to Landlord have been paid and all the Covenants, agreements and
conditions imposed upon Tenant have been fully Complied with and
performed by it. Upon the occurrence of an "Event of Default" (as
defined in Section 24A), in addition to any other available remedies,
Landlord shall have all the rights of a secured party under the
Colorado Uniform Commercial Code with respect to the property covered
by the security interest herein granted. Upon request by Landlord,
Tenant agrees to execute and deliver to Landlord such financing
statements as may be required to perfect the security interest of
Landlord in the aforementioned Property and proceeds thereof.
19. HOLDING OVER
If Tenant shall hold over after the expiration of the Term or of Tenant's
right of possession, without written agreement providing otherwise, Tenant
shall be deemed to be a tenant from month to month, at a monthly Base Rent,
payable in advance, equal to two hundred percent (200%) of monthly Base
Rent payable during the last year of the Term, and Tenant shall be bound by
all of the other terms, covenants and agreements of this Lease as the same
may apply to a month-to-month tenancy. Nothing contained herein shall be
Construed to give Tenant the right to hold over at any time, and Landlord
may exercise any and all remedies at law or in equity to recover possession
of the Premises, as well as any damages incurred by Landlord, due to
Tenant's failure to vacate the Premises and deliver possession to Landlord
as herein provided.
20. ESTOPPEL CERTIFICATE
Tenant agrees that from time to time upon not less than ten (10) days'
prior request by Landlord, Tenant will deliver to Landlord a statement in
writing certifying (i) that this Lease is unmodified and in full force and
effect (or if there have been modifications that the Lease as modified is
in full
- 16 -
<PAGE>
force and effect); (ii) the dates on which the Commencement Date occurred
and the Termination Date will occur; (iii) the dates on which Tenant began
paying Rent and that no Rent has been paid in advance of the required
payment dates; (iv) that neither the Tenant nor the Landlord is in default
under any provision of this Lease, or, if a default exists, the nature
thereof in detail; (v) that Tenant has no existing defenses or off-sets to
the enforcement of the Lease or, if any, specifying same; and (vi) provided
such events have occurred, that Tenant has accepted and occupied the
Premises and that the Premises have been completed in accordance with the
terms hereof. It is intended that any such statement may be relied upon by
any prospective purchaser or tenant of the Building, any mortgage or
prospective mortgagees thereof, or any prospective assignee of any mortgage
thereon.
21. OBLIGATIONS TO MORTGAGEES.
A. Subordination
At Landlord's option, this Lease may be made subject and subordinate
to future ground or underlying leases of the Land and to the lien of
any mortgages or trust deeds, hereafter in force against the Land,
Complex or Building, or any of them, and to all renewals, extensions,
modifications, consolidation and replacements thereof, and to all
advances made or hereafter to be made upon the security of such
mortgages or trust deeds. Tenant shall at Landlord's request execute
such further instruments or assurances as Landlord may reasonably deem
necessary to evidence or confirm the subordination of this Lease to
any such mortgages, trust deeds, ground leases or underlying leases,
or, if requested by any mortgagee or ground lessor, to make Tenant's
interest in this Lease superior to the interest of such mortgagee or
ground lessor. It is further agreed that upon the request of the
mortgagee or trustee, if the mortgage or trust deed shall be
foreclosed, or the transferee if the Building shall be conveyed in
lieu of foreclosure, Tenant will attorn, as Tenant under this Lease,
to the purchaser at any foreclosure sale or transferee under such
conveyance, or upon request of the ground lessor, if any ground or
underlying lease shall be terminated, Tenant will attorn, as Tenant
under this Lease, to the ground lessor, and, in either case, Tenant
will execute such instruments as may be necessary or appropriate to
evidence such attornment.
B. Notice to Landlord and Mortgagee
In the event of any act or omission by Landlord which would give
Tenant the right to damages from Landlord or the right to terminate
this Lease, Tenant will not sue for such damages or exercise any such
right to terminate until (i) it shall have given written notice of the
act or omission to Landlord and to the holder(s) of the indebtedness
or other obligations secured by any mortgage or deed of trust
affecting the Premises or of any ground or underlying lease, if the
name and address of such holder(s) have been furnished to Tenant, and
(ii) the lesser of thirty (30) days or the applicable grace period
hereunder for remedying the act or omission has elapsed following the
giving of the notice, during which time Landlord and such holder(s),
or either of them, their agents or employees, will be entitled to
enter upon the Premises and do therein whatever may be necessary to
remedy the act or omission.
22. CERTAIN RIGHTS RESERVED BY LANDLORD
Landlord shall have the following rights, each of which Landlord may
exercise without notice to Tenant (except as expressly provided below) and
without liability to Tenant for damage or injury to property, person or
business on account of the exercise thereof, and the exercise of any such
rights shall not be deemed to constitute an eviction or disturbance of
Tenant's use or possession of the Premises and shall not give rise to any
claim for set-off or abatement of rent or any other claim, provided,
however,
- 17 -
<PAGE>
that Landlord takes reasonable steps to minimize any disruption to Tenant's
business or use of the Premises:
(1) to change the name or street address of the Complex or the
Building, with notice to Tenant;
(2) to install, affix and maintain any and all signs on the exterior
and on the interior of the Building or anywhere on Land or in the
Complex (and Tenant agrees not to place or maintain any sign or
other advertising matter outside the Premises or inside the
Premises so as to be visible from outside the Premises);
(3) to decorate or to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the
Building or Complex, or any part thereof, and for such purposes
to enter upon the Premises, and, during the continuance of any of
such work, to temporarily close doors, entryways, public space
and corridors in the Building and to interrupt or temporarily
suspend services or use of facilities, all without affecting any
of Tenant's obligations hereunder, so long as Landlord has given
Tenant reasonable prior notice of any such actions in the
Premises (provided, however, that no such prior notice shall be
required in the case of emergency or suspected emergency).
Landlord shall take reasonable steps in connection with such
actions to minimize any disruption to Tenant's business or its
use of the Premises;
(4) to the extent permitted by law, to retain at all times, and to
use in appropriate instances, keys to all doors within and into
the Premises. Tenant agrees to purchase only from Landlord
additional duplicate keys as required, to change no locks, and
not to affix locks on doors without the prior written consent of
Landlord (notwithstanding the provisions for Landlord's access to
portions of the Premises, Tenant relieves and releases the
Landlord of all responsibility arising out of theft, robbery and
pilferage). Upon the expiration of the Term or of Tenant's right
to possession, Tenant shall return all keys to Landlord and shall
disclose to Landlord the combination of any safes, cabinets or
vaults left in the Premises;
(5) to designate Building standard window coverings for all windows
in the Building and to designate and approve, prior to
installation, all types of additional window shades, blinds or
draperies, if any;
(6) to approve the weight, size and location of safes, vaults and
other heavy equipment and articles in and about the Premises and
the Building (so as not to exceed the legal live load per square
foot designated by the structural engineers for the Building),
and to require all such items and furniture and similar items to
be moved into or out of the Building and Premises only at such
times and in such manner as Landlord shall direct in writing.
Movements of Tenant's property into or out of the Building and
within the Building are entirely at the risk and responsibility
of Tenant and Landlord reserves the right to require permits
before allowing any property to be moved into or out of the
Building;
(7) to show the Premises to prospective tenants at reasonable hours
and upon reasonable notice, which such notice may be given by
- 18 -
<PAGE>
telephone to Tenant's office manager or via facsimile
transmission during the last six months of the Term; and
(8) to erect, use and maintain unexposed pipes, ducts, wiring and
conduits, and appurtenances thereto, in and through the Premises.
23. RULES AND REGULATIONS
Tenant covenants and agrees to keep and observe the rules and regulations
attached to this Lease as Exhibit D and made a part hereof. Landlord shall
have the right from time to time to amend such rules and regulations and to
prescribe additional rules and regulations which, in its sole judgment, may
be desirable for the use, entry, operation and management of the Premises,
the Building and the Complex, each of which additional rules and
regulations shall be come a part of this Lease. Tenant shall comply with
such rules and regulations provided, however, that such rules and
regulations shall not contradict or abrogate any right or privilege herein
expressly granted to Tenant.
24. DEFAULT AND REMEDIES.
A. Events of Default
Each of the following shall constitute an "Event of Default" under
this Lease:
(1) Failure to Pay Rent or Other Amounts. If Tenant fails to pay when
due, Base Rent, Additional Rent, or any other Rent or amounts
payable by Tenant under the terms of this Lease, and such failure
shall continue for five (5) days after written notice from
Landlord to Tenant of such failure, provided however, that with
respect to Base Rent and Additional Rent, Tenant shall not be
entitled to more than two notices of such failure during any
Calendar Year and if, after two such notices are given in any
Calendar Year, Tenant fails, during such Calendar Year, to pay
any such amounts when due, such failure shall constitute an Event
of Default without further notice by Landlord or additional cure
period.
(2) Violation of Lease Terms. If Tenant breaches or fails to comply
with any provision of this Lease applicable to Tenant, and such
breach or failure to comply is not covered by the provisions of
Section 24A(1) above and continues for a period of twenty (20)
days after notice thereof by Landlord to Tenant, or, if such
breach or failure to comply cannot be reasonably cured within
such twenty (20)-day period, if Tenant shall not in good faith
commence to cure such breach or failure to comply within such
twenty (20)-day period or shall not diligently complete such cure
within sixty (60) days after such notice from Landlord; provided,
however, that if such breach or failure to comply causes or
results in (i) a dangerous condition on the Premises, Building or
Complex, (ii) any insurance coverage carried by Landlord or
Tenant with respect to the Premises, Building or Complex being
jeopardized, or (iii) a material disturbance to another tenant of
the Complex, then an Event of Default shall exist if such breach
or failure to comply is not cured as soon as reasonably possible
after notice thereof by Landlord to Tenant, and in any event is
not cured within thirty (30) days after such notice. For purposes
of this Section 24A(2), financial inability shall not be deemed a
reasonable ground for failure to immediately cure any breach of,
or failure to comply with, the provisions of this Lease.
(3) Nonoccurrence of Demised Premises. If Tenant shall fail to occupy
and use the Premises within fifteen (15) days after commencement
of
- 19 -
<PAGE>
the Term or shall leave the Premises unoccupied for fifteen (15)
consecutive days or shall vacate and abandon the Premises.
(4) Transfer of Interest Without Consent. If Tenant's interest under
this Lease or in the Premises shall be transferred to or pass to
or devolve upon any other party in violation of the provisions of
Section 16.
(5) Execution and Attachment Against Tenant. If Tenant's interest
under this Lease or in the Premises shall be taken upon execution
or by other process of law directed against Tenant, or shall be
subject to any attachment at the instance of any creditor or
claimant against Tenant and said attachment shall not be
discharged or disposed of within fifteen (15) days after the levy
thereof.
(6) Bankruptcy or Related Proceedings. If Tenant shall file a
petition in bankruptcy or insolvency or for reorganization or
arrangement under the bankruptcy laws of the United States or
under any similar act of any state, or shall voluntarily take
advantage of any such law or act by answer or otherwise, or shall
be dissolved or shall make an assignment for the benefit of
creditors or if involuntary proceedings under any such bankruptcy
or insolvency law or for the dissolution of Tenant shall be
instituted against Tenant or a receiver or trustee shall be
appointed for the Premises or for all or substantially all of the
property of Tenant, and such proceedings shall not be dismissed
or such receivership or trusteeship vacated within sixty (60)
days after such institution or appointment.
B. Landlord's Remedies
Time is of the essence hereof. Upon the occurrence any Event of
Default, Landlord shall have the right, at Landlord's election, then
or at time thereafter, to exercise any one or more of the following
remedies:
(1) Cure by Landlord. Upon an Event of Default, Landlord may, at
Landlord's option, but without obligation to do so, and without
releasing Tenant from any obligations under this Lease, make any
payment or take any action as Landlord may deem necessary or
desirable to cure any such Event of Default in such manner and to
such extent as Landlord may deem necessary or desirable. Landlord
may do so without demand on, or written notice to, Tenant and
without giving Tenant an opportunity to cure such Event of
Default. Tenant covenants and agrees to pay to Landlord, within
ten (10) days after demand, all advances, costs and expenses of
Landlord in connection with the making of any such payment or the
taking of any such action, including reasonable attorney's fees,
together with interest at the rate described in Section 29B, from
the date of payment of any such advances, costs and expenses by
Landlord.
(2) Termination of Lease and Damages. Upon an Event of Default,
Landlord may terminate this Lease, effective at such time as may
be specified by written notice to Tenant, and demand (and, it
such demand is refused, recover) possession of the Premises from
Tenant. Tenant shall remain liable to Landlord for damages in an
amount equal to the Base Rent, Additional Rent and other Rent and
sums which would have been owing by Tenant hereunder for the
balance of the Term, had this Lease not been terminated, less the
net proceeds, if any, of any reletting of the Premises by
Landlord
- 20 -
<PAGE>
subsequent to such termination, after deducting all Landlord's
expenses in connection with such recovery of possession or
reletting. Landlord shall be entitled to collect and receive such
damages from Tenant on the days on which the Base Rent,
Additional Rent and other Rent and amounts would have been
payable if this Lease and not been terminated. Alternatively, at
the option of Landlord, Landlord shall be entitled to recover
forthwith from Tenant, as damages for loss of the bargain and not
as a penalty, an aggregate sum which, at the time of such
termination of this Lease, represents the present value of the
excess, if any of (a) the aggregate of the Base Rent, Additional
Rent and all other Rent and sums payable by Tenant hereunder that
would have accrued for the balance of the Term (such aggregate
shall be calculated by assuming that the monthly installment of
Additional Rent due for the month in which termination occurs
shall remain the same for the balance of the Calendar Year in
which termination occurs and that the total amount of Additional
Rent payable for the succeeding Calendar Years remaining in the
Term if this Lease had not been terminated shall increase by
eight percent (8%) per Calendar Year over the amount of
Additional Rent payable for the Calendar Year in which
termination occurs), over (b) the amount, if any, of such Base
Rent, Additional Rent and other Rent and sums which Tenant
establishes Landlord can reasonably expect to recover by
reletting the Premises for the remainder of the Term, taking into
consideration loss of rent while finding a new tenant, tenant
improvements and rent abatements necessary to secure a new
tenant, leasing brokers' commissions and other costs which
Landlord might incur in leasing the Premises to a new tenant plus
any other sum of money and damages owed by Tenant to Landlord for
events or actions occurring prior to the date of termination.
Such present value shall be calculated at the rate commonly
called the discount rate for ninety (90)-day commercial paper in
effect at the Federal Reserve Bank of Chicago on the date of
termination of this Lease.
(3) Repossession and Reletting. Upon an Event of Default, Landlord
may reenter and take Possession of the Premises or any part
thereof, without demand or notice, and repossess the same and
expel Tenant and any party claiming by, under or through Tenant,
and remove the effects of both using such force for such purposes
as may be necessary, without being liable for prosecution on
account thereof or being deemed guilty of any manner of trespass,
and without prejudice to any remedies for arrears of rent or
right to bring any proceeding for breach of covenants or
conditions. No such reentry or taking possession of the Premises
by Landlord shall be construed as an election by Landlord to
terminate this Lease unless a written notice of such intention is
given to Tenant. No notice from Landlord hereunder or under a
forcible entry and detainer statute or similar law shall
constitute an election by Landlord to terminate this Lease unless
such notice specifically so states. Landlord reserves the right,
following any reentry or reletting, to exercise its right to
terminate this Lease by giving Tenant such written notice, in
which event the Lease will terminate as specified in said notice.
After recovering possession of the Premises, Landlord may, from
time to time, but shall not be obligated to, relet the Premises,
or any part thereof, for the account of Tenant, for such term or
terms and on such conditions
- 21 -
<PAGE>
and upon such other terms as Landlord, in its discretion, may
determine Landlord may make such repairs, alterations or
improvements as Landlord may consider appropriate to accomplish
such reletting, and Tenant shall reimburse Landlord upon demand
for all costs and expenses, including attorneys' fees, which
Landlord may incur in connection with such reletting. Landlord
may collect and receive the rents for such reletting but Landlord
shall in no way be responsible or liable for any failure to relet
the Premises, or any part thereof, or for many failure to collect
any rent due upon such reletting. Notwithstanding Landlords
recovery of possession of the Premises, Tenant shall continue to
pay on the dates herein specified, the Base Rent, Additional Rent
and other Rent and amounts which would be payable hereunder if
such repossession had not occurred, less a credit for the net
amounts, if any, actually received by Landlord through any
reletting of the Premises.
(4) Landlord's Bankruptcy Remedies. Nothing contained in this Lease
shall limit or prejudice the right of Landlord to prove and
obtain as liquidated damages in any bankruptcy, insolvency,
receivership, reorganization or dissolution proceeding, an amount
equal to the maximum allowable by any statute or rule or law
governing such proceeding in effect at the time when such damages
are to be proved, whether or not such amount be greater, equal or
less than the amounts recoverable, either as damages or rent,
under this Lease.
Exercise of any of the remedies of Landlord under this Lease shall not
prevent the concurrent or subsequent exercise of any other remedy provided for
in this Lease or otherwise available to Landlord at law or in equity.
25. EXPENSES OF ENFORCEMENT
Tenant shall pay upon demand all Landlord's costs, charges and expenses,
including the fees and out-of-pocket expenses of counsel, agents and others
retained by Landlord, incurred in successfully enforcing Tenant's
obligations hereunder. Landlord shall pay upon demand all Tenants costs,
charges and expenses, including the fees and out-of-pocket expenses of
counsel, agents and others retained by Tenant, incurred in successfully
enforcing Landlord's obligations hereunder.
26. COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved, and, on keeping, observing and
performing all the other terms, covenants, conditions, provisions and
agreements herein contained on the part of Tenant to be kept, observed, and
performed, shall, during the Term, have quiet and peaceable possession of
the Premises subject to the terms, covenants, conditions, provisions, and
agreements hereof, and such possession shall not be disturbed by Landlord
or by any person claiming by, through or under Landlord.
27. SECURITY DEPOSIT
Tenant hereby deposits with Landlord as the "Security Deposit" the amount
set forth in Section 1A(10) as security for the prompt, full and faithful
performance by Tenant of each and every provision of this Lease and of all
obligations of Tenant hereunder.
(1) If Tenant fails to perform any of its obligations hereunder,
Landlord may use, apply or retain the whole or any part of the
Security Deposit for the payment of (i) any Rent or other sums of
money which Tenant may not have paid when due, (ii) any sum
expended by Landlord on Tenant's behalf in accordance with the
provisions of
- 22 -
<PAGE>
this Lease, or (iii) any sum which Landlord may expend or be
required to expend by reason of Tenant's default, including,
without limitation, any damage or deficiency in or from the
reletting of the Premises as provided in Section 24. The use,
application or retention of the Security Deposit, or any portion
thereof, by Landlord shall not prevent Landlord from exercising
any other right or remedy provided by this Lease or by law (it
being intended that Landlord shall not first be required to
proceed against the Security Deposit) and shall not operate as a
limitation on any recovery to which Landlord may otherwise be
entitled. If any portion of the Security Deposit is used, applied
or retained by Landlord for the purposes set forth above, Tenant
agrees, within ten (10) days after the written demand therefor is
made by Landlord, to deposit cash with the Landlord in an amount
sufficient to restore the Security Deposit to its original
amount.
(2) If Tenant shall fully and faithfully comply with all of the
provisions of this Lease, the Security Deposit, or any balance
thereof, shall be returned to Tenant without interest within
sixty (60) days after the expiration of the Term or after the
date on which Tenant vacates the Premises, whichever shall occur
last. In the absence of evidence satisfactory to Landlord of any
permitted assignment of the right to receive the Security
Deposit, or of the remaining balance thereof, Landlord may return
the same to the original Tenant, regardless of one or more
assignments of Tenant's interest in this Lease or the Security
Deposit. In such event, upon the return of the Security Deposit,
or the remaining balance thereof, to the original Tenant,
Landlord shall be completely relieved of liability under this
Section 27 or otherwise with respect to the Security Deposit.
(3) Tenant acknowledges that Landlord has the right to transfer its
interest in the Land and Building and in this Lease and Tenant
agrees that in the event of any such transfer, Landlord shall
have the right to transfer the Security Deposit to the
transferee. Upon written acknowledgment of transferee's receipt
of such Security Deposit, Landlord shall thereby be released by
Tenant from all liability or obligation for the return of such
Security Deposit and Tenant agrees to look solely to such
transferee for the return of the Security Deposit.
28. REAL ESTATE BROKER
The Tenant represents that the Tenant has dealt with no broker in
connection with this Lease other than the broker or brokers, if any, named
in Section 1A(11) and that insofar as the Tenant knows, no other broker or
finder negotiated this Lease or is entitled to any commission or fee in
connection herewith. Tenant agrees to indemnify, defend and hold Landlord
free and harmless from and against all claims for broker's commissions or
finder's fees by any person claiming to have been retained by Tenant in
connection with this transaction, other than the broker or brokers, if any,
named in Section 1A(11).
29. MISCELLANEOUS.
A. Rights Cumulative
All rights and remedies of the parties under this Lease shall be
cumulative and none shall exclude any other rights and remedies
allowed by law.
B. Late Payment Penalty and Interest
Tenant covenants and agrees to pay to Landlord a late payment
penalty for any installment of Base Rent or
- 23 -
<PAGE>
Additional Rent that Tenant fails to pay when due in an amount equal
to the greater of One Hundred and No/100 Dollars ($100.00) or five
percent (5%) of such installment provided that no such late payment
penalty shall be due in the event payment of such installment of Base
Rent or Additional Rent is made by Tenant within five (5) days after
written notice from Landlord to Tenant of Tenant's failure to pay such
rent when due. In addition, all Rent and other payments due hereunder
shall upon becoming due under this Lease and remaining unpaid when due
bear interest until paid at the rate of eighteen percent (18%) per
annum, compounded monthly.
C. Binding Effect
Each of the provisions of this Lease shall extend to and shall, as the
case may require, bind or inure to the benefit not only of Landlord
and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant
contrary to the provisions of Section 16 hereof.
D. Lease Contains All Terms
All of the representations and obligations of the parties are
contained herein and no modification, waiver or amendment of this
Lease or of any of its conditions or provisions shall be binding upon
a party unless in writing signed by such party.
E. Delivery for Examination
Submission of the form of the Lease for examination shall not bind
Landlord in any manner, and no Lease or obligations of the Landlord
shall arise until this instrument is signed by both Landlord and
Tenant and delivery is made to each.
F. No Air Rights
No rights to any view or to light or air over any property, whether
belonging to Landlord or any other person, are granted to Tenant by
this Lease.
G. Modification of Lease
If any tender, purchaser or ground lessor requires, as a condition
to its lending funds or purchasing an interest in the Land, that
certain modifications be made to this Lease, which modifications will
not require Tenant to pay any additional amounts or otherwise change
materially the rights or obligations of Tenant hereunder, Tenant
shall, upon Landlord's request, execute appropriate instruments
effecting such modifications.
H. Substitution of Premises
At any time hereafter, Landlord may (upon thirty (30) days prior
notice) substitute for the Premises other premises in the Building or
the Additional Buildings (hereinafter referred to as the "New
Premises") provided that the New Premises shall be similar to the
Premises in area and usable for Tenant's purpose. If Tenant is already
in occupancy of the Premises, then Landlord shall also pay the
reasonable expenses of Tenant's moving from the Premises to the New
Premises and for improving the New Premises so that they are
substantially similar to the Premises. Such move shall be made during
evenings, weekends or otherwise so as to incur the least inconvenience
to Tenant.
I. Transfer of Landlord's Interest
Tenant acknowledges that Landlord has the right to transfer its
interest in the Land and Building and in this Lease, and Tenant agrees
that in the event of any such transfer Landlord shall automatically be
released from all liability under this Lease relating to periods after
the date of such transfer and Tenant agrees to look solely to such
transferee for the performance of Landlord's obligations hereunder
relating to periods after the date of such transfer.
- 24 -
<PAGE>
J. Prohibition Against Recording
Neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on behalf of Tenant, and the recording thereof in
violation of this provision shall make this Lease voidable at
Landlord's election.
K. Captions
The captions of Sections and subsections are for convenience only and
shall not be deemed to limit, construe, affect or alter the meaning of
such Sections or subsections.
L. Only Landlord/Tenant Relationship
Nothing contained in this Lease shall be deemed or construed by the
parties hereto or by any third party to create the relationship of
principal and agent, partnership, joint venture or any association
between Landlord and Tenant, it being expressly understood and agreed
that neither the method of computation of Rent nor any other
provisions contained in this Lease nor any act of the parties hereto
shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
M. Bills
If Tenant falls to give Landlord specific written notice of its
objections within thirty (30) days after receipt of any bill or
invoice hereunder, such bill or invoice shall be deemed true and
correct and Tenant may not thereafter question the validity of such
bill or invoice or the underlying information or computations used to
determine the amount thereof.
N. Severability
If any provision of this Lease shall be declared to be void or
unenforceable by a final judicial or administrative order and if, in
Landlord's judgment, such provision was not a material consideration
for Landlord's execution of this Lease, the Lease shall continue in
full force and effect, except that the void or unenforceable provision
shall be deemed to be deleted from this Lease. If such provision was a
material consideration, Landlord may terminate this Lease on 30 days
prior written notice to Tenant.
O. Jury Trial
Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by Landlord or Tenant against the
other with respect to the following issues: (i) the insolvency or
bankruptcy of Landlord or Tenant; (ii) the assignment of this Lease by
Landlord or Tenant or the subletting of all or any portion of the
Premises by Tenant; and (iii) the integrity of the Building's
structural, electrical, or mechanical systems.
P. Authority to Bind
The individuals signing this Lease on behalf of Landlord and Tenant
hereby represent and warrant that they are empowered and duly
authorized to bind the Landlord or the Tenant, as the case may be, to
this Lease in accordance with its terms.
Q. Covenants Independent
It is the intent of the parties that this Lease be construed as if
the covenants herein between Landlord and Tenant are independent and
not dependent and that the Rent shall be payable without offset,
reduction or abatement for any cause except as otherwise specifically
provided in this Lease.
R. Business Days and Hours; Holidays
"Business days" means Monday through Friday (except holidays); "normal
business hours" means 8:00 a.m. to 6:00 p.m. on business days; and
"holidays" means those days designated by the government of the United
States as the holidays for New Years' Day,
- 25 -
<PAGE>
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day, and such other holidays as may be designated in the
Rules and Regulations.
S. Force Majeure
When a period of time is herein prescribed for action to be taken by
Landlord, Landlord shall not be liable or responsible for, and there
is excluded from the computation for any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or
materials, war, governmental laws, regulations or restrictions or any
other cause of any kind whatsoever which are beyond the control of
Landlord. Subject to the preceding sentence, time is of the essence of
every part of this Lease.
30. LIMITATIONS ON LANDLORD'S LIABILITY
Any liability for damages or breach or nonperformance by Landlord, or
arising out of the subject matter of this Lease or the relationship created
hereby, shall be collectible only out of Landlord's interest in the Complex
and no personal liability is assumed by, or at any time be asserted
against, Landlord, its parent and affiliated corporations, its and their
partners, venturers, directors, officers, agents, servants and employees,
or any of its or their successors or assigns; all such liability, if any,
being expressly waived and released by Tenant. If Landlord, in violation of
the terms of this Lease or the provisions of law, withholds, denies or
delays any consent which Tenant is required to obtain hereunder, Tenant may
seek specific performance but shall not be entitled to damages therefor.
Landlord's review, supervision, commenting on or approval of any aspect of
work to be done by or for Tenant (under the Tenant Construction Agreement,
Section 9 hereof, or otherwise) are solely for Landlord's protection and,
except as expressly provided, create no warranties or duties to Tenant or
to third parties.
31. NOTICES
All notices required or permitted under this Lease shall be in writing and
shall be deemed properly given and received (i) when actually given and
received if delivered in person; (ii) one business day after deposit with a
private courier or overnight delivery service, or (iii) two business days
after deposit in the United States mails, certified or registered mail with
return receipt requested, postage prepaid, addressed to the party to
receive the notice at, in the case of notices to Landlord, 55 West Monroe
Street, Suite 3100, Chicago, Illinois 60603, Attn: Vice President/Office
Building Management, with a copy to Landlord at 55 West Monroe Street,
Suite 3100, Chicago, Illinois 60603-5060, Attn: General Counsel, and in the
case of notices to Tenant, the address set forth in the first paragraph of
this Lease if such notice is given prior to the Commencement Date and
Tenants address at the Premises if such notice is given on or after the
Commencement Date, or, in either case, at such other address as either
party may notify the other of in accordance with the terms hereof.
THIS LEASE SHALL NOT BE BINDING UPON OR ENFORCEABLE BY EITHER PARTY UNTIL
FULLY EXECUTED BY BOTH LANDLORD AND TENANT.
THIS LEASE IS THE ENTIRE AGREEMENT BETWEEN THE PARTIES CONCERNING THE
SUBJECT MATTER, SUPERSEDING ANY PRIOR AGREEMENTS AND WITHOUT ANY IMPLIED
AGREEMENTS, WARRANTIES OR UNDERSTANDINGS.
IN WITNESS WHEREOF, Landlord and Tenant have signed this Lease as of the
date first written above.
- 26 -
<PAGE>
LANDLORD:
TENANT:
HD DELAWARE PROPERTIES, INC., TANNING TECHNOLOGY CORPORATION,
a Delaware corporation a Colorado corporation
By: By: /s/ Larry G. Tanning
---------------------------- ----------------------------
Its: Vice President Its: President
---------------------------- ----------------------------
Landlord's Address: Tenant's Address:
HD Delaware Properties, Inc. 9025 East Kenyon Avenue
55 West Monroe Street Suite 312
Suite 3100 Denver, Colorado 80237
Chicago, Illinois 60603 -------------------------------
Attention: Vice President
Office Building and
Multi-Use Development
Copy to: General Counsel
- 27 -
<PAGE>
EXHIBIT A
METROPOINT
LEGAL DESCRIPTION OF THE LAND
PARCEL A
- --------
A parcel of land in Section 9, Township 5 South, Range 67 West of the Sixth
Principal Meridian, City and County of Denver, State of Colorado, more
particularly described as follows:
Commencing at the south one-quarter corner of said Section 9; thence N 00
(degree)19'13" E, a distance of 1296.94 feet to a point of curvature; thence
along a curve to the left having a radius of 1,273.24 feet and a central angle
of 25(degree)29'43", an arc distance of 566.56 feet to a point of tangency;
thence N 25(degree)10'30" W and along the tangent to the aforementioned curve, a
distance of 313.16 feet to a point of curvature; thence along a curve to the
left having a radius of 1,637.02 feet and a central angle of 28 (degree) 30'18",
an arc distance of 814.43 feet; thence N 36(degree)19'12" E, a distance of 63.92
feet to a point of curvature; thence along a curve to the right having a radius
of 1,273.24 feet and a central angle of 27(degree)17'15", an arc distance of
606.39 feet; thence S 26(degree)23'33" E, a distance of 60.00 feet; thence N
63(degree)36'27" E, a distance of 151.72 feet to a point of curvature; thence
along a curve to the right having a radius of 1,086.58 feet and a central angle
of 07(degree)35'36", an arc distance of 144.00 feet to the TRUE POINT OF
BEGINNING, said True Point of Beginning also being the northwest corner of the
parcel of land described as the "DTC Office Site" in Exhibit A to that certain
instrument recorded in Book 2577 at page 669 in the Clerk and Recorder's Office
of the City and County of Denver (said True Point of Beginning also being on the
southerly right-of-way line of Tufts Avenue Parkway as platted by Denver
Technological Center, North, Filing No. 1 and recorded in Book 29 at page 56 in
the Clerk and Recorder's Office of the City and County of Denver); thence
southerly along the westerly line of said parcel the following eight (8)
courses;
(1) thence S 18(degree)47'57" E, a distance of 20.00 feet to a
point of curvature;
(2) thence along a curve to the right having a radius of 50.00 feet
and a central angle of 40(degree)19'56", an arc length of 35.20
feet to a point of reverse curvature;
(3) thence along a curve to the left having a radius of 62.27 feet
and a central angle of 38(degree)55'32", an arc distance of
42.31 feet to a point of tangency;
(4) thence S 17(degree)23'33" E, along said tangent a distance of
121.75 feet to a point of curvature;
(5) thence along a curve to the left having a radius of 75.00 feet
and a central angle of 42(degree)15' 44", an arc distance of
55.32 feet to a point of non-tangency;
(6) thence S 17(degree)23' 33" E, a distance of 233.39 feet;
(7) thence S 07(degree)43' 03" E, a distance of 20.29 feet;
A-1
<PAGE>
(8) thence S 23(degree)31'25" E, a distance of 353.21 feet to a
point on a non-tangent curve, said point also being on the
northerly right-of-way line of Union Avenue Parkway;
thence southwesterly and westerly along said northerly right-of-way line of
Union Avenue Parkway the following four (4) courses:
(1) thence along a curve to the left, the beginning tangent of which
bears S 40(degree)07'43" W, having a radius of 1108.14 feet and a
central angle of 00(degree)48'13", an arc distance of 15.54
feet to a point of tangency;
(2) thence S 39(degree)19'30" W, along said tangent, a distance of
190.64 feet to a point of curvature;
(3) thence alone a curve to the right having a radius of 930.00 feet
and a central angle of 18(degree)27'46", an arc distance of
299.68 feet to a point of compound curvature;
(4) thence along a curve to the right having a radius of 101.50 feet
and a central angle of 97(degree)02'14", an arc distance of
171.90 feet to a point of tangency, said point also being on the
easterly right-of-way line of South Ulster Street Parkway as
platted by the Denver Technological Center, North, Filing No. 1;
thence northwesterly along said easterly right-of-way line the following five
(5) courses:
(1) thence N 25(degree)10'30" W along said tangent, a distance of
33.47 feet to a point of curvature;
(2) thence along a curve to the left having a radius of 1697.02 feet
and a central angle of 14(degree)49'42", an arc distance of
439.19 feet to a point of non-tangency;
(3) thence N 49(degree)59'49" E, a radial to the previously
mentioned curve, a distance of 10.00 feet to a point on a non-
tangent curve;
(4) thence along a curve to the left, the beginning tangent of which
bears N 40(degree)00'11" W, having a radius of 1707.02 feet and a
central angle of 08(degree)24'37", an arc distance of 250.57
feet to a point of reverse curvature;
(5) thence along a curve to the right having a radius of 101.50 feet,
and a central angle of 89(degree)53'29", an arc length of
159.24 feet to a point of compound curvature; said point also
being on the southerly right-of-way line of said Tufts Avenue
Parkway;
thence along said southerly right-of-way line the following three (3) courses:
(1) thence along a curve to the right having a radius of 1213.24 feet
and a central angle of 22(degree)07'47", an arc length of
468.60 feet to a point of tangency;
(2) thence N 63(degree)36'27" E along said tangent a distance of
151.72 feet to a point of curvature;
(3) thence along a curve to the right having a radius of 1088.58 feet
and a central angle of 07(degree)35'36", an arc length of
144.00 feet to the TRUE POINT OF BEGINNING.
-2
<PAGE>
PARCEL B
- --------
The entire right, title, interest and estate of Denver Tech Center Associates
under and pursuant to that certain Reciprocal Easement Agreement dated April 19,
1982, by and between DTC Associates and Denver Tech Center Associates, recorded
on May 4, 1982 in Book 2577 at page 689 of the records of the Clerk and Recorder
of the City and County of Denver, State of Colorado; the interests of Denver
Tech Center Associates pursuant to such Reciprocal Easement Agreement include
(without limitation) a perpetual non-exclusive easement for the passage of motor
vehicles and the passage and accommodation of pedestrians over and across the
"DTC Easement Parcel," as that term is defined in such Reciprocal Easement
Agreement.
A-3
<PAGE>
EXHIBIT B
METROPOINT
PLAN DELINEATING THE PREMISES
[Diagram of floorplan]
B-1
<PAGE>
EXHIBIT C
RICHFIELD TOWER AT METROPOINT
TENANT CONSTRUCTION AGREEMENT
1. Terms. Except as expressly provided to the contrary herein, all
initially capitalized terms used herein shall have the meanings set forth for
such terms in the Lease to which this Exhibit C is attached.
---------
2. Base Building Improvements. Landlord, at its expense, shall
construct within or for the Premises the following described improvements (the
"Base Building Improvements"):
(a) Structure: Structural components including foundations, subfloor,
bearing walls, exterior weather walls, columns, beams and roof.
(b) Floors: Bare finished, concrete slab floors.
(c) Electrical: Primary electrical distribution system to the floor
of the Building on which the Premises are located.
(d) Heating, Ventilation and Air Conditioning: Primary heating,
ventilation and air conditioning distribution system provided and
installed and ready for connection to the variable volume and/or
mixing air distribution boxes and supply and return ductwork to
be provided as part of the "Tenant Improvements" (as defined
below).
(e) Telephone: A telephone terminal panel serving the Premises
provided and installed in a reasonable location designated by
Landlord.
(f) Plumbing: Standard toilets on the floor of the Building on which
the Premises are located.
(g) Fire Safety System: Primary distribution for fire safety system
required by applicable code (including, without limitation, fire
sprinklers and alarms) provided and installed and ready for
connection to the fire safety system for the Premises to be
provided as part of the Tenant Improvements.
3. Preliminary Plans. Promptly after execution of this Lease by all
parties hereto, Landlord shall proceed to cause its space planners to prepare
preliminary plans and specifications (the "Preliminary Plans") for all leasehold
improvements in addition to the Base Building Improvements to be constructed by
Landlord for Tenant in the Premises (the "Tenant Improvements"), which
Preliminary Plans shall be sufficient to obtain a bid for the construction or
installation of all improvements shown thereon. Tenant shall furnish to Landlord
all information necessary for the preparation of the Preliminary Plans on or
before January 13, 1995. The Preliminary Plans shall be prepared at Landlord's
expense.
C-1
<PAGE>
4. Landlord's Allowance. At such time as Preliminary Plans that have
been approved in writing by both Landlord and Tenant have been prepared,
Landlord shall obtain a bid for the construction or installation of the Tenant
Improvements as shown thereon. Landlord shall promptly notify Tenant of the
amount of such bid plus the amount required to pay for the preparation of the
Preliminary Plans and of architectural and engineering construction drawings for
the Tenant Improvements (the "Estimated Work Cost"). If the Estimated Work Cost
is less than or equal to $26.50 per square foot of the Rentable Area of the
Premises (the "Landlord's Allowance"), then Landlord shall proceed in accordance
with paragraph 5 below. Landlord's Allowance shall be applied to pay all costs
associated with said construction including, but not limited to, space planning
and architectural fees. To the extent that the total construction costs equal
less than Twenty One and 50/100 Dollars ($21.50) per rentable square foot of the
Premises (the "Base Allowance"), Tenant shall receive as a credit against Base
Rent an amount equal to any unused portion of such Base Allowance; provided,
however, should the actual costs exceed such Base Allowance, Landlord shall
amortize an amount equal to the amount of such excess costs up to a maximum of
Five and 00/100 Dollars ($5.00) per rentable square foot of the Premises (the
"Amortized Amount") over the Term of the Lease and Tenant's Base Rent shall be
increased to include the amount of such excess costs plus interest on such
amount at the rate of eleven percent (11%) per annum. If the Estimated Work Cost
is greater than the sum of Landlord's Allowance and the Amortized Amount, then
Tenant, at Tenant's option, may elect to eliminate one or more items shown on
the Preliminary Plans so as to reduce the Estimated Work Cost. If Tenant does
not so elect to eliminate one or more items shown on the Preliminary Plans, or
does so elect but the Estimated Work Cost after accounting for the eliminated
items is still greater than the sum of Landlord's Allowance and the Amortized
Amount, then Tenant shall forthwith deposit with Landlord an amount (the
"Construction Deposit") equal to one-half of the difference between (a) the sum
of Landlord's Allowance and the Amortized Amount and (b) the Estimated Work Cost
(as the same may have been revised), whereupon Landlord shall proceed in
accordance with paragraph 5 below.
5. Construction of Tenant Improvements. Landlord shall cause its
architect and engineer to prepare construction drawings and specifications for
the Tenant Improvements based strictly on the Preliminary Plans and shall cause
the Tenant Improvements to be constructed or installed in the Premises in
accordance with such construction drawings; provided, however, that Landlord's
total cost of preparing such construction drawings and constructing and
installing the Tenant Improvements in the Premises shall not exceed the
Landlord's Allowance. Prior to the commencement of construction, Tenant shall be
given an opportunity to review the Construction drawings to confirm that they
conform to the Preliminary Plans. Upon substantial completion of the
construction and installation of the Tenant Improvements and prior to Tenant's
occupancy of the Premises, Tenant shall pay to Landlord the amount, if any, by
which the actual cost of preparing the construction drawings for the Tenant
Improvements and constructing and installing the Tenant Improvements in the
Premises exceeds the sum of the Landlord's Allowance and the Construction
Deposit.
6. Additional Tenant Work. If Tenant desires any work in addition to
the Base Building Improvements and the Tenant Improvements to be performed In
the Premises (the "Additional Tenant Work"), Tenant, at Tenant's expense, shall
cause plans and specifications for such work to be prepared either by arranging
therefor with Landlord's architect or engineer or with consultants of Tenant's
own selection. All plans and specifications for Additional Tenant Work shall be
subject to review by Landlord to insure that the Additional Tenant Work is
compatible with all other construction, as well as the electrical and mechanical
systems, within the Building, and that it complies with all
C-2
<PAGE>
applicable codes, laws, rules and regulations. Landlord's approval of Tenant's
plans and specifications for any Additional Tenant Work shall not be arbitrarily
withheld. If Landlord should approve Tenant's plans and specifications for any
Additional Tenant Work, Landlord shall, subject to the following terms and
conditions, grant to Tenant and Tenant's agents, a license to enter the Premises
prior to the Commencement Date in order that Tenant may perform or cause to be
performed the Additional Tenant Work in accordance with the plans and
specifications therefor previously approved by Landlord:
(a) Tenant shall give Landlord not less than five (5) days' prior
written notice of the request to have such access to the Premises, which
notice must contain or be accompanied by: (i) a description and schedule
for the work to be performed by those persons and entities for whom and
which such early access is being requested; (ii) the names and addresses of
all contractors, subcontractors and material suppliers for whom and which
such access is being requested; (iii) the approximate number of
individuals, itemized by trade, who shall be present in the Premises; (iv)
copies of all contracts pertaining to the performance of the work for which
such early access is being requested; (v) copies of all licenses and
permits required in connection with the performance of the work for which
such access is being requested; (vi) certificates of insurance and
instruments of indemnification against all claims, costs, expenses, damages
suits, fines, penalties, actions, causes of action and liabilities which
may arise in connection with such work; and (vii) assurances of the
availability of funds sufficient to pay for all such work, if such
assurances are requested by Landlord. Each of the foregoing shall be
subject to Landlord's approval, which approval shall not be arbitrarily
withheld.
(b) Such early access is subject to scheduling by Landlord.
(c) Tenant's agents, contractors, workers, mechanics, suppliers and
invitees must work in harmony and not interfere with Landlord and
Landlord's agents in doing work in the Premises and in other premises and
common areas of the Building or the general operation of the Building. If
at any time such entry shall cause or threaten to cause disharmony or
interference, including labor disharmony, Landlord may withdraw its license
upon twenty-four (24) hours prior written notice to Tenant.
(d) In the event that Landlord's work in the Premises and Tenant's
work in the Premises (pursuant to the license granted herein) progresses
simultaneously, Landlord shall not be liable for any injury to person or
damage to property of Tenant, or of Tenant's employees, licensees or
invitees, from any cause whatsoever occurring upon or about the Premises,
and Tenant shall indemnify and save Landlord harmless from any and all
liability and claims arising out of or connected with any such injury or
damage.
(e) Tenant agrees that it is liable to Landlord for any damage to the
Premises or any portion of the work in the Premises caused by Tenant or any
of Tenant's employees, agents, contractors, workers or suppliers.
7. Tenant's Delay. As provided in Section 5C of the Lease, the Term of
the Lease (and therefore Tenant's obligation for the payment of Rent) shall not
commence until Landlord has substantially completed all work to be performed by
Landlord as set forth in paragraphs 2 and 5 above; provided, however, that if
Landlord is delayed in substantially completing such work as a result of:
C-3
<PAGE>
(a) Tenant's failure to furnish information in accordance with
paragraph 3;
(b) Tenant's request for materials or installations as a part of
the Tenant Improvements that are other than Landlord's Building standard
materials or installations;
(c) Tenant's changes in any drawings, plans or specifications;
(d) The performance of any Additional Tenant Work or any failure
to complete or delay in completion of such work; or delay in (d) The
performance of any Additional Tenant Work or any failure to complete or
completion of such work; or
(e) Any other act or omission of Tenant (all of which shall be deemed
to be delays caused by Tenant),
then the Commencement Date shall only be extended pursuant to Section 5C(1)
of the Lease until the date on which Landlord would have substantially
completed the performance of such work but for such delays. Postponement of
the commencement of the Term shall be in full settlement of all claims that
Tenant might otherwise have against Landlord by reason of the Premises not
being ready for occupancy by Tenant as of the originally scheduled
Commencement Date set forth in Section 1A(1) of the Lease.
8. General. All drawings, space plans, plans and specifications for
any improvements or installations in the Premises are expressly subject to
Landlord's prior written approval. Any approval by Landlord or Landlord's
architects or engineers of any of Tenant's drawings, plans or specifications
which are prepared in connection with construction of improvements in the
Premises shall not in any way bind Landlord or constitute a representation or
warranty of Landlord as to the adequacy or sufficiency of such drawings, plans
or specifications, or the improvement to which they relate, for any use, purpose
or condition, but this approval shall merely be the consent of Landlord to
Tenant's construction of improvements in the Premises in accordance with such
drawings, plans or specifications. Failure by Tenant to pay any amounts due
hereunder shall have the same effect under the Lease as the failure to pay Rent,
and this failure or the failure by Tenant to perform any of its other
obligations hereunder shall constitute an Event of Default under Section 24(A)
of the Lease, entitling Landlord to all of its remedies under the Lease as well
as all remedies otherwise available to Landlord.
C-4
<PAGE>
EXHIBIT D
METROPOINT
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed
near the glass of any window, door, partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Building.
2. The Building directory, located in the Building lobby as provided
by Landlord, shall be available to Tenant solely to display one (1) line/name
and their location in the Building, which display shall be as directed by
Landlord.
3. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises. The halls, passages,
exits, entrances, elevators, stairways and roof are not for the use of the
general public and Landlord shall, in all cases, retain the right to control and
prevent access thereto by all persons whose presence in the judgment of
Landlord, reasonably exercised, shall be prejudicial to the safety, character,
reputation and interests of the Building. Neither Tenant nor any employees or
invitees of any tenant shall go upon the roof of the Building.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purposes other than that which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and to the
extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage, or damage resulting from the violation of this rule shall be
borne by Tenant.
5. Tenant shall not cause any unusual janitorial labor or services.
6. No cooking, except for microwave cooking, shall be done or
permitted by Tenant on the Premises, nor shall the Premises be used for lodging.
7. Tenant shall not bring upon, use or keep in the Premises or the
Complex any kerosene, gasoline or inflammable or combustible fluid or material,
or use any method of heating or air conditioning other than that supplied by
Landlord.
8. Landlord shall have sole power to direct electricians to where and
how telephone and other wires are to be introduced. No boring or cutting for
wires is to be allowed without the consent of Landlord. The location of
telephones, call boxes and other office equipment affixed to the Premises shall
be subject to the approval of Landlord.
9. Upon the termination of the tenancy, Tenant shall deliver to
Landlord all keys and passes for offices, rooms, parking areas and toilet rooms
which shall have been furnished to Tenant. In the event of the loss of any keys
or passes so furnished, Tenant shall pay
D-1
<PAGE>
Landlord therefor. Tenant shall not make, or cause to be made, any such keys and
shall order all such keys solely from Landlord and shall pay Landlord for any
additional such keys over and above the two sets of keys furnished by Landlord.
10. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
11. No furniture, packages, supplies, equipment or merchandise will be
received in the Complex or carried up or down in the freight elevator, except
between such hours and in such freight elevator as shall be designated by
Landlord.
12. Tenant shall cause all doors to the Premises to be closed and
securely locked before leaving the Building at the end of the day.
13. Without the prior written consent of Landlord, Tenant shall not
use the name of the Building or the Complex or any picture thereof in connection
with, or in promoting or advertising the business of Tenant, except Tenant may
use the address of the Building as the address of its business.
14. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises' or the Building's heating and air
conditioning, and shall refrain from attempting to adjust any controls. Tenant
shall keep corridor doors closed.
15. Tenant assumes full responsibility for protecting the Premises
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed and secured. Landlord shall in no way be
responsible to Tenant, its agents, employees or invitees, for any loss of
property from the Premises or the Complex.
16. Except with the prior written consent of the Landlord, Tenant
shall not sell or cause to be sold any items or services at retail in or from
the Premises, nor shall Tenant carry on or permit or allow any employee or
person to carry on the business of machine copying, stenography, typewriting or
similar business in or from the Premises for the service or accommodation of
occupants of any portion of the Complex without written consent of the landlord.
17. Tenant shall not conduct any auction nor permit any fire or
bankruptcy sale to be held on the Premises, nor store goods, wares or
merchandise on the Premises. Tenant shall not allow any vending machines on the
Premises without Landlord's prior consent.
18. All freight must be moved into, within and out of the Building and
the Complex under the supervision of Landlord and according to such regulations
as may be posted or distributed by Landlord from time to time. All moving of
furniture or equipment into or out of the Building by Tenant shall be done at
such time and in such manner as directed by Landlord or its agent. In no cases
shall items of freight, furniture, fixtures or equipment be moved into or out of
the Building or in any elevator during such hours as are normally considered
rush hours to an office building; i.e., 7:30-9:00 a.m., 11:00 a.m. - 1:00 p.m.,
and 4:00-6:00 p.m.
D-2
<PAGE>
19. On Sundays, holidays (legal) and on other days during certain
hours for which the Building may be closed after normal business hours, access
to the Building or to halls, corridors, elevators, stairwells will be controlled
by Landlord. Landlord or its agents will have the right to demand of any and all
persons seeking access to the Building proper identification to determine if
they have rights of access to the Premises. The Landlord shall, in no case, be
liable for damages wherein admission to the Building has not been granted during
abnormal hours by reason of a tenant failing to properly identify himself, or
through the failure of the Building to be unlocked and open for access by
Tenant, Tenant's employees and general public.
20. Tenant shall not change locks or install other locks on doors
without the prior written consent of Landlord.
21. Tenant shall give prompt notice to Landlord of any accidents to or
defects in plumbing, electrical fixtures or heating apparatus so the same may be
attended to properly.
22. No safes or other objects larger or heavier than the freight
elevators of the Building are limited to carry shall be brought into or
installed on the Premises. Landlord shall have the power to prescribe the weight
and position of such safes or other objects which shall, if considered necessary
by Landlord, be required to be supported by such additional materials placed on
the floor as Landlord may direct, and at the expense of Tenant. In no event
shall these items exceed a weight for which the floor is designed.
23. No person or persons other than those approved by Landlord will be
permitted to enter the Building for purposes of cleaning, maintenance,
construction or painting.
24. Tenant shall not permit or suffer the Premises to be occupied or
used in a manner reasonably objectionable to Landlord or other occupants of the
Complex by reason of noise, odors, or vibrations or interfere in any way with
other tenants or those having business therein, nor shall any animals or birds
be kept in or about the Complex. Smoking or carrying of a lighted cigar or
cigarette in the elevators of the Complex is prohibited.
25. Canvassing, soliciting and peddling in the Complex are prohibited.
Tenant shall cooperate to prevent the same.
26. Landlord reserves the right, at any time, to rescind any one or
more of these rules and regulations, or to make such other and further
reasonable and nondiscriminatory rules and regulations as in Landlord's judgment
may from time to time be necessary for the safety, care and cleanliness of the
Complex for the preservation of order therein.
27. Tenant shall not permit any of its Employees to carry a lighted
cigar, cigarette, pipe or other lighted equipment in any common area of the
Complex, except a common area which has been designated by Landlord as a smoking
area.
D-3
<PAGE>
EXHIBIT E
METROPOINT
PARKING
Subject to the following provisions, during the Term of this Lease, Landlord
agrees to permit Tenant the use of, and Tenant agrees to pay the amounts, if
any, described herein for the use of, five (5) unassigned parking spaces in the
surface lot for the parking of vehicles at no charge to Tenant for the initial
Term of this Lease and six (6) unassigned parking spaces in the parking garage
of the Complex for the parking of vehicles at the rate of Thirty and No/100
Dollars ($30.00) per space per month during the first Calendar Year of the
initial Term of this Lease, and thereafter, commencing on the first day of the
Calendar Year immediately following the Calendar Year in which Tenant's
obligation to pay monthly rent for such unassigned parking spaces in the parking
garage of the Complex begins and on the first day of each Calendar Year
thereafter during the initial Term of this Lease, such monthly rent for each
unassigned parking spaces shall increase by five percent (5%) over the monthly
rent payable for such parking spaces during the preceding Calendar Year. All
monthly parking rent shall be payable in advance on the first day of each month
within the Term to the same place as payments of Base Rent and shall be
considered Rent under this Lease. Tenant's rights to use the parking facilities
of the Complex shall be non-exclusive except that Landlord shall not grant any
other party the right to use Tenant's assigned parking spaces. Tenant's rights
hereunder to use the parking facilities of the Complex are conditioned upon this
Lease being in full force and effect and there being no Event of Default by
Tenant under this Lease. Tenant shall not abuse its privileges with respect to
the parking facilities and shall use same in accordance wish Landlord's
directions. If for any reason Landlord fails or is unable to provide all or any
portion of the above-described parking spaces to Tenant or Tenant is not
permitted to utilize all or any portion of such parking spaces at any time
during the Term of this Lease, such fact shall not be a default by Landlord as
to permit Tenant to terminate this Lease, either in whole or in part, but
Tenant's obligation to pay rental for any parking space which is not provided by
Landlord shall be abated for so long as Tenant does not have the use of such
parking space and this abatement shall be in full settlement of all claims that
Tenant might otherwise have against Landlord by reason of Landlord's failure or
inability to provide Tenant with such parking space. Except for those terms
specifically defined in this Exhibit, all initially capitalized terms herein
shall have the meanings set forth for such terms in the Lease to which this
Exhibit is attached.
E-1
<PAGE>
RIDER NO. 1
Attached To and Made a Part of
the Office Building Lease By and Between
HD Delaware Properties, Inc.
As Landlord, and
Tanning Technology Corporation,
As Tenant
---------------------
OPTION TO EXTEND
Tenant, at its option, shall have the right to extend (the "Option to
Extend") the term of the Lease for the entire Premises for an additional five
(5) years (the "Extended Term") by delivering written notice to Landlord at
least three (3) months before the expiration of the Term of the Lease, provided
that at the time said notice is so delivered and on the commencement of the
Extended Term, no event of default by Tenant as defined in the Lease is in
existence, and provided further that Tenant furnishes current financial
statements to Landlord and that no material adverse change in the financial
condition of Tenant has occurred since the financial statements last delivered
by Tenant to Landlord. Subject to the conditions set forth in the preceding
sentence, the Lease shall be extended by written amendment, duly executed by
Landlord and Tenant. The Extended Term shall commence the day following the
Termination Date of the Term, expire the day preceding the annual anniversary of
such date five (5) years thereafter and be upon the same terms, covenants and
conditions as provided in the Lease for the Term, except that Base Rent and
charges for the parking of vehicles in the Complex payable during the Extended
Term shall be at the rate then being quoted by Landlord for comparable space in
the Building at the commencement of the Extended Term, which new Base Rent and
parking charges shall be designated by Landlord and shall be increased,
adjusted, or augmented as provided in and under the Lease, unless a different
method of increase, adjustment, or augmentation is then prevailing for leases in
the Building, in which event the different method shall be used. Notwithstanding
the foregoing, Base Rent and parking charges during the Extended Term shall in
no event be less than the Base Rent and parking charges payable during the last
year of the initial Term of the Lease. Payment of Additional Rent and all other
charges required to be made by Tenant as provided in this and any other Rider
attached to the Lease for the Term shall continue to be made during the Extended
Term. Any termination of the Lease during the Term shall terminate the Option to
Extend. Any assignment of the Lease or subletting of all or a part of the
Premises by Tenant shall terminate the Option to Extend.
F-1
<PAGE>
EXHIBIT 10.22
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE is made as of the 15th day of September,
1995, by and between HMS OFFICE, LIMITED PARTNERSHIP ("Landlord"), and TANNING
TECHNOLOGY CORPORATION, a Colorado corporation ("Tenant").
W I T N E S S E T H:
-------------------
WHEREAS, HD DELAWARE PROPERTIES, INC., a Delaware corporation, as landlord,
and TANNING TECHNOLOGY CORPORATION, a Colorado corporation, as tenant, entered
into that certain Lease Agreement dated January 31, 1995 (the "Lease") for
premises in the office building located at 4600 South Ulster Street, Denver,
Colorado 80237 (the "Building"); and
WHEREAS, Landlord has succeeded to all right, title and interest of the
most recent owner of the Building (being HD Delaware Properties, Inc.); and
WHEREAS, the parties hereto now desire to amend the Lease, as set forth
herein but not otherwise.
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Defined Terms
-------------
For purposes of this First Amendment to Lease, capitalized terms and
other defined items used herein but not defined herein shall have the meanings
ascribed to them in the Lease. In the event any of the terms of the Lease
conflict with the terms of this First Amendment, the terms of this First
Amendment shall control.
2. Increase in Lease Premises
--------------------------
Commencing on the Effective Date (as hereinafter defined) the Lease
Premises shall be increased from 3,928 rentable square feet to 6,048 rentable
square feet located on the third floor of the Building, as shown on Exhibit B
attached hereto and bearing the Effective Date. The Termination Date of the
Lease as it applies to the added 2,120 square feet shall be the same as that
with respect to the original 3,928 square feet.
<PAGE>
3. Tenant's Proportionate Share
----------------------------
Subject to adjustments in accordance with Section l.C.(12) of the
Lease, commencing on the Effective Date, Tenant's proportionate Share shall be
increased to 2.293 percent.
4. Base Rent
---------
Commencing on the Effective Date, Base Rent shall be (i) for the added
2,120 square feet $32,860.00 per annum (based on $15.50 per square foot of
rentable area) payable in equal monthly installments of $2,738.33 from the
Effective Date through May 31, 1999; and (ii) shall continue for the original
3,928 square feet to be $79,542.00 per annum (based on $20.25 per square foot of
rentable area per annum) payable in equal monthly installments of $6,628.50.
From June 1, 1999 through April 9, 2000, the Base Rent for (i) the added 2,120
square feet of rentable area shall be $42,400.00 per annum (based on $20.00 per
square foot of rentable area), payable in equal monthly installments of
$3,533.33; and (ii) shall continue for the original 3,928 square feet to be
$79,542.00 per annum (based on $20.25 per square foot of rentable area per
annum) payable in equal monthly installments of $6,628.50. All of the foregoing
rent shall be calculated and paid in accordance with the terms of the Lease as
herein amended.
5. Brokerage Commissions
---------------------
Landlord and Tenant hereby represent and warrant to each other that no
commission is due and payable to any broker or other leasing agent in connection
with this First Amendment as a result of its own dealings with such broker or
leasing agent, other than Tenant's agent Andrew J. Clark, to whom Landlord shall
pay $2,120.00 upon Landlord's execution of this First Amendment, and Landlord
and Tenant hereby agree to indemnify and hold each other harmless from and
against all loss, damage, cost, and expense (including reasonable attorneys'
fees) suffered by the other party as a result of a breach of the foregoing
representation and warranty.
6. As-is Condition
---------------
(a) Except as set forth below in subparagraph (b) of this paragraph 6,
Tenant shall accept said 2,120 square feet in their as-is condition on the
Effective Date, and Tenant is not entitled to any allowance or credit for
improvements thereof or thereto.
(b) Tenant shall promptly, and at Tenant's sole cost, cause to be
constructed a demising wall to separate said 2,120 square feet from the premises
heretofore leased to The Feld Company. The demising wall shall be designed by an
architect and constructed by a general contractor, in compliance with the
provisions of the Lease, and both of whom have been theretofore approved by
Landlord, which approval shall not be unreasonably withheld or delayed. Tenant
shall pay for all of the foregoing
-2-
<PAGE>
costs promptly as due and shall not permit any mechanics' liens to be filed
therefor. From and after the Effective Date, Tenant shall be responsible for
assuring that unauthorized persons shall not have access from the leased
premises to the remaining premises leased to The Feld Company.
7. Additional Parking
------------------
Commencing on the Effective Date, in addition to the parking spaces to
which Tenant is entitled under the Lease, Tenant shall have the following
parking spaces and shall pay the amounts applicable thereto: (i) one additional
assigned parking space in the garage for which Tenant shall pay $36.75 per month
through 1995 and which charge shall increase on the first day of 1996 and each
Calendar Year thereafter by 5% of the charge for the preceding Calendar Year;
and (ii) two unassigned parking spaces in the garage and three on the surface
lot at no charge. Except as set forth above, such additional parking spaces
shall be given and taken on the terms of Exhibit E to the Lease.
8. Effect on Option to Extend
--------------------------
Any exercise by Tenant of its Option to Extend granted by Rider No. 2
to the Lease shall include the aforesaid 2,120 rentable square feet. The rent
for the entire 6,048 square feet shall be calculated as one unit in the same
manner as provided in Rider No. 2, and the other provisions of Rider No. 2 shall
be applicable to the 6,048 square feet as one unit.
9. Full Force and Effect
---------------------
Except as amended herein, all terms and conditions of the Lease shall
remain in full force and effect throughout the duration of the Term. The Lease,
as amended herein, constitutes the entire Agreement between the parties hereto
and no further modification of the Lease, as amended herein, shall be binding
unless evidenced by an agreement in writing signed by Landlord and Tenant.
10. Effective Date
--------------
The Effective Date shall be September 15, 1995.
-3-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment
as of the day and year first above written.
LANDLORD:
HMS OFFICE, LIMITED PARTNERSHIP
By: Hines Office Company, L.L.C.
Its General Partner
By: /s/ Tom Owens
--------------------------------
Manager
TENANT:
TANNING TECHNOLOGY CORPORATION
a Colorado Corporation
By: /s/ Larry G. Tanning
--------------------------------
Its: President
--------------------------------
EXHIBIT B
[Diagram of floorplan]
Space Increase of 2,120 Square Feet of Net Rentable Area
Total Revised Square Footage: 6,048 Square Feet of Net Rentable Area
-4-
<PAGE>
EXHIBIT 10.23
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE is made this 6th day of March, 1996,
effective as of the Effective Date set forth in paragraph 11 below, by and
between HMS OFFICE, L.P. ("Landlord"), and TANNING TECHNOLOGY CORPORATION, a
Colorado corporation ("Tenant").
W I T N E S S E T H:
--------------------
WHEREAS, HD DELAWARE PROPERTIES, INC., a Delaware corporation, as Landlord,
and TANNING TECHNOLOGY CORPORATION, a Colorado corporation, as Tenant, entered
into that certain Lease Agreement dated January 31, 1995, for premises in the
office building located at 4600 South Ulster Street, Denver, Colorado 80237 (the
"Building"), which Lease Agreement has been previously amended by a First
Amendment to Lease dated as of September 15, 1995 (as amended to date, the
"Lease"); and
WHEREAS, Landlord has succeeded to all right, title and interest of the
most recent owner of the Building (being HD Delaware Properties, Inc.); and
WHEREAS, the parties hereto now desire to further amend the Lease, as set
forth herein but not otherwise.
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Defined Terms
-------------
For purposes of this Second Amendment to Lease, capitalized terms and other
defined items used herein but not defined herein shall have the meanings
ascribed to them in the Lease. In the event any of the terms of the Lease
conflict with the terms of this Second Amendment, the terms of this Second
Amendment shall control.
2. Increase in Lease Premises
--------------------------
Commencing on the Effective Date (as hereinafter defined) the Lease
Premises shall be increased from 6,048 square feet of Rentable Area located on
the third floor of the Building (the "Third Floor Premises") to include
approximately 5723 square
<PAGE>
feet of Rentable Area located on the sixth floor of the Building as shown on
Exhibit A attached hereto and incorporated herein by this reference (the "Sixth
Floor Premises"). From and after the Effective Date, the term "Premises" as used
in the Lease shall be deemed to mean and include both the Third Floor Premises
and the Sixth Floor Premises. The Termination Date of the Lease as it applies to
the Sixth Floor Premises shall be the same as that with respect to the Third
Floor Premises.
3. Tenant's Proportionate Share
----------------------------
Subject to adjustments in accordance with Section l.C.(12) of the
Lease, commencing on the Effective Date, Tenant's Proportionate Share shall be
increased to 4.463 percent.
4. Base Rent
---------
Commencing on the Effective , Base Rent for the Third Floor Premises
shall be as set forth in Paragraph 4 of the First Amendment to Lease, and Base
Rent for the Sixth Floor Premises shall be as follows: (i) for the period from
the Effective Date through and including May 31, 1996, no Base Rent shall be due
for the Sixth Floor Premises; (ii) for the period from June 1, 1996, through
March 31, 1997, $105,875.50 per annum (based on $18.50 per square foot of
Rentable Area) payable in equal monthly installments of $8822.96; (iii) for the
period from April 1, 1997, through March 31, 1998, $125,906.00 per annum (based
on $22.00 per square foot of Rentable Area) payable in equal monthly
installments of $10,492.16; (iv) for the period from April 1, 1998, through
March 31, 1999, $131,629.00 per annum (based on $23.00 per square foot of
Rentable Area) payable in equal monthly installments of $l0,969.08; and (v) for
the period from April 1, 1999, through the Termination Date, $140,213.5 per
annum (based on $24.50 per square foot of Rentable Area) payable in equal
monthly installments of $11,684.46. All of the foregoing rent shall be
calculated and paid in accordance with the terms of the Lease as herein amended.
-2-
<PAGE>
5. Operating Expense and Tax Base Amount.
-------------------------------------
Section l.A.(3) is changed to read:
(3) Operating Expense and Tax Base Amount: For the Third Floor
Premises, the amount of Operating Expenses and Taxes payable during
calendar year 1995, and for the Sixth Floor Premises, the amount of
Operating Expenses and Taxes payable during calendar year 1996.
6. Brokerage Commissions
---------------------
Landlord and Tenant hereby represent and warrant to each other that no
commission is due and payable to any broker or other leasing agent in connection
with this Second Amendment as a result of its own dealings with such broker or
leasing agent, other than Tenant's agent Andrew J. Clark, to whom Landlord shall
pay $22,892.00 upon Landlord's execution of this Second Amendment, and Landlord
and Tenant hereby agree to indemnify and hold each other harmless from and
against all loss, damage, cost, and expense (including reasonable attorneys'
fees) suffered by the other party as a result of a breach of the foregoing
representation and warranty.
7. Tenant Improvements.
-------------------
a. Except as set forth below in this paragraph 7, the Sixth Floor
Premises shall be delivered by Landlord and accepted by Tenant in their "as-is"
condition on April 1, 1996. Tenant is not entitled to any improvement thereto or
thereof or to any allowance or credit for improvements thereto or thereof,
except as set forth specifically below. Landlord will act as construction
manager to perform those improvements and rehabilitation work described and
specified in the plans prepared by Gensler, dated 2/5/96 ("Tenant's Space Plan")
to reflect work to be performed in the Sixth Floor Premises. Landlord has agreed
to pay a maximum of $34,338.00 for the tenant improvements on Tenant's Space
Plan, which includes all architectural and engineering fees and all costs of
construction (all fees and costs in the aggregate being called "Tenant
Improvements Costs"). After Landlord has received executed copies of this Second
Amendment from
-3-
<PAGE>
Tenant, Landlord shall promptly cause working drawings (hereinafter called
"Tenant Working Drawings") of the tenant improvements on the Tenant's Space Plan
to be prepared. Upon receipt of the Tenant Working Drawings, Landlord will
promptly price the cost of constructing the tenant improvements and review with
Tenant the Tenant Improvement Costs and Tenant Working Drawings. Upon Tenant's
approval of the Tenant Working Drawings and the Tenant Improvement Costs,
Landlord agrees to act as construction manager in the installation of said
tenant improvements to the Sixth Floor Premises. If the Tenant Improvement Costs
exceed $34,338.00, Tenant shall pay all of such excess to Landlord upon
completion of the tenant improvements. If the Tenant Improvement Costs are less
than $34,338.00, Landlord will credit the savings against the rent next due
after completion of the tenant improvements. Landlord shall select the
contractor to complete the tenant improvements so described in Tenant Working
Drawings.
b. Landlord's obligations hereunder are limited to the provision of
items as set out above in this paragraph 7 and Landlord shall have no obligation
thereafter to repair or replace any such items that may require repair or
replacement except as provided in Section 7.A. of the Lease.
8. Additional Parking
------------------
Commencing on the Effective Date, in addition to the parking spaces to
which Tenant is entitled under the Lease, Tenant shall have the following
parking spaces and shall pay the amounts applicable thereto: (i) eight
unassigned parking spaces in the garage, for which Tenant shall pay $30.00 per
month through 1996 and which charge shall increase on the first day of 1997 and
each Calendar Year thereafter by 5% of the charge for the preceding Calendar
Year; and (ii) nine unassigned parking spaces in the surface lot at no charge.
Except as set forth above, such additional parking spaces shall be given and
taken on the terms of Exhibit E to the Lease.
-4-
<PAGE>
9. Effect on Option to Extend
--------------------------
Any exercise by Tenant of its Option to Extend granted by Rider No. 2
to the Lease shall include the Sixth Floor Premises. Upon exercise of the
Option to Extend, the rent for the entire Premises, including both the Third
Floor Premises and the Sixth Floor Premises, shall be calculated as one unit in
the same manner as provided in Rider No. 2, and the other provisions of Rider
No. 2 shall be applicable to the entire Premises as one unit.
10. Full Force and Effect
---------------------
Except as amended herein, all terms and conditions of the Lease shall
remain in full force and effect throughout the duration of the Term. The Lease,
as amended herein, constitutes the entire agreement between the parties hereto
and no further modification of the Lease, as amended herein, shall be binding
unless evidenced by an agreement in writing signed by Landlord and Tenant.
11. Effective Date
--------------
The Effective Date shall be April 1, 1996.
-5-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Amendment
as of the day and year first above written.
LANDLORD:
HMS OFFICE, L.P.
By: Hines Office Company, L.L.C.
Its General Partner
By: /s/ Tom Owens
----------------------------------
Manager
TENANT:
TANNING TECHNOLOGY CORPORATION
a Colorado corporation
By: /s/ Larry G. Tanning
----------------------------------
Its: President
----------------------------------
EXHIBIT A
[Diagram of Floorplan]
-6-
<PAGE>
EXHIBIT 10.24
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE is made this 27th day of November, 1996,
by and between HMS OFFICE, L.P. ("Landlord"), and TANNING TECHNOLOGY
CORPORATION, a Colorado corporation ("Tenant")
W I T N E S S E T H:
WHEREAS, HD DELAWARE PROPERTIES, INC., a Delaware corporation, as
Landlord, and TANNING TECHNOLOGY CORPORATION, a Colorado corporation, as Tenant,
entered into that certain Lease Agreement dated January 31, 1995, for premises
in the office building located at 4600 South Ulster Street, Denver, Colorado
80237 (the "Building"), which Lease Agreement has been previously amended by a
First Amendment to Lease dated as of September 15, 1995, and a Second Amendment
to Lease dated as of March 6, 1996 (as amended to date, the "Lease"); and
WHEREAS, Landlord has succeeded to all right, title and interest of
the most recent owner of the Building (being HD Delaware Properties, Inc.); and
WHEREAS, the parties hereto now desire to further amend the Lease, as
set forth herein but not otherwise.
NOW, THEREFORE, in consideration of the covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Defined Terms
-------------
For purposes of this Third Amendment to Lease, capitalized terms and
other defined items used herein but not defined herein shall have the meanings
ascribed to them in the Lease. In the event any of the terms of the Lease
conflict with the terms of this Third Amendment, the terms of this Third
Amendment shall control.
2. Increase in Lease Premises
--------------------------
Commencing on the Effective Date (as hereinafter defined) the existing
portion of the Premises consisting of 6,048 square feet of Rentable Area located
on the third floor of the Building (the "Original Third Floor Premises") shall
be increased to include approximately 1,605 additional square feet of Rentable
Area located on the third floor of the Building as shown on Exhibit A attached
---------
hereto and incorporated herein by this reference (the "Third Floor Expansion
Premises"). In addition, commencing on the
<PAGE>
Effective Date, the existing portion of the Premises consisting of 5,723 square
feet of Rentable Area located on the sixth floor of the Building (the "Original
Sixth Floor Premises") shall be increased to include an additional 2,634 square
feet of Rentable Area as shown in Exhibit B attached hereto and incorporated
---------
herein by this reference (the "Sixth Floor Expansion Premises"). The Third Floor
Expansion Premises and the Sixth Floor Expansion Premises shall be referred to
collectively as the "Expansion Space." From and after the Effective Date, the
term "Premises" as used in the Lease shall be deemed to mean and include the
Original Sixth Floor Premises, the Original Third Floor Premises, and the
Expansion Premises. The Termination Date of the Lease as it applies to the
Expansion Space shall be the same as that with respect to the Original Sixth
Floor Premises and the Original Third Floor Premises.
3. Tenant's Proportionate Share
----------------------------
Subject to adjustments in accordance with Section 1.C.(12) of the
Lease, commencing on the Effective Date, Tenant's Proportionate Share shall be
increased to 6.071%.
4. Base Rent
---------
Commencing on the Effective Date, Base Rent for the Original Third
Floor Premises shall be as set forth in Paragraph 4 of the First Amendment to
Lease, Base Rent for the Original Sixth Floor Premises shall be as set forth in
Paragraph 4 of the Second Amendment to Lease, and Base Rent for the Expansion
Space shall be as follows: (i) for the period from the Effective Date through
and including March 31, 1997, no Base Rent shall be due for the Expansion Space;
(ii) for the period from April 1, 1997, through January 31, 1998, $97,497.00 per
annum (based on $23.00 per square foot of Rentable Area) payable in equal
monthly installments of $8,124.75; (iii) for the period from February 1, 1998,
through January 31, 1999, $101,736.00 per annum (based on $24.00 per square foot
of Rentable Area) payable in equal monthly installments of $8,478.00; (iv) for
the period from February 1, 1999, through April 9, 2000, $105,975.00 per annum
(based on $25.00 per square foot of Rentable Area) payable in equal monthly
installments of $8,831.25. All of the foregoing rent shall be calculated and
paid in accordance with the terms of the Lease as herein amended.
5. Operating Expense and Tax Base Amount. Section 1.A. (3) is
-------------------------------------
changed to read:
(3) Operating Expense and Tax Base Amount: For the Original Third
Floor Premises, the amount of Operating Expenses and Taxes payable
-2-
<PAGE>
during calendar year 1995, and for the Original Sixth Floor Premises,
the amount of Operating Expenses and Taxes payable during calendar
year 1996, and for the Expansion Space, the amount of Operating
Expenses and Taxes payable during calendar year 1997.
6. Brokerage Commissions
---------------------
Landlord and Tenant hereby represent and warrant to each other that no
commission is due and payable to any broker or other leasing agent in connection
with this Second Amendment as a result of its own dealings with such broker or
leasing agent, other than to Tenant's agent Andrew J. Clark, to whom Landlord
shall pay $12,717.00, one-half upon Landlord's execution of this Second
Amendment and one-half upon Tenant's occupancy of the Expansion Space, and
Landlord and Tenant hereby agree to indemnify and hold each other harmless from
and against all loss, damage, cost, and expense (including reasonable attorneys'
fees) suffered by the other party as a result of a breach of the foregoing
representation and warranty.
7. Tenant Improvements
-------------------
a. Except as set forth below in this paragraph 7, the Expansion Space
shall be delivered by Landlord and accepted by Tenant in its "as-is" condition.
Tenant is not entitled to any improvement thereto or thereof or to any allowance
or credit for improvements thereto or thereof, except as set forth specifically
below. Landlord will act as construction manager to perform those improvements
and rehabilitation work described and specified in the plans to be prepared by
Gensler & Associates and approved by Landlord ("Tenant's Space Plan") to reflect
work to be performed in the Expansion Space. Landlord has agreed to pay a
maximum of $48,324.60 for the tenant improvements on Tenant's Space Plan, which
includes all architectural and engineering fees and all costs of construction
(all fees and costs in the aggregate being called "Tenant Improvements Costs").
After Landlord has received executed copies of this Third Amendment from Tenant,
Landlord shall promptly cause working drawings (hereinafter called "Tenant
Working Drawings") of the tenant improvements on the Tenant's Space Plan to be
prepared. Upon receipt of the Tenant Working Drawings, Landlord will promptly
price the cost of constructing the tenant improvements and review with Tenant
the Tenant Improvement Costs and Tenant Working Drawings. Upon Tenant's
approval of the Tenant Working Drawings and the Tenant Improvement Costs,
Landlord agrees to act as construction manager in the installation of said
tenant improvements to the Expansion Space. If the Tenant Improvement Costs
exceed $48,324.60, Tenant shall pay all of such excess to Landlord upon
completion of the tenant improvements. If the Tenant Improvement Costs are less
than $48,324.60, Landlord will credit the savings against the rent next due
after completion of the tenant improvements. Landlord shall select the
contractor to complete the tenant improvements so described in Tenant Working
Drawings.
-3-
<PAGE>
b. Landlord's obligations hereunder are limited to the provision of
items as set out above in this paragraph 7 and Landlord shall have no obligation
thereafter to repair or replace any such items that may require repair or
replacement except as provided in Section 7.A. of the Lease.
8. Additional Parking
------------------
Commencing on the Effective Date, in addition to the parking spaces to
which Tenant is entitled under the Lease, Tenant shall have the following
parking spaces and shall pay the amounts applicable thereto: (i) eight
unassigned parking spaces in the garage, for which Tenant shall pay $30.00 per
month through the Term of the Lease; and (ii) five unassigned parking spaces in
the surface lot at no charge. Except as set forth above, such additional
parking spaces shall be given and taken on the terms of Exhibit E to the Lease.
9. Effect on Option to Extend
--------------------------
Any exercise by Tenant of its Option to Extend granted by Rider No. 2
to the Lease shall include the Expansion Space. Upon exercise of the Option to
Extend, the rent for the entire Premises, including the Original Third Floor
Premises, the Original Sixth Floor Premises, and the Expansion Space shall be
calculated as one unit in the same manner as provided in Rider No. 2, and the
other provisions of Rider No. 2 shall be applicable to the entire Premises as
one unit.
10. Full Force and Effect
---------------------
Except as amended herein, all terms and conditions of the Lease shall
remain in full force and effect throughout the duration of the Term. The Lease,
as amended herein, constitutes the entire agreement between the parties hereto
and no further modification of the Lease, as amended herein, shall be binding
unless evidenced by an agreement in writing signed by Landlord and Tenant.
11. Effective Date
--------------
The Effective Date shall be the date on which Landlord obtains
possession of the Third Floor Expansion Premises, but not later than January 1,
1997. Landlord shall notify Tenant in writing of the actual Effective Date
within 10 days thereafter.
-4-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second
Amendment as of the day and year first above written.
LANDLORD:
HMS OFFICE, L.P.
By: Hines Office Company, L.L.C.
Its General Partner
By: /s/ Tom Owens
--------------------------------
Manager
TENANT:
TANNING TECHNOLOGY CORPORATION
a Colorado corporation
By: /s/ Larry G. Tanning
--------------------------------
Its: President
--------------------------------
-5-
<PAGE>
Exhibit A
[Diagram of floorplan, floor 3]
-i-
<PAGE>
Exhibit B
[Diagram of floorplan, floor 6]
-ii-
<PAGE>
EXHIBIT 10.25
FOURTH AMENDMENT TO METROPOINT BUILDING OFFICE LEASE
----------------------------------------------------
THIS FOURTH AMENDMENT TO METROPOINT BUILDING OFFICE LEASE (this
"Amendment") is entered into for reference purposes only as of this 11th day of
---------
July, 1997, between MGA REAL ESTATE ASSOCIATES, LLLP, a Colorado registered
limited liability limited partnership, successor in interest to HMS Office, L.P.
("Landlord") and TANNING TECHNOLOGY CORPORATION, a Delaware corporation
--------
("Tenant").
------
RECITALS:
--------
A. On January 31, 1995, Landlord and Tenant entered into that certain
Lease Agreement, which Lease Agreement has been previously amended by a First
Lease Amendment dated September 15, 1995, by a Second Lease Amendment dated
March 6, 1996 and by a Third Lease Amendment dated November 27, 1996 (the
"Lease").
-----
B. Landlord and Tenant desire to further amend the Lease in the manner and
form hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and conditions contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant agree to amend
the Lease as follows:
1. The Leased Premises, currently consisting of approximately 16,010
rentable square feet (consisting of 7,653 rentable square feet located on the
third floor of the Building and 8,357 rentable square feet located on the sixth
floor of the Building (the "Original Premises"), shall be expanded to include
-----------------
7,588 additional rentable square feet located on the eighth floor and known as
Suite 820 (the "Expansion Premises"), as outlined on the diagram attached hereto
------------------
as Exhibit A and incorporated herein by this reference. As of the date
---------
specified in paragraph 2 below, any reference to the "Leased Premises" in the
---------------
Lease shall include the Expansion Premises, and Tenant's occupancy thereof is
subject to all of the terms of the Lease, except as otherwise specifically
herein provided.
2. The term of the Lease with respect to the Expansion Premises shall
commence on the later to occur of August 1, 1997 or upon the issuance of a
certificate of occupancy with respect to the Expansion Premises (the
"Commencement Date") and shall terminate April 9, 2000, subject to Tenant's
- ------------------
option to extend the term of the lease as set forth in the Lease.
3. Monthly Base Rent for the Expansion Premises shall be as follows:
<PAGE>
Date Monthly Annual
- ----------------------------- --------------------- --------------------
Commencement Date - 4/9/2000 $15,176.00 $182,112.00
Base Rent is payable in the manner and place set forth in the Lease.
4. Paragraphs l.A(3), l.C(8) and 4 of the Lease shall not be applicable to
the Expansion Premises; provided, however, commencing on the Commencement Date,
Tenant will pay additional rent attributable to the Expansion Premises in
accordance with Exhibit C attached hereto.
---------
5. As of the Effective Date, Tenant's pro rata share with respect to the
Expansion Premises shall be as set forth in Exhibit C.
---------
6. Landlord agrees to perform its obligations with respect to the
Expansion Premises as set forth in Exhibit B attached hereto. Other than as set
---------
forth therein, Landlord is not obligated to make any improvements to the
Expansion Premises, and Tenant accepts the Expansion Premises in its "as is"
condition for the Term.
7. So long as Tenant is not in default of any provision of the Lease, as
amended hereby, Landlord will make available the following number of additional
non-assigned parking spaces in or about the parking garage and surface lot with
respect to the Expansion Premises (the "Parking Areas"):
-------------
14 non-reserved parking garage spaces
9 surface lot spaces
Such additional parking spaces utilized by Tenant during the term of the Lease
shall be at the market rate (currently $35.00 per month per space for non-
reserved spaces in the garage and no charge for surface lot spaces) charged for
such spaces from time to time ("Parking Rate"), and Tenant shall pay the Parking
------------
Rate for all such additional spaces taken. Tenant will receive one monthly bill
for all additional spaces taken and Tenant is to pay for all additional spaces
taken at the same time Base Rent is due. Notwithstanding the above, the right
granted to Tenant to use such spaces is a license only and Landlord's inability
to make such spaces available at any time for reasons beyond Landlord's
reasonable control is not a material breach by Landlord of its obligations
hereunder and Tenant has no rights to use the Parking Areas except as provided
in this paragraph. The abatement of Tenant's obligation to pay for unavailable
spaces during any period of unavailability constitutes Tenant's sole remedy. If
Tenant fails to timely pay a parking bill, Landlord, at Landlord's option, may,
in addition to Landlord's other remedies set forth in the Lease, revoke Tenant's
license to use the additional parking spaces specified in this paragraph 7. All
vehicles parked in the Parking Areas and the personal property therein shall be
at the sole risk of Tenant, Tenant's Agents and the users of such spaces
2
<PAGE>
and Landlord shall have no liability for loss or damage thereto for whatever
cause. Landlord reserves the right to designate the location of parking stalls
within the Parking Areas that are available for Tenant's use and to change such
designation from time to time.
8. Tenant represents and warrants to Landlord that it has not engaged any
broker in connection with the negotiation and/or execution of this Amendment,
except for Andrew J. Clark ("Clark"). Tenant has no knowledge of any other
-----
brokers' involvement in this transaction, except Vector Property Services, LLC
("Vector"), which has acted as Landlord's leasing agent. Tenant will indemnify
------
Landlord and Vector against any claim or expense (including, without limitation,
attorneys' fees) paid or incurred by Landlord or Vector, respectively, as a
result of any claim for commissions or fees by any broker, finder, or agent,
whether or not meritorious, employed by Tenant or claiming by, through or under
Tenant, except for the commission that Vector has agreed to pay Clark pursuant
to a separate agreement. Tenant and Landlord acknowledge that the other is not
liable for any representations by Vector regarding the Premises, Building or
this Amendment.
9. The Lease as modified herein remains in full force and effect and is
ratified by Landlord and Tenant. In the event of any conflict between the Lease
and this Amendment, the terms and conditions of this Amendment shall control.
Capitalized terms not defined herein shall have the same meaning as set forth in
the Lease.
10. This Amendment is binding upon and inures to the benefit of the
parties hereto and their heirs, personal representatives, successors and
assigns. Except as expressly provided herein, or as previously approved and
allowed by Landlord, Tenant has not assigned or transferred any interest in the
Lease and has full power and authority to execute this Amendment. Tenant has no
known claims of any kind or nature against Landlord arising from or under the
Lease and there are no agreements between Landlord and Tenant other than the
Lease, as amended hereby.
11. Time is of the essence herein and, unless waived by Landlord, which it
shall have the right, but not the obligation, to so do.
12. This Amendment shall be governed by an construed in accordance with
the laws of the State of Colorado.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment. This
Amendment is effective upon delivery of a fully executed copy to Tenant
("Effective Date"); the day and year first above written is for reference
- ----------------
purposes only.
TANNING TECHNOLOGY MGA REAL ESTATE ASSOCIATES LLLP,
CORPORATION, a Delaware a registered limited liability limited
corporation partnership
By: /s/ Larry G. Tanning By:
-------------------- ---------------
Date: 7/11/97 Date: 7/15/97
------- -------
4
<PAGE>
EXHIBIT A
---------
EXPANSION PREMISES
------------------
[Diagram of floorplan]
A-1
<PAGE>
EXHIBIT B
---------
Tenant Improvement Work Agreement
---------------------------------
July 11, 1997
Tanning Technology Corporation
4600 South Ulster Street
Suite 820
Denver, Colorado 80237
Re: Premises: Approximately 7,588 rentable square feet of space on the
eighth floor (the "Expansion Premises")
Gentlemen:
Concurrently herewith, you as Tenant, and the undersigned, as Landlord,
have executed a Lease (the "Lease") covering the Expansion Premises (the
provisions of said Lease are herein incorporated by reference as if fully set
forth herein). In consideration of the execution of said Lease, Tenant and
Landlord mutually agree as follows:
1. Tenant and Landlord's representative have approved the attached space
plan by Gensler Architects, dated June 9, 1997 for the Expansion Premises.
Neither Landlord's use or approval of any plans prepared by Tenant for the
preparation of the architectural, mechanical and electrical drawings (the
"Working Drawings") nor the fact that they have been prepared by Landlord's
architect shall create a responsibility or liability on the part of Landlord for
their completeness, design sufficiency, or compliance with any laws, rules and
regulations of governmental agencies or authorities now in effect or which may
hereafter be in effect.
2. Landlord's contractor shall perform all work for the Expansion Premises
in a good and workmanlike manner and substantially in accordance with mutually
acceptable Working Drawings (to be prepared from the attached space plan within
a reasonable period of time following mutual execution of this Lease, not to
exceed thirty (30) days) at Landlord's cost and expense, not to exceed Eight
Dollars ($8.00) per rentable square foot of the Expansion Premises. Such Eight
Dollar ($8.00) allowance shall cover all costs related to the Expansion
Premises, including, but not limited to, design fees, costs of preparation of
the attached space plan and Working Drawings, construction management fees, and
costs of materials and construction. Any costs in excess of the above-
referenced allowance (the "Excess Costs") will
B-1
<PAGE>
be at Tenant's sole cost and expense and will be paid promptly by Tenant upon
receipt of billing therefor which may be prior to Landlord's commencement of the
work described herein. If any such Excess Costs paid by Tenant exceed the actual
costs incurred by Landlord, Landlord agrees to reimburse Tenant the amount of
the Excess Costs paid by Tenant over the actual costs within thirty (30) days
following Landlord's receipt of final invoices with respect to the work. Other
than as set forth herein, Landlord shall have no obligations for the completion
or remodeling of the Expansion Premises and Tenant shall accept the Expansion
Premises in their "as is" condition on the date the Initial Term commences.
3. Changes to the final approved Working Drawings may be made only by
written direction to Landlord by Tenant. All costs incurred by such changes,
including costs of the revisions in Working Drawings and costs of construction
and materials, and reimbursables necessitated by such changes, shall be paid for
in full by Tenant prior to the commencement of the work by Landlord. If any
such costs paid by Tenant exceed the actual costs incurred by Landlord, Landlord
agrees to reimburse such excess to Tenant in the manner set forth in paragraph 2
above.
4. Notwithstanding any provisions of the Lease to the contrary, the
Commencement Date and Tenant's rental obligations will not be delayed or
extended by any delay (i) in the preparation, finalization or approval of the
Working Drawings caused by Tenant, its agents or employees; (ii) caused by
modifications, revisions and changes to the Working Drawings due to changes
requested by Tenant, its agents or employees; (iii) in the delivery or
installation of any special or non-standard building items specified by Tenant;
or (iv) of any kind or nature in the completion of the Expansion Premises caused
by Tenant, its agents or employees (collectively, "Tenant Delay").
TANNING TECHNOLOGY MGA REAL ESTATE ASSOCIATES LLLP,
CORPORATION, a Delaware a registered limited liability limited
corporation partnership
By: /s/ Larry G. Tanning By: /s/ Paul Beatty
-------------------- ---------------
Date: 7/11/97 Date: 7/15/97
------- -------
B-2
<PAGE>
EXHIBIT C
---------
OPERATING EXPENSES
------------------
1. Definitions. The additional terms below have the following meanings:
-----------
(1) "Base Operating Expenses" means an amount equal to the Operating
Expenses for the calendar year 1997 ("Base Year"), as determined by Landlord in
accordance with this Exhibit C, except that for purposes of calculating Base
Operating Expenses hereunder, the Taxes for the Base Year (the "Tax Base") shall
be deemed to be $2.09 per rentable square foot (without further adjustment under
this Exhibit for actual Taxes for the Base Year, Building occupancy, or status
of completion). Tenant acknowledges Landlord has not made any representations
or warranties that the Base Operating Expenses will equal any specified amounts
(any estimates provided by Landlord are non-binding estimates only).
(2) "Landlord's Accountants" means that individual or firm employed by
Landlord from time to time to keep the books and records for the Building
Complex, and/or to prepare the federal and state income tax returns for Landlord
with respect to the Building Complex, which books and records shall be certified
to by a representative of Landlord. All determinations made hereunder shall be
made by Landlord's Accountants unless otherwise stated.
(3) "Rentable Area" means 263,719 rentable square feet of space. If
there is a significant change in the aggregate Rentable Area as a result of an
addition, partial destruction, modification or increase in the Rentable Area on
a permanent basis or, if Landlord remeasures the Building and a change in
Rentable Area occurs, Landlord's Accountants shall make such adjustments in the
computations as are necessary to provide for such change.
(4) "Tenant's Pro Rata Share" with respect to the Expansion Premises
means 2.8773% and with respect to the entire Leased Premises (including the
Expansion Premises) means 8.9482%. If Tenant, at any time during the Term,
leases additional space in the Building or if the Rentable Area is adjusted,
Tenant's Pro Rata Share shall be recomputed by dividing the total rentable
square footage of space then leased by Tenant (including any additional space)
by the Rentable Area and the resulting figure shall become Tenant's Pro Rata
Share.
(5) "Operating Expense Year" means each calendar year during the Term,
except that the first Operating Expense Year begins on the Commencement Date and
ends on December 31 of such year and the last Operating Expense Year begins on
January 1 of the calendar year in which this Lease expires or is terminated and
ends on
C-1
<PAGE>
the date of such expiration or termination. If an Operating Expense Year is less
than twelve (12) months, Operating Expenses for such year shall be prorated.
(6) "Operating Expenses" means all operating expenses of any kind or
nature which are in Landlord's reasonable judgment necessary, appropriate, or
customarily incurred in connection with the operation and maintenance of the
Building Complex. Operating Expenses include:
(a) All real property taxes and assessments levied against the
Building Complex by any governmental or quasi-governmental authority,
including taxes, assessments, surcharges, or service or other fees of a
nature not presently in effect which are hereafter levied on the Building
Complex as a result of the use, ownership or operation of the Building
Complex or for any other reason, whether in lieu of or in addition to, any
current real estate taxes and assessments. However, any taxes which are
levied on the rent of the Building Complex will be determined as if the
Building Complex were Landlord's only real property. In no event do taxes
and assessments include any federal or state income taxes levied or
assessed on Landlord. Expenses for tax consultants to contest taxes or
assessments are also included as Operating Expenses (all of the foregoing
are collectively referred to herein as "Taxes"). Taxes also include
special assessments, license taxes, business license fees, business license
taxes, commercial rental taxes, levies, charges, penalties or taxes,
imposed by any authority against the Premises, Building Complex or any
legal or equitable interest of Landlord. Special assessments are deemed
payable in such number of installments permitted by law, whether or not
actually so paid, and include any applicable interest on such installments.
Taxes (other than special assessments) are computed on an accrual basis
based on the year in which they are levied, even though not paid until the
following Operating Expense Year;
(b) Costs of supplies, including costs of relamping and replacing
ballasts in all Building standard tenant lighting;
(c) Costs of energy for the Building Complex, including costs of
propane, butane, natural gas, steam, electricity, solar energy and fuel
oils, coal or any other energy sources;
(d) Costs of water and sanitary and storm drainage services;
C-2
<PAGE>
(e) Costs of janitorial and security services;
(f) Costs of general maintenance, repairs, and replacements
including costs under HVAC and other mechanical maintenance contracts; and
repairs and replacements of equipment used in maintenance and repair work;
(g) Costs of maintenance, repair and replacement of landscaping;
(h) Insurance premiums for the Building Complex, including all-
risk or multi-peril coverage, together with loss of rent endorsement; the
part of any claim paid under the deductible portion of any insurance policy
carried by Landlord; public liability insurance; and any other insurance
carried by Landlord on any component parts of the Building Complex;
(i) All labor costs, including wages, costs of workers'
compensation insurance, payroll taxes, fringe benefits, including pension,
profit-sharing and health, and legal fees and other costs incurred in
resolving any labor dispute;
(j) Professional building management fees, costs and expenses,
including costs of office space and storage space required by management
for performance of its services;
(k) Legal, accounting, inspection, and other consulting fees
(including fees for consultants for services designed to produce a
reduction in Operating Expenses or improve the operation, maintenance or
state of repair of the Building Complex;
(1) Costs of capital improvements and structural repairs and
replacements to the Building Complex to conform to changes subsequent to
the date of issuance of the shell and core certificate of occupancy for the
Building in any Applicable Laws (herein "Required Capital Improvements");
and the costs of any capital improvements and structural repairs and
replacements designed primarily to reduce Operating Expense (herein "Cost
Savings Improvements"). Expenditures for Required Capital Improvements and
Cost Savings Improvements will be amortized at a market rate of interest
over the useful life of such capital improvement (as determined by
Landlord's Accountants); however, the amortized amount of any Cost Savings
Improvement in any year
C-3
<PAGE>
will be equal to the estimated resulting reduction in Operating Expenses;
and
(m) Costs incurred for Landlord's Accountants including costs of
any experts and consultants engaged to assist in making the computations;
"Operating Expenses" do not include:
---
i) Costs of work, including painting and decorating, which
Landlord performs for any tenant other than work of a kind and scope which
Landlord is obligated to furnish to all tenants whose leases contain a
rental adjustment provision similar to this one;
ii) Costs of repairs or other work occasioned by fire,
windstorm or other insured casualty to the extent of insurance proceeds
received;
iii) Leasing commissions, advertising expenses, and other costs
incurred in leasing space in the Building;
iv) Costs of repairs or rebuilding necessitated by
condemnation;
v) Interest on borrowed money or debt amortization, except as
specifically set forth above; or
vi) Depreciation on the Building Complex.
If any lease entered into by Landlord with any tenant in the Building is on a
so-called "net" basis, or provides for a separate basis of computation for any
Operating Expenses with respect to its leased premises, Landlord's Accountants
may modify the computation of Base Operating Expenses, Rentable Area, and
Operating Expenses for a particular Operating Expense Year to eliminate or
modify any expenses which are paid for in whole or in part by such tenant. If
the Rentable Area is not fully occupied during any particular Operating Expense
Year, Landlord's Accountants may adjust those Operating Expenses which are
affected by occupancy for the particular Operating Expense Year to reflect 100%
occupancy. Furthermore, in making any computations contemplated hereby,
Landlord's Accountants may make such other modifications to the computations as
are required in their judgment to achieve the intention of the parties hereto.
C-4
<PAGE>
2. Additional Payment. If any increase occurs in Operating Expenses for
------------------
any Operating Expense Year during the Term in excess of the Base Operating
Expenses, Tenant shall pay Landlord Tenant's Pro Rata Share of the amount of
such increase (less Estimated Payments, if any, previously made by Tenant for
such year).
3. Estimated Payments. During each Operating Expense Year beginning with
------------------
the first month of the second Operating Expense Year and continuing each month
thereafter throughout the Term, Tenant shall pay Landlord, at the same time as
Base Rent is paid, an amount equal to 1/12 of Landlord's estimate of Tenant's
Pro Rata Share of any projected increases in Operating Expenses for the
particular Operating Expense Year in excess of Base Operating Expenses
("Estimated Payment").
4. Annual Adjustments.
------------------
(a) Following the end of each Operating Expense Year, including
the first Operating Expense Year, Landlord shall submit to Tenant a
statement setting forth the exact amount of Tenant's Pro Rata Share of the
increase, if any, of the Operating Expenses for the Operating Expense Year
just completed over the Base Operating Expenses. Beginning with the
statement for the second Operating Expense Year, each statement shall set
forth the difference, if any, between Tenant's actual Pro Rata Share of the
increase in Operating Expenses for the Operating Expense Year just
completed and the estimated amount for such Operating Expense Year. Each
statement shall also set forth the projected increase, if any, in Operating
Expenses for the new Operating Expense Year above or below the Rent paid by
Tenant for the immediately preceding Operating Expense Year. The effect of
this provision is that the only increases to be borne by Tenant for the
first Operating Expense Year will be the positive difference (if any)
between the actual Taxes for the first Operating Expense Year and the Tax
Base.
(b) To the extent that Tenant's Pro Rata Share of the increase in
Operating Expenses for the period covered by a statement is different from
the Estimated Payment during the Operating Expense Year just completed,
Tenant shall pay Landlord the difference within 30 days following receipt
by Tenant of the statement or receive a credit against the next due Rent,
as the case may be. Until Tenant receives a statement, Tenant's Estimated
Payment for the new Operating Expense Year shall continue to be paid at the
prior Estimated Payment, but Tenant shall commence payment of Rent based on
the new Estimated Payment beginning on
C-5
<PAGE>
the first day of the month following the month in which Tenant receives the
statement. Tenant shall also pay Landlord or deduct from the Rent, as the
case may be, on the date required for the first payment, as adjusted, the
difference, if any, between the Estimated Payment for the new Operating
Expense Year set forth in the statement and the Estimated Payment actually
paid during the new Operating Expense Year. If, during any Operating
Expense Year, there is a change in the information on which Tenant is then
making its Estimated Payments so that the prior estimate is no longer
accurate, Landlord may revise the estimate and there shall be such
adjustments made in the monthly Rent on the first day of the month
following notice to Tenant as shall be necessary by either increasing or
decreasing, as the case may be, the amount of monthly Rent then being paid
by Tenant for the balance of the Operating Expense Year.
5. Miscellaneous. In no event will any decrease in Rent pursuant to any
-------------
provision hereof result in a reduction of Rent below the Base Rent. Delay by
Landlord in submitting any statement for any Operating Expense Year does not
affect the provisions of this Section or constitute a waiver of Landlord's
rights for such Operating Expense Year or any subsequent Operating Expense
Years.
6. Dispute. If Tenant disputes an adjustment submitted by Landlord or a
-------
proposed increase or decrease in the Estimated Payment, Tenant shall give
Landlord notice of such dispute within 30 days after Tenant's receipt of the
adjustment. If Tenant does not give Landlord timely notice, Tenant waives its
right to dispute the particular adjustment. If Tenant timely objects, Tenant
may engage its own certified public accountants ("Tenant's Accountants") to
verify the accuracy of the statement complained of or the reasonableness of the
estimated increase or decrease. If Tenant's Accountants determine that an error
has been made, Landlord's Accountants and Tenant's Accountants shall endeavor to
agree upon the matter, failing which such matter shall be submitted to an
independent certified public accountant selected by Landlord, with Tenant's
reasonable approval, for a determination which will be conclusive and binding
upon Landlord and Tenant. All costs incurred by Tenant for Tenant's Accountants
shall be paid for by Tenant unless Tenant's Accountants disclose an error,
acknowledged by Landlord's Accountants (or found to have occurred through the
above independent determination), of more than 25% in the computation of the
total amount of Operating Expenses, in which event Landlord shall pay the
reasonable costs incurred by Tenant to obtain such audit. Notwithstanding the
pendency of any dispute, Tenant shall continue to pay Landlord the amount of the
Estimated Payment or adjustment determined by Landlord's Accountants until the
adjustment has been determined to be incorrect. If it is determined that any
portion of the Operating Expenses were not properly chargeable to Tenant, then
Landlord shall promptly credit or refund the appropriate sum to Tenant.
C-6
<PAGE>
EXHIBIT 10.26
LEASE AGREEMENT
FOR
4600 SOUTH SYRACUSE
DENVER, COLORADO
BETWEEN
DENVER HINES DEVELOPMENT, LLC,
AS LANDLORD
AND
TANNING TECHNOLOGY CORPORATION,
AS TENANT
<PAGE>
TABLE OF CONTENTS
1. BASIC LEASE PROVISIONS, EXHIBITS AND DEFINITIONS ......................1
A. Basic Lease Provisions .............................................1
B. Additional Provisions and Exhibits .................................2
C. Definitions ........................................................2
2. DEMISE ................................................................7
3. ANNUAL RENT ...........................................................8
A. Annual Rent ........................................................8
B. Terms of Payment ...................................................8
4. ADDITIONAL RENT .......................................................8
A. Tenant's Share of Computed Operating Expenses ......................8
B. Partial Years ......................................................9
C. Objections by Tenant ...............................................9
D. No Reduction in Annual Rent .......................................10
5. CONSTRUCTION AND POSSESSION ..........................................10
A. Construction of Premises ..........................................10
B. Early Occupancy ...................................................10
C. Failure to Complete ...............................................11
D. Punch List ........................................................12
6. OCCUPANCY OF PREMISES ................................................12
A. Use ...............................................................12
B. Compliance ........................................................12
7. SERVICES PROVIDED BY LANDLORD ........................................12
A. Description of Standard Services ..................................12
B. Additional Services ...............................................14
C. Interruption of Services ..........................................14
8. REPAIRS ..............................................................14
A. Repairs Within the Premises .......................................14
B. Landlord's Entry ..................................................14
C. Notice of Damage ..................................................15
9. ADDITIONS, IMPROVEMENTS, AND ALTERATIONS .............................15
10. COVENANT AGAINST LIENS ..............................................16
A. Mechanics Liens ...................................................16
B. Sales, Use, Income and Personal Property Taxes ....................16
11. INSURANCE ...........................................................16
A. Waiver of Subrogation .............................................16
B. Coverage ..........................................................17
C. Avoid Action Increasing Rates .....................................17
i
<PAGE>
D. Notices by Tenant's Insurance Carrier to Landlord .................18
12. FIRE OR CASUALTY ....................................................18
A. Restoration - Cancellation upon Major Damage ......................18
B. Rent Abatement ....................................................19
13. WAIVER OF CLAIMS - INDEMNIFICATION ..................................19
14. NONWAIVER; ACCEPTANCE OF RENT OR PERFORMANCE AFTER BREACH ...........20
15. CONDEMNATION ........................................................20
16. ASSIGNMENT AND SUBLETTING ...........................................20
17. SURRENDER OF POSSESSION .............................................22
18. PERSONAL PROPERTY ...................................................22
A. Responsibility ....................................................22
B. Taxes on Certain Improvements, Alterations and Conditions .........22
C. Landlord's Lien ...................................................22
19. HOLDING OVER ........................................................23
20. ESTOPPEL CERTIFICATE ................................................23
21. OBLIGATIONS TO MORTGAGEES AND LESSORS ...............................23
A. Subordination .....................................................23
B. Notice to Landlord, Mortgagees, and Lessors .......................24
22. CERTAIN RIGHTS RESERVED BY LANDLORD .................................24
23. RULES AND REGULATIONS ...............................................25
24. DEFAULT AND REMEDIES ................................................25
A. Events of Default .................................................25
B. Landlord's Remedies ...............................................27
C. Concurrent or Subsequent Exercise of Remedies .....................30
D. Choice of Law, Jurisdiction and Venue .............................30
25. EXPENSES OF ENFORCEMENT .............................................31
26. COVENANT OF QUIET ENJOYMENT .........................................31
27. SECURITY DEPOSIT ....................................................31
28. REAL ESTATE BROKER ..................................................32
29. MISCELLANEOUS .......................................................32
A. Rights Cumulative .................................................32
B. Interest ..........................................................32
C. Binding Effect ....................................................32
ii
<PAGE>
D. Lease Contains All Terms ..........................................32
E. Delivery for Examination ..........................................33
F. No Air Rights .....................................................33
G. Modification of Lease .............................................33
H. Substitution of Premises ..........................................33
I. Transfer of Landlord's Interest ...................................33
J. Prohibition Against Recording .....................................33
K. Captions ..........................................................33
L. Only Landlord/Tenant Relationship .................................33
M. Bills .............................................................33
N. Severability ......................................................33
O. Jury Trial ........................................................34
P. Authority to Bind .................................................34
Q. Tenant's Covenants Independent ....................................34
R. Business Days and Hours; Holidays .................................34
S. Force Majeure .....................................................34
30. LIMITATIONS ON LANDLORD'S LIABILITY .................................34
31. NOTICES .............................................................35
iii
<PAGE>
EXHIBITS
Exhibit A - 4600 SOUTH SYRACUSE Additional Provisions
Exhibit B - 4600 SOUTH SYRACUSE Legal Description of the Land
Exhibit C - 4600 SOUTH SYRACUSE Plan Delineating the Premises
Exhibit D - 4600 SOUTH SYRACUSE Tenant Construction Agreement
Exhibit E - 4600 SOUTH SYRACUSE Rules and Regulations
Exhibit F - 4600 SOUTH SYRACUSE Parking
Exhibit G - 4600 SOUTH SYRACUSE Base Building Shell and Building Standard Items
iv
<PAGE>
LEASE AGREEMENT
4600 SOUTH SYRACUSE
This LEASE AGREEMENT (this "Lease") is made as of the ____ day of
___________________, 1998, between DENVER HINES DEVELOPMENT, LLC, a Delaware
limited liability company (the "Landlord"), and TANNING TECHNOLOGY CORPORATION,
a ___________________________________ (the "Tenant"), whose present address is
_______________________________________ and whose address will be that of the
Building beginning with the Commencement Date.
1. BASIC LEASE PROVISIONS, EXHIBITS AND DEFINITIONS
A. Basic Lease Provisions . The following are certain basic lease
provisions which are part of, and in certain instances referred to in
subsequent provisions of, this Lease:
(1) Term: Seven years and five months, beginning on the earlier of (I) the
date of substantial completion of the Tenant Work in the Premises, as
defined in Paragraph 9 of Exhibit D to this Lease, or (ii) August 1,
1999 ("Commencement Date"), or any deferred Commencement Date that may
apply under Section 5.C below or under Exhibit D to this Lease, and
expiring at midnight on the date which is seven years and five months
later ("Expiration Date"). When the Commencement Date has been
determined, Landlord and Tenant will execute a certificate specifying
the Commencement Date and the Expiration Date.
(2) Annual Rent: Determined pursuant to Section 3 based on an annual
amount per square foot of Rentable Area of the Premises for each Lease
Year (which amount per square foot includes Initial Operating Expenses
Basic Cost, as defined below), as follows:
<TABLE>
<CAPTION>
LEASE YEAR ANNUAL RATE PER RENTABLE SQUARE FOOT
---------- ------------------------------------
<S> <C>
Lease Years 1 through 3* $26.00
Lease Years 4 and 5 $27.00
Lease Years 6 and 7, and remaining 5 months $28.00
</TABLE>
*subject to abatement provision in Section 3.A below
(3) Initial Operating Expenses Basic Cost (including the Management Fee
Contribution): the sum of $8.00 per square foot of Rentable Area of
the Premises.
<PAGE>
(4) Permitted Use: general administrative office purposes, and related or
ancillary uses.
(5) Rentable Area of the Premises: approximately 50,000 square feet
consisting of all of Floors 12 and 13, and a portion of Floor 11, of
the Building. The Rentable Area of the Premises is approximately as
stated above, and shall be specifically calculated by Landlord's
architects when floor plans for the Premises are complete, in
accordance with the definitions contained in this Lease. Upon such
determination by Landlord's architect, the Rentable Area of the
Premises shall be adjusted to reflect the number of square feet of
Rentable Area determined by such calculation. At the request of
Landlord, the parties shall, from time to time, execute instruments
confirming the Rentable Area of the Premises.
(6) Security Deposit: _____________
(7) Tenant's Broker: Clark Group
B. Additional Provisions and Exhibits. Set forth in Exhibit A attached
hereto are certain additional provisions contained in this Lease. In the
event of any inconsistency between such additional provisions and the terms
and provisions of this Lease, the terms and provisions of such additional
provisions shall control. The following is an identification of the
Exhibits which are attached to this Lease and incorporated in this Lease by
this reference. The Exhibits to this Lease include:
Exhibit A -Additional Provisions
Exhibit B -Legal Description of the Land
Exhibit C -Plan Delineating the Premises
Exhibit D -Tenant Construction Agreement
Exhibit E -Rules and Regulations
Exhibit F -Parking
Exhibit G-Base Building Shell and Building Standard Items
C. Definitions. In this Lease (including this Section) the following
defined terms have the meanings indicated:
(1) "Building" means that 13 floor office and commercial building
containing approximately 299,766 square feet of Rentable Area commonly
known as 4600 SOUTH SYRACUSE, 4600 South Syracuse Street, Denver,
Colorado 80237, located on the Land and in which the Premises are
located. The Rentable Area of the Building is approximately as stated
above, and shall be specifically calculated by Landlord's architects
when floor plans for the Building are complete. Upon such
determination by Landlord's architect, the Rentable Area of the
Building shall be adjusted to reflect the number of square feet of
Rentable Area determined by such calculation.
(2) "Building-Shared Areas" means the square footage of the areas within
(and measured from the mid-point of the walls enclosing) the Building
elevator machine rooms, main mechanical and electrical rooms, public
lobbies, 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
2
<PAGE>
services to the Building. The allocation to the Premises of the
Building-Shared Areas shall be equal to the total Building-Shared
Areas within the Building multiplied by a fraction, the numerator of
which is the Usable Area of the Premises and the denominator of which
is the Usable Area leased or held for lease for general office
purposes in the Building.
(3) "Building Standard" means the items described as building standard
finishes on Exhibit G, as such items may be revised from time-to-time
by Landlord.
(4) "Calendar Year" means any twelve month period, January through
December, which contains any part of the Term of this Lease.
(5) "Complex" means the Land, the Building, the parking garage, and all
other improvements on the Land or directly benefiting the Building
from time to time, and all additional facilities directly benefiting
the Building that may be constructed in subsequent years, including
underground pedestrian tunnels and aboveground pedestrian skywalks,
and including any variations or additions thereto, but excluding any
additional office buildings which might be built on the Land.
(6) "Computed Operating Expenses" means, with respect to each Calendar
Year during the Term, the actual Operating Expenses for said Calendar
Year computed on the accrual basis and in accordance with the terms of
this Lease, but excluding the Management Fee Contribution.
(7) "Floor-Shared Areas" means the square footage of the areas within (and
measured from the mid-point of the walls enclosing) public corridors,
elevator foyers, rest rooms, mechanical rooms, janitor closets,
telephone and equipment rooms, and other similar facilities for the
use of all tenants on the floor on which the Premises are located. In
the case of a floor leased to more than one tenant, the allocation to
the Premises of the Floor-Shared Areas on said floor shall be equal to
the total Floor-Shared Areas on said floor multiplied by a fraction,
the numerator of which is the Usable Area of the Premises located on
said floor and the denominator of which is the Usable Area of said
floor.
(8) "Land" means the real property legally described on Exhibit B.
(9) "Lease Year" means each twelve (12) month period beginning with the
Commencement Date, or any anniversary thereof, and ending at midnight
on the date which is one day prior to the same date one (1) year
later. If the Lease Year is not concurrent with a Calendar Year, then
Landlord reserves the right at any time to make all adjustments
provided for herein on a Calendar Year basis, with an appropriate
proration for the Lease Years in which such conversion is made and in
which the Term ends, and "Lease Year" as used in any portion of this
Lease pertaining to such adjustments shall thereafter be deemed to
refer to "Calendar Year".
(10) "Operating Expenses" means all expenses, costs and disbursements of
every kind and nature which Landlord shall in good faith pay or incur
or become obligated to pay or incur because of or in connection with
the ownership of the
3
<PAGE>
Complex or the operation or maintenance of the Complex to Class A
standards within the Denver Technological Center, including but not
limited to, the following:
i) Wages, salaries and other compensation of all employees, on site
and offsite, engaged in the operation, maintenance, repair or
access control of the Complex, including personnel for security
or who may provide traffic control relating to ingress and egress
to and from the parking facilities serving the Complex to the
adjacent public streets. All taxes, insurance and benefits
relating to employees providing these services shall be included.
ii) All supplies, equipment, tools and materials, whether purchased
or leased, used in the operation, maintenance, repair or access
control of the Complex.
iii) Cost of all utilities for the Complex, including, but not
limited to, the cost of water, power, heating, lighting, air
conditioning and ventilating (excluding those costs billed to
specific tenants).
iv) Cost of all maintenance and service agreements for the Complex
and the equipment therein, including, but not limited to, access
control, window cleaning, elevator maintenance, landscaping and
perimeter sidewalk and public area cleaning, maintenance and
repair, and janitorial service (excluding, however, any such
costs which exceed arms-length competitive market prices for
goods or services paid to any person, firm or corporation related
or otherwise affiliated with Landlord);
v) Cost of all insurance relating to the Complex, including, but not
limited to, the cost of casualty, rental abatement and liability
insurance applicable to the Complex and Landlord's personal
property used in connection therewith.
vi) Cost of repairs and maintenance (excluding repairs and
maintenance paid by proceeds of insurance or by Tenant or other
third parties, and alterations attributable solely to tenants of
the Building other than Tenant).
vii) Amortization of the cost of capital investment items which are
primarily for the purpose of reducing operating costs or which
may be required by governmental authority, or to promote safety
or to maintain the quality of the Complex. All such costs shall
be determined and amortized over the reasonable life or payback
period, as Landlord may elect, of the capital investment items in
accordance with generally accepted accounting principles,
together with a commercially reasonable financing charge factor.
In no event shall the amortization period extend beyond the
reasonable life of the Building.
4
<PAGE>
viii) All internal control audit and operating expense audit costs for
the Complex, and a prorata allocation for the Complex of the
costs of the off-site project accounting, senior property
management, payroll and risk management departments of Landlord
and/or the property manager, including personnel costs, office
rent and other associated costs incurred in connection with such
departments.
ix) Office rent (to the extent such rent does not exceed the fair
market rental rate for the applicable space, as defined below)
and other costs of a management office within the Complex.
x) Costs of operating a reception desk and /or other amenities or
services for the general benefit of tenants of the Building that
may be provided now or in the future.
xi) All Taxes (as defined below).
xii) A contribution (the "Management Fee Contribution") towards a
management fee payable to the manager of the Building, said
contribution to be equal to three percent (3%) of the Annual
Rent (as the same may be adjusted from time to time as set forth
above) and of Tenant's Share of Computed Operating Expenses as
described below (but excluding the Management Fee Contribution).
Operating Expenses shall not include any settlement, payment or
judgment incurred by Landlord due to its willful misconduct or gross
negligence, as established by a court of law, or the cost of any
damage to the Complex caused directly by Landlord's willful misconduct
or gross negligence, as established by a court of law.
(11) "Premises" means that portion of the Building identified as such on
Exhibit C and containing the Rentable Area set forth in Section
1.A.(5). The Premises do not include, and Landlord hereby excludes
and reserves for its sole and exclusive use, any and all: janitor
closets, stairways and stairwells; fan, mechanical, electrical,
telephone and similar rooms; elevator, pipe and other vertical shafts,
flues and ducts; (other than, as to all the above in this Section
1.C.(7), those installed for or available for Tenant's exclusive use);
all areas above the acoustical ceiling and below the finished floor
covering installed in the Premises; and other areas not shown on
Exhibit C as being part of the Premises.
(12) "Rentable Area" refers to the square footage area or areas within the
Building determined by adding the following:
i) the Usable Area of the area being measured;
5
<PAGE>
ii) the portion of the Building-Shared Areas allocable to the area
being measured; and
iii) the portion of the Floor-Shared Areas allocable to the area
being measured.
(13) "Service Areas" means the square footage of the areas within (and
measured from the mid-point of the walls enclosing) the Building
stairs, fire towers, elevator shafts, flues, vents, stacks, pipe
shafts, vertical ducts and other vertical penetrations. 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
Service Areas (i.e., such areas will be included in the Usable Area
leased of the space being measured).
(14) "Taxes" means all real estate and personal property taxes and
assessments (general, special or otherwise) and license or other fees,
levied or assessed by any federal, state, city and county or local
government or by any other taxing district or authority upon or with
respect to the Complex, the maintenance equipment and vehicles,
elevators, building machinery and other personal property owned or
leased by Landlord and used exclusively for the operation of the
Complex (or if not used exclusively for the Complex, a prorata share
of the same based upon the amount such personal property is used in
connection with the operation of the Complex compared to its total
use). Should any governmental authority having jurisdiction over the
Complex impose an income or franchise tax or a tax on rents in
substitution, in whole or in part, for such real estate or personal
property taxes or license or other fees or in lieu of any increase in
such taxes or fees, such income, franchise or rent tax shall be deemed
to constitute Taxes hereunder. All references to Taxes for a
particular year shall be deemed to refer to Taxes levied, assessed or
otherwise imposed in such year without regard to when such Taxes are
payable. Taxes shall also include all special taxes and special
assessments, all of which or installments of which are required to be
paid, or which Landlord elects to pay, during any Calendar Year.
(15) "Tenant's Share of Computed Operating Expenses" means, with respect to
any Calendar Year, the sum of (a) the Management Fee Contribution for
such year, and (b) the Computed Operating Expenses for such year,
which sum shall be (I) divided by the greater of ninety-five percent
(95%) of the Rentable Area of office space leased or held for lease in
the Building or the total Rentable Area of office space actually
leased in the Building, and (II) multiplied times the number of square
feet of Rentable Area contained within the Premises. Notwithstanding
the foregoing provisions, Landlord shall not be entitled to collect a
greater amount with respect to the Computed Operating Expenses for any
calendar year during the Term than the Computed Operating Expenses
actually paid or incurred by Landlord for that calendar year. In
addition, notwithstanding the foregoing provisions, during any portion
of the Term that the Building is not fully occupied, or that the
Building is not fully furnished with all of the services referred to
in Section 7, the Tenant's Share of Computed Operating Expenses with
respect to those Operating Expenses which are variable depending upon
occupancy (such as janitorial costs) shall be equitably adjusted so as
to attribute to Tenant its fair
6
<PAGE>
share, based on what Tenant has received, of such variable Operating
Expenses, but shall not be adjusted with respect to any Operating
Expenses which are not variable depending upon occupancy (such as
landscape maintenance). If Landlord should lease any premises in the
Building on a net lease or similar basis such that Landlord does not
fully furnish to the tenant(s) of such premises any one or more of the
services described in Section 7, then, with respect to those items of
Operating Expenses that would have been incurred by Landlord had
Landlord fully furnished all of the services described in Section 7 to
such premises, such premises shall be deemed "unoccupied" for purposes
of the preceding sentence.
(16) "Term" means the term of this Lease which shall commence on the
Commencement Date set forth in Section 1.A.(1) or the later
Commencement Date to which such commencement may be extended pursuant
to Section 5.C. or Exhibit D, and which shall end on the Expiration
Date set forth in Section 1.A.(1) or the later Expiration Date to
which such expiration may be extended pursuant to Section 5.C. or
Exhibit D, unless terminated earlier or extended further as provided
in this Lease.
(17) "Usable Area" means the square footage of the areas within the
Premises measured from the inside surface of the outer glass, finished
column or exterior wall of the Building enclosing the Premises to the
inside surface of the opposite outer glass, finished column or
exterior wall, or to the mid-point of the demising walls separating
the Premises from:
i) areas leased to or held for lease to other tenants;
ii) Building-Shared Areas;
iii) Floor-Shared Areas; and
iv) Service Areas, as the case may be. No deductions from Usable
Area shall be made for columns or projections necessary to the
Building.
Certain additional defined terms are used in this Lease; such terms have
the meanings set forth in the sections of this Lease where the definitions of
such terms appear.
2. DEMISE. In consideration of the keeping, observance and performance by
Tenant of the provisions, conditions, terms, obligations, covenants, and
agreements contained in this Lease and the payment by Tenant of the Rents
herein reserved, Landlord hereby demises and leases to Tenant, and Tenant
hereby takes from Landlord, the Premises for the Term hereof, subject to
the provisions, covenants, agreements, obligations, terms and conditions of
this Lease, matters of record, and existing covenants, conditions,
restrictions, easements and encumbrances affecting the same.
Hereinafter unless otherwise provided, "covenants" includes "agreements and
obligations" and "provisions" includes "terms."
7
<PAGE>
3. ANNUAL RENT.
A. Annual Rent. Commencing on the Commencement Date and thereafter during
the Term, Tenant covenants and agrees to pay the rent described in this
Section 3 (the "Annual Rent") in accordance with the provisions hereof.
Annual Rent for each Lease Year shall be equal to the amount specified in
Section 1A(2) multiplied by the number of square feet of Rentable Area of
the Premises, and shall be payable in monthly installments pursuant to
Section 3.B. below. Notwithstanding any provision contained elsewhere in
this Lease to the contrary, provided that Tenant is not otherwise in
default under the terms and provisions of this Lease, Annual Rent shall be
abated during the first five (5) months of the Term, and Tenant shall
commence Annual Rent payments on the date which is six (6) months from the
Commencement Date.
B. Terms of Payment. Annual Rent during each Lease Year shall be due and
payable in monthly installments equal to one-twelfth of the Annual Rent for
such Lease Year, and received by Landlord in advance on or before the first
day of each and every month during the Term. If the Term commences other
than on the first day of a month or ends other than on the last day of a
month, Annual Rent for such month shall be prorated based on the number of
calendar days in that month. All payments of Annual Rent and other "Rent"
(as defined below) shall be made to Landlord at Denver Hines Development,
LLC, at the address of the Building, or at such other place as Landlord may
from time to time designate to Tenant in writing, without any demand,
counterclaim, set-off or deduction whatsoever.
4. ADDITIONAL RENT. In addition to paying the Annual Rent specified in
Section 3 hereof, Tenant shall pay as "Additional Rent" the amounts
described in this Section 4 as adjustments to such Annual Rent. The (i)
Annual Rent, the (ii) Additional Rent and (iii) all other amounts payable
by Tenant to Landlord pursuant to this Lease are sometimes herein
collectively referred to as the "Rent."
A. Tenant's Share of Computed Operating Expenses. For each Calendar Year
during the Term, prior to January 1 of each such Calendar Year (or prior to
the commencement of the Term as to the year in which the Commencement Date
occurs), Landlord shall provide Tenant in writing a comparison of the
Initial Operating Expenses Basic Cost with the projected Tenant's Share of
Computed Operating Expenses with respect to such Calendar Year, and
thereafter Tenant shall pay an adjusted Annual Rent for such year which
shall include an appropriate amount on account of the excess of such
projected Tenant's Share of Computed Operating Expenses over the Initial
Operating Expenses Basic Cost; provided, however, that Tenant shall not be
obligated to pay any amount of such excess which is attributable to Taxes
unless the Taxes for such Calendar Year have exceeded $2.80 per square foot
of Rentable Area in the Building. Landlord shall, within a period of one
hundred fifty (150) days (or as soon thereafter as possible) after the
close of each such Calendar Year, provide Tenant a statement of the
Operating Expenses for such year and a calculation based thereon of
Tenant's Share of Computed Operating Expenses for such year. If Tenant's
Share of Computed Operating Expenses for such year is greater than the
projected amount theretofore paid by Tenant for such year, Tenant shall pay
to Landlord within thirty (30) days after Tenant's receipt of the statement
the amount of such excess. However, if Tenant's Share of Computed
Operating Expenses for such year is less than the projected amount
theretofore paid by Tenant for such year, Landlord shall pay to Tenant
within thirty (30) days after Tenant's receipt of the statement the amount
of such overpayment.
8
<PAGE>
B. Partial Years. Tenant's obligation to pay the Additional Rent provided
for in this Section 4 which is accrued but not paid for periods prior to
the expiration or termination of the Term shall survive such expiration or
termination. Should this Lease commence or terminate at any time other than
the first day of a Calendar Year, Tenant's Share of Computed Operating
Expenses referred to in Sections 4.A and 4.B above shall be calculated, for
the commencement or termination year only, by the following formula:
Days Leased X Tenant's Share of Computed Operating Expenses/ 365= Adjusted
Tenant's Share of Computed Operating Expenses.
C. Objections by Tenant. If Tenant is not then in default under the terms
of this Lease and if Tenant in good faith objects to the calculation of
Operating Expenses or Tenant's Share of Computed Operating Expenses for the
prior year (i.e., the year covered by the statement submitted under Section
4.A), Tenant may notify Landlord in writing of its objections at any time
within ninety (90) days following the date the statement of Operating
Expenses and calculation of Tenant's Share of Computed Operating Expenses
is provided pursuant to Section 4.A. If Tenant so notifies Landlord of its
objections, Landlord may furnish Tenant with a copy of a review or audit of
the Operating Expenses for the prior year for the Complex as a whole,
performed by an independent certified accounting firm (the "Complex
Audit"), if such a Complex Audit has been performed. If Tenant has
remaining objections after its review of the Complex Audit, if one is
furnished, Tenant must notify Landlord in writing of its remaining
objections at any time within sixty (60) days following the date the
Complex Audit has been provided to Tenant. In any event, if Tenant has
initially raised objections and Landlord has not provided a copy of the
Complex Audit, or if Tenant raises remaining objections after it has been
provided with a copy of the Complex Audit, and such objections are not
resolved within sixty (60) days of Tenant's applicable notice of
objections, then Landlord shall appoint within ninety (90) days of Tenant's
objection letter a nationally recognized independent certified public
accounting firm (which may be the same firm that has performed the Complex
Audit for the Complex as a whole, if such a Complex Audit has been
performed), to act as an expert and not an arbitrator, to review Landlord's
books and records for the Complex relating to Operating Expenses and
Tenant's Share of Computed Operating Expenses for compliance with this
Lease, in which case the independent certified public account firm will be
instructed to issue a report within sixty (60) days from engagement. The
determination of such independent certified public accounting firm shall be
binding on both Landlord and Tenant. The costs incurred by such independent
certified public accounting firm in such review shall be the sole
responsibility of Tenant and shall be paid by Tenant within thirty (30)
days from such invoice, unless it is determined that Landlord overstated
Tenant's Share of Computed Operating Expenses by more than three percent
(3%) in the aggregate, in which case Landlord shall be responsible for such
costs. If Tenant fails to object in writing to Operating Expenses or the
calculation of Tenant's Share of Computed Operating Expenses within ninety
(90) days following the date the statement of Operating Expenses and
calculation of Tenant's Share of Computed Operating Expenses is provided
under Section 4.A, or if Tenant then fails to object in writing within
sixty (60) days after a Complex Audit, if any, is provided, then Tenant
shall have no objection rights with respect thereto and Operating Expenses
and Tenant's Share of Computed Operating Expenses for such year shall be
final and not subject to audit or adjustment. Tenant understands and agrees
that all information concerning Operating Expenses that is obtained by
Tenant or that is provided to Tenant, including pursuant to this Section
4.C., is confidential and proprietary information of Landlord and may not
be disclosed to any third party by Tenant or used by Tenant for any purpose
unrelated to this Lease. Upon request, Tenant shall execute and
9
<PAGE>
deliver a confidentiality and non-disclosure and restricted use agreement
in favor of Landlord and its property manager in form and content
acceptable to Landlord to confirm and implement the provisions of the
immediately preceding sentence.
D. No Reduction in Annual Rent. The Annual Rent stated in Section 1A(2)
shall not be reduced if Operating Expenses for any Calendar Year are below
the Initial Operating Expenses Basic Cost.
5. CONSTRUCTION AND POSSESSION.
A. Construction of Premises. Landlord will proceed to complete the Base
Building Shell as described in Exhibit G, and the additional initial
improvements in the Premises will be completed by Landlord in accordance
with the Tenant Construction Agreement attached hereto as Exhibit D.
Landlord and Tenant agree that all alterations, improvements and additions
made to the Premises pursuant to a Tenant Construction Agreement, whether
paid for by Landlord or Tenant, shall without compensation to Tenant become
Landlord's property upon installation and shall remain Landlord's property
at the expiration of the Term or sooner termination of this Lease;
provided, however, that Tenant may remove any of such alterations,
additions and improvements which Landlord and Tenant agree in writing may
be removed from the Premises at the expiration of the Term or sooner
termination of this Lease (such agreement not to be unreasonably withheld).
Landlord and Tenant shall enter into a written agreement concerning the
removal of any such alterations, additions or improvements prior to or at
the time of installation thereof.
B. Early Occupancy. Tenant has no right to enter the Premises until the
same are tendered by Landlord unless Tenant's entry is for purposes
relating to construction work in the Premises and is in accordance with the
terms of a Tenant Construction Agreement. Tenant may request Landlord's
permission to store certain items of personal property in the Premises
immediately prior to the Commencement Date, and Landlord shall then notify
Tenant as to whether such storage will be permitted; provided however, that
(i) the decision as to whether such storage shall be permitted shall be
within the sole discretion of Landlord, (ii) if Landlord allows such
storage, it shall be only in the areas and for the time periods designated
by Landlord, and shall not interfere in any fashion with the completion of
the Building or the Tenant Work within the Premises, and (iii) such storage
shall be at Tenant's sole cost and risk, and neither Landlord or its
contractors or subcontractors, nor any of their agents, employees,
licensees, or invitees, shall have any liability or responsibility
whatsoever for any damages, costs, liabilities or expenses in connection
with such stored personal property. Any occupancy of the Premises by Tenant
for the regular conduct of Tenant's business prior to the Commencement Date
will be permitted only with the express written consent of Landlord. If
Tenant shall so take possession of any part of the Premises for business
purposes prior to the Commencement Date pursuant to Landlord's prior
written consent, all of the covenants, provisions and conditions of this
Lease shall be binding upon the parties hereto with respect to such portion
of the Premises in the same manner as if the Commencement Date had been
fixed as the date when Tenant took possession and Tenant shall pay to
Landlord Rent for the period of such occupancy prior to the scheduled
Commencement Date at the rates set forth in Section 3 and Section 4 hereof,
pro-rated for the portion of Premises so occupied. Under no circumstances
shall the occurrence of any of the events referred to in this Section 5.B.
be deemed to accelerate the Expiration Date.
10
<PAGE>
C. Failure to Complete. If Landlord fails to substantially complete its
obligations under the Tenant Construction Agreement and tender the Premises
to Tenant in accordance with the Tenant Construction Agreement on or before
the date set forth therein, Landlord will not be in default or liable in
damages to Tenant, nor will the obligations of Tenant hereunder be
affected, provided, however, that:
(1) if Landlord fails to commence construction of the Building, by
pouring the foundations therefor, on or before September 1,
1998, then either Landlord or Tenant shall have the right to
terminate this Lease, by written notice delivered to the other
not more than thirty (30) days after such date;
(2) the Commencement Date shall automatically be extended by one day
for each day of the period beyond the date set forth in Section
1.A.(1) that Landlord fails to so substantially complete its
obligations, less any portion of that period attributable to
Tenant's delays as more particularly described in a Tenant
Construction Agreement, and the Expiration Date shall
automatically be extended by the same number of days that the
Commencement Date is so extended (except that if such extension
would result in the Expiration Date occurring on other than the
last day of a calendar month, the Expiration Date shall be
extended by the additional number of days required in order for
the Expiration Date to occur on the last day of a calendar
month); and
(3) if the general contractor for the Building is to perform the
Tenant Work in the Premises under the Tenant Construction
Agreement, then if the Base Building Shell has not been
completed so that Landlord and such general contractor may
commence the Tenant Work in the Premises in accordance with the
Tenant Construction Agreement on or before September 1, 1999
(plus any period of delay caused by Tenant as described in the
Tenant Construction Agreement), Tenant shall have the additional
right to terminate this Lease and all obligations and rights
created hereby, by delivering written notice of termination to
Landlord not more than thirty (30) days after such date;
provided, however, that if a contractor other than the general
contractor for the Building has been selected to perform the
Tenant Work under the Tenant Construction Agreement, then
Tenant's right to terminate as set forth in the first part of
this subparagraph shall not arise unless the Base Building Shell
has not been completed by November 1, 1999.
Upon a termination under subparagraph (2) above, each party shall, upon the
other's request, execute and deliver an agreement in recordable form containing
a release and surrender of all right, title and interest in and to this Lease;
neither Landlord nor Tenant shall have any further obligations to each other,
including without limitation, any obligations to pay for work previously
performed in the Premises; all improvements to the Premises shall become and
remain the property of Landlord; and Landlord shall refund to Tenant any sums
paid to Landlord by Tenant in connection with this Lease, including without
limitation any payments to Landlord of construction costs for the Premises.
Such postponement of the commencement of the Term and such termination and
refund right shall be in full settlement of all claims that Tenant might
otherwise have against Landlord by reason of Landlord's failure to substantially
complete its obligations under the Tenant Construction Agreement by the date set
forth in Section 1.A.(1).
11
<PAGE>
D. Punch List. Tenant's taking possession of any portion of the Premises
(other than for storage of personal property which may have been permitted
by Landlord pursuant to the provisions of Section 5.B above) shall be
conclusive evidence that such portion of the Premises was in good order and
satisfactory condition when Tenant took possession, except as to items
contained on a punch list to be prepared after an inspection made and
signed by representatives of Landlord and Tenant when Tenant takes
possession. Landlord shall not be responsible for any items of damage
caused by Tenant, its agents, employees, invitees, licensees, contractors,
workmen or suppliers. No promise of Landlord to alter, remodel or improve
the Premises or the Building or Complex and no representation respecting
the condition of the Premises or the Building or Complex have been made by
Landlord to Tenant other than as may be contained in this Lease or in a
Tenant Construction Agreement.
6. OCCUPANCY OF PREMISES.
A. Use. Tenant shall use and occupy the Premises only for the use
described in Section 1.A.(4) (the "Tenant's Use").
B. Compliance. Tenant shall not use or permit the use of the Premises or
the Complex or any part thereof for any purpose prohibited by law. Tenant
shall, at its sole expense, comply with and conform to all of the
requirements of all governmental authorities having jurisdiction over the
Complex which relate in any way to the condition, use and occupancy of the
Premises throughout the entire Term of this Lease (other than structural
and system repairs as described in Section 7.A.(1), which are the
responsibility of Landlord, or the repair of any latent defects in the
initial construction of the Building or the Premises as set forth in the
Tenant Construction Agreement, or any requirements due to the non-
compliance of the Building or the Premises as initially constructed with
the building codes applicable at the time of construction, which shall
remain the responsibility of Landlord to the extent set forth in the Tenant
Construction Agreement).
7. SERVICES PROVIDED BY LANDLORD.
A. Description of Standard Services. Landlord will furnish for Tenant
and the Premises, subject to the other provisions of this Section 7, the
following services:
(1) repair and maintenance of all structural elements of the Building,
including the plumbing, electrical, HVAC and life safety systems
installed in the Building as part of either the Base Building Shell or
the Building Standard finishes as described in Exhibit G, but
excluding any systems installed in the Premises which are over and
above the Base Building Shell or the Building Standard systems, each
of which shall be maintained by Tenant (or at Tenant's request, by
Landlord, with all of the costs thereof payable by Tenant to Landlord
upon presentation of an invoice therefor as additional Rent
hereunder). The cost of such repair and maintenance by Landlord of
the structural elements of the Building shall be included in Operating
Expenses unless otherwise provided in this Lease or unless caused by
the act or omission of Tenant, its agents, employees, contractors,
visitors, licensees, workmen, suppliers, or invitees, in which latter
case such cost shall be paid by Tenant within 15 days after written
demand therefor;
12
<PAGE>
(2) heating, ventilating and air conditioning (heating or cooling as
required by the seasons), without special request from Tenant, from
7:00 a.m. to 6:00 p.m. on Monday through Friday, except holidays, at
temperatures and in amounts as may, in the sole judgment of Landlord,
be reasonably required for comfortable use and occupancy under normal
business operations with "Customary Office Equipment" (as used in this
Lease, "Customary Office Equipment" shall include personal computers,
calculators, dictation recorders, small reproduction machines and
similar devices and equipment but shall not include any machines,
devices or equipment that adversely affect the temperature otherwise
maintained in the Premises such as, e.g., data processing, computer
(other than personal computers) or heavy-duty reproduction equipment).
If Tenant shall require such heat, ventilation or air conditioning
outside the hours and days specified above, Landlord will furnish the
same for the hours specified in a request from Tenant (an "HVAC
Request") and for this service Tenant will pay Landlord, upon receipt
of Landlord's statement, the hourly rate reasonably determined by
Landlord from time to time; provided, however, that Tenant shall not
be required to pay any such charge for heating, ventilation or air
conditioning requested by Tenant in an HVAC Request for the hours from
8:00 a.m. to 1:00 p.m. on Saturdays (except holidays). Any HVAC
Request by Tenant shall be made in such a manner and at such time as
Landlord may from time to time establish for HVAC Requests, and Tenant
acknowledges and agrees that Landlord may require that HVAC Requests
be made by Tenant's authorized employees by direct code or card access
to the computer system controlling the Building's mechanical system.
(3) water for lavatory and toilet purposes, all water service to be
supplied from the regular supply of water to the Building at points of
supply provided for general use of tenants of the Building through
fixtures installed by Landlord;
(4) janitorial services to the Premises on a five (5) days per week basis
at no extra charge; provided, however, Tenant shall pay as Additional
Rent, upon presentation of Landlord's statement, the additional cost
for cleaning its floor coverings and other improvements which are not
Building Standard.
(5) passenger elevators for access to and from the floor(s) on which the
Premises are located, elevators within the parking garage, and freight
elevator service by a swing cab (but only when scheduled through the
Manager of the Building);
(6) toilet facilities on each of the floors occupied by Tenant (which, if
a multi-tenant floor, shall be in common with other tenants);
(7) electric lighting for all public areas and special service areas of
the Building as reasonable and standard for first-class office
buildings, including replacement of light bulbs and tubes;
(8) replacement of light bulbs in those Building standard lighting
fixtures installed in the Premises; and
(9) electrical current as specified on Exhibit G hereto.
13
<PAGE>
B. Additional Services. Landlord shall not be obligated to furnish any
services or utilities other than those stated in Section 7.A. above. If
Tenant should require electric current, water or any other energy in excess
of the amounts provided by Landlord pursuant to Section 7.A. above, such
excess electric current, water or other energy requirement shall be
supplied only with the consent of Landlord, which consent shall not be
unreasonably withheld. If Landlord grants such consent, Tenant shall, on
demand, pay all costs of meter service and installation of facilities
necessary to measure and furnish the required excess capacity, and Tenant
shall also pay the entire cost of such excess electric current, water or
other energy requirement. Tenant shall also pay the entire cost of such
additional electricity, water or other energy so required in the event
Tenant installs any machines, equipment or devices in the Premises that do
not constitute Customary Office Equipment and such machines, equipment or
devices cause the temperature in the Premises, or any part thereof, to
exceed the temperatures the Building's mechanical system would be able to
maintain in the Premises were it not for such machines, equipment or
devices, and Landlord also reserves the right to install supplementary air
conditioning units in the Premises, and the costs thereof, including the
cost of installation and the cost of operation and maintenance thereof,
shall be paid by Tenant to Landlord upon demand.
C. Interruption of Services. Landlord does not warrant that the services
provided for in this Section 7 will be free from any irregularity or
stoppage. Landlord will use due diligence to resume the service upon any
irregularity or stoppage; provided, however, no irregularity or stoppage of
any of these services will create any liability for Landlord, constitute an
eviction, actual or constructive, of Tenant, or cause any abatement of the
Rent payable under this Lease, or in any manner or for any purpose relieve
Tenant from any of its obligations under this Lease.
8. REPAIRS.
A. Repairs Within the Premises. Subject to the terms of Sections 7.A.(1),
12 and 15 hereof, Tenant will, at Tenant's own expense, keep the Premises
in good order, repair and condition at all times during the Term, normal
wear and tear excepted. Except for damage caused by Landlord, its
employees, agents or contractors, Tenant shall promptly and adequately
repair all damage to the Premises and replace or repair all damaged or
broken fixtures and appurtenances, under the supervision and subject to the
approval of Landlord. All work done by Tenant or its contractors (which
contractors shall be subject to Landlord's reasonable approval) shall be
done in a first-class workmanlike manner using only grades of materials at
least equal in quality to those which are included in Landlord's standard
improvements for the Building and shall comply with all insurance
requirements and all applicable laws and ordinances and rules and
regulations of governmental departments or agencies. At Landlord's option,
Landlord may require that all work required to be performed by Tenant under
this Section 8.A. be performed by Landlord or Landlord's contractor at
Tenant's expense, in which case Tenant shall pay Landlord the reasonable
cost of any such work, including an amount sufficient to reimburse Landlord
for overhead and related expenses, forthwith upon being billed for the
same, as additional Rent hereunder.
B. Landlord's Entry. If Tenant fails to do so within a reasonable period of
time or if Landlord deems such action necessary because of an actual or
suspected emergency, Landlord may, but need not, make the repairs and
replacements described in Section 8.A., and Tenant shall pay Landlord the
reasonable cost thereof, including an amount reasonably sufficient to
reimburse Landlord for overhead and related expenses, forthwith upon being
billed
14
<PAGE>
for the same, as additional Rent hereunder. Landlord may, but shall not be
required to, enter the Premises at all reasonable times during Tenant's
ordinary business hours on prior notice (except in cases of actual or
suspected emergency, in which case such entry may be at any time and no
prior notice shall be required) for the purpose of inspecting, repairing or
maintaining the same. Landlord shall take reasonable steps in connection
with such entry to minimize any disruption to Tenant's business or its use
of the Premises.
C. Notice of Damage. Tenant shall give prompt notice to Landlord of (a) any
known or apparent fire or other casualty in the Premises, (b) any known or
apparent damage to or defect in the Premises, including the fixtures,
equipment and appurtenances thereof, for the repair of which Landlord might
be responsible, and (c) any known or apparent damage to or defect in any
parts or appurtenances of the Building's sanitary, water, electrical,
heating, air conditioning, elevator or other systems located in or passing
through the Premises or any part thereof. Landlord shall have no repair
obligations whatsoever absent such notice or actual knowledge of such
condition.
9. ADDITIONS, IMPROVEMENTS, AND ALTERATIONS. Tenant shall not, without the
prior written consent of Landlord, make any alterations, improvements or
additions to the Premises. If Landlord consents to such alterations,
improvements or additions, it may impose such reasonable conditions with
respect thereto as Landlord deems appropriate, including, without
limitation, requiring Tenant to furnish Landlord with insurance against
liabilities which may arise out of such work, a bond or other security for
Tenant's obligations to pay for such work, plans and specifications for
Landlord's approval prior to commencement of construction, copies of all
permits necessary for such work and "as built" plans after completion of
such work together with a complete breakdown of the cost of such work as
required for purposes of Landlord's insurance or self-insurance. The work
necessary to make any alterations, improvements or additions to the
Premises shall be done at Tenant's expense by employees of or contractors
hired or approved by Landlord. Tenant shall promptly pay, when due, the
cost of all such work and of all decorating required by reason thereof.
Tenant shall also pay to Landlord an amount sufficient, in Landlord's
reasonable judgment, to reimburse Landlord for all of its overhead and
related expenses allocable to such work. Upon completion, Tenant shall
deliver to Landlord, to the extent not previously received by Landlord,
evidence of payment, contractors' affidavits, warranties and full and final
waivers of all liens for labor, services or materials. All alterations,
improvements and additions to the Premises, whether temporary or permanent
in character, made or paid for by Landlord or Tenant shall without
compensation to Tenant become Landlord's property upon installation;
provided, however, that Tenant may remove any of such alterations,
additions and improvements which Landlord and Tenant agree in writing may
be removed from the Premises at the expiration of the Term or sooner
termination of this Lease (such agreement not to be unreasonably withheld).
Landlord and Tenant shall enter into a written agreement concerning the
removal of any such alterations, additions or improvements prior to or at
the time of installation thereof. Unless Landlord has thus expressly
requested or approved their removal when Landlord consented to their
installation (in which case Tenant shall remove the same as provided in
Section 17), all such alterations, improvements and additions shall remain
Landlord's property upon expiration or termination of this Lease by lapse
of time or otherwise and shall be relinquished to Landlord in good order,
repair and condition, ordinary wear and tear excepted and, subject to
Tenant's duty to carry insurance as required by this Lease, damage from
fire or other casualty excepted.
15
<PAGE>
10. COVENANT AGAINST LIENS.
A. Mechanics Liens. Tenant covenants and agrees not to suffer or permit
any lien of mechanics or materialmen or others to be placed against the
Complex, the Building, or the Premises with respect to work or services
claimed to have been performed for, or materials claimed to have been
furnished to, Tenant or the Premises. Landlord shall have the right to
serve or to post and keep posted on the Premises, or on any part thereof,
any notice or notices that may at any time be required or permitted by any
law relating to, or any way affecting, the liability of the owner of the
Complex for labor performed or materials furnished in or about the erection
or construction of any improvements thereon at the instance of any person
other than said owner. Within five (5) business days after written request
by Landlord, Tenant shall post any such notices or take such other steps,
at the expense of Tenant, as may be required or permitted by law to protect
Landlord's interest in the Premises against such liens. In case any such
lien attaches, Tenant covenants and agrees to promptly inform Landlord of
such lien and to cause it to be released and removed of record within 20
days after the filing of such lien. If Tenant fails to cause such lien to
be released and removed of record within 20 days after the filing of such
lien, Landlord may, at its sole option, cause the same to be paid and
released, and Tenant shall then promptly reimburse Landlord, as additional
Rent hereunder, for all of Landlord's costs (including attorney's fee)
incurred in connection with such liens.
B. Sales, Use, Income and Personal Property Taxes. Tenant shall promptly
pay and discharge, on or prior to their due dates, all sales, use, personal
property, income and other taxes, and all employee income tax withholdings,
due to any governmental entity or taxing authority, failure to pay which
might subject any of Landlord's property to a lien. If Tenant fails so to
pay any such taxes or withholdings, and if Landlord shall reasonably
determine that any of Landlord's property is in danger of being subject to
a lien because of such unpaid taxes or withholdings, then Landlord shall
have the right but not the obligation, after notice to Tenant as provided
in Section 24.A.(1), to pay such taxes and withholdings, and the amount so
paid, together with interest thereon as provided in Section 29.B., shall
constitute additional Rent under this Lease due and payable from the date
so paid by Landlord.
11. INSURANCE.
A. Waiver of Subrogation. Landlord and Tenant each hereby waive any and
every claim for recovery from the other for any and all loss of or damage
to the Complex or the Premises or to the contents thereof, which loss or
damage is of a type insurable under "all risk" casualty insurance policies
available at the time such loss or damage was sustained. Inasmuch as this
mutual waiver will preclude the assignment of any such claim by subrogation
(or otherwise) to an insurance company (or any other person), Landlord and
Tenant each agree to give written notice of the terms of this mutual waiver
to each insurance company which has issued, or in the future may issue, a
policy of casualty insurance to such party. Each party shall also have each
such insurance policy properly endorsed, if necessary, to prevent the
invalidation of such insurance coverage by reason of such waiver. Tenant
shall obtain from its insurers and deliver to Landlord endorsements or
written waivers of subrogation, or other written evidence satisfactory to
Landlord, that each of Tenant's insurers is bound by Tenant's waiver of
subrogation. If Landlord adopts a plan of self-insurance with respect to
those portions of the Building or Premises which Landlord may be obligated
to repair or restore under Section 12A (and Landlord reserves the right to
adopt such a plan) Landlord's waiver of claims contained in the first
sentence of this paragraph will continue to be effective as long as
Tenant's waiver of subrogation remains in effect.
16
<PAGE>
B. Coverage. Tenant agrees, at its cost, to obtain and keep in force
during the Term the following described insurance, in form and substance,
and issued by companies, acceptable to Landlord in its reasonable judgment,
provided that Landlord may from time to time require reasonable increases
in the limits set forth below:
(1) Liability Insurance. Commercial General liability insurance with
combined single limits of not less than $2,000,000 for bodily injury,
personal injury and property damage occurring in or about or related
to the use of the Premises and assumed contractual liability with
respect to Tenant's obligations under Section 13.
(2) Property Insurance. An "all risk" casualty insurance policy in the
amount equal to the full replacement cost of all leasehold
improvements, alterations and additions to the Premises which are in
excess of or in addition to Building Standard, and of Tenant's office
furniture, trade fixtures, office equipment, merchandise and all other
items of Tenant's property on the Premises.
(3) Workers' Compensation and Tenant's Contractors. A workers'
compensation insurance policy in at least the amount required by law,
and employer's liability insurance with limits of at least $500,000
each occurrence. In addition, Tenant shall require all of Tenant's
contractors and suppliers that will perform work on the Premises to
deliver to Landlord, prior to the commencement of such work,
certificates of insurance evidencing that such contractors carry
Commercial General liability insurance in the amount of at least
$1,000,000, workers' compensation insurance in the amount required by
law, and employer's liability insurance with limits of at least
$500,000 each occurrence. The requirements of this subsection (3)
shall also apply independently to all subcontractors and suppliers to
Tenant's contractors and suppliers unless claims by or against them
are covered by the insurance carried by Tenant's contractors and
suppliers.
(4) Form of Policies. All policies evidencing the coverage required under
this Section 11.B. shall be issued by carriers with a rating of A-X or
better by A.M. Best Company, Inc. and licensed to do business in the
State of Colorado (except that the worker's compensation insurance may
be provided by the State of Colorado) and shall provide that (a) the
coverage is primary and non-contributing to any insurance that may be
carried by Landlord; (b) the coverage cannot be canceled, modified,
reduced, or otherwise materially changed except after 30 days' prior
written notice to Landlord, and (c) Landlord is a named additional
insured (except that Landlord need not be so named in Tenant's
worker's compensation policy). Tenant shall furnish Landlord with
true copies of all policies or certificates of insurance evidencing
such coverage promptly on receipt. Notwithstanding that Landlord is a
named additional insured, Tenant shall be solely responsible for
timely payment of all premiums and timely performance of all other
obligations under all policies, including but not limited to all
reporting requirements. True copies of all receipts of payment in
full of premiums shall be given by Tenant to Landlord not less than 15
days before the due dates of such premiums.
C. Avoid Action Increasing Rates. Tenant shall comply with all
applicable laws and ordinances, all orders and decrees of court and all
requirements of other governmental
17
<PAGE>
authorities, and shall not, directly or indirectly, make any use of the
Building, Premises or Complex which may thereby be prohibited or be
dangerous to person or property or which may jeopardize any insurance
coverage on the Building, Premises or Complex, or which may increase the
cost of insurance or require additional insurance coverage (unless Tenant
elects to pay the full costs of such increased or additional coverages, in
which case such costs shall be due to Landlord upon presentation of an
invoice or invoices therefor, as additional Rent hereunder). In no event
shall Tenant permit in the Premises flammables such as gasoline,
turpentine, kerosene, naphtha and benzine, or explosives or any other
article of intrinsically dangerous nature, and in no event shall Tenant,
its agents, employees, invitees, visitors, licensees, contractors,
suppliers or workmen bring such flammables or other intrinsically dangerous
articles into the Complex. If by reason of the failure of Tenant to comply
with the provisions of this Section 11.C., (i) any insurance coverage is
jeopardized, Landlord shall have the option to terminate this Lease after
notice and an opportunity to cure as provided in Section 24.A (3) below; or
(ii) insurance premiums are increased or additional coverage is required,
Landlord may require Tenant to make immediate payment of the increased
insurance premium as additional Rent hereunder.
D. Notices by Tenant's Insurance Carrier to Landlord. Whenever in this
Lease (whether in Section 11.B. or elsewhere), any notice is given or is
required to be given, to Landlord by Tenant's insurance carrier, such
notice must actually be given by each such carrier to Landlord, and any
provision in any policy, certificate of insurance or elsewhere providing
that notice to another insured under that policy, or to any other person,
shall constitute or be deemed to be notice to Landlord shall be ineffective
and shall be changed by endorsement so that notice is actually given by
such carrier to Landlord itself. Tenant shall also provide to Landlord such
written evidence of compliance with this Section 11.E. as Landlord may
reasonably request.
12. FIRE OR CASUALTY.
A. Restoration - Cancellation upon Major Damage. If the Premises or the
Building shall be damaged by fire or other casualty Landlord shall,
promptly after learning of such damage, notify Tenant in writing of
Landlord's estimate of the time necessary to repair or restore such damage.
If Landlord reasonably estimates that repair or restoration of all of such
damage that was caused to the Premises or to any other portion of the
Building necessary for Tenant's occupancy cannot be completed within 180
days from the date of such damage, then Tenant shall have the option to
terminate this Lease. If such damage has rendered all or a substantial
portion of the Premises or the Building untenantable, Landlord shall have
the option to terminate this Lease. Any option to terminate granted
hereunder must be exercised by written notice to the other party given
within 10 days after Landlord delivers to Tenant the notice of estimated
repair time. If either party exercises its option to terminate this Lease,
the Term shall expire and this Lease shall terminate 10 days after notice
of termination is delivered; provided, however, that Rent for the period
commencing on the date of such damage until the date this Lease terminates
shall be reduced to the reasonable value of any use or occupation of the
Premises by Tenant during such period. If neither party so terminates this
Lease, then Landlord shall repair and restore such damage with reasonable
promptness, subject to delays for insurance adjustments and delays caused
by matters beyond Landlord's control. If Landlord fails to complete the
repairs within 210 days from the date of such damage, then Tenant shall
again have the option to terminate this Lease, by written notice delivered
to Landlord within 10 days after the expiration of such 210-day period.
Whether or not this Lease is terminated, all
18
<PAGE>
proceeds of insurance required to be carried by Tenant with respect to
alterations, additions, and improvements under this Lease shall be used for
such repairs and restoration as are made, and paid to Landlord to the
extent not made. Except for the termination right of Tenant set forth
above, Landlord shall have no liability to Tenant in the event such repairs
and restoration are not in fact completed within the time period estimated
by Landlord.
B. Rent Abatement. In the event any fire or casualty damage renders the
Premises untenantable and if this Lease shall not be terminated pursuant to
Section 12.A. hereof by reason of such damage, then Rent shall abate during
the period beginning with the date of such damage and ending with the date
when Landlord has substantially completed its obligations under this
Section 12. Such abatement shall be in an amount bearing the same ratio to
the total amount of Rent for such period as the untenantable portion of the
Premises bears to the entire Premises. In no event will Landlord be liable
for any inconvenience or annoyance to Tenant or injury to the business of
Tenant resulting in any way from damage caused by fire or other casualty or
the repair of such damage, provided however that, to the extent Tenant
remains in possession of a portion of the Premises, Landlord will take all
reasonable steps to minimize the disruption to Tenant's business and use of
such portion of the Premises during the period of repair.
13. WAIVER OF CLAIMS - INDEMNIFICATION. To the extent not prohibited by
law, Landlord and its partners, and its and their partners, venturers,
managers, officers, agents, servants, employees, affiliated limited
liability companies, and other affiliated entities shall not be liable for,
and Tenant waives all claims for, any damages to person or property, or
resulting from the loss of use thereof, or any loss of profits or damages
from business interruption, sustained by Tenant or by Tenant's partners,
officers, agents, servants or employees due to the Building or the Complex
or any part thereof or any appurtenances thereof becoming out of repair, or
due to the happening of any accident or event in or about the Building or
Complex, or due to any act or neglect of any tenant or occupant of the
Building or Complex or of any other person; provided, however, that such
waiver shall not apply to claims or damages arising from or related to the
gross negligence or willful misconduct of Landlord. This provision shall
apply particularly (but not exclusively) to damage caused by gas,
electricity, snow, frost, steam, sewage, sewer gas or odors, fire, water or
by the bursting or leaking of pipes, faucets, sprinklers, plumbing
fixtures, and windows, and shall apply without distinction as to the person
whose act or neglect was responsible for the damage and whether the damage
was due to any of the causes specifically enumerated above or to some other
cause of an entirely different kind (other than the gross negligence or
willful misconduct of Landlord). Tenant further agrees that all personal
property upon the Premises, or upon loading docks, receiving and holding
areas or parking areas, of the Building or the Complex, shall be at the
risk of Tenant only, and that Landlord shall not be liable for any loss or
damage thereto or theft thereof, unless caused by the gross negligence or
willful misconduct of Landlord. Without limitation of any other provisions
hereof and to the extent not prohibited by law, Tenant agrees to defend,
protect, indemnify and save harmless Landlord and its partners, and its and
their partners, venturers, managers, officers, agents, servants and
employees, affiliated limited liability companies, and other affiliated
entities from and against all claims, liabilities, losses, damages or
expenses made against or incurred by Landlord attributable to the
negligence, willful misconduct or breach of this Lease by Tenant or its
partners, officers, servants, agents, employees, contractors, suppliers,
licensees, visitors, workmen or invitees.
19
<PAGE>
14. NONWAIVER; ACCEPTANCE OF RENT OR PERFORMANCE AFTER BREACH. No waiver
of any condition, covenant or provision of this Lease shall be implied by
any failure of either party to enforce any remedy on account of the
violation of such condition, covenant or provision even if such violation
be continued or repeated subsequently, and no express waiver shall affect
any condition, covenant or provision other than the one specified in such
waiver and that one only for the time and in the manner specifically
stated. Acceptance by Landlord of Rent or other performance by Tenant,
after Landlord has knowledge of any breach or default under this Lease by
Tenant, shall not constitute a waiver by Landlord of such breach or
default, nor prevent Landlord from enforcing any remedy for that or any
other breach or default.
15. CONDEMNATION. If the whole or substantially the whole of the Building,
the Premises or the parking facilities in the Complex is taken for any
public or quasi-public use under any governmental law, ordinance or
regulation or by right of eminent domain or is sold to the condemning
authority in lieu of condemnation, then this Lease will terminate as of the
earlier of the date when title to or physical possession of the Building,
the Premises or the parking facilities in the Complex is taken by the
condemning authority. If less than the whole or substantially the whole of
the Building, the Premises or the parking facilities in the Complex is thus
taken or sold and if, after such partial taking, in Landlord's reasonable
judgment, alteration or reconstruction of the Complex is not economically
justified, Landlord (whether or not the Premises are affected thereby) may
terminate this Lease by giving written notice to Tenant within 60 days
after the taking or sale. If over 50% of the Premises is thus taken or
sold, Tenant may terminate this Lease if, and only if, in Tenant's
reasonable judgment, the Premises cannot be operated by Tenant in an
economically viable fashion because of such partial taking or sale. Such
termination by Tenant must be exercised by written notice to Landlord given
not later than 60 days after Tenant is notified of the taking or sale of
the Premises. Termination by Landlord or Tenant shall be effective as of
the earlier of the date when title to or physical possession of the
applicable portion of the Complex, the Building or the Premises is taken by
the condemning authority. If neither Landlord nor Tenant elects to
terminate this Lease upon a partial taking or sale of a portion of the
Premises, the Rent payable under this Lease will be diminished by an amount
allocable to the portion of the Premises which was so taken or sold. If
this Lease is not terminated upon a partial taking or sale, Landlord will,
at Landlord's sole expense, promptly restore and reconstruct the Complex,
the Building and the Premises to substantially their former condition to
the extent that the same may be feasible. Landlord in no event shall be
required to spend for such restoration or reconstruction an amount in
excess of the net amount received by Landlord as compensation or damages
for the part of the Complex, the Building or the Premises so taken or sold.
As between the parties to this Lease, Landlord will be entitled to receive
all of the compensation and damages awarded upon a taking or sale of any
part or all of the Complex, the Building or the Premises including any
award for the value of any unexpired term of this Lease and Tenant will not
be entitled to and expressly waives in favor of Landlord all claim to any
of the award or damages, including any compensation for the unexpired term
of this Lease. The foregoing shall not in any way restrict Tenant from
asserting a claim in a separate proceeding against the condemning authority
(if and to the extent permitted by law) for any compensation or damages
resulting from the taking of Tenant's trade fixtures or for moving expenses
or business relocation expenses incurred as a result of such condemnation.
16. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior written
consent of Landlord, (i) assign, convey, encumber, or mortgage this Lease
or any interest
20
<PAGE>
hereunder; (ii) suffer to occur or permit to exist any assignment of this
Lease or any interest hereunder, or any recordable lien upon Tenant's
interest or any part thereof, voluntarily, involuntarily or by operation of
law; (iii) sublet the Premises or any part thereof; or (iv) permit the use
of the Premises or any part thereof by any parties other than Tenant and
its employees and their lawful licensees and invitees. For purposes of the
preceding sentence, any change in ownership of Tenant or of any guarantor
of Tenant's obligations under this Lease (a "Guarantor") shall be deemed to
be an assignment of this Lease. A "change in ownership" shall be deemed to
have occurred (a)(i) for a publicly traded corporation, when there is a
change of effective control; (ii) for any other entity, in the event of any
circumstance where the voting interest of any party or group of parties
increases or decreases by more than one-third of the entire voting
interest; or (b) upon the distribution of over 50% of any entity's assets,
or if the value of assets sold (net of undistributed consideration
received) exceeds 50% of asset value. Landlord's consent to any assignment,
subletting, transfer, or to any other matter set forth above in this
Section 16, shall not constitute a waiver of Landlord's right to withhold
its consent to any future assignment, subletting or transfer, or to any
such other matter.
Tenant shall give Landlord written notice of any proposed sublease or
assignment which notice shall contain the name of the proposed sublessee or
assignee and proposed principal terms thereof. With respect to any proposed
assignment of all of the Premises or sublease of all of the Premises which is to
occur subsequent to the earlier of (i) the date upon which at least 85% of the
Rentable Area of the Building has been leased, or (ii) twenty-four months after
the Commencement Date, Landlord agrees that it shall not unreasonably withhold
its consent to such assignment or sublease; provided, however, that reasonable
grounds for the withholding of consent shall include, without limitation,
whether the use by the proposed assignee or sublessee will be the same general
administrative office use as that of Tenant (and if not, whether the proposed
use would be an appropriate use for a Class A office building in the Denver
Technological Center, including without limitation whether the density of the
proposed use would result in an occupancy level of greater than five (5)
occupants per 1000 square feet of Rentable Area), and Landlord's judgment of the
proposed assignee's or subtenant's insufficient financial capacity or business
experience to perform Tenant's obligations under this Lease or of its poor
business reputation. With respect to any proposed assignment or sublease other
than those specified in the preceding sentence, Landlord may withhold its
consent in its sole discretion, for any reason, or for no reason.
Upon any assignment or subletting by Tenant, (i) unless agreed in writing
by Landlord, the original Tenant and any Guarantor shall not be released from
any covenant or obligation under this Lease, and (ii) Landlord shall be entitled
to receive and collect, either from Tenant or directly from the assignee or
subtenant, all of the Rent and other sums payable by Tenant under this Lease.
In addition, Landlord shall be entitled to so receive and collect fifty percent
(50%) of the consideration, if any, that the assignee or subtenant is required
to pay for the use and enjoyment of Tenant's rights under this Lease in excess
of the amounts payable by Tenant to Landlord under this Lease, after deducting
therefrom all of the expenses incurred by Tenant in connection with such
assignment or sublease (whether such excess is payable by such assignee or
subtenant in monthly installments, in a lump sum, or otherwise).
If Tenant believes that Landlord has unlawfully or unreasonably withheld
its consent to a proposed assignment or sublease to which Landlord has agreed
not to unreasonably withhold its consent, Tenant shall not have any right to
recover damages or to terminate this Lease, but Tenant's sole remedy shall be to
seek a declaratory judgment that Landlord has unlawfully or
21
<PAGE>
unreasonably withheld its consent or an order for specific performance or
mandatory injunction that Landlord give its consent.
Tenant acknowledges that the conditions, covenants and provisions in this
Lease, including but not limited to those in this Section 16, have been fully
and freely negotiated.
17. SURRENDER OF POSSESSION. Upon the expiration or termination of the
Term, whether by lapse of time or otherwise, or upon the termination of
Tenant's right of possession, Tenant shall forthwith surrender the Premises
to Landlord in good order, repair and condition, ordinary wear and tear
excepted, and, subject to Tenant's duty to carry insurance as required by
this Lease, damage by fire or other casualty excepted. Except as provided
in Sections 5.A and 9 to the contrary, all alterations, improvements and
additions to the Premises, made or paid for by Landlord or Tenant, shall
without compensation to Tenant become Landlord's property upon
installation. Except as provided in Sections 5.A and 9 to the contrary, all
such alterations, improvements and additions shall remain Landlord's
property at the termination or expiration of this Lease whether by lapse of
time or otherwise, and shall be relinquished to Landlord in good order,
repair and condition, ordinary wear and tear and, subject to Tenant's duty
to carry insurance as required by this Lease, damage by fire or other
casualty excepted. Tenant agrees to remove, at such expiration or
termination of the Term or of its right of possession, the following items
of property: office furniture, trade fixtures, office equipment and all
other items of Tenant's property or temporary improvements on the Premises,
and Tenant shall pay to Landlord upon demand the cost of repairing any
damage to the Premises and to the Building caused by any such removal. If
Tenant shall fail or refuse to remove any such property from the Premises
by the date on which the Term expires, or if Tenant's right to possession
terminates earlier, by the date which is five (5) business days after such
right to possession has terminated, Tenant shall be conclusively presumed
to have abandoned the same, and title thereto shall thereupon pass to
Landlord without any cost either by set-off, credit, allowance or
otherwise, and Landlord may at its option accept the title to such property
or at Tenant's expense may (i) remove the same or any part thereof in any
manner that Landlord shall choose, and (ii) store, destroy or otherwise
dispose of the same without incurring liability to Tenant or any other
person.
18. PERSONAL PROPERTY.
A. Responsibility. Tenant shall be solely responsible for all costs and
expenses related to personal property used or stored in the Premises.
Without limiting the foregoing, Tenant shall pay any taxes or other
governmental impositions levied upon or assessed against such personal
property, or upon Tenant for the ownership or use of such personal
property, on or before the due date for payment thereof. Such personal
property taxes or impositions are not included in Taxes.
B. Taxes on Certain Improvements, Alterations and Conditions. Tenant
shall also be responsible for all taxes or other governmental impositions
levied upon or assessed against any improvements, alterations, or additions
to the Premises to the extent that the same exceed or are in addition to
Building Standard, and if the taxing authorities do not separately levy or
assess such excess or additional improvements, alterations, or additions,
Landlord may make a reasonable allocation of such taxes or other
governmental impositions to the same.
C. Landlord's Lien. Intentionally Deleted.
22
<PAGE>
19. HOLDING OVER. If Tenant shall hold over after the expiration or
termination of the Term or of Tenant's right of possession, without written
agreement providing otherwise, Tenant shall be deemed to be a tenant from
month to month, at a monthly Annual Rent, payable in advance, equal to 150%
of monthly Annual Rent payable during the last Lease Year of the Term, and
Tenant shall be bound by all of the other covenants, conditions and
provisions of this Lease as the same may apply to a month-to-month tenancy.
Nothing contained herein shall be construed to give Tenant the right to
hold over at any time, and Landlord may exercise any and all remedies at
law or in equity to recover possession of the Premises, as well as any
damages incurred by Landlord, due to Tenant's failure to vacate the
Premises and deliver possession to Landlord as herein provided.
20. ESTOPPEL CERTIFICATE. Tenant agrees that from time to time upon not
less than ten (10) days' prior request by Landlord, Tenant will deliver to
Landlord a statement in writing certifying (i) that this Lease is
unmodified and in full force and effect (or if there have been
modifications that the Lease as modified is in full force and effect); (ii)
the dates on which the Commencement Date occurred and the Expiration Date
will occur; (iii) the dates on which Tenant began paying Rent and that no
Rent has been paid in advance of the required payment dates; (iv) that to
the best of Tenant's knowledge, neither Tenant nor Landlord is in default
under any provision of this Lease, or, if a default exists, the nature
thereof in detail; (v) that Tenant has no existing defenses or off-sets to
the enforcement of the Lease or, if there are any, specifying same; (vi)
provided such events have occurred, that Tenant has accepted and occupied
the Premises and that the Premises have been completed in accordance with
the terms hereof; and (vii) such other matters as may be reasonably
requested by Landlord, so long as the same do not materially alter Tenant's
obligations under this Lease. It is intended that any such statement may be
relied upon by Landlord, any prospective purchaser or tenant of the
Building, any mortgagee or prospective mortgagees thereof or any
prospective assignee of any mortgage thereon.
21. OBLIGATIONS TO MORTGAGEES AND LESSORS.
A. Subordination. At Landlord's option, this Lease may be made subject
and subordinate to future ground or underlying leases of the Land and to
the lien of any mortgages or deeds of trust, hereafter in force against the
Land, Complex or Building, or any of them, and to all renewals, extensions,
modifications, consolidations and replacements thereof, and to all advances
made or hereafter to be made upon the security of such mortgages or deeds
of trust. Tenant shall, within 10 days after Landlord's request for the
same, execute such further instruments or assurances as Landlord may
reasonably deem necessary to evidence or confirm the subordination of this
Lease to any such mortgages, deeds of trust, ground leases or underlying
leases, or, if requested by any mortgagee, beneficiary of a deed of trust,
or underlying or ground lessor, to make Tenant's interest in this Lease
superior to the interest of such mortgagee, beneficiary of a deed of trust,
or underlying or ground lessor, so long as the same do not materially alter
Tenant's obligations under this Lease. It is further agreed that upon the
request of the mortgagee or beneficiary of a deed of trust, if the mortgage
or deed of trust shall be foreclosed, or the transferee if the Building
shall be conveyed in lieu of foreclosure, Tenant will attorn, as Tenant
under this Lease, to the purchaser at any foreclosure sale or transferee
under such conveyance, or upon request of the ground or underlying lessor,
if any ground or underlying lease shall be terminated, Tenant will attorn,
as Tenant under this Lease, to the ground or underlying lessor; and, in
either case, Tenant will execute, within 10 days after a request therefor,
such instruments as may be necessary or appropriate to evidence
23
<PAGE>
such attornment, so long as the same do not materially alter Tenant's
obligations under this Lease,.
B. Notice to Landlord, Mortgagees, and Lessors. In the event of any act or
omission by Landlord which would give Tenant the right to seek damages or
specific performance from Landlord or the right to terminate this Lease,
Tenant will not sue for such damages or specific performance or exercise
any such right to terminate until (i) it shall have given written notice of
the act or omission to Landlord and to the holder(s) of the indebtedness or
other obligations secured by any mortgage or deed of trust affecting the
Premises and lessor(s) of any ground or underlying lease, if the name and
address of such holder(s) or lessor(s) have been furnished to Tenant, and
(ii) the lesser of 30 days or the applicable grace period hereunder for
remedying the act or omission has elapsed following the giving of the
notice, during which time Landlord and such holder(s) or lessor(s), or any
of them, their agents or employees, will be entitled to enter upon the
Premises and do therein whatever may be necessary to remedy the act or
omission.
22. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord shall have the following
rights, each of which Landlord may exercise without notice to Tenant
(except as expressly provided below) and without liability to Tenant for
damage or injury to property, person or business on account of the exercise
thereof, and the exercise of any such rights shall not be deemed to
constitute an eviction or disturbance of Tenant's use or possession of the
Premises and shall not give rise to any claim for set-off or abatement of
rent or any other claim:
(1) except as provided in Section 6 of Exhibit A, to change the name
or street address of the Complex or the Building, with three (3)
months' prior notice to Tenant;
(2) to install, affix and maintain any and all signs on the exterior
and on the interior of the Building or anywhere on Land or in
the Complex (and except as provided in Section 8 of Exhibit A,
Tenant agrees not to place or maintain any sign or other
advertising matter outside the Premises or inside the Premises
so as to be visible from outside the Premises, without the prior
written permission of Landlord);
(3) to decorate or to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the
Building or Complex, or any part thereof, and for such purposes
to enter upon the Premises, and, during the continuance of any
of such work, to temporarily close doors, entryways, public
space and corridors in the Building and to interrupt or
temporarily suspend services or use of facilities, all without
affecting any of Tenant's obligations hereunder, so long as
Landlord has given Tenant reasonable prior notice of any such
actions in the Premises. Landlord shall take reasonable steps in
connection with such actions to minimize any disruption to
Tenant's business or its use of the Premises;
(4) to the extent permitted by law, to retain at all times, and to
use in appropriate instances, keys to all doors within and into
the Premises. If the security system in the Premises is one
which has been installed by and is maintained by Landlord,
Tenant agrees to purchase only from Landlord additional
duplicate keys as required. Unless approved in writing by
Landlord as part of either the initial security system in the
Premises or as part of an approved modification
24
<PAGE>
thereto, Tenant agrees to change no locks, and not to affix
locks on doors without the prior written consent of Landlord.
Notwithstanding the provisions for Landlord's access to portions
of the Premises, Tenant relieves and releases the Landlord of
all responsibility arising out of theft, robbery and pilferage,
unless due to the gross negligence or willful misconduct of
Landlord. Upon the expiration or termination of the Term or of
Tenant's right to possession, Tenant shall return all keys to
Landlord and shall disclose to Landlord the combination of any
safes, cabinets or vaults left in the Premises;
(5) to designate Building Standard window coverings for all windows
in the Building and to designate and approve, prior to
installation, all types of additional window shades, blinds or
draperies, if any;
(6) to approve the weight, size and location of safes, vaults and
other heavy equipment and articles in and about the Premises and
the Building (so as not to exceed the lesser of the legal live
load per square foot or the live load per square foot designated
by the structural engineers for the Building), and to require
all such items and furniture and similar items to be moved into
or out of the Building and Premises only at such times and in
such manner as Landlord shall direct in writing. Movements of
Tenant's property into or out of the Building and within the
Building are entirely at the risk and responsibility of Tenant
and Landlord reserves the right to require Landlord's
permission, not to be unreasonably withheld, before allowing any
property to be moved into or out of the Building;
(7) to show the Premises to prospective tenants at reasonable hours
during the last six months of the Term; and
(8) to erect, use and maintain unexposed pipes, ducts, wiring and
conduits, and appurtenances thereto, in and through the
Premises.
23. RULES AND REGULATIONS. Tenant covenants and agrees to keep and observe
the rules and regulations attached to this Lease as Exhibit E and made a
part hereof. Landlord shall have the right from time to time to amend such
rules and regulations and to prescribe additional rules and regulations
which, in its reasonable judgment, may be desirable for the use, entry,
operation and management of the Premises, the Building and the Complex,
each of which amended and additional rules and regulations shall become a
part of this Lease. Tenant shall comply with such rules and regulations
provided, however, that such rules and regulations shall not contradict or
abrogate any right or privilege herein expressly granted to Tenant.
24. DEFAULT AND REMEDIES.
A. Events of Default. Each of the following shall constitute an "Event
of Default" under this Lease:
(1) Failure to Pay Rent or Other Amounts When Due. If Tenant fails more
than two times during any twelve-month period during the Term to pay
within five (5) days of the date when due Annual Rent, Additional
Rent, or any other Rent or amounts payable by Tenant under the terms
of this Lease. Tenant shall in all events pay interest as provided in
Section 29.B. on all Annual Rent, Additional
25
<PAGE>
Rent and other Rent and amounts owed from their respective original
due dates until paid.
(2) Failure to Deliver Required Documents. If Tenant fails to deliver an
estoppel certificate required by Section 20 above, or an instrument
required by Section 21.A. above, in either case within 10 days after
Tenant's receipt of a request therefor.
(3) Violation of Other Lease Terms. If Tenant breaches or fails to comply
with any other covenant or provision of this Lease applicable to
Tenant, and such breach or failure to comply is not covered by the
provisions of Section 24.A.(1) above and continues for a period of 20
days after notice thereof by Landlord to Tenant, or, if such breach or
failure to comply cannot be reasonably cured within such 20-day
period, if Tenant shall not in good faith commence to cure such breach
or failure to comply within such 20-day period or shall not diligently
complete such cure within 60 days after such notice from Landlord;
provided, however, that if such breach or failure to comply causes or
results in (i) a dangerous condition in the Premises, Building or
Complex, (ii) any insurance coverage carried by Landlord or Tenant
with respect to the Premises, Building or Complex being jeopardized,
or (iii) a material disturbance to another tenant of the Complex, then
an Event of Default shall exist if such breach or failure to comply is
not cured as soon as reasonably possible after notice thereof by
Landlord to Tenant, and in any event is not cured within 30 days after
such notice. For purposes of this Section 24.A.(2), financial
inability shall not be deemed a reasonable ground for failure to
immediately cure any breach of, or failure to comply with, the
covenants and provisions of this Lease.
(4) Nonoccupancy of Demised Premises. If Tenant shall fail to
substantially occupy and use the Premises within 15 days after
commencement of the Term or shall leave the Premises unoccupied for 15
consecutive days or shall vacate and abandon the Premises.
(5) Transfer of Interest Without Consent. If Tenant's interest under this
Lease or in the Premises shall, in whole or in part, be transferred to
or pass to or devolve upon any other party in violation of the
covenants and provisions of Section 16, or if Tenant shall in any
other way fail to comply with Section 16.
(6) Execution and Attachment Against Tenant. If Tenant's interest under
this Lease or in the Premises shall be taken upon execution or by
other process of law directed against Tenant, or shall be subject to
any attachment at the instance of any creditor or claimant against
Tenant and said attachment shall not be discharged or disposed of
within 15 days after the levy thereof.
(7) Bankruptcy or Related Proceedings. If Tenant shall file a petition in
bankruptcy or insolvency or for reorganization or arrangement or to
delay, reduce or modify Tenant's debts or obligations, under the
bankruptcy laws of the United States or under any similar act of any
state, or Tenant shall voluntarily take advantage of any such law or
act by answer or otherwise, or shall be dissolved, or shall be
declared insolvent, or shall make an assignment for the benefit of
creditors or, if involuntary proceedings under any such bankruptcy or
26
<PAGE>
insolvency law or for the dissolution of Tenant shall be instituted
against Tenant or a receiver or trustee shall be appointed for the
Premises or for all or substantially all of the property of Tenant,
and such proceedings shall not be dismissed or such receivership or
trusteeship vacated within 60 days after such institution or
appointment.
(8) Maintenance of Tenant's Legal Status. If (i) Tenant is a corporation,
partnership, limited liability company, limited partnership or other
entity and Tenant shall for any reason fail to maintain its existence
and good standing under the laws of the jurisdiction of its formation;
or (ii) if Tenant is an entity formed under the laws of a jurisdiction
other than Colorado, and if Tenant or any of its principals, partners
or other constituents is required by the laws of Colorado to qualify
and maintain its qualification to transact business in Colorado, and
Tenant or any of such principals, partners or constituents fails for
any reason to do so; or ( iii) if Tenant is a partnership or other
entity and Tenant is dissolved or otherwise liquidated.
B. Landlord's Remedies. Subject to Section 29.S, time is of the essence
hereof. Upon the occurrence of any Event of Default, Landlord shall have,
in addition to all other rights and remedies provided in this Lease or at
law or in equity, the right, at Landlord's election, then or at any time
thereafter, to exercise any one or more of the following remedies:
(1) Cure by Landlord. Upon an Event of Default, Landlord may, at
Landlord's option, but without obligation to do so, and without
releasing Tenant from any obligations under this Lease, make any
payment or take any action as Landlord may deem necessary or
desirable to cure any such Event of Default in such manner and
to such extent as Landlord may deem necessary or desirable.
Landlord may do so without demand on, or written notice to,
Tenant and without giving Tenant an opportunity to cure such
Event of Default. Tenant covenants and agrees to pay to
Landlord, within 10 days after demand, all advances, costs and
expenses of Landlord in connection with the making of any such
payment or the taking of any such action, including reasonable
attorneys' fees, together with interest at the rate described in
Section 29.B., from the date of payment of any such advances,
costs and expenses by Landlord.
(2) Termination of Lease and Damages. Upon an Event of Default,
Landlord may terminate this Lease, effective at such time as may
be specified by written notice to Tenant, and demand (and, if
such demand is refused, recover) possession of the Premises from
Tenant. Tenant shall remain liable to Landlord for damages in an
amount equal to the total of the following:
i) the cost, including reasonable attorneys' fees, of
demanding and recovering the Premises;
ii) all unpaid Annual Rent, Additional Rent and any other Rent
earned at the time of termination of this Lease, plus
interest thereon at the rate as set out in Section 29.B.;
and
27
<PAGE>
iii) all other money and damages owed by Tenant to Landlord.
In addition, Landlord shall also be entitled to recover from
Tenant as damages the amounts determined at Landlord's election under
either (x) or (y) below:
(x) Annual Rent, Additional Rent and other Rent and sums
which would have been owing by Tenant hereunder for the balance
of the Term, had this Lease not been terminated, less the net
proceeds, if any, received by Landlord from any reletting of the
Premises by Landlord subsequent to such termination, after
deducting all Landlord's expenses in connection with finding a
new tenant and such recovery of possession and reletting,
including tenant improvements, remodeling and refinishing space
for a new tenant, reasonable and customary tenant inducements and
abatements, brokerage fees or agents' commissions in connection
therewith, redecorating costs, reasonable attorneys' fees, and
other costs and expenses incident to recovering and reletting the
Premises; and Landlord shall be entitled to collect and receive
such damages from Tenant on the days on which the Annual Rent,
Additional Rent and other Rent and sums would have been payable
if this Lease had not been terminated.
(y) Alternatively, at the option of Landlord, Landlord
shall be entitled to recover forthwith from Tenant, as damages
for loss of the bargain and not as a penalty, an aggregate sum
which, at the time of such termination of this Lease, represents
the present value of the excess, if any, of (a) the aggregate of
the Annual Rent, Additional Rent and all other Rent and sums
payable by Tenant hereunder that would have accrued for the
balance of the Term (such aggregate shall be calculated by
assuming that the monthly installment of Additional Rent due for
the month in which termination occurs shall remain the same for
the balance of the Calendar Year in which termination occurs and
that the total amount of Additional Rent payable for the
succeeding Calendar Years remaining in the Term if this Lease had
not been terminated shall increase by 8% per Calendar Year,
compounded annually, over the amount of Additional Rent payable
for the Calendar Year in which termination occurs), over (b) the
amount, if any, of such Annual Rent, Additional Rent and other
Rent and sums which Tenant establishes Landlord can reasonably
expect to recover by reletting the Premises for the remainder of
the Term, taking into consideration loss of rent while finding a
new tenant, and the costs which Landlord might incur in leasing
the Premises to a new tenant, including those listed in paragraph
(x) above. Such present value shall be calculated at the rate
commonly called the discount rate for 90-day commercial paper in
effect at Norwest Bank Colorado, N.A. on the date of termination
of this Lease.
(3) Repossession and Reletting. Upon an Event of Default, Landlord may
immediately or at any time thereafter, and with or without legal
process, reenter and take possession of the Premises or any part
thereof, without demand or
28
<PAGE>
notice and, except as may otherwise be required by law applicable to
this Lease, repossess the same and expel Tenant and any party claiming
by, under or through Tenant, and remove the effects of both using such
force for such purposes as may be necessary, without being liable for
prosecution on account thereof or being deemed guilty of any manner of
trespass (Tenant hereby waiving any claim except claims arising out of
Landlord's failure to exercise such care as to Tenant's property as
may be required by law applicable to this Lease), and without
prejudice to any remedies for arrears of rent or right to bring any
proceeding for breach of covenants or provisions of this Lease. No
such reentry or taking possession of the Premises by Landlord shall be
construed as an election by Landlord to terminate this Lease unless a
written notice of such intention is given to Tenant by Landlord. No
notice from Landlord hereunder or under a forcible entry and detainer
statute or similar law shall constitute an election by Landlord to
terminate this Lease unless such notice specifically so states.
Landlord reserves the right, following any reentry or reletting, to
exercise its right to terminate this Lease by giving Tenant such
written notice, in which event the Lease will terminate as specified
in said notice. After recovering possession of the Premises, Landlord
may, from time to time, relet the Premises, or any part thereof, for
the account of Tenant, for such term or terms and on such agreements,
covenants, provisions and conditions and upon such other terms as
Landlord, in its discretion, may determine. Landlord may make such
repairs, alterations and improvements as Landlord may consider
appropriate to accomplish such reletting, and Tenant shall reimburse
Landlord upon demand for all costs and expenses (together with
interest thereon at the rate set out in Section 29.B.), which Landlord
may incur in connection with such repossession or reletting, including
tenant improvements, remodeling and refinishing space for a new
tenant, reasonable and customary tenant inducements and abatements,
brokerage fees or agents' commissions in connection therewith,
redecorating costs, reasonable attorneys' fees, and other costs and
expenses incident to repossessing and reletting the Premises. Landlord
may collect and receive the rents for such reletting but, except as
provided below with respect to Landlord's duty to use good faith
reasonable efforts to relet the Premises, Landlord shall in no way be
responsible or liable for any failure to relet the Premises, or any
part thereof, or for any failure to collect any rent due upon such
reletting. Landlord shall have no duty to attempt to mitigate its
damages by retaking and reletting the Premises, except that if
Landlord does retake possession of the Premises under either Section
24.B(2) or this Section 24.B(3), Landlord shall use good faith
reasonable efforts to relet the Premises, subject to the following
terms, conditions and limitations: (a) any reletting of the Premises
shall be on the terms and conditions determined by Landlord in its
reasonable good faith discretion and to such tenants as Landlord shall
approve in its reasonable good faith discretion. Without limiting the
generality of the foregoing, Tenant acknowledges that, in reletting
the Premises, Landlord may legitimately consider the effect of any
such reletting on the Building and on any other buildings owned by
Landlord or any other person or entity controlling, controlled by, or
under common control with Landlord, or otherwise affiliated with
Landlord (which parties are referred to herein collectively as
"Landlord Affiliates"), and, therefore, may decide not to lease the
Premises at rates which are lower than Landlord is otherwise
endeavoring to maintain in the Building, or at rates which are lower
than the rate
29
<PAGE>
that Landlord believes to be appropriate for the Premises; and (b)
Tenant recognizes that Landlord and Landlord's Affiliates currently
and in the future may have vacant space in the Building and other
buildings and may in the future also have vacant space in new projects
in competition with the Premises. In no event shall Landlord be
obligated to use any effort to relet the Premises in preference to
leasing any such other vacant space then available for leasing by
Landlord or any of Landlord's Affiliates. Landlord shall not be deemed
to have failed to mitigate damages solely on account of the leasing of
other space which Landlord or Landlord's Affiliates have available
instead of the reletting of the Premises. Notwithstanding Landlord's
recovery of possession of the Premises, Tenant shall continue to pay
on the dates herein specified, the Annual Rent, Additional Rent and
other Rent and sums which would be payable hereunder if such
repossession had not occurred, together with interest thereon as set
forth in Section 29.B., less a credit for the net amounts, if any,
after payment by Landlord of all of its costs and expenses actually
received by Landlord through any reletting of the Premises.
(4) Landlord's Bankruptcy Remedies. Nothing contained in this Lease shall
limit or prejudice the right of Landlord to prove and obtain as
liquidated damages in any bankruptcy, insolvency, receivership,
reorganization or dissolution proceeding, an amount equal to the
maximum allowable by any statute or rule or law governing such
proceeding in effect at the time when such damages are to be proved,
whether or not such amount be greater, equal to or less than the
amounts recoverable, either as damages or rent under this Lease.
C. Concurrent or Subsequent Exercise of Remedies . Exercise of any of the
remedies of Landlord under this Lease shall not prevent the concurrent or
subsequent exercise of any other remedy provided for in this Lease or
otherwise available to Landlord at law or in equity.
D. Choice of Law, Jurisdiction and Venue. This Lease is declared to be a
Colorado contract, and all of the covenants, conditions and provisions of
this Lease shall be construed and enforced according to the laws of the
State of Colorado. Any action or proceeding against Tenant relating in any
way to this Lease may be brought and enforced in the District Court in and
for the City and County of Denver, Colorado, or the United States District
Court for the District of Colorado, and Tenant irrevocably submits to the
personal jurisdiction of each such court in respect of any such action or
proceeding. Tenant irrevocably appoints its statutory agent for service of
process, as its agent to receive personal service of process in any such
action or proceeding. So long as Tenant has any obligation under this
Lease, it will maintain a duly appointed agent in Denver, Colorado, for
personal service of such process and, if it fails to maintain such an
agent, any such process may be served by serving a copy thereof upon the
Colorado Secretary of State, by mailing a copy thereof by United States
Postal Service certified mail addressed to Tenant at its address as
provided for notices hereunder, or by any other means permitted under the
rules of federal or state courts in Colorado. Any judgment so obtained in
the state or federal courts in Colorado may be enforced and levied upon in
the courts of any jurisdiction in which Tenant or any of its property may
be found, and Tenant irrevocably submits to the personal jurisdiction of
each such court in respect of any such action or proceeding. Tenant
irrevocably waives, to the fullest extent permitted by applicable law, any
objection that it may now or hereafter have to personal jurisdiction or
venue
30
<PAGE>
of any such action or proceeding in the District Court in and for the City
and County of Denver, Colorado, or the United States District Court for the
District of Colorado, and any claim that any such action or proceeding
brought in such court has been brought in an inconvenient forum.
25. EXPENSES OF ENFORCEMENT. Tenant shall pay upon demand all Landlord's
costs, charges and expenses, together with interest thereon as provided in
Section 29.B., including the fees and out-of-pocket expenses of attorneys,
agents and others retained by Landlord, incurred in successfully enforcing
Tenant's obligations hereunder. Landlord shall pay upon demand all
Tenant's costs, charges and expenses, together with interest thereon as
provided in Section 29.B., including the reasonable fees and out-of-pocket
expenses of attorneys, agents and others retained by Tenant, incurred in
successfully enforcing Landlord's obligations hereunder.
26. COVENANT OF QUIET ENJOYMENT. Landlord covenants that Tenant, on paying
the Rent, charges for services and other payments herein reserved, and, on
keeping, observing and performing all the other covenants, conditions, and
provisions herein contained on the part of Tenant to be kept, observed, and
performed, shall, during the Term, have quiet and peaceable possession of
the Premises subject to the covenants, conditions, and provisions hereof,
and such possession shall not be disturbed by Landlord or by any person
claiming by, through or under Landlord.
27. SECURITY DEPOSIT. Tenant hereby deposits with Landlord as the
"Security Deposit" the amount set forth in Section 1.A.(7) as security for
the prompt, full and faithful performance by Tenant of each and every
covenant, condition, and provision of Tenant under this Lease. Landlord
shall not be required to account for interest or to pay interest to Tenant
on the Security Deposit.
(1) If Tenant fails to perform any of its covenants, conditions, or
provisions hereunder, Landlord may use, apply or retain the whole or any
part of the Security Deposit for the payment of (i) any Rent or other sums
of money which Tenant may not have paid when due, (ii) any sum expended by
Landlord on Tenant's behalf in accordance with the conditions, covenants,
and provisions of this Lease, or (iii) any sum which Landlord may expend or
be required to expend by reason of Tenant's default, including, without
limitation, any damage or deficiency in or from the reletting of the
Premises as provided in Section 24. The use, application or retention of
the Security Deposit, or any portion thereof, by Landlord shall not prevent
Landlord from having or exercising any other right or remedy provided by
this Lease or by law (it being intended that Landlord shall not first be
required to proceed against the Security Deposit) and shall not operate as
a limitation on any recovery to which Landlord may otherwise be entitled.
Without limiting the generality of the preceding sentence, Landlord shall
be entitled to any interest elsewhere provided in this Lease
notwithstanding that Landlord has applied any portion of the Security
Deposit against the unpaid Rent or other sums against which interest is
accruing. If any portion of the Security Deposit is used, applied or
retained by Landlord for the purposes set forth above, Tenant agrees,
within 10 days after the written demand therefor is made by Landlord, to
deposit cash with the Landlord in an amount sufficient to restore the
Security Deposit to its original amount.
(2) If Tenant shall fully and faithfully comply with all of the
conditions, covenants, and provisions of this Lease, the Security Deposit,
or any balance thereof, shall be returned to Tenant without interest within
60 days after the expiration of the Term or after the date on which Tenant
vacates the Premises, whichever shall occur last. In the absence of
evidence
31
<PAGE>
satisfactory to Landlord of any permitted assignment of the right to
receive the Security Deposit, or the remaining balance thereof, Landlord
may return the same to the original Tenant, regardless of one or more
assignments of Tenant's interest in this Lease or the Security Deposit. In
such event, upon the return of the Security Deposit, or the remaining
balance thereof to the original Tenant, Landlord shall be completely
relieved of liability under this Section 27 or otherwise with respect to
the Security Deposit.
(3) Tenant acknowledges that Landlord has the right to transfer its
interest in the Land, Building, and Complex, and in this Lease and Tenant
agrees that in the event of any such transfer, Landlord shall have the
right to transfer the Security Deposit to the transferee. Upon written
acknowledgment of transferee's receipt of such Security Deposit, Landlord
shall thereby be released by Tenant from all liability or obligation for
the return of such Security Deposit and Tenant agrees to look solely to
such transferee for the return of the Security Deposit.
28. REAL ESTATE BROKER. The Tenant represents that the Tenant has dealt
with no broker, real estate person, or finder in connection with this Lease
other than the broker or brokers, if any, named in Section 1.A.(7) and that
insofar as the Tenant knows, no other broker, real estate person, or finder
negotiated this Lease or is entitled to any commission or fee in connection
herewith. Tenant agrees to indemnify, defend and hold Landlord free and
harmless from and against all claims for broker's and real estate
commissions or finder's fees by any person claiming to have been retained
by, or furnished services to, Tenant in connection with this transaction,
other than the broker or brokers, if any, named in Section 1.A.(7). No
commission or fee shall be payable to any broker in connection with any
renewal of this Lease.
29. MISCELLANEOUS.
A. Rights Cumulative. All rights and remedies of the parties under this
Lease shall be cumulative and none shall exclude any other rights and remedies
allowed by law.
B. Interest. In addition to the rights and remedies under Section 24 or
elsewhere in this Lease, Tenant covenants and agrees that all Annual Rent,
Additional Rent, and other Rent and sums due hereunder shall, upon becoming
due under this Lease and remaining unpaid when due, bear interest from the
due date until paid at the rate of 18% per annum, compounded monthly, and
Tenant covenants to pay the same.
C. Binding Effect. Each of the covenants, conditions, and provisions of
this Lease shall, as the case may require, extend to and bind or inure to
the benefit not only of Landlord and Tenant, but also of their respective
successors or assigns, provided, however, that this clause shall not permit
any assignment, sublease or other matter by Tenant contrary to the
provisions of Section 16 hereof. The generality of the foregoing provisions
of this subsection C. shall not be limited by the use of such words as
successor landlord or Landlord's successors, assigns, successors in
interest or transferee in some Sections of this Lease and not in others.
D. Lease Contains All Terms. All of the representations and obligations
of the parties are contained herein and no modification, waiver or
amendment of this Lease or of any of its covenants, conditions or
provisions shall be binding upon a party unless in writing signed by such
party.
32
<PAGE>
E. Delivery for Examination. Submission of the form of the Lease for
examination shall not bind Landlord in any manner, and no Lease or
obligations of the Landlord shall arise until this instrument is signed by
both Landlord and Tenant and delivery is made to each.
F. No Air Rights. No rights to any view or to light or air over any
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease.
G. Modification of Lease. If any present or prospective lender, purchaser
or lessor requires, as a condition to its lending funds or purchasing an
interest in the Land or the Building, or entering into a ground or other
lease covering an interest in the Land or the Building, that certain
modifications be made to this Lease, which modifications will not require
Tenant to pay any additional amounts or otherwise change materially the
rights or obligations of Tenant hereunder, Tenant shall, upon Landlord's
request, execute appropriate instruments effecting such modifications.
H. Substitution of Premises. Intentionally Deleted.
I. Transfer of Landlord's Interest. Tenant acknowledges that Landlord
(and each successor landlord) has the right to transfer its interest, by
reason of this Lease, in any or all of the Land, Building and Complex, and
Tenant agrees that in the event of any such transfer Landlord (and each
successor landlord) shall automatically be released from all liability
under this Lease relating to periods after such respective transfer and
Tenant agrees to look solely to such respective transferee for the
performance of the obligations hereunder of Landlord (or such successor
landlord) relating to periods after such transfer.
J. Prohibition Against Recording. Neither this Lease, nor any memorandum,
affidavit or other writing with respect thereto, shall be recorded by
Tenant or by anyone acting through, under or on behalf of Tenant, and the
recording thereof in violation of this provision shall make this Lease
voidable at Landlord's election.
K. Captions. The captions of Sections and subsections are for convenience
only and shall not be deemed to limit, construe, affect or alter the
meaning of such Sections of subsections.
L. Only Landlord/Tenant Relationship. Nothing contained in this Lease
shall be deemed or construed by the parties hereto or by any third party to
create the relationship of principal and agent, partnership, joint venture
or any association between Landlord and Tenant, it being expressly
understood and agreed that neither the method of computation of Rent nor
any other provisions contained in this Lease nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and
Tenant other than the relationship of landlord and tenant. In no event
shall any fiduciary relationship exist or be implied between Landlord and
Tenant.
M. Bills. If Tenant fails to give Landlord specific written notice of its
objections within 30 days after receipt of any bill or invoice hereunder,
such bill or invoice shall be deemed true and correct and Tenant may not
thereafter question the validity of such bill or invoice or the underlying
information or computations used to determine the amount thereof.
N. Severability. If any covenant, condition or provision of this Lease
shall be declared to be void or unenforceable by a final judicial or
administrative order and if, in
33
<PAGE>
Landlord's judgment, it was not a material consideration for Landlord's
execution of this Lease, the Lease shall continue in full force and effect,
except that the void or unenforceable covenant, condition or provision
shall be deemed to be deleted from this Lease. If such covenant, condition
or provision was a material consideration Landlord may terminate this Lease
on 30 days' prior written notice to Tenant.
O. Jury Trial. Landlord and Tenant hereby waive trial by jury in any
action, proceeding or counterclaim brought by Landlord or Tenant against
the other with respect to the following issues: (i) the insolvency or
bankruptcy of Landlord or Tenant; (ii) the assignment in whole or in part
of this Lease by Landlord or Tenant or the subletting of all or any portion
of the Premises by Tenant; and (iii) the integrity of the Building's
structural, electrical, or mechanical systems.
P. Authority to Bind. The individuals signing this Lease on behalf of
Landlord and Tenant hereby represent and warrant that they are empowered
and duly authorized to bind the Landlord or the Tenant, as the case may be,
to this Lease in accordance with its terms.
Q. Tenant's Covenants Independent. It is the intent of the parties that
Tenant's covenants, conditions and provisions in this Lease are, and shall
be construed as independent and not dependent and that all Rent and other
sums shall be payable without offset, counterclaim, abatement, or reduction
for any cause except as otherwise specifically provided in this Lease.
R. Business Days and Hours; Holidays. "Business days" means Monday
through Friday (except holidays); "normal business hours" means 7:00 a.m.
to 6:00 p.m. on business days; and "holidays" means those days designated
as holidays in the Rules and Regulations.
S. Force Majeure. Except as to the payment of money, when a period of
time is herein prescribed for action to be taken by either party, neither
party shall be liable or responsible for, and there shall be excluded from
the computation for any such period of time, any delays due to strikes,
riots, acts of God, shortages of labor or materials beyond the control of
the performing party, war, governmental laws, regulations or restrictions
or any other cause of any kind whatsoever which is beyond the control of
the performing party. Subject to the preceding sentence, time is of the
essence of every part of this Lease.
30. LIMITATIONS ON LANDLORD'S LIABILITY. Any liability of Landlord for
damages for breach or nonperformance by Landlord, or arising out of the
subject matter of this Lease or the relationship created hereby, shall be
collectible only out of Landlord's interest in the Complex and no personal
liability is assumed by, or may at any time be asserted against, Landlord,
any parent and affiliated corporations, partnerships, limited liability
companies, or other entities, its and their partners, venturers, managers,
principals or other constituents, directors, officers, agents, servants and
employees, or any of its or their successors or assigns; all such
liability, if any, being expressly waived and released by Tenant. 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 on account of insurance which Landlord or Landlord's successors in
interest may maintain. If Landlord or Landlord's successor in interest, in
violation of the terms of this Lease or the provisions of law, withholds,
denies or delays any consent which Tenant is required to obtain under this
Lease, Tenant may seek specific performance but shall not be entitled to
34
<PAGE>
damages therefor. Landlord's or such successor's review, supervision,
commenting on or approval of any aspect of work to be done by or for Tenant
(under the Tenant Construction Agreement, Section 9 hereof, or otherwise)
are solely for Landlord's or such successor's protection and, except as
expressly provided in writing by Landlord or such successor after it has
made or given such review, supervision, comment or approval, create no
warranties or duties to Tenant or to third parties.
31. NOTICES. All notices required or permitted under this Lease shall be
in writing and shall be deemed properly given and received (i) when
actually given and received at the addresses set out below if delivered in
person, including delivery by a private courier or overnight delivery
service; or (ii) three business days after deposit in the United States
mails, certified or registered mail with return receipt requested, postage
prepaid, addressed to the party to receive the notice at, in the case of
notices to Landlord, to Denver Hines Development, LLC, at the Building,
4600 South Syracuse, Denver, Colorado 80237, Attn: Property Manager, with a
copy to Denver Hines Development, LLC, 2800 Post Oak Blvd., 50th Floor,
Houston, Texas 77056-6118, Attn: C. Hastings Johnson, and in the case of
notices to Tenant, the address set forth in the first paragraph of this
Lease if such notice is given prior to the Commencement Date and Tenant's
address at the Premises if such notice is given on or after the
Commencement Date, or, in either case, at such other address or addresses
as either party may notify the other of in accordance with the terms
hereof.
IN WITNESS WHEREOF, Landlord and Tenant have signed this Lease as of the
date first written above.
TENANT: LANDLORD:
TANNING TECHNOLOGY CORPORATION, DENVER HINES DEVELOPMENT, LLC, a
a Delaware Corporation Delaware limited liability company
---------------------------
By: /s/ Mark Tanning By: /s/ Tom Owens
--------------------------- ---------------------------
Print Name: Mark Tanning Tom Owens
---------------- ---------------------------
Its: VP of Administration & Treasurer Manager
--------------------------------- ---------------------------
ATTEST:
-----------------------
[ S E A L ]
35
<PAGE>
Exhibit A
4600 SOUTH SYRACUSE
ADDITIONAL PROVISIONS
The following additional provisions are attached to and made a part of that
certain Lease Agreement between Denver Hines Development, LLC, as Landlord, and
Tanning Technology Corporation, as Tenant. In the event of a conflict between
the terms and provisions of the remainder of the Lease and the terms and
provisions of this Exhibit A, the terms and provisions of this Exhibit A shall
control.
1. Pre-Occupancy Options. So long as no event of default under this Lease
has occurred and is continuing at the time that the option may be exercised
or at the time that any expansion of the Premises becomes applicable as
provided herein, Tenant shall have the following options (the "Pre-
Occupancy Options") to expand the initial Premises included within the
Lease, each of which shall be subject to the terms and conditions of this
Section 1. On or before January 15, 1999, Tenant may elect, by written
notice to Landlord, to expand the initial Premises by all, but not less
than all, of the remainder of Floor 11 of the Building (the "First Pre-
Occupancy Option"). In addition, if Tenant exercises the First Pre-
Occupancy Option, then on or before April 1, 1999, Tenant may also elect,
by written notice to Landlord, to expand the initial Premises by all, but
not less than all, of Floor 10 of the Building (the "Second Pre-Occupancy
Option"). The Second Pre-Occupancy Option may be exercised simultaneously
with the First Pre-Occupancy Option, but the Second Pre-Occupancy Option
shall expire and be deemed to be of no further force or effect if Tenant
has not exercised the First Pre-Occupancy Option on or before January 15,
1999. If Tenant exercises a Pre-Occupancy Option, then the parties shall
execute an amendment to the Lease, amending the definition of "Premises" to
include the space added by the exercise of the Pre-Occupancy Option, and
adjusting the original Rentable Area of the Premises, as defined in the
Lease, to appropriately include the Rentable Area of the space so added.
All other terms and conditions of the Lease shall apply to the Premises as
so expanded.
2. Options to Renew. Tenant at its option may renew the term of this Lease
for two (2) additional terms of five (5) years each (each, a "Renewal
Option"). Tenant shall give Landlord notice of its intent to renew by
written notice delivered to Landlord at least eighteen (18) months before
the expiration of the initial Term of this Lease, and if the first Renewal
Option has been properly exercised, Tenant shall give Landlord notice of
its intent to renew for the second renewal Term by written notice delivered
to Landlord at least eighteen (18) months before the expiration of the
first renewal Term of this Lease (each, an "Intent Notice"); provided that
at the time of each Intent Notice and at the commencement of both the first
and second renewal Terms, no event of default by Tenant as defined in this
Lease is in existence, and provided further that Tenant furnishes current
financial statements to Landlord and that no material, adverse change in
the financial condition of Tenant since May 1, 1998, has occurred. Upon
the service of the Intent Notice, Landlord shall within thirty (30) days
thereafter furnish to Tenant a notice containing the new Annual Rent figure
for the applicable renewal Term. The portion of the new Annual Rent figure
not attributable to Initial Operating Expense Basic Cost payable during
each renewal Term shall be at ninety-five percent (95%) of the fair market
rental rate as determined for each renewal Term pursuant to Section 5
below, and the Annual Rent shall also include a new amount for the Initial
Operating Expense Basic Cost, which shall be
<PAGE>
adjusted to reflect the then-current Initial Operating Expense Basic Cost
figure for the Building. If Tenant does not agree with Landlord's
determination of the new Annual Rent figure, Tenant shall notify Landlord,
and the parties shall then proceed to negotiate in good faith concerning
the new Annual rent figure. If the parties have not agreed upon the new
Annual Rent amount by the date which is ninety (90) days from the date upon
which Landlord received Tenant's Intent Notice, then Tenant may notify
Landlord that it is withdrawing the Intent Notice, and the applicable
Renewal Option shall be deemed to be no longer available to Tenant or of
any force or effect. If Tenant fails to withdraw its Intent Notice by the
date which is ninety (90) days from the date upon which Landlord received
Tenant's Intent Notice, then Tenant shall be deemed to have exercised the
applicable Renewal Option, and subject to the conditions set forth in the
second sentence of this paragraph, this Lease shall be extended by
execution of an amendment to this Lease incorporating the renewal Term and
the new Annual Rent rate for the renewal Term, determined as provided
below. The first renewal Term shall commence upon the expiration date of
the initial Term of this Lease and expire at midnight of the day prior to
the annual anniversary of such date five (5) years thereafter, and the
second renewal Term shall commence upon the expiration date of the first
renewal Term of this Lease and expire at midnight of the day prior to the
annual anniversary of such date five (5) years thereafter. Each such
renewal Term shall include all of the Premises then covered by the Lease,
and shall be upon the same terms, covenants and conditions as provided in
this Lease for the initial Term, except that (i) the Annual Rent not
attributable to Initial Operating Expense Basic Cost payable during each
renewal Term shall be at the rate initially proposed by Landlord as ninety-
five percent (95%) of the fair market rental rate as determined for each
renewal Term pursuant to Section 5 below, unless the parties have agreed
upon a different rate, in which case the Annual Rent not attributable to
Initial Operating Expense Basic Cost shall be at the rate agreed, and (ii)
the Annual Rent shall also include a new amount for the Initial Operating
Expense Basic Cost, which shall be adjusted to reflect the then-current
Initial Operating Expense Basic Cost figure for the Building, and
thereafter Tenant shall pay all Additional Rent applicable to the Expansion
Space, and Annual Rent shall be increased, adjusted, or augmented as
provided in and under this Lease, and (iii) Landlord shall provide a tenant
improvement allowance at the commencement of the first Renewal Term of
$10.00 per square foot of Rentable Area included within the Premises, and
at the commencement of the second Renewal Term of $12.50 per square foot of
Rentable Area included within the Premises. Payment of all Additional Rent
and any other Rent required to be paid by Tenant as provided in this Lease
for the initial Term shall continue to be made during the renewal Terms.
Any termination of this Lease, any assignment of this Lease and/or any
subletting of the Premises terminates the Renewal Options, except in the
case of an assignment or sublease by Tenant to an entity controlling,
controlled by, or under common control with Tenant, or to any firm or
company into or within which Tenant may be merged or consolidated, or which
purchases all or substantially all of the assets or stock of Tenant.
3. Expansion Options. So long as no event of default under this Lease has
occurred and is continuing at the time that the option may be exercised or
at the time that any expansion of the Premises becomes applicable as
provided herein, Tenant shall have the following two (2) options (the
"Expansion Options") to expand the Premises, each of which shall be subject
to the terms and conditions of this Section 3:
A-2
<PAGE>
A. The first Expansion Option shall be available to Tenant only if Tenant
has not exercised its Pre-Occupancy Option to add the balance of Floor 11
of the Building to the initial Premises. The first Expansion Option, if
exercised, will be applicable to all of the remainder of Floor 11 of the
Building which was not included within the initial Premises (the "First
Expansion Space"). If the first Expansion Option is exercised, the First
Expansion Space will be delivered by Landlord to Tenant for the purpose of
commencing its tenant finish work therein on a date to be designated by
Landlord, which shall be between the date which is three (3) years from the
Commencement Date and the date which is four (4) years from the
Commencement Date (the "First Occupancy Date").
B. The second Expansion Option shall be available to Tenant only (i) if
Tenant has not exercised its Pre-Occupancy Option to add Floor 10 of the
Building to the initial Premises, (ii) if Tenant has previously exercised
the first Expansion Option, and (iii) if Tenant has previously exercised
its first Renewal Option to extend the Term by an additional five (5)
years. The second Expansion Option, if exercised, will be applicable to all
of Floor 10 of the Building (the "Second Expansion Space"). If the second
Expansion Option is exercised, the Second Expansion Space will be delivered
by Landlord to Tenant for the purpose of commencing its tenant finish work
therein on a date to be designated by Landlord, which shall be between the
date which is five (5) years from the Commencement Date and the date which
is six (6) years from the Commencement Date (the "Second Occupancy Date").
C. If the first Expansion Option is available to Tenant as set forth above,
Landlord shall notify Tenant of the First Occupancy Date at least twelve
(12) months prior thereto, and if the second Expansion Option is available
to Tenant as set forth above, Landlord shall then notify Tenant of the
Second Occupancy Date at least twelve (12) months prior thereto (each, an
"Occupancy Notice"). Each Occupancy Notice shall also contain the fair
market rental rate, determined in accordance with Section 5 below, which
will be applicable to the Expansion Space.
D. In order to exercise either Expansion Option, Tenant shall be required
to give Landlord written notice of exercise (the "Exercise Notice") within
thirty (30) days after the date upon which Tenant receives the applicable
Occupancy Notice. If Tenant gives Landlord a timely Exercise Notice, the
applicable Expansion Space shall be added to the Premises as of the
Occupancy Date for such Expansion Option. If Tenant gives Landlord notice
that Tenant has elected not to exercise any Expansion Option or gives no
notice to Landlord within such 30-day period, Tenant shall have irrevocably
determined not to exercise such Expansion Option and such Expansion Option
shall have been relinquished.
E. Landlord shall make each Expansion Space available to Tenant for
purposes of making Tenant's improvements therein on the Occupancy Date for
such Expansion Space. Tenant's improvements in the Expansion Space shall be
constructed in accordance with and subject to all of the terms and
conditions of this Lease.
F. The portion of Annual Rent not attributable to Initial Operating Expense
Basic Cost payable with respect to any Expansion Space shall be the fair
market rental rate for such Expansion Space. The Annual Rent shall also
include a new amount for the Initial Operating Expense Basic Cost, which
shall be adjusted to reflect the then-current Initial Operating Expense
Basic Cost figure for the Building, and thereafter Tenant shall pay all
Additional Rent
A-3
<PAGE>
applicable to the Expansion Space, and Annual Rent shall be increased,
adjusted, or augmented as provided in and under this Lease. Rent shall
commence for any Expansion Space on the date which is ninety (90) days from
the applicable Occupancy Date.
G. All other terms of this Lease shall be applicable to the Expansion
Space and Tenant's occupancy thereof from the time that Tenant takes
occupancy thereof to construct its improvements in the Expansion Space.
4. Rights of First Offer.
A. If the Pre-Occupancy Offer expires on January 15, 1999, without
exercise by Tenant, then so long as Tenant is not in default in the
performance of any of its covenants under the Lease, Tenant is hereby
granted a right of first offer (the "Initial Right of First Offer") to
lease space on Floors 9, 10 or 11 of the Building (each an "Initial First
Offer Space"), during the initial leasing of the Building by Landlord, in
accordance with, and subject to, the following terms and conditions:
(1) On January 16, 1999, and every four (4) months thereafter until all
of Floors 9, 10 and 11 have been initially leased, Landlord shall
notify Tenant in writing of the Initial First Offer Space which is
then available for leasing (which as used throughout this Section
4, shall mean that Landlord is prepared to make a written proposal
to a bona fide prospective third party tenant to lease the space),
including the following:
i) The specific location of each Initial First Offer Space, the
approximate Rentable Area comprising each Initial First Offer
Space, and the configuration or configurations in which Landlord
is offering to lease such Initial First Offer Space; and
ii) The Annual Rent at which Landlord is offering each Initial First
Offer Space, and the portion of such Annual Rent which is
attributable to the Initial Operating Expense Basic Cost; and
iii) Such improvements, if any, as Landlord is willing to make to
each Initial First Offer Space, or such improvement allowance,
if any, as Landlord is willing to provide in connection with a
lease of such Initial First Offer Space.
(2) Within ten (10) business days after Tenant's receipt of Landlord's
notice, Tenant shall notify Landlord in writing of Tenant's election
concerning exercise of the Initial Right of First Offer. Tenant may
lease any space which is offered as a Initial First Offer Space by
Landlord, but Tenant shall not be entitled to lease less than all of
any Initial First Offer Space in the configuration in which it is
offered by Landlord. If Tenant exercises the Initial Right of First
Offer as to any Initial First Offer Space, then the leasing of such
Initial First Offer Space shall be on the same terms and conditions as
set forth in the Lease except as follows:
A-4
<PAGE>
i) The Annual Rent, including the Initial Operating Expense Basic
Cost, to be paid for all the Initial First Offer Space shall be
at the rates offered by Landlord in its notice of availability.
Tenant shall also pay all Additional Rent and other Rent or
charges applicable to the Initial First Offer Space.
ii) Tenant's obligation to pay rent for the Initial First Offer Space
shall commence on the Commencement Date of the Lease, and shall
continue through the expiration or earlier termination of the
Term of the Lease.
iii) Landlord shall deliver and Tenant shall accept the Initial First
Offer Space in its then existing condition, on an "as is" basis,
and Tenant shall not be entitled to receive any contribution or
allowance from Landlord for improvement thereof, except as
provided above in Paragraph A(1)(iii).
iv) The original Rentable Area of the Premises, as defined in the
Lease, shall be adjusted appropriately to include the Rentable
Area of the Initial First Offer Space and Landlord and Tenant
shall execute an amendment to the Lease, incorporating the
Initial First Offer Space and reflecting the terms and provisions
set forth herein as applicable thereto.
(3) If Tenant does not exercise the Initial Right of First Offer as to a
Initial First Offer Space strictly in accordance with this Section,
the time provisions hereof being of the essence, the Initial Right of
First Offer shall cease to exist as to that Initial First Offer Space,
and Landlord shall be free to lease that Initial First Offer Space on
such terms as Landlord may determine and without any restrictions by
reason of the Lease or this Initial Right of First Offer, so long as
the Annual Rent received by Landlord is not less than ninety percent
(90%) of the rates at which such Initial First Offer Spaces were
offered by Landlord in its latest notice of availability.
B. After the initial leasing of Floors 9, 10 and 11 is complete, then so
long as Tenant is not in default in the performance of any of its covenants
under the Lease, Tenant is hereby granted an ongoing right of first offer
(the "Subsequent Right of First Offer", and the Initial Right of First
Offer and the Subsequent Right of First Offer are sometimes collectively
referred to as the "Rights of First Offer") to lease all, but not less than
all, of any space on Floors 9, 10 or 11 of the Building (each a "Subsequent
First Offer Space", and the Initial First Offer Space and Subsequent First
Offer Space are sometimes collectively referred to as the "First Offer
Space") which was not initially leased by Tenant, if the same becomes
available by reason of the expiration or earlier termination of any third-
party lease thereof which is in effect. Tenant's right to each respective
Subsequent First Offer Space is subject to the rights of any tenants under
any leases to a third party hereafter entered into, of any space in the
Building ("third party leases"), including any options to lease, rights of
expansion, rights of first refusal, or other options or rights of any
tenants ("third party rights") (but not including a right of first offer,
which
A-5
<PAGE>
applies only to the above Subsequent First Offer Spaces, in a lease hereafter
executed) under any third party leases.
The Subsequent Right of First Offer shall be exercised in accordance with,
and subject to, the following terms and conditions:
(1) Landlord shall notify Tenant in writing of the Subsequent First Offer
Space if the same has or will become available, including the
following:
i) The specific location of the Subsequent First Offer Space and the
exact Rentable Area comprising the Subsequent First Offer Space;
and
ii) The Annual Rent at which Landlord is offering each Subsequent
First Offer Space, and the portion of such Annual Rent which is
attributable to the Initial Operating Expense Basic Cost; and
iii) The approximate date on which the Subsequent First Offer Space
will become available for leasing to Tenant; and
iv) A description of all third party leases and all third party
rights, if any, which affect the Subsequent First Offer Space;
and
v) Such improvements, if any, as Landlord is willing to make to the
Subsequent First Offer Space, or such improvement allowance, if
any, as Landlord is willing to provide in connection with a lease
of such Subsequent First Offer Space.
(2) Within ten (10) business days after Tenant's receipt of Landlord's
notice, Tenant shall notify Landlord in writing of Tenant's election
concerning exercise of the Subsequent Right of First Offer. If Tenant
exercises the Subsequent Right of First Offer, then the leasing of the
Subsequent First Offer Space shall be on the same terms and conditions
as set forth in the Lease, except as follows:
i) The Annual Rent, including the Initial Operating Expense Basic
Cost, to be paid for the Subsequent First Offer Space shall be at
the rate offered by Landlord in its notice of availability.
Tenant shall also pay all Additional Rent and other Rent or
charges applicable to the Subsequent First Offer Space.
ii) Tenant's obligation to pay rent for the Subsequent First Offer
Space shall commence on the date such space is made available to
Tenant, but not sooner than the date specified in Landlord's
notice unless Tenant occupies the space prior to such date, and
shall continue through the expiration or earlier termination
A-6
<PAGE>
of the term of the Lease, except, however, as provided in
Paragraph B(2)(v) below.
iii) Landlord shall deliver and Tenant shall accept the Subsequent
First Offer Space in its then existing condition, on an "as is"
basis, and Tenant shall not be entitled to receive any
contribution or allowance from Landlord for improvement thereof,
except as provided above in Paragraph B(1)(v).
iv) The original Rentable Area of the Premises, as defined in the
Lease, shall be adjusted appropriately to include the Rentable
Area of the Subsequent First Offer Space and Landlord and Tenant
shall execute, at the request of either, an instrument
delineating and describing the Rentable Area, as so adjusted.
v) Tenant's right to occupy the Subsequent First Offer Space shall
continue to and end at the same time as its right to occupy the
original Premises, except in any instance in which the Subsequent
First Offer Space by reason of third-party leases or third-party
rights, must be made available to a third party, in which event
Tenant's right to occupy the Subsequent First Offer Space shall
end when necessary, in Landlord's determination, in order to make
it available to such third party.
(3) If Tenant does not exercise the Subsequent Right of First Offer as to
a Subsequent First Offer Space strictly in accordance with this
Paragraph, the time provisions thereof being of the essence, the
Subsequent Right of First Offer shall cease to exist as to that
Subsequent First Offer Space and Landlord shall be free to lease that
Subsequent First Offer Space on such terms as Landlord may determine
and without any restrictions by reason of the Lease or this Subsequent
Right of First Offer, so long as the Annual Rent received by Landlord
is not less than ninety percent (90%) of the rates at which such
Subsequent First Offer Space was offered by Landlord in its notice of
availability.
C. Tenant may not assign its Rights of First Offer, or any rights
thereunder, to any subtenant of the original Premises, or to any assignee
of the Lease, or to any other person, except in the case of an assignment
or sublease by Tenant to an entity controlling, controlled by, or under
common control with Tenant, or to any firm or company into or within which
Tenant may be merged or consolidated, or which purchases all or
substantially all of the assets or stock of Tenant; provided, however, that
if the Tenant has exercised a Right of First Offer and has leased a First
Offer Space, then thereafter Tenant's right to sublease that First Offer
Space, or to assign its rights under the Lease to that First Offer Space,
shall be determined in combination with the original Premises under the
Lease. Any Right of First Offer, which has not theretofore both been
exercised by Tenant and under which Tenant has leased the First Offer
Space, shall expire upon any assignment of the Lease.
A-7
<PAGE>
D. Upon inclusion, under the Lease, of a First Offer Space with the
original Premises, all references in the Lease to the "Premises" shall be
deemed to include that First Offer Space.
5. Definition of Fair Market Rental Rate. The "fair market rental rate," as
such term is used in this Lease, shall mean and refer to the prevailing
rental rate (exclusive of Operating Expenses, Taxes and other such costs)
per square foot of Rentable Area then being offered by landlords to tenants
of similar size for comparable space in buildings in the Denver
Technological Center comparable to the Building. In determining the fair
market rental rate, Landlord shall take into consideration the rental rates
per square foot of Rentable Area then being obtained in the Building, with
appropriate adjustment for floor location within the Building, whether such
other lease is a new lease or a renewal lease, the date of signing and the
term of any such other leases, rent concessions, tenant finish allowances
and credits provided to such other tenants, the amount of space leased, the
creditworthiness of the tenants, moving concessions, commissions and any
other matter that a reasonably prudent tenant and landlord would consider
in the determination of rent and similar items. In addition, Landlord will
take into account the existing condition of the subject space and its
suitability for Tenant's use, and any improvements to be made thereto by
Landlord.
6. Additional Parking. If Tenant wishes to increase its right to take and
obligation to pay for additional parking spaces in connection with its
exercise of a Pre-Occupancy Option, an Expansion Option, or a Right of
First Offer, it must so elect in its notice to Landlord of its exercise of
Option or Right. Tenant's right to take and obligation to pay for such
additional parking spaces shall be as set out in Exhibit F to the Lease,
except as set out below in this Paragraph 6. All of such additional
parking spaces shall be on an unassigned basis, and the monthly rent due
therefore shall be the then-current rate charged by the operator of the
garage or parking lot, with no maximum guaranteed rate. The location of
such parking spaces in the garage or surface lot shall be designated in
Landlord's sole discretion, and the number of such parking spaces to which
Tenant shall be entitled shall be based on Landlord's parking formula in
effect on the date of Tenant's above notice to Landlord.
7. Building Name. Until the exercise of a Pre-Occupancy Option by Tenant
which results in the initial Premises included within the Lease containing
at least 75,000 square feet of Rentable Area, Landlord may grant the right
to initially name the Building to any other tenant in the Building which
leases more space than Tenant within the Building. In the event that
Tenant exercises a Pre-Occupancy Option, so that the initial Premises
included within the Lease contain at least 75,000 square feet of Rentable
Area, and if at that time Landlord has not yet granted to any other tenant
the right to initially name the Building, then subject to the provisions of
the next sentence, Tenant shall have the right to initially name the
Building, subject to Landlord's reasonable approval of the name selected by
Tenant. However, at any time that any other tenant in the Building leases
at least 25,000 square feet of Rentable Area in the Building more than the
number of square feet of Rentable Area then included within the Premises,
Landlord shall have the right to grant to such other tenant the right to
name the Building, and the right granted to Tenant in this paragraph to
name the Building shall then cease to exist.
8. Signage. Tenant shall not install, place, inscribe, paint or otherwise
attach and shall not permit any sign, advertisement, notice, marquee or
awning on any part of the outside of the Premises (including any portion of
the Premises fronting on any interior corridor or lobby)
A-8
<PAGE>
or on any part of the Building (including the outside walls and the roof),
without the prior written consent of Landlord in each instance; provided,
however, that Tenant shall have the right, at its sole cost, to install (i)
signs on the inside of the Premises so long as such signage is not visible
from the common corridors or other common areas, and (ii) a single sign
identifying Tenant outside of the Building, at a location and in a size and
design approved by Landlord. Any permitted sign shall also comply with the
requirements of the Denver Technological Center Architectural Control
Committee and of any governmental or quasi-governmental authority having
jurisdiction over the Building, and Tenant is solely responsible for such
compliance. Tenant shall, at its own expense, maintain in first-class
condition all permitted signs and shall, on the expiration or termination
of this Lease, and at its own expense, remove all such permitted signs and
repair any damage caused by such removal. Landlord shall have the right to
remove all nonpermitted signs without notice to Tenant and at the expense
of Tenant.
9. Satellite Dish. Provided the Lease shall be in full force and effect
and no Event of Default exists thereunder, Tenant may, at its sole cost and
expense, install and operate a satellite dish or microwave antenna no
larger than six feet (6') in diameter (referred to herein as the "satellite
dish") and surrounding screening on the roof of the Building, subject to
Landlord's approval of the location of the dish and the design of the
screening surrounding the dish. The installation of the satellite dish
shall be subject to the following:
(1) Tenant shall, at all times, and at its sole cost and expense,
comply with all applicable governmental and quasi-governmental
regulations, and obtain and maintain any and all required
governmental and quasi-governmental permits, licenses,
authorizations and approvals, including without limitation any
necessary approvals of the Denver Technological Center
Architectural Control Committee;
(2) Tenant shall maintain adequate liability insurance covering the
installation and operation of the satellite dish in which Landlord
is named as an additional insured, and proof of which shall be
provided to Landlord prior to installation; and
(3) Tenant shall, at its sole cost and expense, maintain the satellite
dish in good working order and do so in a manner such that the
operation of the satellite dish does not cause any interference
with any telecommunications, mechanical or other system located in
or servicing the Building, whether such system belongs to and is
utilized by Landlord or any other tenant in the Building.
B. Tenant covenants and agrees that the installation, operation and removal
of the satellite dish will be at its sole risk. Tenant agrees to indemnify
and defend Landlord against all claims, actions, damages, liabilities and
expenses including reasonable attorney's fees and disbursements in
connection with the loss of life, personal injury, damage to property or
business or any other loss or injury or as a result of any litigation
arising out of the installation, operation or removal of the satellite
dish.
C. At the expiration or sooner termination of the Lease, or upon
termination of the operation of the satellite dish, or revocation of a
required license issued, Tenant shall, at its sole cost and expense, remove
the satellite dish from the Building and repair the installation area to
the same condition as existed prior to such installation. If Tenant does
not remove the satellite dish and repair such area when so required, Tenant
hereby authorizes Landlord to remove and
A-9
<PAGE>
dispose of the satellite dish and repair the installation area and to
charge Tenant for all costs and expenses incurred in so doing.
A-10
<PAGE>
Exhibit B
4600 SOUTH SYRACUSE
LEGAL DESCRIPTION OF THE LAND
A PARCEL OF LAND BEING LOCATED IN THE DENVER TECHNOLOGICAL CENTER IN THE
SOUTHWEST 1/4 OF SECTION 9, TOWNSHIP 5 SOUTH, RANGE 67 WEST OF THE 6TH
PRINCIPAL MERIDIAN, CITY AND COUNTY OF DENVER, STATE OF COLORADO, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE WEST QUARTER CORNER OF SAID SECTION 9; THENCE SOUTH 60 DEGREES
11 MINUTES 36 SECONDS EAST, 1,352.24 FEET TO THE SOUTHERLY LINE OF THE HYATT
REGENCY HOTEL PARCEL AND THE TRUE POINT OF BEGINNING;
THENCE ALONG SAID SOUTHERLY LINE SOUTH 89 DEGREES 45 MINUTES 35 SECONDS EAST,
363.54 FEET TO A POINT OF CURVATURE;
THENCE SOUTH 358.99 FEET ALONG SAID SOUTHERLY LINE BEING A CURVE TO THE LEFT
HAVING A RADIUS OF 244.00 FEET, A CENTRAL ANGLE OF 84 DEGREES 17 MINUTES 55
SECONDS, AND A CHORD WHICH BEARS NORTH 48 DEGREES 05 MINUTES 29 SECONDS EAST,
327.48 FEET;
THENCE LEAVING SAID SOUTHERLY LINE SOUTH 84 DEGREES 03 MINUTES 30 SECONDS EAST,
534.39 FEET TO THE WESTERLY RIGHT-OF-WAY LINE OF SOUTH ULSTER STREET PARKWAY;
THENCE ALONG SAID RIGHT-OF-WAY LINE 42.81 FEET ALONG A NON-TANGENT CURVE TO THE
RIGHT HAVING A RADIUS OF 2,242.90 FEET, A CENTRAL ANGLE OF 01 DEGREES 05 MINUTES
37 SECONDS, AND A CHORD WHICH BEARS SOUTH 25 DEGREES 17 MINUTES 21 SECONDS EAST,
42.81 FEET TO A POINT OF TANGENCY;
THENCE CONTINUING ALONG SAID WESTERLY RIGHT-OF-WAY LINE SOUTH 25 DEGREES 45
MINUTES 05 SECONDS EAST, 49.71 FEET TO THE NORTHERLY RIGHT-OF-WAY LINE OF UNION
AVENUE PARKWAY (BOOK 29, PAGE 56) AND A POINT OF CURVATURE;
THENCE ALONG SAID UNION AVENUE PARKWAY THE FOLLOWING FOUR (4) CONSECUTIVE
COURSES:
1) THENCE 159.44 FEET ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF
101.50 FEET, A CENTRAL ANGLE OF 90 DEGREES 00 MINUTES 00 SECONDS, AND A CHORD
WHICH BEARS SOUTH 19 DEGREES 49 MINUTES 30 SECONDS WEST, 143.54 FEET TO A POINT
OF TANGENCY;
2) THENCE SOUTH 64 DEGREES 49 MINUTES 30 SECONDS WEST, 766.84 FEET TO A
POINT OF CURVATURE;
3) THENCE 303.12 FEET ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF
894.93 FEET, A CENTRAL ANGLE OF 19 DEGREES 24 MINUTES 24 SECONDS, AND A CHORD
WHICH BEARS SOUTH 74 DEGREES 31 MINUTES 42 SECONDS WEST, 301.68 FEET TO A POINT
OF COMPOUND CURVATURE;
4) THENCE 97.34 FEET ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 90.00
FEET, A CENTRAL ANGLE OF 61 DEGREES 58 MINUTES 06 SECONDS, AND A CHORD WHICH
BEARS NORTH 64 DEGREES 47 MINUTES 03 SECONDS WEST, 92.66 FEET;
THENCE LEAVING SAID NORTHERLY RIGHT-OF-WAY LINE NORTH 02 DEGREES 57 MINUTES 19
SECONDS WEST, 218.02 FEET TO A POINT OF CURVATURE;
<PAGE>
THENCE 213.35 FEET ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 570.00 FEET, A
CENTRAL ANGLE OF 21 DEGREES 26 MINUTES 46 SECONDS, AND A CHORD WHICH BEARS NORTH
13 DEGREES 40 MINUTES 42 SECONDS WEST, 212.11 FEET TO SAID SOUTHERLY LINE OF
HYATT REGENCY HOTEL AND THE TRUE POINT OF BEGINNING.
BASIS OF BEARINGS:
ASSUMED ALONG THE SOUTHEASTERLY LINE OF DENVER TECH CENTER EAST, WHICH IS
SITUATED SOUTH AND WEST OF SOUTH ULSTER STREET PARKWAY, NORTHWEST OF UNION
AVENUE PARKWAY, AND EAST OF INTERSTATE HIGHWAY I-25, AND BEING THE NORTHERLY
RIGHT-OF-WAY LINE OF UNION AVENUE PARKWAY, BOOK 29, PAGE 56, AS MONUMENTED BY A
PIN AND CAP PLS 9655 BEING THE EASTERLY CORNER OF PARCEL 1, RECEPTION NO. 92-
0071136 AND A PIN AND CAP PLS 23899, BEARING NORTH 64 DEGREES 49 MINUTES 20
SECONDS WEST, 766.84 FEET.
B-2
<PAGE>
Exhibit C
4600 SOUTH SYRACUSE
PLAN DELINEATING THE PREMISES
[Diagram of floorplan]
<PAGE>
Exhibit D
4600 SOUTH SYRACUSE
TENANT CONSTRUCTION AGREEMENT
(LANDLORD PERFORMS WORK)
1. In this Tenant Construction Agreement, some defined terms are used.
They are:
Tenant's Representative: Ed Swanson
Landlord's Representative: David Wells
Submission Date: To be designated by Landlord, as provided in
paragraph 6.A below.
Tenant Extra Work:
A. Work in excess of the Tenant Finish Allowance;
B. All modifications, changes and Change Orders (as defined in paragraph
8 below) requested by Tenant to the Tenant Space Plan or Tenant Working
Drawings (as defined in paragraph 6 below) in excess of the Tenant Finish
Allowance;
C. All interior decorating services and decorator items; and
D. Relocation or modification of any sprinkler lines, sprinkler heads,
HVAC component, fire alarm or life safety system, other Building controls,
or any other item previously installed by Landlord in the Building.
Tenant Finish Allowance: $0.20 per square foot of Rentable Area for
space planning costs ("Space Planning Allowance"), and $30.00 per square foot of
Rentable Area for design and construction costs ("Design and Construction
Allowance").
Any capitalized term which is used in this Tenant Construction Agreement but not
defined in this Tenant Construction Agreement has the meaning set forth for such
term in the Lease.
2. Representatives. Landlord appoints Landlord's Representative to act
---------------
for Landlord in all matters covered by this Tenant Construction Agreement.
Tenant appoints Tenant's Representative to act for Tenant in all matters
covered by this Tenant Construction Agreement. All inquiries, requests,
instructions, authorizations and other communications with respect to the
matters covered by this Tenant Construction Agreement will be made to
Landlord's Representative or Tenant's Representative, as the case may be.
Tenant will not make any inquiries of or requests to, and will not give any
instructions or authorizations to, any other employee or agent of Landlord,
including Landlord's architect, engineers and contractors or any of their
agents or employees, with regard to matters covered by this Tenant
Construction Agreement. Either party may change its Representative under
this Tenant Construction Agreement at any time by three (3) days' prior
written notice to the other party.
<PAGE>
3. Building Standard. Unless Landlord has given its consent to a different
-----------------
finish item in connection with its approval of the Tenant Space Plan or the
Tenant Working Drawings, Tenant must use the Building Standard items
prescribed by Landlord for lights, ceilings, window coverings, and any
other finish item which is visible from the exterior of the Building, in
order to assure the consistent quality and appearance of the Building.
4. Landlord Work and Tenant Extra Work
-----------------------------------
A. Landlord will complete the Base Building Shell at Landlord's sole cost
and expense. For all of the improvements to be made to the Premises beyond
the Base Building Shell, Landlord will pay as much as the Space Planning
Allowance for the costs of preparing the Tenant Space Plan, and as much as
the Design and Construction Allowance for the costs of preparing the Tenant
Working Drawings, and for the initial construction of Tenant's improvements
in the Premises (including without limitation all permits, taxes, and
architectural, engineering and construction contractor's fees associated
with the construction) (collectively, "Tenant Work"), less an amount
payable to Landlord for its coordination and review of the Tenant Work
equal to five percent (5%) of the cost of the Tenant Work; provided,
however, that if the Tenant Work is performed in connection with the
completion of the Base Building Shell such amount shall not be charged by
Landlord. If any amount of the Tenant Finish Allowance is not used in
connection with the Tenant Work, the unused portion will be credited by
Landlord against those portions of the first payments of Annual Rent which
are due under the Lease which are not attributable to the Initial Operating
Expense Basic Cost.
B. Tenant will pay for the costs of all Tenant Extra Work (including
without limitation permits, taxes, and all space planning, architectural,
engineering and construction contractor's fees associated with the Tenant
Extra Work, and, unless waived as provided above, the cost of Landlord's
overhead for coordination and administration at the rate of five percent
(5%) of the total cost to Landlord of all Tenant Extra Work). All requested
Tenant Extra Work will be subject to Landlord's prior written approval in
accordance with paragraph 5.
5. Landlord's Approval. Landlord, in its sole discretion, may withhold its
-------------------
approval of any Tenant Space Plan, Tenant Working Drawings, Tenant Extra
Work or Change Orders which require work which:
A. Exceeds or affects the structural integrity of the Building, or any part
of the heating, ventilating, air conditioning, plumbing, mechanical,
electrical, communication or other systems of the Building;
B. Is not approved by the holder of any mortgage or deed of trust
encumbering the Building at the time the work is proposed;
C. Would not be approved by a prudent owner of property similar to the
Building (i.e., a Class A office building in the Denver Technological Center);
D. Violates any agreement which affects the Building or binds Landlord;
E. Landlord reasonably believes will increase the cost of operation or
maintenance of any of the systems of the Building;
D-2
<PAGE>
F. Landlord reasonably believes will reduce the market value of the
Premises or the Building at the end of the Term;
G. Does not conform to applicable building code or is not approved by any
governmental authority with jurisdiction over the Premises; or
H. Unless Landlord has given its consent to a different finish item in
connection with its approval of the Tenant Space Plan or the Tenant Working
Drawings, does not conform to the Building Standard for lights, ceilings,
window coverings, or any other finish item which is visible from the
exterior of the Building, or which is not compatible with the finish level
of a Class A office building.
6. Schedule of Tenant Improvement Activities
-----------------------------------------
A. Landlord shall provide written notice to Tenant of the date on which
the Tenant Information (as defined in the next sentence) must be submitted
to Landlord (the "Submission Date"), at least sixty (60) days prior to the
Submission Date. On or before the Submission Date, Tenant will cooperate
with and submit to Landlord the information (the "Tenant Information")
necessary for Landlord's architect or space planner to prepare a space
layout and improvement plan for the Premises (the "Tenant Space Plan").
Landlord will promptly prepare a preliminary estimate of the cost of
preparing the Tenant's Space Plan (the "Tenant's Estimated Space Planning
Cost"), based on the Tenant Information. If the Tenant's Estimated Space
Planning Cost is more than the Space Planning Allowance, Landlord will so
notify Tenant in writing and Tenant will either:
(1) Agree in writing to pay the amount by which the Tenant's Space
Planning Cost exceeds the Space Planning Allowance as though that
amount were Tenant Extra Work subject to paragraph 7, or
(2) Revise the Tenant Information in order to assure that the Tenant's
Estimated Space Planning Cost is either (A) no more than the Space
Planning Allowance or (B) in excess of the Space Planning Allowance
by an amount which Tenant agrees to pay pursuant to clause (1)
immediately above.
Each day from the date which is five (5) days following Tenant's receipt of
the Tenant's Estimated Space Planning Cost until the fulfillment of Tenant's
obligations in either clause (1) or clause (2) immediately above will be a day
of Tenant's delay. Upon Tenant's fulfillment of its obligations in either
clause (1) or clause (2) immediately above, the Tenant's Estimated Space
Planning Cost will be deemed approved. If the Tenant's Estimated Space Planning
Cost is less than the Space Planning Allowance, the Tenant's Estimated Space
Planning Cost will be deemed approved without notice to Tenant.
B. After approval of the Tenant's Estimated Space Planning Cost,
Landlord will cause to be prepared and delivered to Tenant the proposed
Tenant Space Plan. Within five (5) days after its receipt of the proposed
Tenant Space Plan, Tenant will give Landlord written notice whether or not
Tenant approves the proposed Tenant Space Plan. If Tenant fails to give
Landlord that notice by that fifth day, then, in addition to any other
rights which it may have on account of that failure, Landlord may consider
each day following that fifth day until its receipt of
D-3
<PAGE>
Tenant's notice to be a day of delay by Tenant. If Tenant's notice objects
to the proposed Tenant Space Plan, the notice will set forth how the
proposed Tenant Space Plan is inconsistent with the Tenant Information and
how the Proposed Tenant Space Plan must be changed in order to overcome
Tenant's objections. Landlord will submit a revised Tenant Space Plan to
Tenant.
The revised Tenant Space Plan, and any revisions to it, will be treated
as though they were the first proposed Tenant Space Plan prepared pursuant to
this paragraph. If the proposed Tenant Space Plan, or any revision to it, is not
inconsistent with the Tenant Information, then each day following Landlord's
receipt of Tenant's objections until Landlord's receipt of Tenant's approval of
a Tenant Space Plan will be a day of Tenant's delay.
C. After approval of the Tenant Space Plan, Landlord will promptly
prepare a preliminary estimate of the cost of Tenant's improvements,
including without limitation permits, taxes, and all architectural,
engineering and construction contractor's fees associated therewith (the
"Tenant's Estimated Construction Cost"), as set forth in the Tenant Space
Plan. If the Tenant's Estimated Construction Cost is more than the
Construction Allowance, Landlord will so notify Tenant in writing and
Tenant will either:
(1) Agree in writing to pay the amount by which the Tenant's Estimated
Construction Cost exceeds the Construction Allowance as though that
amount were Tenant Extra Work subject to paragraph 7, or
(2) Revise the Tenant Space Plan in order to assure that the Tenant's
Estimated Construction Cost is either (A) no more than the
Construction Allowance or (B) in excess of the Construction Allowance
by an amount which Tenant agrees to pay pursuant to clause (1)
immediately above.
Each day from the date which is five (5) days following Tenant's receipt of
the Tenant's Estimated Construction Cost until the fulfillment of Tenant's
obligations in either clause (1) or clause (2) immediately above will be a day
of Tenant's delay. Upon Tenant's fulfillment of its obligations in either
clause (1) or clause (2) immediately above, the Tenant's Estimated Construction
Cost will be deemed approved. If the Tenant's Estimated Construction Cost is
less than the Construction Allowance, the Tenant's Estimated Construction Cost
will be deemed approved without notice to Tenant.
D. After approval of the Tenant's Estimated Construction Cost, Landlord
will cause to be prepared and delivered to Tenant working drawings for the
Premises ("Tenant Working Drawings"), an estimated construction schedule
(the "Construction Schedule"), and a cost proposal (the "Tenant Cost
Proposal") for construction of Tenant's improvements in accordance with
Tenant Working Drawings. The Construction Schedule will set forth time
frames for approval. If the Tenant Cost Proposal is less than the sum of
the Construction Allowance and any amount in excess of the Construction
Allowance which Tenant has agreed to pay pursuant to paragraph 6.C,
Landlord will take steps necessary to complete construction of the
improvements to the Premises. If the Tenant Cost Proposal is more than the
sum of the Construction Allowance plus any amount which Tenant has agreed
to pay pursuant to clause (1) of paragraph 6.C immediately above (such
greater amount, the "Maximum Approved Cost"), Landlord will so notify
Tenant in writing and Tenant will either (1) agree in writing to pay the
D-4
<PAGE>
amount by which the Tenant Cost Proposal exceeds the Maximum Approved Cost
as though that additional amount were Tenant Extra Work subject to
paragraph 7 or (2) revise the Tenant Working Drawings in order to assure
that the Tenant Cost Proposal is no more than the Maximum Approved Cost.
Each day from the date which is five (5) days following Tenant's receipt of
the Tenant's Cost Proposal until the fulfillment of Tenant's obligations in
either clause (1) or clause (2) immediately above will be a day of Tenant's
delay. Upon Tenant's fulfillment of its obligations under either clause
(1) or clause (2) immediately above, Landlord will take steps necessary to
complete construction of the improvements to the Premises.
E. All work will be performed by one or more contractors selected and
engaged by Landlord, after a competitive bidding process in which Landlord
shall obtain bids from at least three (3) qualified contractors. Tenant
will have the right to designate a subcontractor for each component of work
which is to be performed by a subcontractor. Landlord will not unreasonably
withhold its consent to solicitation of bids from the subcontractors
designated by Tenant, provided such subcontractors meet Landlord's
requirements for subcontractors, and provided further that any component of
work affecting the life safety, mechanical, electrical or plumbing systems
of the Building must be performed by the approved Building subcontractor
for that work. Following approval of the Tenant Working Drawings and the
Tenant Cost Proposal, Landlord will cause application to be made to the
appropriate governmental authorities for necessary approvals and building
permits. Upon receipt of the necessary approvals and permits and subject to
receipt of the payment required under paragraph 7, Landlord will begin
construction.
7. Payment for Tenant Extra Work. Tenant will pay to Landlord, in
-----------------------------
advance, the total amount payable by Tenant for Tenant Extra Work, subject
to Tenant's right to withhold retainage of ten percent with respect to all
Tenant Extra Work until completion of the items shown on the punch-list
described in Paragraph 10.A below, following which completion final payment
of the retainage amounts shall be promptly made by Tenant.
8. Change Orders. Tenant may authorize changes in the work during
-------------
construction, only by written instructions to Landlord's Representative on
a form approved by Landlord. All such changes will be subject to
Landlord's prior written approval in accordance with paragraph 5. Prior to
commencing any change, Landlord will prepare and deliver to Tenant, for
Tenant's approval, a change order (the "Change Order") setting forth the
total cost of such change and its impact on the Construction Schedule,
which will include associated architectural, engineering and construction
contractor's fees, and, unless waived as provided above, the cost of
Landlord's overhead at the rate of five percent (5%) of the amount of the
Change Order. If Tenant fails to approve and pay for such Change Order
within five (5) days after delivery by Landlord, Tenant will be deemed to
have withdrawn the proposed change and Landlord will not proceed to perform
the change. Upon Landlord's receipt of Tenant's approval and payment,
Landlord will proceed to perform the change.
9. Completion and Commencement Date. Subject to the provisions of
--------------------------------
Section 5.C of the Lease and the other provisions of this Tenant
Construction Agreement, Landlord shall substantially complete the Tenant
Work in the Premises and tender the Premises to Tenant on or before August
1, 1999. Subject to the provisions of Section 3.A of the Lease concerning
abatement, Tenant's obligation for payment of Rent pursuant to the Lease
will commence on the Commencement Date; however, the Commencement Date and
the date for the payment of
D-5
<PAGE>
Rent shall be delayed on a day-to-day basis for each day the substantial
completion of the Tenant Work is delayed by Landlord or its contractors or
agents. The date of substantial completion shall mean the day on which the
Tenant Work has been completed in accordance with the Tenant Working
Drawings so that Tenant may receive the beneficial use of the Premises
(i.e., when Tenant may use the Premises for their intended purpose),
subject to the punch list of items referred to below. The payment of Rent
will not be delayed by a delay of substantial completion due to Tenant. The
following are some examples of delays which will not affect the
Commencement Date and the date Rent is to commence under the Lease:
A. Change Orders requested by Tenant;
B. Delays in obtaining non-Building Standard construction materials
requested by Tenant;
C. Tenant's failure to approve timely any item requiring Tenant's
approval; and
D. Delays by Tenant according to paragraph 6.
In the event that substantial completion of the Tenant Work is delayed by
Landlord, its contractors or agents, the Commencement Date will be the date of
substantial completion of the Tenant Work, subject only to the completion of
Landlord's punch-list items (that is, those items which do not materially
interfere with Tenant's use and enjoyment of the Premises). Landlord and Tenant
will confirm the Commencement Date in accordance with Section 1(A)(1) of the
Lease.
10. Condition of the Premises.
-------------------------
A. Prior to the Commencement Date, Tenant will conduct a walk-through
inspection of the Premises with Landlord and prepare a punch-list of items
needing additional work by Landlord. Other than the items specified in the
punch-list and "latent defects" (as defined below), by taking possession of
the Premises, Tenant will be deemed to have accepted the Premises in their
condition on the date of delivery of possession and to have acknowledged
that Landlord has installed the improvements as required by this Tenant
Construction Agreement and that there are no items needing additional work
or repair. The punch-list will not include any damage to the Premises
caused by Tenant's move-in or early access, if permitted. Damage caused by
Tenant will be repaired or corrected by Landlord at Tenant's expense.
Tenant acknowledges that neither Landlord nor its agents or employees have
made any representations or warranties as to the suitability or fitness of
the Premises for the conduct of Tenant's business or for any other purpose,
nor has Landlord or its agents or employees agreed to undertake any
alterations or construct any tenant improvements to the Premises except as
expressly provided in this Lease and this Tenant Construction Agreement.
If Tenant fails to submit a punch-list to Landlord prior to the
Commencement Date, it will be deemed that there are no items needing
additional work or repair. Landlord's contractor will complete all
reasonable punch-list items within 30 days after the walk-through
inspection or as soon as practicable after such walk-through.
B. A "latent defect" is a defect in the condition of the Premises caused
by Landlord's failure or the failure of Landlord's contractor to construct
the improvements in a good
D-6
<PAGE>
and workmanlike manner and in accordance with the Working Drawings, which
defect would not ordinarily be observed during a walk-through inspection.
If Tenant notifies Landlord of a latent defect within the period of time
covered by the contractor's warranty under the construction contract (which
shall be no less than one year following the Commencement Date), then
Landlord, at its expense, will repair such latent defect as soon as
practicable. Except as set forth in this paragraph 10, Landlord will have
no obligation or liability to Tenant for latent defects.
11. Adjustments Upon Completion. As soon as practicable, upon
---------------------------
completion of the Tenant's Space Plan, Landlord will notify Tenant of the
Rentable Area of the Premises, and if such Rentable Area is different from
that stated in Section 1(A)(5) of the Lease, the actual Annual Rent shall
be modified accordingly. Tenant, within ten (10) days of Landlord's written
request, will execute a certificate confirming such information.
12. Defaults. Failure by Tenant to comply with any of its obligations
--------
under Paragraph 7 of this Exhibit D shall constitute an Event of Default
---------
under the terms of the Lease, and Landlord shall then be entitled to the
benefit of all of the remedies provided for in the Lease.
D-7
<PAGE>
Exhibit E
4600 SOUTH SYRACUSE
RULES AND REGULATIONS
1. Tenant shall not place anything, or allow anything to be placed near
the glass of any window, door, partition or wall which may, in Landlord's
judgment, appear unsightly from outside of the Building.
2. All signs or notices visible in or from public corridors or from
outside the Premises shall be subject to Landlord's prior written approval.
3. The Building directory, located in the Building lobby as provided by
Landlord, shall be available to Tenant solely to display ten (10) lines/names
and its location in the Building, which display shall be as directed by
Landlord.
4. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by Tenant for any purposes
other than for ingress to and egress from the Premises. The halls, passages,
exits, entrances, elevators, stairways and roof are not for the use of the
general public and Landlord shall, in all cases, retain the right to control and
prevent access thereto by all persons whose presence in the judgment of
Landlord, reasonably exercised, shall be prejudicial to the safety, character,
reputation and interests of the Building. Neither Tenant nor any employees or
invitees of any tenant shall go upon the roof the Building.
5. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purposes other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and to the
extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage, or damage resulting from the violation of this rule shall be
borne by Tenant.
6. Tenant shall not cause any unusual janitorial labor or services.
7. No cooking, except for microwave cooking, shall be done or permitted
by Tenant in the Premises, nor shall the Premises be used for lodging.
8. Tenant shall not bring upon, use or keep in the Premises or the
Complex any kerosene, gasoline, turpentine, naphtha, benzine, or inflammable or
combustible fluid or material, or use any method of heating or air conditioning
other than that supplied by Landlord, except for supplemental air conditioning
for its computer room facilities, as shall have been approved by Landlord in
connection with its approval of Tenant's Space Plan and Tenant's Working
Drawings.
9. Landlord shall have sole power to direct electricians to where and how
telephone and other wires are to be introduced. No boring or cutting for wires
is to be allowed without the consent of Landlord. The location of telephones,
call boxes and other office equipment affixed to the Premises shall be subject
to the approval of Landlord.
<PAGE>
10. Upon the termination of the tenancy, Tenant shall deliver to Landlord
all keys, cards and passes for offices, rooms, parking areas and toilet rooms
which shall have been furnished to Tenant. In the event of the loss of any
keys, cards, or passes so furnished, Tenant shall pay Landlord therefor. Except
as permitted in Section 22 (4) of the Lease, Tenant shall not make, or cause to
be made, any such keys and shall order all such keys solely from Landlord and
shall pay Landlord for any additional such keys over and above the two sets of
keys furnished by Landlord.
11. Tenant shall not install linoleum, tile, carpet or other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
12. No furniture, packages, supplies, equipment or merchandise will be
received in the Complex or carried up or down in the freight elevator, except
between such hours and in such freight elevator as shall be designated by
Landlord.
13. Tenant shall cause all doors to the Premises to be closed and securely
locked before leaving the Building at the end of the day.
14. Without the prior written consent of Landlord, Tenant shall not use
the name of the Building or the Complex or any picture thereof in connection
with, or in promoting or advertising the business of Tenant, except Tenant may
use the address of the Building as the address of its business.
15. Tenant shall cooperate fully with Landlord to assure the most
effective operation of the Premises' or the Building's heating, ventilation, and
air conditioning, and shall refrain from attempting to adjust any controls.
Tenant shall keep corridor doors closed.
16. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed and secured. Landlord shall in no way be
responsible to Tenant, its agents, employees or invitees, for any bodily injury
or damage to or loss of property from, in or on the Premises or the Complex,
unless occasioned by the gross negligence or willful misconduct of Landlord.
17. Except with the prior written consent of Landlord, Tenant shall not
sell or cause to be sold any items or services at retail in or from the
Premises, nor shall Tenant carry on or permit or allow any employee or person to
carry on the business of machine copying, stenography, typewriting or similar
business in or from the Premises for the service or accommodation of occupants
of any portion of the Complex without the prior written consent of the Landlord.
18. Tenant shall not conduct any auction nor permit any fire or bankruptcy
sale to be held on the Premises, nor store goods, wares or merchandise on the
Premises. Tenant shall not allow any vending machines on the Premises without
Landlord's prior written consent.
E-2
<PAGE>
19. All freight must be moved into, within and out of the Building and the
Complex under the supervision of Landlord and according to such regulations as
may be posted or distributed by Landlord from time to time. All moving of
furniture or equipment into or out of the Building by Tenant shall be done at
such time and in such manner as directed by Landlord or its agent. In no cases
shall items of freight, furniture, fixtures or equipment be moved into or out of
the Building or in any elevator during such hours as are normally considered
rush hours to an office building, i.e., 7:30-9:00 a.m., 11:00 a.m. - 1:00 p.m.,
and 4:00-6:00 p.m.
20. On Sundays, holidays, and on other days during certain hours for which
the Building may be closed after normal business hours, access to the Building
or to halls, corridors, elevators, and stairwells will be controlled by
Landlord. Landlord or its agents will have the right to demand of any and all
persons seeking access to the Building proper identification to determine if
they have rights of access to the Premises. Landlord shall, in no case, be
liable for damages wherein admission to the Building has not been granted during
abnormal hours by reason of a Tenant or any other person failing to properly
identify himself, or through the failure of the Building to be unlocked and open
for access by Tenant, Tenant's employees and the general public.
21. Tenant shall not change locks or install other locks on doors without
the prior written consent of Landlord.
22. Tenant shall give prompt notice to Landlord of any known or apparent
accidents to or defects in plumbing, electrical fixtures or heating, ventilation
or air conditioning apparatus so the same may be attended to properly.
23. No safes or other objects larger or heavier than the freight elevators
of the Building are limited to carry shall be brought into or installed on the
Premises. Landlord shall have the power to prescribe the weight and position of
such safes or other objects, and the same shall, if considered necessary by
Landlord, be required to be supported by such additional materials placed on the
floor as Landlord may direct, and at the expense of Tenant. In no event shall
these items exceed a weight for which the floor is designed.
24. No person or persons other than those approved by Landlord will be
permitted to enter the Building for purposes of cleaning, maintenance,
construction or painting.
25. Tenant shall not permit or suffer the Premises to be occupied or used
in a manner which, in Landlord's reasonable judgment would be objectionable to
Landlord or other occupants of the Complex by reason of noise, odors, or
vibrations or would otherwise interfere in any way with other tenants or those
having business therein, nor shall any animals or birds be kept in or about the
Complex. Smoking or carrying of a lighted cigar, pipe, or cigarette in the
Building or parking structure is prohibited.
26. Canvassing, soliciting and peddling in the Complex are prohibited.
Tenant shall cooperate to prevent the same.
27. 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
E-3
<PAGE>
requests, by 2:00 p.m. on Friday for weekend requests and by 2:00 p.m. on the
preceding business day for holiday requests.
28. The following dates shall constitute "holidays" as said term is used
in the Lease and in these Rules and Regulations:
(A) New Year's Day
(B) Good Friday
(C) Memorial Day
(D) Independence Day
(E) Labor Day
(F) Thanksgiving Day
(G) Friday following Thanksgiving Day
(H) Christmas
(I) Any other holiday recognized and taken by tenants occupying
at least one-half (1/2) of the Rentable Area of office space
of the Building.
If in the case of any holiday listed in (A) through (H) a different
day shall be observed than the respective days described in (A) through (H),
then that day which constitutes the day observed by national banks in Denver,
Colorado, on account of such holiday shall constitute the holiday under this
lease.
Landlord reserves the right, at any time, to rescind any one or more of
these rules and regulations, or to make such other and further reasonable and
nondiscriminatory rules and regulations as in Landlord's judgment may from time
to time be necessary or desirable for the safety, care and cleanliness of the
Complex or for the preservation of order therein. Smoking shall be permitted
outside of the Building and parking structure only in such area or areas as
Landlord may designate, and all cigarettes and cigars shall be disposed of only
in receptacles placed therein by Landlord.
E-4
<PAGE>
Exhibit F
4600 SOUTH SYRACUSE
PARKING
Subject to the following provisions, during the Term of this Lease, Landlord
agrees to permit Tenant the use of, and Tenant agrees to pay the amounts
described herein for the use of, 200 parking spaces in the Complex for the
parking of vehicles. Of those 200 spaces, 150 shall be located in the parking
garage of the Complex. Of the spaces in the parking garage, up to 30 may be
assigned parking spaces, and the remainder shall be unassigned parking spaces.
Tenant shall designate, in a written notice to Landlord delivered at least six
months prior to the Commencement Date, how many of the spaces located in the
parking garage are initially to be assigned, based on the parameters of the
preceding sentence. Subject to the provisions of the next sentence, all of the
remaining 50 spaces shall be unassigned parking spaces on the surface parking
lot. Tenant shall owe no monthly rent for any of the parking spaces provided
hereunder for the first eighteen months of the Term. Beginning with the
nineteenth (19th) month of the Term, Tenant's initial obligation to pay monthly
rent shall be $65.00 per month for each assigned space in the parking garage and
$35.00 per month for each unassigned space in the parking garage; provided,
however, that such amounts may be increased by Landlord during the Term to the
then-current rates charged from time to time by the operator of the parking
garage, up to a maximum during the initial Term of the Lease of $75.00 per month
for each assigned space in the parking garage and $45.00 per month for each
unassigned space in the parking garage. During the first five (5) years of the
Term, Tenant shall owe no monthly rent for any of the unassigned spaces on the
surface parking lot. After the first five (5) years of the Term, the monthly
rent for surface parking spaces may be increased by Landlord during the Term to
the then-current rates charged from time to time by the operator of the surface
parking lot, up to a maximum during the initial Term of the Lease of $15.00 per
month for each unassigned space in the surface parking lot. Monthly rent for
all parking spaces during any renewal Term of the Lease shall be the then-
current rates charged from time to time by operator of the garage and surface
parking lot. All monthly parking rent shall be payable in advance on the first
day of each month within the Term directly to the operator of the garage and
surface parking lot, and Tenant's right to continued use of the spaces is
conditional upon receipt of those payments in a timely manner. Tenant's rights
to use the parking garage of the Complex or the surface parking lot shall be
non-exclusive, except that Landlord shall not grant any other party the right to
use Tenant's assigned parking spaces. Tenant's rights hereunder to use the
parking garage of the Complex or the surface parking lot are conditioned upon
this Lease being in full force and effect and there being no Event of Default by
Tenant under this Lease. Tenant shall not abuse its privileges with respect to
the parking garage or surface parking lot and shall use the same in accordance
with Landlord's directions.
Landlord agrees that it shall construct, in connection with the initial
construction of the Building, a parking garage and surface parking lot
sufficient to furnish to Tenant the number of spaces provided above. If at any
time during the Term of this Lease after such initial construction, Landlord
fails or is unable to provide all or any portion of the above-described parking
spaces to Tenant, or Tenant is not permitted to utilize all or any portion of
such parking spaces, for reasons related to (i) construction of additional
buildings and/or related parking or other improvements at the Complex, or (ii)
reconstruction, refurbishing, or renovation of the Building, the parking garage
or any other improvements at the Complex for reasons unrelated to a
<PAGE>
casualty thereto or condemnation thereof (each, "Landlord Controlled
Construction"), then Landlord agrees to use reasonable and diligent efforts to
replace the parking spaces which Tenant is not able to utilize, by one of the
following methods:
A. Landlord may reserve the necessary portion of those parking spaces
which are unaffected by such Landlord Controlled Construction for the use of
Tenant.
B. Landlord may relocate any or all of the parking spaces initially provided
in the surface parking lot into a parking garage or other structured
parking at the Complex; provided, however, that if such relocation is made
necessary by virtue of Landlord Controlled Construction, then Tenant shall
pay monthly rent for such spaces equal to the then current rate for surface
parking spaces due from Tenant hereunder, rather than the rate then due
from Tenant for garage spaces, for so long as the relocation is necessary
due to Landlord Controlled Construction.
C. Landlord may relocate any of all of the parking spaces initially provided
in the parking garage onto a surface parking lot; provided, however, that
if such relocation is made necessary by virtue of Landlord Controlled
Construction, then Tenant shall pay monthly rent for such spaces equal to
the then current rate for surface parking spaces due from Tenant hereunder,
rather than the rate then due from Tenant for garage spaces, for so long as
the relocation is necessary due to Landlord Controlled Construction.
D. Landlord may arrange for alternate parking spaces located no more than
three (3) miles away from the Building, in which case Landlord shall
provide at its expense a shuttle service to transport the employees
utilizing Tenant's spaces from those alternate parking spaces to the
Building.
E. Landlord may arrange for alternate parking spaces by any other method
which is mutually agreeable to Landlord and Tenant at the time.
If, in connection with such Landlord Controlled Construction, (i) Landlord
fails to provide such alternate parking spaces, so that Tenant is prevented from
utilizing more than 15% of its parking spaces for a period in excess of three
(3) months, or (ii) Landlord replaces garage parking spaces with surface parking
spaces as described in subparagraph C above and such spaces are not once again
located in a parking garage at the Complex by the date which is one (1) year
from the date such spaces were initially relocated, or (iii) Landlord replaces
any parking space with off-site parking and shuttle service as described in
subparagraph D above and such parking spaces are not once again located on the
Complex by the date which is one (1) year from the date such spaces were
initially relocated, then in any of such events, Landlord shall be in default
hereunder, and Tenant shall have the right to provide Landlord with a written
notice of such default. If Landlord has not cured such default by the date
which is thirty (30) days from the date upon which such notice is received, then
Tenant shall have the right to terminate this Lease, by written notice to
Landlord, in addition to any other rights or remedies that Tenant may have for
the breach of any covenants or conditions as may exist otherwise under this
Lease.
If at any time during the Term of this Lease, Landlord fails or is unable to
provide all or any portion of the above-described parking spaces to Tenant, or
Tenant is not permitted to utilize all or any portion of such parking spaces,
for any reason other than (i) Landlord Controlled
F-2
<PAGE>
Construction, or (ii) other circumstances under Landlord's reasonable control,
such fact shall not be a default by Landlord as to permit Tenant to terminate
this Lease, either in whole or in part, but Tenant's obligation to pay rental
for any parking space which is not provided by Landlord shall be abated for so
long as Tenant does not have the use of such parking space and this abatement
shall be in full settlement of all claims that Tenant might otherwise have
against Landlord by reason of Landlord's failure or inability to provide Tenant
with such parking space. Notwithstanding the foregoing, in the event some or all
of the parking spaces become unavailable for the reasons described in the
preceding sentence, Landlord shall use commercially reasonable efforts to find
replacement parking spaces.
Except for those terms specifically defined in this Exhibit, all initially
capitalized terms herein shall have the meanings set forth for such terms in the
Lease to which this Exhibit is attached.
F-3
<PAGE>
Exhibit G
4600 SOUTH SYRACUSE
BASE BUILDING SHELL AND BUILDING STANDARD ITEMS
The "Base Building Shell" shall consist of the core and shell structure of
the Building, which is comprised of the following general systems and
components:
1. The Building is structural steel with composite metal deck and concrete
floors. Troweled finished floor slabs will be provided in all tenant
areas ready for the installation of carpet or other floor coverings with
minimal floor preparation. The floor slabs are designed to accommodate a
50 lb. live load and 20 lb. partition load. Some minor floor leveling or
patching maybe required as part of the tenant work.
2. The Building envelope will consist of thermally insulated vision and
spandrel glass units and architectural precast concrete or granite. The
perimeter wall will be insulated and fire-safed at all floor slab edge
conditions.
3. The window treatment will be surface mounted, perforated horizontal
mini-blinds with manufacturer's standard vertical lifting and horizontal
tilting unit complete with head rail, bottom rail, slats and
accessories.
4. The multi-tenant elevator lobby will be painted gypsum board and/or
acoustical tile ceiling, sculptured and painted gypsum board walls and
carpeted floors. The common corridor walls are drywalled and finished on
the corridor side only.
5. Stairways will be designed to accommodate use by the tenant as inter-
floor connectors in addition to exiting. Stair width, tread rise and
run, lighting and finishes shall promote tenant usage in a safe manner
while meeting all applicable code requirements. Walls are to be painted
gypsum board and sealed concrete floors. The stairways will be
pressurized for exiting in an emergency situation. Stairwells remain
locked at all times. Card readers may be added at the tenant's expense.
6. Core restrooms will be finished in ceramic tile on the floor and one wet
wall. The other walls will be finished in vinyl wall covering. The
ceiling will be 2 x 2 x 5/8" regular acoustical material. Stone counter
tops and ceiling hung painted metal toilet partitions are to be
provided, as well as recessed and semi-recessed toilet accessories and
full width unframed mirrors. Men's and women's restrooms shall be
provided on each floor in a size and configuration to serve the
occupants. Fixture counts should be based on the code required minimums
or the actual occupancy of the Building, whichever is greater.
7. Drinking fountains will be provided adjacent to the toilet rooms on each
floor.
8. Interior columns will be constructed out of metal studs, taped and
finished to accept paint or other finishes.
9. Electrical rooms will be provided on each floor as required.
10. Space for telephone and fiber "punch down" blocks (terminations) will be
provided in a Telephone Equipment Room in the core of each typical floor
level. A main telephone and fiber frame room will be located near the
point of service to the Building. A series of sleeves
<PAGE>
will be provided at each level for main vertical distribution. At
tenant's expense, all individual tenant telephone switches and equipment
will be located within the tenant spaces.
11. The base Building will provide space near the point of service to the
Building with open sleeves on each floor in the telephone closet for the
installation of individual tenant fiber optic equipment and cable risers
as part of the tenant improvements.
12. Core walls will be constructed of gypsum board attached to metal studs.
The gypsum board will be taped, floated and sanded ready for paint
application.
13. Core doors will be full height, 3'-0" wide and 1-3/4" thick solid core
with a wood veneer surface installed in hollow metal frames with
stainless steel hardware, including lever type handles.
14. Air conditioning will be provided to the tenant spaces from a variable
air volume, factory built, water cooled DX compressor air handling unit
designed and constructed to meet all current air quality issues as set
forth in ASHRAE 62-89 Standards. Air handling units will be installed in
the core area mechanical equipment rooms.
15. Air distribution to the tenant spaces will be provided through
externally insulated primary and secondary ductwork systems constructed
and sealed in accordance with SMACNA Standards (1995). Perimeter slot
type diffusers with downblow center sections, integral returns and flow
sensors will distribute air to the exterior zones. Interior zone
secondary ductwork will be provided for tenant air distribution duct
connectors. All tenant air interior distribution ductwork is by the
tenant.
16. The floor terminal equipment will be series type fan powered or variable
air volume terminal units of double wall construction with internal foil
backed acoustical attenuation. Internal acoustical lining in the
downstream, secondary ductwork will be provided.
17. Two 4" drain columns (risers), waste and vent, will be provided on each
floor for future connection of tenant fixtures. One tenant drain riser
will be located at each end of the core. Cold water stub-outs (1/2")
will be provided at each drain riser for tenant use.
18. The core & shell sprinkler system includes a vertical standpipe at each
stairwell, mains, branch lines, and semi-recessed heads on each floor in
a pattern sufficient to comply with NFPA 13 and local code requirements.
Generally, the mains and branch piping will be installed 8" above the
ceiling plenum zone intended for tenant lighting.
19. Electrical service to the typical floors will be provided from a base
Building plug-in buss riser sized to provide a total capacity of 8.0
-----
watts per square foot of useable area. Each tenant as part of the core
and shell is allocated 4.0 watts per square foot (2.0 watts per square
foot for lighting, and 2.0 watts per square foot for power). The
additional 4.0 watts per square foot may be utilized at the tenant's
expense. Electrical transformers, panels and distribution will be
provided in the core area to serve both the low and high voltage needs
of the base
G-2
<PAGE>
Building and tenant. Dry type transformers will serve the low voltage
power distribution system. All on floor distribution shall be part of
the tenant improvements.
20. The Building requires all electrical wiring for core & shell and
----
tenant work be in conduit. Wiring for all fire alarm devices will be
plenum rated cabling.
21. An emergency power system will be provided utilizing a diesel powered
generator to serve exit way and emergency lighting in tenant areas and
life safety systems.
22. The base Building will provide a code complying, fully addressable fire
alarm system for the common areas only. Each tenant will need to add
life safety devices as required to comply with local codes. Additional
devices will be stocked for installation as part of the tenant
improvements.
23. The following items are examples of architectural finishes which are
specifically excluded from the core & shell construction and are
intended to be part of the tenant improvement package: all ceiling grid
and tile, 2x4 light fixtures, all doors, frames and hardware including
the tenant's entrance, return air diffusers, life safety devices,
partitions, and flooring. Each tenant is required to install demising
partitions at the perimeter of the space.
The initial "Building Standard" finishes for the Building shall be listed
in a manual to be provided by Landlord to Tenant. Landlord reserves the right
to add additional items to the list, or to change the Building Standard items,
at any time.
G-3
<PAGE>
EXHIBIT 10.27
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made effective as of
March 11, 1999 (the "Effective Date"), by and between DENVER HINES DEVELOPMENT,
LLC, a Delaware limited liability company ("Landlord"), and TANNING TECHNOLOGY
CORPORATION, a Delaware corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
dated June 3, 1998 (the "Lease"); and
WHEREAS, the parties hereto now desire to amend the Lease, as set forth
herein but not otherwise.
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Defined Terms. For purposes of this First Amendment, capitalized terms
and other defined items used herein but not defined herein shall have the
meanings ascribed to them in the Lease. In the event any of the terms of the
Lease conflict with the terms of this First Amendment, the terms of this First
Amendment shall control.
2. Rent Abatement. The last sentence of Section 3.A of the Lease is
amended to read in its entirety as follows: "Notwithstanding any provision
contained elsewhere in this Lease to the contrary, provided that Tenant is not
otherwise in default under the terms and provisions of this Lease, Annual Rent
shall be abated during the first six and one-third (6 1/3) months of the Term,
and Tenant shall commence Annual Rent payments on the date which is seven (7)
months and ten (10) days from the Commencement Date."
3. Modification of Expansion Options. Sections 3.A and 3.B of Exhibit A,
Additional Provisions, to the Lease are deleted, and new Sections 3.A. 3.B and
3.C are added to Exhibit A, to read in their entirety as follows:
3. Expansion Options. So long as no event of default under this Lease
has occurred and is continuing at the time that the option may be
exercised or at the time that any expansion of the Premises becomes
applicable as provided herein, Tenant shall have the following three (3)
options (the "Expansion Options") to expand the Premises, each of which
shall be subject to the terms and conditions of this Section 3:
A. The first Expansion Option shall be available to Tenant only if
Tenant has not exercised its Pre-Occupancy Option to add the balance of
Floor 11 of the Building to the initial Premises. The first Expansion
Option, if exercised, will be applicable to a portion of the remainder
of Floor 11 of the Building which was not included within the initial
<PAGE>
Premises, which portion shall consist of from 8000 to 12,000 square feet
of Rentable Area, as designated by Landlord (the "First Expansion
Space"). If the first Expansion Option is exercised, the First Expansion
Space will be delivered by Landlord to Tenant for the purpose of
commencing its tenant finish work therein on a date to be designated by
Landlord, which shall be between the date which is three (3) years from
the Commencement Date and the date which is four (4) years from the
Commencement Date (the "First Occupancy Date").
B. The second Expansion Option shall be available to Tenant only if (i)
Tenant has not exercised its Pre-Occupancy Option to add the balance of
Floor 11 of the Building to the initial Premises, and (ii) if Tenant has
previously exercised the first Expansion Option.. The second Expansion
Option, if exercised, will be applicable to all of the remainder of
Floor 11 of the Building which was not included within either the
initial Premises or the First Expansion Space (the "Second Expansion
Space"). If the second Expansion Option is exercised, the Second
Expansion Space will be delivered by Landlord to Tenant for the purpose
of commencing its tenant finish work therein on a date to be designated
by Landlord, which shall be between the date which is four (4) years
from the Commencement Date and the date which is five (5) years from the
Commencement Date (the "Second Occupancy Date").
C. The third Expansion Option shall be available to Tenant only (i) if
Tenant has not exercised its Pre-Occupancy Option to add Floor 10 of the
Building to the initial Premises, (ii) if Tenant has previously
exercised the first and second Expansion Options, and (iii) if Tenant
has previously exercised its first Renewal Option to extend the Term by
an additional five (5) years. The third Expansion Option, if exercised,
will be applicable to all of Floor 10 of the Building (the "Third
Expansion Space"). If the third Expansion Option is exercised, the Third
Expansion Space will be delivered by Landlord to Tenant for the purpose
of commencing its tenant finish work therein on a date to be designated
by Landlord, which shall be between the date which is five (5) years
from the Commencement Date and the date which is six (6) years from the
Commencement Date (the "Third Occupancy Date").
Existing Sections 3.C through 3.G of Exhibit A are relettered as Sections 3.D
through 3.H.
The first sentence of new Section 3.D (former Section 3.C) of Exhibit A is
amended to read: "If an Expansion Option is available to Tenant as set forth
above, Landlord shall notify Tenant of the applicable Occupancy Date at least
twelve (12) months prior thereto (each, an "Occupancy Notice")."
The first sentence of new Section 3.E (former Section 3.D) of Exhibit A is
amended to read: "In order to exercise any Expansion Option, Tenant shall be
required to give Landlord written notice of exercise (the "Exercise Notice")
within thirty (30) days after the date upon which Tenant receives the applicable
Occupancy Notice."
2
<PAGE>
4. Tenant Construction Agreement Amendments. The Tenant Construction
Agreement, contained in Exhibit D to the Lease, is amended as follows:
The Tenant Construction Agreement is revised to indicate that the architect for
the Premises has been hired by Tenant, rather than by Landlord. As a result,
each reference in the Tenant Construction Agreement to "Landlord's architect" or
"Landlord's space planner" shall be revised to refer to "Tenant's architect" or
"Tenant's space planner."
Paragraph 6.D of the Tenant Construction Agreement is modified to provide that
the Tenant Working Drawings will be delivered by Tenant's architect to Landlord
on or before February 15, 1999. Each day from February 15, 1999, until the day
upon which the Tenant Working Drawings are actually delivered by Tenant's
architect to Landlord, shall constitute a day of delay by Tenant in substantial
completion of the Tenant Work pursuant to Paragraph 9 of the Tenant Construction
Agreement.
The first sentence of Paragraph 9 of the Tenant Construction Agreement is
modified to read as follows: "Subject to the provisions of Section 5.C of the
Lease and the other provisions of this Tenant Construction Agreement, Landlord
shall (i) complete the Base Building Shell or such portion thereof as is
necessary for the contractor for the Tenant Work to commence its work in the
Premises by April 1, 1999, if the Tenant Work is to be performed by GE Johnson
Construction Co., or by May 1, 1999, if the Tenant Work is to be performed by a
contractor other than GE Johnson Construction Co., and (ii) substantially
complete the Tenant Work in the Premises and tender the Premises to Tenant on or
before August 1, 1999." Any days beyond the applicable date set forth in
subsection (i) of the preceding sentence until the contractor for the Tenant
Work is able to commence the Tenant Work in the Premises will be considered to
be a day of delay by Landlord in substantial completion of the Tenant Work
pursuant to Paragraph 9 of the Tenant Construction Agreement. It is understood
and agreed that if the Tenant Work is to be performed by a contractor other than
GE Johnson Construction Co., the applicable date shall be the date upon which
such contractor is given permission to commence the Tenant Work in the Premises,
even if GE Johnson Construction Co. is concurrently occupying the Premises for
the purpose of completing the Base Building Shell.
The fourth sentence of Paragraph 9 of the Tenant Construction Agreement is
amended to read as follows: "The payment of Rent will not be delayed by a delay
of substantial completion due to Tenant or its architect or agents."
5. Brokerage Commissions. Landlord and Tenant hereby represent and
warrant to each other that no commission is due and payable to any broker or
other leasing agent in connection with this First Amendment as a result of its
own dealings with such broker or leasing agent. Landlord and Tenant hereby
agree to indemnify and hold each other harmless from and against all loss,
damage, cost, and expense (including reasonable attorneys' fees) suffered by the
other party as a result of a breach of the foregoing representation and
warranty.
6. Full Force and Effect. Except as amended herein, all terms and
conditions of the
3
<PAGE>
Lease shall remain in full force and effect throughout the duration of the Term.
The Lease, as amended herein, constitutes the entire agreement between the
parties hereto and no further modification of the Lease, as amended herein,
shall be binding unless evidenced by an agreement in writing signed by Landlord
and Tenant.
4
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment
as of the day and year first above written.
TENANT: LANDLORD:
TANNING TECHNOLOGY
CORPORATION, a Delaware corporation DENVER HINES DEVELOPMENT, LLC, a
Delaware limited liability company
By: /s/ Mark Tanning By: /s/ Tom Owens
------------------------------ ------------------------------
Print Name: Mark Tanning Tom Owens
------------------------------ ------------------------------
Its: VP of HR & Admin.
------------------------------ ------------------------------
Manager
ATTEST: /s/ Mark Warren Reinhardt
--------------------------
Mark Warren Reinhardt, Asst. Sec.
[ S E A L ]
5
<PAGE>
EXHIBIT 10.28
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Second Amendment") is made effective as of
_____________________, 1999 (the "Effective Date"), by and between DENVER HINES
DEVELOPMENT, LLC, a Delaware limited liability company ("Landlord"), and TANNING
TECHNOLOGY CORPORATION, a Delaware corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into that certain Lease Agreement
dated June 3, 1998, as amended by a First Amendment to Lease dated March 11,
1999 (as amended to date, the "Lease"); and
WHEREAS, the parties hereto now desire to amend the Lease, as set forth
herein but not otherwise.
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Defined Terms. For purposes of this Second Amendment, capitalized
terms and other defined items used herein but not defined herein shall have the
meanings ascribed to them in the Lease. In the event any of the terms of the
Lease conflict with the terms of this Second Amendment, the terms of this Second
Amendment shall control.
2. Rent Abatement. The last sentence of Section 3.A of the Lease is
amended to read in its entirety as follows: "Notwithstanding any provision
contained elsewhere in this Lease to the contrary, provided that Tenant is not
otherwise in default under the terms and provisions of this Lease, Annual Rent
shall be abated during the first six and one-third (6 1/3) months of the Term,
and Tenant shall commence Annual Rent payments on the date which is six (6)
months and ten (10) days from the Commencement Date."
3. Brokerage Commissions. Landlord and Tenant hereby represent and
warrant to each other that no commission is due and payable to any broker or
other leasing agent in connection with this Second Amendment as a result of its
own dealings with such broker or leasing agent. Landlord and Tenant hereby
agree to indemnify and hold each other harmless from and against all loss,
damage, cost, and expense (including reasonable attorneys' fees) suffered by the
other party as a result of a breach of the foregoing representation and
warranty.
4. Full Force and Effect. Except as amended herein, all terms and
conditions of the Lease shall remain in full force and effect throughout the
duration of the Term. The Lease, as amended herein, constitutes the entire
agreement between the parties hereto and no further modification of the Lease,
as amended herein, shall be binding unless evidenced by an agreement in writing
signed by Landlord and Tenant.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Amendment
as of the day and year first above written.
TENANT: LANDLORD:
TANNING TECHNOLOGY
CORPORATION, a Delaware corporation DENVER HINES DEVELOPMENT, LLC, a
Delaware limited liability company
By: /s/ Mark Tanning By: /s/ Tom Owens
--------------------------- ---------------------------
Print Name: Mark Tanning Tom Owens
--------------------------- ---------------------------
Its: VP of HR & Admin
--------------------------- ---------------------------
Manager
ATTEST: /s/ Mark Reinhardt
---------------------------
[ S E A L ]
2
<PAGE>
EXHIBIT 21.1
Subsidiary List
Subsidiary Jurisdiction
- ---------- ------------
NexTek Software Corp. Colorado
Tanning Technology Denmark Aps Denmark
Tanning Technology Europe Limited United Kingdom
Tanning Technology (India) Private Limited India
Tanning Africa Limited Mauritius
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our reports dated February 26,
1999, except for Note 4 as to which the date is May 17, 1999, in Amendment No.
1 to the Registration Statement [No. 333-78657] and related Prospectus of
Tanning Technology Corporation dated June 25, 1999.
/s/ Ernst & Young LLP
Denver, Colorado
June 25, 1999
