U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO ________________
Commission File No. 0-19813
INFONOW CORPORATION
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(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 04-3083360
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(State or other jurisdiction of (I.R.S. Identification Number)
incorporation or organization)
1875 Lawrence Street, Suite 1100, Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (303) 293-0212
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value Per Share
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ___
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
The issuer's revenues for fiscal year ending December 31, 1999 were $5,780,000
The aggregate market value of the voting and non-voting common equity held by
nonaffiliates based on the average bid and asked prices of such stock, as of
March 8, 2000 was:
$99,169,000
The number of shares outstanding of each of the issuer's classes of common
stock, as of March 8, 2000.
Common Stock, $.001 par value 7,247,614
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Class
The number of shares outstanding of each of the issuer's classes of preferred
stock, as of March 8, 2000.
Preferred Stock, Series B, $.001 par value 250,000
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Class
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to
be held on April 21, 2000 is incorporated by reference into Part III of this
Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
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PART I
Item 1. Description of Business.
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Unless otherwise indicated, all references to "InfoNow", "the Company",
"we", "us" or "our" refers to InfoNow Corporation. This document contains
forward-looking statements based on our current expectations, assumptions,
estimates and projections about InfoNow and our industry. These forward-looking
statements involve risks and uncertainties. InfoNow's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of factors described in this document and other documents we have filed
with the SEC. InfoNow does not undertake any obligation to publicly update any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future. We encourage you to carefully
review and consider the disclosures made in this document, including the section
below labeled "Related Business Risks and Assumptions," and in our other reports
filed with the Securities and Exchange Commission to advise you of the risks and
factors that may affect our business and the value of an investment in our
stock.
Overview
InfoNow provides e-business services on an outsourced basis to channel
dependent companies and their resellers, dealers, and VARs, collectively called
"channel partners." These services enable our clients to conduct business over
the Internet, leveraging their existing brand awareness and established networks
of channel partners, resulting in increased sales and profitability. Through our
iChannel suite of e-business services, InfoNow provides a comprehensive,
Internet-based business solution to channel dependent companies that:
o Resolves channel conflict by enabling Internet sales through their
channel partners, rather than around them.
o Enables manufacturers to leverage their brand and other Internet
techniques to create deal flow for their channel partners resulting in
more sales for themselves and their partners.
o Provides the management systems and feedback information necessary to
evolve an effective multi-channel e-business model to optimize brand
and business over time.
We also deliver e-business solutions to channel partners, small to mid-size
independent companies that resell our clients' products and services. These
companies are aware of the need to develop a strong Internet presence but often
lack the expertise and resources to do so. By combining several channel partners
in a vertical industry, we can deliver high quality e-business capabilities
quickly and cost effectively. InfoNow's e-business solution for channel partners
is designed to:
o Create more deal flow: increase business from new and existing
customers.
o Deliver e-business capabilities: provide e-commerce and customer
relationship management services.
InfoNow delivers these services as an outsourced Application Service
Provider (ASP). We deliver solutions and the functionality of proprietary
software and databases via the Internet and secure private extranets with
software resident on InfoNow controlled servers. Our server centers house
proprietary software, databases, and systems that respond to inquiries received
across a client's enterprise, including Internet sites, interactive voice
response systems and call centers. This ASP model enables fast delivery of very
powerful services with little disruption to our clients' existing enterprise
systems.
We currently have over fifty-two clients using our iChannel services. Most are
large, multinational corporations with extensive branch or channel partner
networks. Our clients include Apple, Cisco, Compaq, Hewlett Packard, IBM, Intel,
Lucent, Motorola, Novell, and Sony.
Company History
InfoNow was incorporated under the laws of the State of Delaware on October
29, 1990, and was initially focused on the sale of software through the use of
encrypted CD-ROM technology. Early in 1995, we fundamentally changed our
business focus and began developing Internet-based iChannel services for large
corporate clients. As part of our strategy, we acquired Cimarron International,
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Inc. and Navigist, Inc. Cimarron provided interactive media authoring and
business services. Navigist offered network engineering and Internet consulting
services. These acquisitions allowed the company to utilize the resources and
capabilities of Navigist and Cimarron to facilitate our change in strategic
direction as well as to provide an operating infrastructure and revenues as the
Company completed its transition to selling and providing web-based services.
After the acquisitions of Cimarron and Navigist, we ceased selling software
using encrypted CD-ROM technology and installed a new senior management team,
led by Michael Johnson, who became President and Chief Executive Officer in
October of 1995. After the transition to its new business was completed in 1996,
InfoNow sold Navigist on December 13, 1996, and sold Cimarron on December 11,
1997. We are now solely focused on the sale and provision of iChannel services
over the Internet.
Industry Background
Our iChannel services address six fundamental trends common to our targeted
customer base of branded channel dependent companies and their channel partners:
Growth of business-to-business transactions conducted over the Internet.
The Internet is rapidly evolving into a principal vehicle for interaction
between businesses and their individual and business customers. International
Data Corporation, or IDC, estimates that by the end of 1998 there were over 97
million users of the World Wide Web and that, by the end of 2002, that number
will increase to over 319 million. The interactive capabilities of the Internet
can help companies better pinpoint the needs of customers, more effectively
answer customer inquiries, and provide a faster, more convenient, and more cost
effective response than traditional customer service approaches.
Transactions conducted over the Internet are increasing dramatically,
particularly in the business-to-business sector with predictions of $7.3
trillion by 2004, representing 7% of the global business-to-business volume.
This growth in Internet has resulted in business amounting to the emergence of
Internet service companies that provide value-added services to clients on an
outsourced basis. The Standard predicts that these activities will make up 37%
of the business-to-business e-commerce market, worth $2.71 trillion, by the year
2004. We believe there exists significant opportunity to participate in this
growing Internet services market to establish e-commerce capabilities for
channel dependent companies and their channel partners.
Increasing channel conflict as companies consider selling over the
Internet. Traditional brick-and-mortar companies are struggling to find
effective ways to grow their business using the Internet as their primary
business communication and transaction vehicle. Many major computer,
electronics, or similar manufacturing companies rely on third party channel
partners to distribute all or some of their products. These companies are
struggling with the dual challenges of competing with Internet merchants who
sell directly to customers and maintaining the effectiveness of their channel
partner networks. These channel partners are often essential for the sale,
installation and support of more complex and typically higher margin products,
making effective channel management a key success factor.
This environment creates a conflict between the manufacturer and their
channel partners called "channel conflict." Channel partners typically sell
similar products made by various manufacturers and when companies bypass their
channel partners, channel partners will often begin selling a competitor's
products to customers. A recent Forrester Research survey of manufacturers
indicated that 66% of manufacturers surveyed identified channel conflict as
their single biggest issue hindering online sales efforts.
Opportunities to improve channel management include reducing the time from
initial inquiry to channel partner response from days or weeks to minutes,
enabling channel members to participate in electronic commerce opportunities,
and establishing a closed loop system to ensure effective channel evaluation and
management. These opportunities are especially difficult to take advantage of in
an environment where manufacturers are being forced to bypass their channel
partners and sell more commodity-oriented products directly to consumers for
competitive reasons.
Growing pressure to develop an Internet model for channel dependent
companies and their channel partners. Although traditional brick-and-mortar
companies are under increasing pressure from Internet-based companies that sell
directly to customers, we believe that these companies are uniquely positioned
to successfully compete in the Internet economy. Most manufacturers with a
strong brand have two very powerful differentiators when compared to strictly
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Internet-based companies: brand recognition and local physical presence. We
believe there exists a significant opportunity to leverage these assets in a
business model that integrates traditional business processes, including channel
partners, with the capabilities of the Internet and reduces channel conflict
experienced by many traditional business.
Modest Internet presence among channel partners due to high cost of
e-commerce business solutions. Channel partners are increasingly aware of the
importance of a strong Internet presence as more vendors sell direct, vertical
industry portals drive down margins and Internet merchants enter their market.
The cost of developing and implementing a full e-commerce business capability is
cost prohibitive for many channel partners. A competitive e-commerce presence,
defined as both the ability to bring customers to the web site to create deal
flow and to deliver full sales and service capabilities over the Internet, can
cost hundreds of thousands or even millions of dollars. Many channel partners
are small to medium sized independent businesses. Consequently, channel partners
often are able to have only an informational Internet presence to describe their
business and services, but lack the resources to draw reasonable deal flow to
their web site, to consummate a sale over the Internet or to use the Internet to
serve and grow business activity among their existing customer base.
Substantial growth in the number of Internet-enabled devices, including
wireless data devices like WAP phones and the Palm VII. IDC predicts that the
number of Internet-enabled devices will grow from 10.5 million in 1998 to 150.8
million in 2002. A substantial portion of this growth is expected to come from
wireless data devices, including wireless application protocol (WAP) cell
phones, other types of cell phones, and wireless organizers like the Palm VII
handheld organizer. Effective Internet and online commerce and commerce-enabling
solutions and services will likely need to support a broad range of
Internet-enabled devices, including wireless data devices.
Growing trend to outsource and use of application service providers. In
order to remain competitive, many companies have found that they must focus on
their core competencies and outsource activities that can be more rapidly,
effectively, and economically performed by specialized third parties. Many
companies often lack sufficient resources, expertise or infrastructure to create
and implement e-business business strategies quickly and cost effectively. The
increasing complexity of these strategies and the rapid pace of technological
change are driving many companies to outsource the development of their
e-business initiatives.
According to Forrester Research, companies in the United States are now
spending approximately one quarter of their overall information technology
budgets on outsourced services. The growing acceptance of the Internet as a
trusted medium for business critical activities should increase the level of
outsourcing to service providers that maintain a centralized infrastructure of
software, information databases, server assets and extensive communications
infrastructure to provide value-added services to businesses or consumers over
the Internet. We further believe that as companies face increased pressure to
develop complex e-business capabilities quickly, they will seek service
providers that offer a more complete range of services required to rapidly and
cost effectively deploy these capabilities.
In addition, an important component of outsourcing these functions is the
increased use of Application Service Providers (ASPs) to deliver proprietary
software and database management over the Internet. An ASP maintains all
software and databases on its own hardware and delivers only the solution and
functionality to the customer, relieving the customer of software development
and maintenance costs and providing the ability to deliver solutions very
quickly.
Limitations of Current Solutions
The industry trends discussed above present several obstacles and
opportunities for both the channel dependent manufacturer and their channel
partners. Unfortunately, many of the opportunities for the manufacturer result
in either loss of control and brand dilution and erosion of the traditional
channel partner relationship. For the channel partner, most options result in
loss of business or erosion of margins.
Channel dependent manufacturers have several options:
1. They can sell direct by providing a web site with product catalog and
warehousing capabilities to fulfill orders in attempt to cut out the
middle man resulting in reduced costs and lower prices to compete more
effectively.
Depending on the product and the customers' buying desires, this is a
good option for many companies. However, even if it is a good
long-term option, the channel conflict this strategy could create
could significantly disrupt the company's immediate growth plans.
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For nearly all channel dependent manufacturers, this is a challenge of
the transition to e-commerce. Many companies know they will need at
least a partial sell direct model, but face the risk of losing
substantial business and market share in the short term to competitors
as channel partners switch brand loyalties.
The challenge here is to gradually evolve to an e-commerce model that
will meet customer needs and keep competitors at bay without
destroying the existing distribution structure.
2. Manufacturers can sell through catalogers, Internet merchants,
distributors and vertical portals.
The risk with this strategy is that the manufacturer loses control of
its brand as the customer commoditizes their products over time. When
products are sold without the added value of service, customers
isolate the value in their minds as product only and see no value
added by a local reseller. There is no opportunity for the local
business to differentiate with supporting services when products are
sold direct.
If a manufacturer were selling books or other products where the
product itself is the difference, this strategy would be more
successful. For many products, however, such as computer hardware,
local resellers play an important role in increasing the value of the
product to customers by providing services. The manufacturer's product
and their brand is gradually diminished in the customers' eyes when
the reseller is removed from the sales process.
The challenge here is to find an e-commerce model that leverages brand
and local presence where both remain important to the customer to
prevent brand erosion to commodity status.
3. Manufacturers can elect to collaborate with their channel partners to
leverage their brand and drive deal flow to a channel partner site.
This option works well if there is a real or perceived value added
among customers with local presence. This value could be in the form
of inventory, the need to see, touch, try or feel a product,
expertise, ease of doing business, installation and other services
that are valued by the end customer.
The challenge here is to develop a model that will both support the
channel partner and maintain control over the manufacturer's brand and
the buying process.
Overall, the primary challenge for the manufacturer is to evolve a
multi-channel e-business model that serves their customers well while
maintaining brand loyalty and leveraging local presence where desired.
Channel partners also have several options with unique challenges:
1. Channel Partners can develop an e-commerce presence themselves by
going to mass purveyors of e-commerce capabilities such as Yahoo.com.
The challenge for channel partners to successfully implement an
e-commerce strategy is twofold: they must both create deal flow and
build the web site. To create deal flow, channel partners must invest
heavily in branding and promotion of their web site.
Building the web site requires technical capabilities such as easy
cataloging, developing pricing models and ongoing maintenance. Typical
channel partners purchase these items from several distributors and
many manufacturers and carry many thousands of items suitable for sale
over the Internet, not including repair parts. Although they may have
brochures and other descriptive material, they have no convenient way
of electronically populating a full e-commerce catalog.
The time and cost required to implement this strategy, as well as the
ongoing demands are generally beyond the resources of the small to
medium sized channel partners.
2. Channel Partners can add their name to a vertical or manufacturer
portal and let others drive business to them based on the products
they carry.
The challenge channel partners face with this strategy is to maintain
an identity and protect margins. Vertical portals are the price
shopper's dream but further reducing both the manufacturer's brand and
the channel partner's perceived service and relationship edge.
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Overall, the primary challenge for the channel partner is creating deal
flow and developing a competitive e-business capability at an affordable cost.
The InfoNow Opportunity
We believe the opportunity exists to significantly improve the
effectiveness and efficiency with which major branded companies integrate with
their channel partners to deliver products and services over the Internet. We
further believe that this opportunity can best be addressed delivering powerful
e-business capabilities which support both manufacturers and their channel
partners, as well as leveraging automated systems and a broad array of databases
to provide services over the Internet that are able to:
o Deliver deal flow and e-commerce capabilities to channel partners to
produce increased market share and sales for both manufacturer and
channel partner immediately.
o Provide information and management systems to the manufacturer to
evolve a high powered e-business model to best serve their customers
over time.
o Provide an integrated set of e-business solutions to manufacturers and
their channel partners quickly and cost effectively.
o Strengthen visibility and ongoing relationships with channel partners.
The InfoNow Solution
We deliver an integrated suite of e-business services over the Internet to
channel dependent companies and their channel partners. Our iChannel services
enable our clients to:
1. Leverage their brand both as a portal to local channel partners on their
web site and locally on a manufacturer-controlled, co-branded channel
partner web site. In this way, they are able to control their channel
partners' use of the web site and their presentation and use of their brand
while at the same time, delivering business and thus significant value to
their channel partners.
2. Embrace their channel partners as a collaborative strategic asset by
setting them up with a comprehensive e-business capability for closing
sales, maintaining customer relationships and streamlining their business
processes.
3. Direct significant deal flow from their web site to the most appropriate
channel partners.
4. Measure the results of these actions and evolve, over time, the best
Internet model to serve their customers. For most manufacturers, this model
will be a multi-channel e-business model. This means the manufacturer will
probably sell products through a number of channels, including local
resellers, and use the Internet as the primary communication and
transaction vehicle.
InfoNow provides this solution with a robust technology platform. In
addition, as an ASP, InfoNow can deploy customized solutions to each of its
brand name clients quickly and cost effectively. InfoNow customers buy solutions
not software.
iChannel Services
InfoNow's suite of iChannel services provides e-business solutions for
manufacturers and their channel partners. We provide the following iChannel
services to our clients:
1. iLocator - Matches sales inquiries to the most appropriate local channel
partner using specific business rules (e.g. proximity, expertise, product
carried, in-stock, etc.) set by client manufacturer. Service includes
incentives for the customer to buy our client's products rather than switch
when visiting the local reseller.
2. iLeads - A comprehensive closed loop lead management capability that
captures, qualifies, assigns, distributes, and tracks the outcome of leads
with a company's channel partners. Leads are captured, though real-time
interfaces or off-line batch sources, qualified using a set of
client-specific criteria, assigned to the optimal channel partner,
distributed and updated via channel partner-specific extranets, and tracked
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throughout the closing process. This system provides deal flow to the local
channel partner while speeding lead response and monitoring the process and
partner response.
3. iPartner - Enables channel partners to network with other channel partners
for sales opportunities, filling skill and geographic gaps. One partner may
provide product, but not cabling or other installation services, or, a
partner in one city may sign a customer and need the capability of serving
the customer nationally. This system enables channel partners to
collaborate to close more deals.
4. iCommerce - Scheduled to be available for deployment by mid 2000, iCommerce
provides co-branded e-commerce sites for partners to enable on-line sales
to end customers by the local partner includes industry catalog and
pricing. This service includes reference pricing and catalog templates to
ease the time and cost of entry. InfoNow's goal is for a channel partner to
set-up full e-commerce capability in less than an hour.
Reporting. InfoNow's iChannel services are supported by a wide range of
reporting capabilities, providing sophisticated screening, data mining and
manipulation capabilities to enable clients to analyze the results of
promotional campaigns, Internet lead generating techniques, channel partner
initiatives, customers who purchased competitive products, etc. The manufacturer
can then apply best practices across the channel network to all partners.
Interface options/touch points. All of our services support inquiries
received through customer touch points across a client's enterprise, including
Internet sites, private extranet and intranet sites, and call centers. Our
iLocator, iLeads and iPartner services currently support automated phone and
wireless device access, including interactive voice response systems (IVRs),
wireless application protocol (WAP) cell phones and wireless Palm VII devices.
Geographic coverage. To provide the targeted, geographic component of our
one-to-one response, our services utilize precision geographic information
system, or GIS, technology that uses latitude and longitude coordinates to
pinpoint locations, calculate the location proximity and generates customized
maps. This geographic precision is currently available to our clients for
fifteen countries, including the United States, Canada, the United Kingdom,
Australia and major European countries. We provide worldwide coverage via text
based and postal code searching methods for all areas not currently covered by
GIS technology.
Multi-language Support. Our services are currently available to clients in
ten languages.
Special services. We also offer various other special services, on a
consulting basis, to support client programs related to our iChannel service
offerings. These include custom reporting requests, database enhancement and
management, maps to be used in promotional literature and custom business rules
and software development to meet special client requirements.
Fees and pricing. Our services are typically sold through annual or
multi-year service contracts. The initial term of these contracts are typically
one to three years and are renewable upon mutual agreement of InfoNow and the
client. A typical contract fee includes two components, a setup fee and a
recurring service fee. The setup fee covers the development of a customized,
client-specific interface to the service, and the design and implementation of
client databases. The recurring monthly or annual service fee covers hosting and
provision of the service and performance of recurring maintenance to client
databases and core iChannel engine systems.
Currently, the combined fees for an initial year of service typically range
from $45,000 for a simple implementation to greater than $750,000 for a complex
deployment involving multiple services across several prospect touch points and
geographies. The actual setup and monthly service fees are determined based on a
variety of factors, including the type(s) of service selected, anticipated and
actual transaction volumes, client touch points supported, geographic coverage
of the service, and the level of service customization requested by the client.
We also may charge additional transaction fees for some elements of our services
depending upon the specific client configuration such as fax transactions, voice
recordings or dedicated telecommunication lines.
Currently, manufacturers pay our fees. We expect, however, to begin
charging channel partners and expect our fees to be based on a percentage of the
volume of transactions conducted.
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Business Strategy
Our objective is to be the leading worldwide provider of e-business
services to channel dependent companies and their channel partners. Our
strategies to achieve this objective include:
Broadening services to existing clients. We believe that significant
opportunities exist to expand the breadth and depth of services provided to our
existing clients. Most of our current clients use only a portion of the services
that we currently offer and no current clients currently use new services we are
planning to offer in 2000. Service expansion can be accomplished along many
dimensions, depending upon our clients' specific needs, including:
o the addition of existing services not currently used by the client,
including iLeads, iPartner, and iCommerce;
o increase in the number of prospect touch points to include interactive
voice response systems, call centers, WAP phones, Palm VII, etc.; and
o expansion of geographic coverage.
Maintaining and extending innovation and technology leadership in iChannel
services. We intend to offer a more comprehensive menu of services through
internal development efforts and the integration of third party applications or
databases into our systems. Expansion of our technology will be driven by a
combination of customer input and our knowledge of using the Internet to
effectively generate deal flow and deliver e-business services.
During 1999, we introduced several new services, including:
o Enhanced iLocator services, to interact with real time data warehouses;
o iPartner services to enable partner-to-partner collaboration;
o Expanded iLeads services to more effectively manage leads in a closed loop
system; and
o Support for a broad range of wireless data access devices and WAP phones.
We expect to continue to expand the iChannel suite of services throughout 2000.
Expanding strategic alliances. We plan to continue to pursue relationships
that can accelerate the marketing and development of our services. We are
presently working with a number of companies to enhance our service offering for
our clients and their resellers and to accelerate the delivery and quality of
the total iChannel service offerings.
Acquiring new industry leading corporate customers. We typically focus our
client development efforts on specific vertical markets. Within these vertical
markets, we initially focus on the leading companies. Historically, our client
development efforts have focused on technology, manufacturing and financial
services companies, especially where third parties are used to sell all or some
of a company's products or services. We plan to grow our penetration of our
target vertical markets as well as increase our presence in additional,
attractive vertical markets.
Building sustainable competitive advantage through information-based
assets. We have developed proprietary databases through activities with our
current customer base and have secured exclusive access to selected other
databases through client and third-party agreements. We currently have an
exclusive license for certain geographic data in Canada and non-exclusive
licenses for a variety of other databases and information assets, including
geographic data for fourteen other countries covering the United States, Western
Europe and Australia. We intend to utilize these information assets as well as
other databases we may acquire or build to enhance and distinguish our services
and build sustainable competitive advantage.
Continuing to develop and leverage our expertise in iChannel services. Our
relationships with our clients have allowed us to develop a significant body of
knowledge in the application of the Internet and services to address the
challenge of an effective e-business strategy for channel dependent companies.
We intend to maintain strong working relationships with our clients that will
allow us to continue to build our knowledge base and provide superior solutions
to our clients in the future.
Continuing to expand the scope of our services globally. We intend to
extend geographic coverage of our services to address the global adoption of the
Internet and to respond to our multinational customers' requests to provide them
with a complete solution for their worldwide networks. We believe that
international markets present an attractive growth opportunity and an early
presence in those markets will enhance our long-term competitive position.
We intend to increase our presence initially though relationships with our
current clients and then later through direct sales efforts initiated from both
the U.S. and possibly from direct sales and support operations located in
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selected European and Asian markets. We may also form alliances with selected
partners to assist in the marketing and localization of our services for certain
markets.
Technology Overview
Our proprietary iChannel engine is the platform for all of our solutions.
This proprietary software and data currently reside in our two production server
centers. These centers are linked to our clients' web sites, intranets,
extranets, call centers or interactive voice response systems via the Internet
or via private extranets or intranets.
Our multiple UNIX servers comprise the core computing capacity at each of
our server centers. These centers are co-located with two separate major
Internet service providers in Denver, Colorado that maintain redundant
high-bandwidth connections to the Internet. These centers are also directly
connected into the frame clouds of two leading frame relay providers that are
used for connection to client sites that require greater reliability than is
currently available over public Internet connections. Our systems are designed
to operate 24 hours a day, seven days a week. Continuous monitoring of our
systems is achieved through automated fault detection test scripts and daily ad
hoc testing conducted by our operations personnel.
Our iChannel engine is based on a distributed server architecture. This
architecture allows efficient balancing of load in high usage periods and can be
easily scalable to accommodate higher transaction volumes without the need for
clients to purchase new equipment or software. The modular structure of our
system also allows us to quickly tailor the application for changing client
needs and simplifies the addition of new features to the system as they are
developed. These servers can be accessed through HTML pages via our proprietary
Common Gateway Interface, which facilitates communication between our core
iChannel applications and public Internet or private intranets or extranets.
Communication with interactive voice response systems and wireless data devices
is conducted via specialized interface servers. These interfaces also include
the development tools we use to customize our interface to duplicate the look
and feel of our clients' site and systems. The separation of the interface tools
from the core application servers results in a highly flexible user interface
that may be customized or modified quickly while maintaining the stability and
integrity of the core server functions.
The targeted, one-to-one nature of our response is facilitated by the use
of a wide range of proprietary and third-party provided databases. These
include:
o geographic databases, which can include information to allow us to
pinpoint the latitude and longitude of an inquirer's specific location
and the locations of channel partners or enable us to provide maps to
and from a specific location;
o demographic databases, which can include information to help us
complete a profile of a prospect's characteristics or interests or
better qualify leads that we capture; and
o industry-specific databases, which can include information on channel
partner characteristics, information on ATM locations worldwide or
other information useful to target or enhance our inquiry response.
We capture key information for transactions occurring within our systems.
This information is the foundation used to develop reports required by our
clients. We also create customized reports and customized interfaces to view and
gather data for our clients. Our reporting systems can generate reports based on
any category in the transaction data, as well as reports that have categories
joined across several tables, such as lead data, follow-up data and call center
statistics. Clients can define the exact structure of their individual reports.
These reports can also be tailored to evaluate the success of advertising
campaigns based on prospects' profiles. Examples of reports that can be produced
include transaction activity levels, comparisons of channel partner
effectiveness, inquiry-to-sale closing rates and promotional effectiveness.
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Sales and Marketing
Our sales efforts rely primarily on direct sales contact, such as
promotional presentations delivered via notebook computers and requests from
existing customers for new services. We use a consultative approach to determine
prospective client needs and to determine the optimal application of our
services to meet the identified needs. We currently focus our efforts on target
industries, including technology, manufacturing and financial services
companies. We are growing our staff of 15 sales and marketing professionals
headquartered in Denver, Colorado that sell to national and international
accounts. Our primary sales and marketing efforts have been directed at
increasing the visibility of our services through the use of direct sales
efforts, though we may use indirect selling approaches in the future, via client
or third-party partners as appropriate.
We expect to significantly increase our marketing expenditures in 2000 to
increase the name recognition of InfoNow's iChannel services. These expected
expenditures include increased participation in sponsorship of trade shows,
direct email marketing campaigns, production of sales materials and demos and
other promotional efforts.
Clients
We had 52 clients as of December 31, 1999. We serve clients in fifteen
countries, including eight of the largest global computer and networking firms
and six of the largest banks in North America.
During the year ended December 31, 1999, we received 17% of our revenues
from one customer. No other customers accounted for more than 10% of our
revenues.
The table below is a list of selected clients.
Channel Dependent Manufacturers Financial Services Other
- ------------------------------- ------------------ -----
3Com Allstate American Airlines
Apple Computer Bank of America FedEx
Cisco Bank One Kenwood
Compaq Citibank Maytag
Fujitsu Citicorp Diners Club Meredith
Hewlett Packard Comerica Shell
IBM First Union Suzuki
Intel Royal Bank Group United Healthcare
Lucent The Hartford UPS
Novell Transamerica Vision Service Plan
Sony Europe Visa
The quality and depth of our customer base and our customer retention rate
reflects our position as an accepted and proven iChannel solution provider. We
have a retention rate of over 92%, based on total contracted service fees from
inception of our services in the third quarter of 1996 through December 31,
1999,
We have also been able to grow our recurring monthly service fees from
current and new clients by 59% during 1999. These fees, which consist of monthly
fees from ongoing service contracts, increased from $279,000 at the beginning of
1999 to $445,000 at December 31, 1999.
Product Development
We believe that our success will largely depend on our ability to enhance
the functionality of our services and to develop other related products and
services to meet the changing needs of our clients. Our current research and
development efforts are influenced significantly by client requirements. New
features are often configured initially for delivery to a single client and then
incorporated into future versions of our products and services for other
clients. We continually evaluate our products and services to determine what
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additional products or enhancements are required by our clients and plan to
utilize both purchased and internally developed technologies, software, and
information assets to enhance our product offerings.
We incurred product development expense for the years ended December 31,
1999 and 1998 of $229,000 and $175,000 respectively. We expect to incur
significantly greater direct product development expenses in the future as we
develop new capabilities for our iChannel services beyond those deployed to
address immediate client needs.
Competition
The market for iChannel services delivered over the Internet is at an early
stage of development and no one competitor has established a dominant position
in the market. However, we believe that these markets will be highly competitive
and characterized by rapidly changing technologies, evolving industry standards,
frequent new product introductions or enhancements and rapid changes in customer
requirements. As the growth in these markets continues, we expect competition
will intensify. We believe that the size and diversity within these markets will
allow more than one supplier of products and services similar to ours. We are
aware of several other providers of products and services that are in various
stages of development as well as other new entrants which may ultimately compete
with our offerings, including:
o web site developers, such as Modem Media.Poppe Tyson and AGENCY.COM;
o e-commerce companies such as Broadvision and PC Order;
o lead and partner management software and service providers such as
ChannelWave and Allegis;
o call center outsourcing companies, such as Harte-Hanks and TeleTech;
o providers of mapping and business finder services, such as MapQuest
and Vicinity; and
o customer management software companies; such as Siebel Systems and
Vantive.
In many cases, these competitors are larger, more established and have
substantially greater financial, technical and marketing resources than we do.
We may not be able to compete successfully against our current or future
competitors, which will have a material adverse effect on our business, results
of operations and financial condition.
We believe that the business critical nature of our services, the data and
transaction information we compile, and the benefits of our relationships with
industry leading companies to future technology development, would represent a
substantial cost for clients in switching to a competitor.
We believe the principal competitive factors that will determine success in
the market for our services are:
o functionality and features of the services;
o ability to adapt to specific customer needs;
o reliability and effectiveness of the services provided;
o speed of implementation and level of perceived implementation risk;
o product reputation based on customer's served and client referrals;
o pricing relative to capabilities offered;
o quality of customer support; and
o ability to develop strong customer relationships and strong market
presence.
Intellectual Property
We have received a federal trademark registration for the name InfoNow and
consider our software, information databases, trade secrets, service marks and
similar intellectual property to be proprietary. We rely on a combination of
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copyright and trademark law, non-disclosure agreements and certain contractual
provisions within our customer agreements to establish and maintain proprietary
rights in our services and other intellectual property. However, these measures
can afford only limited protection for our intellectual property, as it does not
prevent competitors from independently developing equivalent or superior
technology. As a result, we may have a limited ability to prevent others from
developing similar technologies. However, we believe this protection is less
significant to the future success of our business than other factors, including:
o the knowledge, ability and experience of our personnel in delivering
our services to and supporting our clients;
o the development of unique and proprietary information assets;
o the effectiveness of our ongoing product development activities in
responding to client needs;
o client loyalty to our services; and
o the overall market position of our products and services.
We believe that our products, trademarks, service marks and other
proprietary rights do not infringe on the intellectual property rights of
others. However, third parties may assert infringement claims against us in the
future which may lead to litigation that could be expensive and divert our
management's attention. We may be required to pay a license fee or royalties to
obtain intellectual property rights which are needed to continue to sell our
products and services. These royalties or licensing agreements may be
unavailable or may be offered at terms unacceptable to us. Delays or
interruptions in our services to our clients may occur if we are unable to
obtain the necessary licensing or royalty agreements, which could harm our
business, operating results and financial condition.
We rely on software and data that we license from third parties, including
software and data that is integrated with internally developed software used in
providing our services. These third-party software licenses may not continue to
be available or may be available on terms unacceptable to us. We are also
dependent upon the ability of the licensors and vendors of such third-party
software and data to enhance their current products in order to meet the
changing needs of our clients. If we are not able to acquire software and data
licenses and needed enhancements from our current vendors, equivalent software
and data will need to be developed or purchased and integrated into our systems.
Although other alternative sources exist for the technology and data embodied in
these license agreements, we may not be able to replace the functionality of our
current systems or be able to successfully integrate new software and data into
our current systems. Delays and interruptions could occur in our service to our
clients that could result in a material adverse impact on our business,
operating results and financial condition.
Employees
As of December 31, 1999, we had a total of 61 full time employees including
15 in sales and marketing, 34 in software implementation, system operations, and
client support, 6 in product development and 6 in finance, management and
administration. We use outside contractors on an as-needed basis.
We consider our relations with our employees to be good and have not
experienced any interruption of operations as a result of labor disagreements.
None of our employees are subject to a collective bargaining agreement.
We believe that we must continue to attract and retain qualified personnel
so that we may successfully deliver services to our clients. The competition for
technical personnel with the skills that we require for successful operation of
our business is intense. It could have a material adverse effect on our
operations if we are unable to retain key technical personnel or obtain
additional qualified personnel needed for the planned growth of our business.
Item 2. Properties
- ------------------
We lease approximately 13,000 square feet of office space at our
headquarters in Denver, Colorado for our product development, marketing,
operations and administrative activities. This lease is with an unrelated party
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and terminates on June 30, 2005. We believe that the facilities are adequate for
our current needs and that suitable additional space can be acquired as needed
to accommodate planned growth in the number of personnel for the foreseeable
future.
Our principal server equipment and operations are housed and maintained by
Qwest Communications at our operations center in Denver, Colorado. We also have
a redundant operations site co-located with Verio that is also located in
Denver, Colorado. Our operations are dependent in part upon our ability to
protect our systems against physical damage from fire, floods, power loss,
telecommunications failures and similar events. These facilities have safeguard
protections such as a halon fire system, redundant telecommunications access,
off-site storage of backups and 24 hour systems maintenance support. However, we
still may experience service outages due to multiple failures of systems or
area-wide natural disasters, as both sites are located in Denver. In addition,
despite our implementation of network security measures, our servers may still
be vulnerable to computer viruses, and similar disruptions from unauthorized
tampering with our computer systems. The occurrence of any of these events could
result in interruptions or delays in service to our clients that could have a
material adverse effect on our business, results of operations and financial
condition.
Item 3. Legal Proceedings
- -------------------------
From time to time we may be involved in litigation that arises in the
normal course of business operations. As of the date of this report, we are not
a party to any litigation that we believe could reasonably be expected to have a
material adverse effect on our business or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No matters were submitted to a vote of shareholders during the three-month
period ended December 31, 1999.
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PART II
Item 5. Market for Common Equity and Related Security Holder Matters
- --------------------------------------------------------------------
The following table sets forth the high and low bid price of the our Common
Stock, reported for the fiscal periods indicated on the OTC Electronic Bulletin
Board system, the principal market upon which such securities were traded under
the symbol INOW. Our shares were also listed on the Vancouver Stock Exchange and
were traded in US dollars under the symbol INOU.V until March 15, 1999, when the
delisting of our common stock on the Vancouver Stock Exchange became effective.
The quotations in the table below reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions. As of March 8, 1999 there were approximately 5,000 beneficial
shareholders.
High Low
---- ---
Year Ended December 31, 1998
----------------------------
First Quarter....................................$ 1.56 $ 0.22
Second Quarter................................... 1.59 1.13
Third Quarter.................................... 1.39 0.88
Fourth Quarter................................... 2.50 0.75
Year Ended December 31, 1999
----------------------------
First Quarter....................................$ 4.50 $ 2.13
Second Quarter................................... 5.06 3.69
Third Quarter.................................... 5.40 3.75
Fourth Quarter................................... 16.81 5.63
InfoNow has never declared or paid any cash dividends on the Common Stock
and does not currently anticipate paying any such dividends in the foreseeable
future. Our Board of Directors intends to review this policy from time to time
after taking into account various factors such as our financial condition,
results of operations, current and anticipated cash needs and plans for
expansion.
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Item 6. Management's Discussion and Analysis.
- ---------------------------------------------
The following discussion and analysis of the financial condition and
results of operations for InfoNow should be read in conjunction with our
financial statements and related notes appearing elsewhere in this report. This
discussion contains statements that are not purely historical. These
forward-looking statements are based on our current expectations, assumptions,
estimates and projections about our industry and our business including
statements about markets for our services, planned development of products and
anticipated expense and revenue levels. These forward-looking statements contain
words such as "anticipate", "believe", "plan", "expect" or similar language.
These forward-looking statements are subject to business and economic risks. We
intend that such statements be subject to the safe harbor provision of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Our actual
results could differ materially from those anticipated in such forward-looking
statements as a result of many factors including those set forth in this
discussion and in reports we have filed with the Securities and Exchange
Commission.
General Information and Overview
InfoNow provides business-to-business e-commerce solutions that enable channel
dependent companies to solve channel conflict by enabling manufacturers to sell
online through their existing channels and channel partners. A recent Forrester
Research survey identified conflict with existing sales channels as the single
biggest obstacle keeping manufactures from selling online. InfoNow's iChannel
suite of eBusiness services resolve channel conflict and maximize sales success
by providing referrals, leads, e-commerce and customer relationship management
(CRM) capabilities to the channel partners best aligned to close the sale.
Channel partners for our clients can include their product dealers,
distributors, value-added resellers and agents. We provide these services to our
clients over the Internet or via secure, private extranets and intranets. Our
server centers house proprietary software, databases, and systems that respond
to inquiries received across a client's enterprise, including Internet sites,
interactive voice response systems and call centers.
As of December 31, 1999, we had 52 clients. Most of our clients are large
multinational companies who have extensive branch or reseller networks. Our
clients include American Airlines, Apple, Bank of America, Citicorp Diners Club,
Cisco, Compaq, 3Com, FedEx, First Union, Hewlett Packard, IBM, Intel, Maytag,
United Health Care, UPS and Visa.
Our services are sold on the basis of multi-year service contracts. The
initial term of these contracts are one to three years and are renewable upon
mutual agreement of InfoNow and the client. A typical contract fee includes two
components, a setup fee and a recurring service fee. The setup fee covers the
initial development of a customized, client-specific access to our service, and
the design and implementation of client databases. The recurring monthly service
fee covers hosting of the service and performance of recurring maintenance to
the client databases and core applications. We plan that our new e-commerce fees
will be based on a percentage of the transactions conducted via our services
that we have called success fees.
Currently, the combined fees for the initial year of service typically
range from $45,000 for a simple installation to greater than $750,000 for a
complex application involving multiple services across several customer "touch
points" and geographies. These ranges exclude success fees which would be
determined by the size of the reseller network served and transactions flowing
through our iChannel services. The actual setup and monthly service fees are
determined based on a variety of factors, including the type(s) of service
selected, the number of client locations supported, anticipated transaction
volumes, geographic coverage of the service and the level of service
customization requested by the client. We also may charge transaction fees for
some elements of our services depending upon the specific client configuration
such as fax transactions, voice recordings and dedicated telecommunication
lines. Our services are modular and all, or a portion of the services can be
selected depending on client requirements.
We recognize revenues from setup fees for implementation of our services on
the percentage of completion method using project milestones. Service fees for
our services are recognized as services are rendered over the term of the
contract.
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We market our services through our direct sales force. During the last
eight quarters, we have experienced a significant increase in revenues from
sales of our services and have reduced our losses from operations.
During the year ended December 31, 1999, we reported a net loss of $99,000
that included a non-recurring charge of approximately $260,000 related to costs
incurred in evaluating an offer for the potential sale of the company. Without
these charges, net income for the year ended December 31, 1999 would have been
$161,000. Our success in maintaining profitability is primarily dependent on
market acceptance and future sales of our services to additional customers to
offset operating costs. Although we have experienced a significant percentage
revenue growth and a reduction in operating losses in recent periods, these
growth rates, or improvement in operating results, may not be sustainable and
may not be indicative of future performance. We also have plans to significantly
increase our spending in sales, marketing and product development in order to
increase our market presence and broaden our product offerings, which we expect
to generate operating losses during the year ending December 31, 2000. In
addition, we plan to make significant expenditures on capital equipment and
licensed software to implement and deploy our new iChannel services.
Our limited operating history and the early stage of development in the
markets for our services makes it difficult or impossible to predict our
revenues and operating results. We believe that our prospects should be
considered in light of the risks and difficulties encountered by companies at an
early stage of development. We may not be successful in addressing these risks
and difficulties.
Results of Operations
The results of operations for the years ended December 31, 1999 and 1998
reflect the revenues and expenses of our operations.
(dollars in thousands)
Year Ended December 31,
1999 1998
---- ----
Revenues $ 5,780 $ 2,498
Cost of Revenues 2,907 1,579
Product Development 229 175
Administrative and Selling 2,813 1,905
Other (income) expense (70) (50)
------- -------
Net Loss $ (99) $(1,111)
======= =======
Comparison of Year Ended December 31, 1999 with Year Ended December 31, 1998
Net Revenues. The Company's revenues from continuing operations consist
primarily of setup fees from new contracts and monthly service fees from ongoing
contracts for our services. Total sales from our iChannel services increased by
$3,282,000, or 131% for the year ended December 31, 1999, compared to the same
period in the previous year. Recurring service fees comprised approximately 66%,
or $3,815,000 for the twelve months ended December 31, 1999. The increased
revenues were generated by additional contracts sold and implemented during the
last twelve months. During 1999, the number of contracts increased from 66
active contracts at the beginning of 1999 to 76 active contracts as of December
31, 1999.
Cost of Revenues. The cost of revenues, as a percent of revenues, decreased
from 63% of revenues for the year ended December 31, 1998, to 50% of revenues
for the year ended December 31, 1999. The total cost of revenues over the same
period increased by 84% or $1,328,000. This increase is a result of increased
costs in creating and expanding an infrastructure for delivering our services.
These costs include technical personnel payroll, contract labor, data royalties,
depreciation and amortization for server equipment and capitalized software
development, telecommunications and other costs related to operating our data
center. Costs of revenues are expected to continue to increase as additional
customers use our services.
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Product Development. Product Development expenses consist of time spent on
development not specifically associated with a client contract. To date, product
development costs have been comprised of subcontracted services and salaries and
related costs. Product development costs decreased from 7% of revenues for the
year ended December 31, 1998 to 4% of revenues for the year ended December 31,
1999. Total product development costs over the same period increased by 31% or
$54,000. We expect our product development expenses to increase significantly.
We expect to develop our iChannel services independently of a specific client
contract.
Selling, General and Administrative. Selling, general and administrative
expenses, as a percent of revenues, decreased from 76% of revenues for the year
ended December 31, 1998, to 48% of revenues for the year ended December 31,
1999. The total amount of selling, general and administrative expenses increased
by 48%, or $908,000. The overall increase is the result of additional
administrative costs related to growth in business activity and the addition of
sales personnel and other marketing and promotion costs in 1999. Costs for the
year ended December 31, 1999 included charges of approximately $260,000 related
to the evaluation of an offer to purchase the company.
Provision for Income Taxes. InfoNow has paid no income taxes since its
inception and has not recorded a provision for income taxes. We believe that tax
liabilities for future years will initially be offset against tax loss
carryforwards, which expire beginning in 2010, estimated at $4,997,000 as of
December 31, 1999.
Non-Operating Income (Expense). Net non-operating income was $70,000 for
the year ended December 31, 1999 compared to $51,000 for the year ended December
31, 1998. The increase is due primarily to additional interest income on cash
and cash equivalents, and a buyout earned based on Cimarron's gross profits in
accordance with the December 1997 sale agreement between InfoNow and Cimarron
Dog and Pony, Company.
Net Loss. Net loss for the year ended December 31, 1999 was $99,000, as
compared to a net loss of $1,111,000 for the year ended December 31, 1998. The
improvement is primarily due to increased revenues generated by additional
contracts sold and implemented during the last twelve months without
corresponding increases in operating expenses.
Liquidity and Capital Resources
InfoNow has financed its operations through private placement of equity
securities and through borrowing arrangements. We have received a total of
approximately $9,815,000 from private offerings and an additional $1,967,000
from the exercise of stock options and warrants since we began marketing our
services in 1995.
We had cash and equivalents of $5,356,000 at December 31, 1999, compared to
$1,303,000 at December 31, 1998, a net increase of $4,053,000. The increase was
primarily due to proceeds of $5,000,000 on December 31, 1999 from the issuance
of Series B Convertible Preferred Stock in a private placement with Putnam
Investments and the exercise of stock options and warrants during the year,
which resulted in proceeds of $251,000. The increase was offset by net cash used
in operating activities of $14,000, purchases of property, equipment and data
acquisition costs of $856,000, and principal payments on debt obligations of
$153,000.
We currently project that available cash balances, together with projected
cash flow from our recurring service fees from client contracts and anticipated
new sales, will be sufficient to fund our operations for at least the next
twelve months. These projections assume that revenues from new sales and our
existing recurring service fees will continue to provide cash from operations
and that planned increases in expenditures for sales, marketing, capital
equipment and licensed software to implement and deploy our new iChannel
services will not exceed current budgeted amounts.
We are currently seeking additional equity financing that would allow us to
make additional investments in sales and marketing, product development and to
increase general working capital and license additional intellectual property.
Our ability to successfully complete an offering is dependent on a number of
factors. There can be no assurance that we successfully complete an equity
placement, or that a placement will be concluded on the terms and conditions
that we anticipate.
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Related Business Risks and Assumptions
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below before making an investment
decision. The risks and uncertainties described below are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also impair our business operations. If
any of the following events described below actually occur, our business,
financial condition and results of operations would likely suffer. In this case,
the market price of our common stock could decline and you may lose all or part
of the money you paid to buy our common stock.
We have a limited Internet-related operating history and expect to encounter
risks and difficulties frequently encountered by early-stage companies in new
and rapidly evolving markets
We began developing our Internet web service offerings in 1995 and
completed the implementation of our first contract in July 1996. Accordingly, we
have only a limited operating history upon which to base an evaluation of our
business and future prospects. We operate in markets and provide services that
have only recently developed and are changing rapidly. Projecting demands and
market acceptance for recently introduced products and services is subject to a
high level of uncertainty and risk. The market for our services may not develop
as expected or competitive services or products may emerge that will
significantly change the demand for our services. As a result, we may not be
able to accurately forecast our financial results or the resources required for
our operations. Our limited operating history also hinders our ability to
forecast the transaction load demands on our systems from customers, which may
affect our ability to maintain responsiveness of our systems and provide
services to new and existing customers. We may be unsuccessful in addressing
these risks.
We have a history of losses and may continue to incur operating losses in the
future
We incurred net losses of $2.3 million in 1997, $1.1 million in 1998 and
$99,000 in 1999. Although we have substantially reduced our losses from
operations, our current business plans anticipate that our operating losses will
increase in the near term. These continuing losses are a result of expenditures
made to develop and market our service offerings as well as to develop an
operating infrastructure to deliver our services. Our costs are relatively fixed
in the short term. If our assumptions about revenues prove to be incorrect, we
may not be able to adjust our operating expenses in order to achieve
profitability, and may never achieve profitability.
Our future financial results will depend on many factors, including future
economic, market and competitive conditions. These factors are difficult or
impossible to predict accurately and many of them are beyond our ability to
control. In addition, we expect to continue to incur significant costs in
further development and marketing of our service offerings. We may be unable to
sustain revenue growth and manage our development and marketing costs in order
to achieve and sustain profitability.
Fluctuations in our operating results that fail to meet expectations of public
market analysts and investors may cause substantial decreases in the price of
our common stock
Our quarterly and annual operating results have varied in the past and may
vary significantly in the future due to a variety of factors, many of which are
beyond our control. If in any quarter or year our operating results are below
the expectations of public market analysts and investors, the market price of
our common stock may decrease significantly.
Because our operating results are volatile and difficult to predict, we
believe that period-to-period comparisons of our past operating results are not
necessarily a good indication of our future performance. A variety of factors
can contribute to the fluctuation of our quarterly and annual results,
including:
o significant variations in sales cycles and contract size from customer
to customer, which makes it difficult to predict the timing of
revenues from period to period;
o seasonal fluctuations in sales based on customers' budget calendars
and purchasing cycles;
o our participation in new and rapidly evolving markets;
o fixed fee pricing of some of our contracts, which subjects us to
possible variances in our operating margins;
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o the timing of large implementations;
o unexpected delays in the market acceptance or introduction of new or
enhanced service introductions;
o changes in competitors' offerings or pricing and entry of new
competition;
o changes in our pricing strategy;
o changes in key suppliers' terms and conditions; and
o changes in levels of product development expenditures.
Our expense levels are relatively fixed in the short term and are based, in
part, on our expectations of future revenues. As a result, any delay in
generating or recognizing revenues could cause significant variations in our
operating results from period to period and could result in increased operating
losses.
Our performance largely depends on sales of our Internet-based iChannel services
Our Internet-based iChannel services are substantially dependent on the
sales and market acceptance of those services to generate our operating revenues
and profits. We are in the process of developing the full suite of our iChannel
services and these development efforts may not be successful. We anticipate that
our current service offerings, focused on iChannel services, will continue to
account for a substantial portion of our revenues for the foreseeable future. We
can not be certain that our services will gain the market acceptance that we
expect for a variety of factors, including:
o performance of our services relative to customer expectations;
o functionality of our services relative to competitive offerings; and
o the level of economic benefit delivered by our services.
A decline in the price of or demand for our current and planned iChannel
services, or their failure to gain the market acceptance we expect, would
seriously harm our business, financial condition and results of operations.
If we are not able to enhance and develop new capabilities for our service
offerings on a timely basis, our competitive position and business will likely
suffer
Our current business plan anticipates that significant amounts of future
revenue will be derived from services and product enhancements that either do
not exist today or have not been sold in large enough quantities to ensure
market acceptance. A significant portion of our success will depend on our
ability to design, develop, test, market, sell and support new services and
enhance our current services on a timely basis in response to competitive
products and the evolving demands of our clients. The Internet web services
markets are characterized by rapid technological change. New services developed
by others based on new and existing technologies could render our services
obsolete. We must develop and introduce service enhancements and new services in
a timely and cost-effective manner in response to changing market conditions and
client requirements. The development of new systems is a complex, expensive and
uncertain process requiring technical innovation and the accurate anticipation
of technological and markets trends as well as good management controls over the
cost of developing new services. In addition, enhancements or new services may
fail to meet the requirements of the marketplace or achieve market acceptance.
We may also experience difficulties that could delay or prevent the successful
development and introduction of service enhancements or new services. Our
business will suffer if we fail to develop and introduce new services or service
enhancements, or if our new services and service enhancements fail to achieve
market acceptance and generate revenue. Our financial and technological
resources may not be adequate to develop or market new services successfully or
respond effectively to technological and competitive challenges.
We depend upon a limited number of customers for our current revenues
A substantial amount of our revenue comes from a limited number of
customers. As of December 31, 1999, we had service contracts with 52 clients.
Contracts with individual clients who accounted for more than 10% of our
revenues resulted in approximately 33% of our total revenues in 1998 and 17% of
our total revenues in 1999. Our service contracts generally have service terms
of one to three years, subject in some cases to earlier termination by our
clients upon written notice. We currently depend, and expect to depend in the
foreseeable future, on the retention of the recurring service revenues from
these contracts to finance our operations, to fund a portion of the future
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development of our services and to market our services to new clients. The loss
of one or more major clients would have a negative impact on our business,
financial condition and results of operations.
Our performance will depend on the continued growth and acceptance of the
Internet for commerce
Use of the Internet and of services that we provide is in an early stage of
development. Our success is largely dependent upon acceptance and use of the
unique capabilities of the Internet and private Intranets to deliver our
services. There can be no assurance that commerce over the Internet will
continue to expand. The Internet may not prove to be a viable commercial
marketplace for a number of reasons, including:
o inadequate development of the necessary telecommunications
infrastructure to support growth of the Internet;
o delays in the development of new standards and protocols required to
handle increased internet activity; and
o concerns over data security and integrity for information transmitted
over the Internet.
Inadequate development of telecommunications services to support the
Internet could result in slower response times and adversely affect usage of the
Internet and our services. If use of the Internet does not continue to grow, or
if the Internet infrastructure does not effectively support growth that may
occur, our business, results of operations and financial condition would likely
suffer.
We depend on the continued growth of our client base and the retention of our
clients. If we fail to generate repeat or expanded business from our current and
future clients, our business will be seriously harmed
Our success depends on the continued growth of our client base and the
retention of our clients. We currently depend on a limited number of key, high
profile clients. Our ability to attract new clients will depend on a variety of
factors, including the accuracy, reliability and cost-effectiveness of our
service offerings and our ability to effectively market such services. We cannot
be certain that our current clients will continue at the levels of previous
periods, or that we will be able to do a significant amount of business with new
clients. If we fail to generate repeat and expanded business from our current
and future clients, our business, financial condition and results of operations
would be seriously harmed.
We face intense competition in the markets for our services
We are one of the first companies to market an integrated set of
Internet-based e-commerce solutions for channel dependent companies and their
channel partners. We believe that the market for these services is currently
fragmented and rapidly evolving. We further believe that this market will become
intensely competitive as market acceptance for our services continues to
develop. Many of our potential competitors are larger and have substantially
greater financial, technical, and marketing resources than we do. This could
give them a competitive advantage over us. Also, some competitors and potential
competitors offer a broader line of software and services than we do, which may
affect current and potential clients' purchasing decisions, especially if
clients wish to consolidate their services with a single or limited number of
service providers. Increased competition in these markets could force us to
reduce prices for our services or may result in the introduction of new products
or services superior to our own offerings. If we are not able to compete
successfully, our business and financial results will likely suffer from
increased competition from new and existing competitors. Our future performance
will be dependent upon our ability to remain competitive with respect to the
technical capabilities and economic value of the services we offer.
We plan to increase our participation in international markets, which will
expose us to greater risks associated with international operations
We market and sell our services in the United States and internationally,
and many of our clients are multinational corporations. We intend to expand the
sale of our services in international markets. To date, we have limited
experience in marketing our services internationally. Expansion into
international markets will subject us to inherent risks, including:
o the impact of economic fluctuations in economies outside the United
States;
o greater difficulty in accounts receivable collection and longer
collection periods;
o expenses associated with customizing services for foreign countries;
20
<PAGE>
o difficulties in obtaining adequate geographic and demographic data for
our international service offerings;
o unexpected changes in regulatory requirements, tariffs and other trade
barriers;
o difficulties and costs of staffing and managing foreign operations;
o political and economic instability;
o currency exchange fluctuations;
o potentially adverse tax consequences; and
o reduced protection for intellectual property outside the United
States.
The expansion into international markets will require significant
management attention and financial resources. We cannot assure you that we can
successfully manage the risks involved in expanding our services internationally
or that the acceptance of the Internet and the use of our services will be
similar to our experiences in the United States. If we are unable to expand our
business internationally as planned, our business will likely suffer.
We depend on key personnel, and may be adversely affected if we lose key
personnel or if we fail to attract, retain and integrate highly skilled
technical and marketing personnel in the future
Our success depends largely on the skills, experience and performance of
our management team and key employees, including Michael Johnson, our Chief
Executive Officer. If we were to lose one or more of these key individuals, our
business would likely suffer. We do not carry life insurance on any officer or
key employee. Our future growth and success depends, in large part, upon our
ability to attract, retain and integrate highly skilled technical and marketing
personnel. The competition for technical personnel with the skills that we
require for successful operation of our business is intense. We may be
unsuccessful in our efforts to attract, retain or integrate those personnel in
the future.
We use technology and databases licensed from third-parties. Our business would
likely suffer if this technology and data is not accurate, is not updated on a
timely basis or the terms of these licenses were to substantially change or be
canceled
Our primary services incorporate technology and databases developed and
owned by third-parties. We rely on these third-parties to provide accurate
technology and data, to enhance and update products to meet the changing needs
of our clients and to respond to competitive and technological changes on a
timely basis. If we were to breach our license agreements with these
third-parties or if any of these license agreements were terminated, we would
lose the right to use the licensed software or data. There can be no assurance
that we will be able to replace the functionality provided by the third-party
software or data currently integrated into our services. In addition, if we are
not able to obtain adequate support for third-party software and data or it
becomes incompatible with our software and systems, we would need to redesign
our software and systems or seek comparable replacements. We cannot assure you
that we could successfully redesign our software and systems or that adequate
replacement software or data could be located or developed and integrated into
our systems.
Delivery of our services could be delayed if third-party software incorporated
in our services is no longer available
We integrate third-party software as a component of our services. This
third-party software may not continue to be available to us on commercially
reasonable terms, or at all. If we cannot maintain licenses to key third-party
software, delivery of our products could be delayed until equivalent software
could be developed or licensed and integrated into our products, which could
harm our business and operating results.
We may be susceptible to breaches of database security
A party who is able to circumvent our security measures could
misappropriate proprietary database information or cause interruptions in our
operations. As a result we may be required to expend significant capital and
other resources to protect against such security breaches or to alleviate
problems caused by such breaches, which could harm our business.
21
<PAGE>
We may experience significant interruptions in our services due to failure of
our data centers, which could seriously harm our business
Delivery of our services depends upon our ability to protect our data
centers against damage from fire, earthquakes, power loss, telecommunications
failures and similar events. We carry property insurance in the event of
equipment damage. However, our system safeguards and insurance may not be
adequate to compensate for all losses that may occur from business
interruptions. Our principal web server equipment and operations are housed and
maintained by Qwest Communications at its operations center in Denver, Colorado.
We also recently completed the installation of a redundant operations site
co-located with Verio, which is also located in Denver, Colorado. We may
experience outages due to multiple failures of systems or area-wide natural
disasters that would affect both sites located in Denver. In addition, our
servers may be vulnerable to computer viruses and similar disruptions from
unauthorized tampering with our computer systems.
In order to manage our anticipated growth, we must be able to attract new
personnel and improve our financial and operational systems on a timely basis
Our business plans and strategies assume a rapidly increasing size of the
market for outsourced e-commerce business solutions and our participation in
those markets. This planned growth will require us to make significant
improvements in our financial and operational systems and procedures. Our
business would likely suffer if we are not able to make changes needed to our
systems and procedures that are needed to accommodate our anticipated growth on
a timely basis.
Our planned growth will also require us to attract and train skilled sales,
operations, technical and administrative personnel to successfully sell and
deliver our services as planned. Many of our systems are proprietary and require
a period of training before a new employee can be fully productive. Like many
high technology companies, we face intense competition in attracting personnel
with the skills needed to conduct our business. We cannot be certain that we
will continue to be successful in attracting, training and retaining skilled
personnel needed to successfully expand our business.
Our business relies on our intellectual property. We have a limited ability to
protect our intellectual property rights and could incur substantial costs to
enforce our intellectual property or defending against claims of third- parties
for infringement on their intellectual property rights
Our success is dependent on our ability to protect our intellectual
property rights. We rely on a combination of copyright and trademark law,
non-disclosure agreements and contractual provisions in agreements with our
clients to establish and maintain proprietary rights in our services and other
intellectual property. These measures can afford only limited protection for our
intellectual property, as they do not prevent competitors from independently
developing equivalent or superior technology. Additionally, despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy
aspects of our products or to obtain and use information that we regard as
proprietary. If we do not adequately protect our intellectual property, our
business, financial condition and results of operations will be seriously
harmed. In addition, intellectual property protection may not be available in
other countries where our services are sold.
We believe that our products, trademarks, service marks and other
proprietary rights do not infringe on the intellectual property rights of others
and we know of no claims, existing or threatened, alleging such infringement.
Third-parties may assert infringement claims against us in the future that may
lead to litigation. If we litigated to enforce our rights or to defend against
an infringement claim, it would be expensive, divert management resources and
may not be adequate to protect our business. Additionally, as a result of such
litigation we could be required to pay damages, a license fee or royalties to
obtain intellectual property rights that are needed to continue to sell our
products and services. These royalties or licensing agreements may be
unavailable or may be offered on terms unacceptable to us. Delays or
interruptions in our services that would have a material adverse impact on our
business may occur if we are unable to obtain the necessary licensing or royalty
agreements.
The software and data in our systems used to provide our services might contain
undetected errors that may result in product liability or other claims, which
may seriously harm our business
We use highly complex software and data in the systems that deliver our
services. Our testing procedures are designed to detect material errors in our
data and systems but may not be adequate to detect all errors that may exist in
the software and data in our systems. In the event that an error in our systems
harms our clients or other third-parties, or fails to meet our clients'
22
<PAGE>
expectations, the harm to our reputation may diminish market acceptance for our
services. We may also be exposed to possible litigation or our clients may
withhold payment for our services. We rely on contractual provisions to limit
our liabilities for such claims. However, these provisions may not be adequate
to protect us from all possible claims. We are not currently aware of any such
claims and have had no material claims in since our inception. As a result, we
have not established financial reserves for warranty or other similar claims, as
we have no history upon which to base these reserves, and have no product
liability or other insurance with which to pay these claims. A product liability
or other claim brought against us, even if not successful, would likely be
time-consuming and costly. A product liability or other claim could seriously
harm our business, financial condition and results of operations.
We may not be able to successfully manage our expansion
In order to execute our business plan, we must grow significantly. As of
December 31, 1998, we had a total of 34 employees and as of December 31, 1999,
we had a total of 61 employees. We expect that the number of our employees will
continue to increase for the foreseeable future. This growth has placed, and our
anticipated future growth will continue to place, a significant strain on our
management systems and resources. We expect that we will need to continue to
expand and maintain close coordination among our technical, accounting, finance
and sales and marketing organizations. Our inability to manage growth
effectively could seriously harm our business, financial condition and results
of operations.
Our business could be seriously impacted by the privacy concerns of electronic
commerce users
Some of our services and services under development are designed to capture
demographic, customer preference and profile information each time a customer
visits a web site or volunteers information in response to survey questions.
Privacy concerns may cause visitors to resist providing the personal data
necessary to support this profiling capability. More importantly, even the
perception of privacy concerns, whether valid or not, may indirectly inhibit
market acceptance of our services. In addition, legislative or regulatory
requirements may heighten these concerns if web site users must be notified that
the data captured after visiting web sites may be used by companies to
unilaterally direct product promotion and advertising to that user. We are not
aware of any such legislation or regulatory requirements currently in effect in
the United States. Various other countries and political entities, such as the
European Economic Community, have adopted such legislation or regulatory
requirements. The United States may adopt similar legislation or regulatory
requirements. If customer privacy concerns are not adequately addressed or if
restrictive legislation is adopted in the United States, our business, financial
condition and results of operations could be seriously harmed.
Our business could be adversely affected by the enactment of new laws or
regulations governing the exchange and capture of information and commerce over
the Internet
Our business could be seriously harmed if new legislation or regulations,
or the application or interpretation of existing laws, results in reduced use of
the Internet, changes the usage of our services or otherwise impairs our ability
to provide service to our clients. There is an increasing number of laws and
regulations pertaining to the Internet. In addition, there are a number of
legislative and regulatory proposals by state, local and foreign jurisdictions
that are under consideration, including proposals relating to protection of
information gathered over the Internet and taxation of services provided over
the Internet. Although many of these regulations may not apply to our business
directly, we expect that laws regulating the solicitation, collection or
processing of personal/consumer information could indirectly affect our
business. The Telecommunications Act of 1996 prohibits certain types of
information and content from being transmitted over the Internet. The
prohibition's scope and the liability associated with a Telecommunications Act
violation are currently unsettled. In addition, although substantial portions of
the Communications Decency Act were held to be unconstitutional, we cannot be
certain that similar legislation will not be enacted and upheld in the future.
This type of legislation could possibly expose companies involved in Internet
commerce to liability, which could limit the growth of Internet commerce
generally. Legislation like the Telecommunications Act and the Communications
Decency Act could dampen the growth in web usage and decrease its acceptance as
a communications and commercial medium.
Our common stock is currently quoted on the OTC Bulletin Board and has limited
liquidity
Our common stock is currently traded on the over-the-counter market and is
quoted on the OTC Bulletin Board. This market has often been characterized by
low trading volume, large price fluctuations and limited liquidity for many
issuers. As a result, you may find it more difficult to dispose of, or to obtain
accurate price quotations for, our securities. In addition, it may be more
difficult for us to obtain additional equity financing needed for future
expansion of our operations due to the liquidity concerns of potential
investors.
23
<PAGE>
Our stock is subject to penny stock rules, which may make it more difficult for
you to sell your shares
Our common stock is currently considered a penny stock under regulations of
the Securities and Exchange Commission and is therefore subject to rules that
impose additional sales practice requirements on broker-dealers who sell our
securities. The additional burdens imposed upon broker-dealers by these
requirements could discourage broker-dealers from effecting transactions in our
common stock, which could severely limit the market liquidity of the common
stock and your ability to sell our securities in the secondary market. We are
seeking a listing on The Nasdaq National Market System, which would provide us
with an exemption from the penny stock regulations. However, we cannot assure
you that we will be granted or be able to maintain a listing on The Nasdaq
National Market System, or that this listing will improve the liquidity of our
stock or result in less volatility in the price of our common stock.
Volatility in the price of our common stock may make us the target of securities
litigation, which could adversely affect our business
The price of our common stock has been volatile in the past and may
continue to be volatile in the future due to a variety of factors, many of which
are beyond our ability to control. Factors affecting the trading price of our
common stock include:
o responses to period-to-period variations in our results of operations;
o announcement of new products, services or enhancements by us or our
competitors;
o technological innovation by us or our competitors;
o sales of common stock following the expiration of legal or contractual
sales restrictions;
o general market conditions or market conditions specific to the
internet or software industries; and
o changes in earnings estimates or recommendations by securities
analysts.
Securities class action litigation has often been brought against companies
following periods of volatility in the market price of its securities. We may be
a target of securities litigation in the future, which could result in
substantial costs and diversion of management's attention and resources away
from management of the business.
Our management and principal stockholders exercise significant control over
InfoNow
The officers, directors and principal stockholders own beneficially
approximately 49% of our outstanding common stock. As a result, these
stockholders acting together are able to exercise substantial control over all
matters requiring stockholder approval, including the election of directors and
the approval of significant corporate transactions. This concentration of
ownership may also have the effect of delaying or preventing a change in control
of our company, which could negatively affect our stock price.
We are subject to risks associated with potential acquisitions or investments
In the past, we have had discussions with companies regarding acquiring or
investing in their business, products, services or technology. We do not
currently have any plans to make any acquisitions or investments in other
companies but we may do so in the future. If we make an acquisition or major
investment in another company, we could have difficulty assimilating the
acquired company's operations and personnel. In addition, we could face
difficulties integrating any acquired products, services and technologies into
our operations. These difficulties could disrupt our on-going business, distract
our management, and significantly increase our operating expenses. As a result,
our business and financial condition would likely suffer.
We may not be able to raise additional capital if needed in the future, and any
future equity offering could result in substantial dilution to existing
stockholders
We may need to raise additional funds in the future in order to fund more
aggressive marketing or product development programs or acquire complementary
businesses, technologies or services. Any required additional financing may be
unavailable at terms acceptable to us or may not be available at all. If we
raise additional funds by issuing equity securities, these securities may have
rights senior to existing stockholders and existing stockholders may experience
significant dilution of their ownership interest. If we are unable to obtain
24
<PAGE>
financing when required, we may be unable to fund our expansion, successfully
exploit business opportunities, or adequately respond to competitive pressures
which would likely cause harm to our business. There can be no assurances that
we will be able to obtain additional financing, if necessary, on terms
acceptable to us, or at all.
Substantial sales of our common stock could adversely affect our stock price
The market price of our common stock could decline as a result of sales of
a large number of shares of our common stock or the perception that those sales
could occur in the market. These sales also might make it more difficult for us
to sell equity securities in the future at a time and a price that we deem
appropriate. There are no restrictive sales, or lockup, agreements for shares
held by our officers or principal stockholders.
Item 7. Financial Statements.
- -----------------------------
See pages F-1 through F-15 of this Form 10-KSB.
Item 8. Changes In and Disagreements with Accountants on Accounting Financial
Disclosure.
- -----------------------------------------------------------------------------
On March 23, 2000, we engaged the accounting firm of Deloitte and Touche
LLP ("Deloitte") as our independent accountants to audit our financial
statements beginning with our fiscal year ending December 31, 2000. The
appointment of new independent accountants was approved by our Audit Committee
and Board of Directors. The Company dismissed its former independent
accountants, Hein + Associates, LLP ("Hein"), effective with the appointment of
Deloitte.
Prior to the appointment of Deloitte, we did not consult with Deloitte on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
During the two most recent fiscal years ended December 31, 1999 and 1998,
and the interim period subsequent to December 31, 1999, there were no
disagreements with Hein on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure that would have
caused Hein to make reference in their report to such disagreements.
Hein's reports on the financial statements for the past two years have
contained no adverse opinion or disclaimer of opinion and were not modified as
to audit scope or accounting principles.
We have provided Hein + Associates, LLP with a copy of this disclosure and
requested that Hein furnish a letter addressed to the Securities and Exchange
Commission ("Commission") stating whether it agrees with the above statements.
(A copy of the Hein letter addressed to the Commission is filed as Exhibit 16.1
to this Form 10-KSB.)
25
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(A) of the Exchange Act.
- --------------------------------------------------------------------------------
Incorporated by reference from the portion of the proxy statement entitled
"Proposal 1-Election of Directors."
Item 10. Executive Compensation.
- --------------------------------
Incorporated by reference from the portion of the proxy statement entitled
"Executive Compensation."
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
Incorporated by reference from the portion of the proxy statement entitled
"Security Ownership of Certain Beneficial Owners and Management."
Item 12. Certain Relationships and Related Transactions.
- --------------------------------------------------------
Incorporated by reference from the portion of the proxy statement entitled
"Certain Transactions."
Item 13. Exhibits
- -----------------
(a) Exhibits
Included as exhibits are the items listed on the Exhibit Index. The
Registrant will furnish a copy of any of the exhibits listed below upon
Payment of $5.00 per exhibit to cover the costs to the Registrant of
Furnishing such exhibit.
2.1 Stock Purchase Agreement for Series B Convertible Participating
Preferred Stock between the Company and Putnam Investors dated
December 31, 1999
3.1 Certificate of Incorporation of the Company, as amended (A)
3.1.1 Certificate of Designation, Preferences and Rights of Series B
Convertible Participating Preferred Stock of InfoNow Corporation
3.2 Bylaws of the Company, as amended (B)
4.1 Form of Common Stock certificate for the Company's Common Stock,
$.001 par value per share (B)
4.4 Form of Class C Warrant (C)
4.5 Form of Series B Convertible Preferred Stock Certificate
10.14 InfoNow 1990 Stock Option Plan, as amended and restated January
23, 1998 (D).
10.15 InfoNow 1999 Stock Option Plan (E)
10.29 Employment Agreement between the Company and W. Brad Browning
dated January 9, 1996. (F)
10.30 Employment Agreement between the Company and Kevin D. Andrew
dated March 1, 1996. (F)
10.35 Asset Sale Agreement for sale of assets to Cimarron Dog and Pony
Company, Inc., dated December 11, 1997. (G)
10.36 Employment Agreement between the Company and Michael W. Johnson
dated January 1, 1998. (G)
10.37 Agreement dated October 23, 1997 between the Company and Michael
W. Johnson regarding sale of the Company. (G)
10.38 Letter Agreement between the Company and Michael Basch dated
September 21, 1998. (H)
26
<PAGE>
10.40 Office Lease between Crescent Real Estate Equities Limited
Partnership and InfoNow Corporation dated March 2, 1999.
16.1 Letter of Hein + Associates, LLP dated March 23, 2000
23.1 Consent of Hein + Associates, LLP
27.1 Financial Data Schedule
-------------------------------------------------
(A) Incorporated by reference from the Company's Annual Report filed on
Form 10-KSB for the year ended December 31, 1998.
(B) Incorporated by reference from the Company's Registration Statement
33-43035 on Form S-1 dated February 14, 1992.
(C) Incorporated by reference from the Company's to the Post-Effective
Amendment No. 2 to Registration Statement No. 33-43035 on Form S-1
dated July 13, 1993.
(D) Incorporated by reference from the Company's Proxy Statement filed on
Form 14A for the year ended December 31, 1999.
(E) Incorporated by reference from the Company's Proxy Statement filed on
Form 14A for the year ended December 31, 2000.
(F) Incorporated by reference from the Company's Annual Report filed on
Form 10-K for the year ended December 31, 1995.
(G) Incorporated by reference from the Company's report on Form 8-K dated
January 27, 1997
(H) Incorporated by reference from the Company's Annual Report filed on
Form 10-KSB for the year ended December 31, 1998.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, of March 24, 2000.
INFONOW CORPORATION
By: /s/ Michael W. Johnson, President
-------------------------------------
Michael W. Johnson, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael W. Johnson Chairman, Chief Executive Officer March 24, 2000
- ------------------------- and President
Michael W. Johnson (Principal Executive Officer)
/s/ Kevin D. Andrew Chief Financial Officer, March 24, 2000
- ------------------------- Treasurer and Secretary
Kevin D. Andrew (Principal Financial and
Accounting Officer)
/s/ Stuart Fullinwider Director March 24, 2000
- -------------------------
Stuart Fullinwider
s/ Duane H. Wentworth Director March 24, 2000
- -------------------------
Duane H. Wentworth
/s/ Michael D. Basch Vice President and Director March 24, 2000
- -------------------------
Michael D. Basch
28
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report...............................................F-2
Balance Sheets - December 31, 1999 and 1998................................F-3
Statements of Operations -
For the Years Ended December 31, 1999 and 1998...........................F-4
Statements of Stockholders' Equity -
For the Years Ended December 31, 1999 and 1998...........................F-5
Statements of Cash Flows -
For the Years Ended December 31, 1999 and 1998 ..........................F-6
Notes to Financial Statements..............................................F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
InfoNow Corporation
Denver, Colorado
We have audited the accompanying balance sheets of InfoNow Corporation as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InfoNow Corporation December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ HEIN + ASSOCIATES LLP
- -------------------------
HEIN + ASSOCIATES LLP
Denver, Colorado
February 8, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
INFONOW CORPORATION
BALANCE SHEETS
(U.S. Dollars in Thousands, Except Per Share information)
DECEMBER 31,
----------------
1999 1998
---- ----
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,356 $ 1,303
Restricted cash investments 76 76
Accounts receivable, with no allowance for
doubtful accounts deemed necessary 867 379
Prepaids and other current assets 88 20
-------- --------
Total current assets 6,387 1,778
-------- --------
PROPERTY AND EQUIPMENT, net 1,062 760
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net of
accumulated amortization of $529 and $522
in 1999 and 1998, respectively -- 7
OTHER ASSETS AND DEFERRED CHARGES 30 9
-------- --------
TOTAL ASSETS $ 7,479 $ 2,554
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable - current portion $ 81 $ 103
Accounts payable and accrued expenses 1,172 603
Unearned revenue and prepaid service fees 462 464
-------- --------
Total current liabilities 1,715 1,170
NOTES PAYABLE, net of current portion 38 89
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 1,962,335 shares authorized:
Series B Convertible Preferred Stock, 250,000 and -0-
shares issued and outstanding, respectively, liquidation
preference of $5,000,000 -- --
Common stock, $.001 par value; 15,000,000 shares authorized,
7,189,183 and 6,815,243 issued and outstanding, respectively 7 7
Additional paid-in capital 28,440 23,910
Accumulated deficit (22,721) (22,622)
-------- --------
Total stockholders' equity 5,726 1,295
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,479 $ 2,554
======== ========
See accompanying notes to these consolidated financial statements.
F-3
</TABLE>
<PAGE>
INFONOW CORPORATION
STATEMENTS OF OPERATIONS
(U.S. Dollars in Thousands, Except Per Share information)
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1999 1998
---- ----
REVENUES $ 5,780 $ 2,498
Cost of sales and direct project related costs 2,907 1,579
----------- -----------
GROSS MARGIN 2,873 919
OPERATING EXPENSES:
Selling and marketing 1,687 1,084
Product development 229 175
General and administrative 1,126 821
----------- -----------
Total operating expenses 3,042 2,080
----------- -----------
LOSS FROM OPERATIONS (169) (1,161)
OTHER INCOME (EXPENSE):
Interest income 64 58
Interest expense (16) (14)
Other non-operating income 22 6
----------- -----------
70 50
----------- -----------
NET LOSS (99) (1,111)
IMPUTED PREFERRED STOCK DIVIDENDS (5,000) --
----------- -----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $ (5,099) $ (1,111)
=========== ===========
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (.72) $ (.18)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 7,067,000 6,298,000
=========== ===========
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
INFONOW CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(U.S. Dollars in Thousands, Except Per Share information)
PREFERRED STOCK Common Stock Additional
------------------- --------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1998 -- $ -- 5,364,179 $ 5 $ 21,904 $ (21,511) $ 398
Issuance of common stock in exchange for note -- -- 2,000 -- 1 -- 1
Common shares valued at US $1.75 per share
for cash in March 27, 1998 private
placement, net of financing costs of $19,000 -- -- 450 000 1 769 -- 770
Non-cash charge related to the issuance of
options to purchase common stock issued to
consultants -- -- -- -- 99 -- 99
Common shares issued upon exercise of
warrants and options at prices ranging from
$0.40 to $1.40 per share -- -- 999 064 1 1,137 -- 1,138
Net loss -- -- -- -- -- (1,111) (1,111)
--------- ------- --------- --------- --------- --------- ---------
BALANCES, December 31, 1998 -- -- 6,815,243 7 23,910 (22,622) 1,295
Common shares issued in exchange for
warrants -- -- 100 000 -- -- -- --
Common shares issued in lieu of compensation -- -- 1,000 -- 4 -- 4
Common shares issued upon exercise of
warrants and options at prices ranging from
$0.29 to $2.19 per share -- -- 272 940 -- 251 -- 251
Preferred shares issued at $20.00 per share for
cash on December 31, 1999 private
placement, net of financing costs of $725 250,000 -- -- -- 4,275 -- 4,275
Net loss -- -- -- -- -- (99) (99)
--------- ------- --------- --------- --------- --------- ---------
BALANCES, December 31, 1999 250,000 $ -- 7,189,183 $ 7 $ 28,440 $ (22,721) $ 5,726
========= ======= ========= ========= ========= ========= =========
See accompanying notes to these consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INFONOW CORPORATION
STATEMENTS OF CASH FLOWS
(U.S. Dollars in Thousands)
FOR THE YEARS ENDED
DECEMBER 31,
---------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (99) $(1,111)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 562 537
Allowance for bad debt -- 31
Compensation expense recognized in connection with stock option and
warrant issuances 4 99
Changes in operating assets and liabilities:
Accounts receivable (488) (233)
Other current assets 11 --
Other assets and deferred charges (21) 1
Accounts payable and other liabilities 19 47
Unearned revenues and prepaid service fees (2) 201
------- -------
Net cash used in operating activities (14) (428)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (787) (359)
Data acquisition costs (69) --
Increase in restricted cash -- (76)
------- -------
Net cash used in investing activities (856) (435)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock -- 770
Net proceeds from issuance of preferred stock 4,275 --
Offering costs included in accounts payable 550 --
Proceeds from exercise of options and warrants 251 1,137
Proceeds from notes payable -- 9
Principal payments on debt obligations (153) (75)
------- -------
Net cash provided by financing activities 4,923 1,841
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 4,053 978
CASH AND EQUIVALENTS, beginning of year 1,303 325
------- -------
CASH AND EQUIVALENTS, end of year $ 5,356 $ 1,303
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 15 $ 14
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt incurred for acquisition of equipment $ -- $ 152
======= =======
Debt incurred for insurance premiums $ 79 $ --
======= =======
See accompanying notes to these consolidated financial statements.
F-6
</TABLE>
<PAGE>
INFONOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------------------
Organization and Business Activity - InfoNow Corporation (the "Company")
was incorporated under the laws of the State of Delaware on October 29,
1990, and was initially focused on the sale of software through the use of
encrypted CD-ROM technology. In 1995, the Company fundamentally changed its
business and began delivering its first e-business solutions to
channel-dependent companies and their channel partners. The Company ceased
selling software using encrypted CD-ROM technology in September 1995.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Revenue Recognition - The Company derives revenue by providing
implementation and hosting services to its clients. The Company recognizes
revenue using the percentage-of-completion method on implementation of its
services. For certain projects, the Company invoices for work yet to be
performed. These prebillings, together with cash received prior to
performing services, are reflected as unearned revenue and prepaid service
fees in the accompanying balance sheets. Losses are recognized immediately
if projected direct costs exceed anticipated revenues.
Property and Equipment - Property and equipment are stated at cost.
Replacements, renewals and improvements are capitalized and costs for
repairs and maintenance are expensed as incurred. Depreciation is computed
using the straight-line method over estimated useful lives of three to five
years.
Software Development Costs - In accordance with Statement of Financial
Accounting Standards (SFAS) No. 86, Accounting for the Cost of Computer
Software to be Sold, Leased or Otherwise Marketed, software development
costs, which consist primarily of salaries and related costs, purchased
software, contract labor costs and other direct expenses, are expensed as
product development costs prior to the establishment of technological
feasibility. Technological feasibility for the Company's software products
is generally based upon completion of a working model. After technological
feasibility is established for a product, all software development costs
are capitalized until the product is ready for delivery. Based on the
Company's product development process, cost incurred between completion of
the working model and the point at which the product is ready for delivery
have been insignificant. Subsequent software maintenance costs are expensed
as operating costs as incurred. Amortization of capitalized computer
software cost is provided on a product-by-product basis at the greater of
the amount computed using the ratio of current gross revenues for a product
to the total of current and anticipated future gross revenues or the
straight-line method over the remaining useful economic life of the product
(generally for two years). No costs were capitalized during the years ended
December 31, 1999 and 1998. The Company amortized $7,000 and $138,000 of
these capitalized costs for the years ended December 31, 1999 and 1998,
respectively.
Cash and Equivalents - The Company considers all highly liquid investments
with original maturity dates of three months or less to be cash
equivalents.
F-7
<PAGE>
INFONOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
Net Loss Per Common Share - The loss per share is presented in accordance
with the provisions of SFAS No. 128, Earnings Per Share (EPS). Basic EPS is
calculated by dividing the income or 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. Basic and diluted EPS were the same for 1999 and 1998 because
the Company had losses from operations and therefore, the effect of all
potential common stocks was anti-dilutive.
Options to purchase 3,085,399 shares of common stock, and warrants to
purchase 219,363 shares of common stock were outstanding at December 31,
1999. See Note 5 for a detailed discussion of the options and warrants
issued by the Company.
Stock Compensation Expense - The Company records its stock compensation
expense in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires all companies to adopt a fair value
based method to measure compensation cost of issued stock options and
similar instruments issued using a Black-Scholes model or other comparable
method. The Company has elected an option under SFAS No. 123 that allows a
Company to continue to recognize compensation cost for employees in
accordance with the guidance in APB No. 25 and disclose the pro forma
results of operations as if SFAS No. 123 had been applied to the financial
statements. Transactions in which the Company issues stock options or other
equity instruments to acquire goods or services from non-employees are
accounted for based on the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measurable.
Reclassifications - Certain amounts in the prior year financial statements
have been reclassified to conform with the current year classifications.
Such reclassifications had no effect on net loss.
Comprehensive Loss - SFAS No. 130, Reporting Comprehensive Income, defines
comprehensive income as all changes in stockholders' equity exclusive of
transactions with owners, such as capital investments. Comprehensive income
includes net income or loss, changes in certain assets and liabilities that
are reported directly in equity such as translation adjustments on
investments in foreign subsidiaries, and certain changes in minimum pension
liabilities. The Company's comprehensive loss was equal to its net loss for
the years ended December 31, 1999 and 1998.
2. INCOME TAXES:
-------------
The Company accounts for its tax liabilities in accordance with SFAS No.
109, Accounting for Income Taxes. SFAS No. 109 requires recognition of
deferred tax assets and liabilities for the expected future income tax
consequences of transactions. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse.
Net deferred tax assets are then reduced by a valuation allowance for
amounts which do not satisfy the realization criteria of SFAS No. 109.
F-8
<PAGE>
INFONOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
Because the Company experienced a significant change in control and
substantially changed its business on May 22, 1995 as described in Note 1,
the Company believes that, under current tax regulations, the utilization
of tax loss carryforwards will be limited to loss carryforwards generated
after May 23, 1995, which amount to approximately $4,997,000 as of December
31, 1999.
The significant components of the net deferred tax asset consist of the
following:
December 31,
-----------------
1999 1998
---- ----
(In Thousands)
Net operating loss carryforwards $ 1,849 $ 1,822
Less - valuation allowance (1,849) (1,822)
------- -------
$ -- $ --
======= =======
The benefits of the Company's net operating loss carryforwards as of
December 31, 1999 and 1998, do not satisfy the realization criteria set
forth in SFAS No. 109 and accordingly, the Company has recorded a valuation
allowance for the entire net deferred tax asset. The valuation allowance
increased by $27,000 in 1999 due to the increase in the net operating loss
carryforward.
3. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consist of the following:
December 31,
---------------
1999 1998
---- ----
(In Thousands)
Computer equipment $ 2,038 $ 1,350
Furniture and fixtures 175 92
Computer software and geographic data licenses 351 266
------- -------
2,564 1,708
------- -------
Less accumulated depreciation and amortization (1,502) (948)
------- -------
Property and equipment, net $ 1,062 $ 760
======= =======
F-9
<PAGE>
INFONOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
4. LONG-TERM DEBT:
---------------
Summary of Long-Term Debt
-------------------------
December 31,
--------------
1999 1998
---- ----
(In Thousands)
Term loan payable to a bank, collateralized by all
property and equipment, bearing interest at prime
plus 1.25%. $-- $ 42
Capital lease obligation bearing interest at 15%,
due in monthly installments of $497 to November
1999, collateralized by equipment. -- 5
Capital lease obligation bearing interest at 9.41%,
due in monthly installments of $4,820 to August
2001, collateralized by equipment under the lease. 88 136
Note payable for financing directors and officers
insurance, bearing interest at 6.2%, due in 11 equal
monthly installments, beginning June 1999 until
maturity. 22 --
Note payable to individual bearing interest at 6.0%,
due in six equal monthly installments beginning in
the month following the first quarter in which the
Company reports net income of $100,000 or greater. 9 9
----- -----
119 192
Less current portion (81) (103)
----- -----
Long-term portion $ 38 $ 89
===== =====
Maturities of Long-Term Debt - Future minimum lease payments under capital
leases and annual maturities of other long-term debt at December 31, 1999
are as follows:
Year Ending
December 31, (In Thousands)
------------ --------------
2000 $ 81
2001 38
------
$ 119
======
F-10
<PAGE>
INFONOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
5. STOCKHOLDERS' EQUITY:
---------------------
Preferred Stock - Shares of preferred stock may be issued from time to time
in one or more series, with the rights and powers of each series set by the
Board of Directors. The Company has a total of has a total of 1,962,365
authorized shares of preferred stock.
Series A Preferred Stock. - The Board has designated 213,483 shares as
Series A Convertible Preferred Stock. The Series A Convertible Preferred
Stock is convertible to common stock at the rate of four shares of common
stock for one share of preferred stock. The Series A Convertible Preferred
Stock has a liquidation value of $1.593 per share and the holders have
voting rights on an as-converted basis. No shares of Series A Convertible
Preferred Stock are outstanding.
Series B Preferred Stock - The Board has designated 800,000 shares as
Series B Convertible Participating Preferred Stock (Series B Preferred
Stock). The Series B Preferred Stock shall participate in any dividends
declared on the Company's common stock on an if-converted basis and has
voting rights on an if-converted basis. Upon liquidation, dissolution, or
change in control of the Company, the Series B Preferred Stock has a
liquidation preference equal to the greater of the amount that the holders
would have received if the Series B Preferred Stock had been converted to
common stock, or $20 per share plus unpaid dividends plus a pro rata share
of any remaining assets on an if-converted basis, limited to an amount
equal to twice the original issue price.
The Series B Preferred Stock is convertible at the option of the holder at
any time after issuance at a conversion price of $5.26 per share, subject
to certain anti-dilution provisions. The Series Preferred Stock shall
convert automatically during the first year after issuance if the price of
the Company's common stock has been at least three times the conversion
price for 30 consecutive trading days.
Significant Equity Transactions - On December 31, 1999, the Company
completed a private placement of 250,000 shares of Series B Preferred Stock
for an aggregate purchase price of $5,000,000. The Company incurred
offering costs of $725,000 in connection with this transaction.
The difference between the conversion price and the market price of the
Company's common stock, limited to the amount of the proceeds from issuance
of the preferred stock, is treated as a dividend to the preferred
stockholders. This dividend is recognized over the period from the issuance
date to the date the preferred stock is first convertible. As the Series B
Preferred Stock is convertible immediately, an imputed dividend of
$5,000,000 was recognized for the year ended December 31, 1999.
During 1999, the Company issued 272,940 shares of common stock upon the
exercise of options and warrants. The per share range of $0.29 to $2.19
resulted in gross proceeds to the Company of $251,000.
On March 27, 1998, the Company completed a private placement of 450,000
shares of its common stock at $1.75 per share, which was above the quoted
price of the Company's common stock at the date of the transaction. Total
gross proceeds from the sale of stock were $788,000. The Company served as
its own placement agent, incurring $19,000 in costs.
F-11
<PAGE>
INFONOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
During 1998, the Company issued 999,064 shares of common stock in
conjunction with the exercise of options and warrants. The per-share price
range of $0.40 to $1.40 resulted in gross proceeds to the Company of
$1,138,000.
Stock and Warrant Compensation - The Company applies APB Opinion No. 25 and
related interpretations in accounting for options and warrants issued to
employees. Accordingly, no compensation cost has been recognized for
issuances of options and warrants to employees at exercise prices not less
than the market value of the Company's common stock on the grant dates. Had
compensation cost for the Company's plans been determined consistent with
SFAS No. 123, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
December 31,
---------------
1999 1998
---- ----
(In thousands, except
per share amounts)
Net loss
As reported $ (99) $ (1,111)
Pro forma (3,742) (2,060)
Primary earnings per share
As reported (.72) (.18)
Pro forma (1.23) (.30)
The fair value of each grant was determined using the Black-Scholes option
pricing model with the following assumptions used for grants for 1999 and
1998: (1) risk-free interest rate of 5.01% in 1999 and 5.01% to 5.96% in
1998; (2) no expected dividend yield; (3) expected lives of 5 to 10 years,
and (4) assumed volatility of approximately 216% in 1999 and approximately
216% to 240% in 1998.
Stock Option Plans - The Company has two Stock Option Plans to provide
directors, officers and other key employees options to purchase shares of
the Company's common stock. These are the 1990 Stock Option Plan (the "1990
Plan") and the 1999 Stock Option Plan (the "1999 Plan"). The 1999 Plan was
approved by the Board of Directors on April 12, 1999. On January 23, 1998,
the Board of Directors approved an increase from 1,700,000 to 2,200,000 for
the 1990 Plan and on November 8, 1999 increased the 1999 Plan shares from
600,000 to 1,500,000. Under the terms of the Plans, the Board of Directors
may grant officers and key employees either "non-qualified" or "incentive
stock options" as defined by the Internal Revenue Service code and
regulations and may grant non-qualified options to non-employee directors.
Under the terms of the Plans, the purchase price of the shares subject to
an option will be the fair market value of the Company's common stock on
the date the option is granted. If the grantee owns more than 10% of the
total combined voting power or value of all classes of stock on the date of
grant, the purchase price shall be at least 110% of the fair market value
at the date of grant and the exercise term shall be up to five years from
the date of grant. All other options granted under the 1990 Plan are
exercisable up to 10 years from the date of the grant. Options issued under
the Plan generally vest over a three-year period.
F-12
<PAGE>
INFONOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
A summary of the status of the Company's stock option plan as of December
31, 1999 and 1998 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998
--------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
FIXED OPTIONS
<S> <C> <C> <C> <C>
Outstanding at beginning of year 2,153,553 $ 1.38 1,478,579 $ 1.47
Granted 1,174,389 5.54 856,774 1.16
Exercised (167,940) 1.07 (1,167) 0.79
Forfeited (74,603) 1.02 (180,633) 1.12
---------- ----------
Outstanding at end of year 3,085,399 2.99 2,153,553 1.38
========== ==========
Options exercisable at year-end 2,042,810 1,440,978
Weighted-average fair value of options
granted during the year $ 5.45 $ 1.16
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ----------------------
Weighted
Number Average Weighted Weighted
Range of Outstanding at Remaining Average Number Average
Exercise December 31, Contractual Exercise Exercisable Exercise
Prices 1999 Life Price 1999 Price
------ ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$0.55 to $1.30 347,480 6.4 $ 0.94 275,933 $ 0.93
$1.40 1,025,493 6.8 1.40 922,660 1.40
$1.45 to $1.84 261,635 7.3 1.52 237,454 1.52
$1.88 to $2.56 290,902 18.7 2.05 274,457 2.04
$3.03 to $5.99 1,142,889 3.8 5.47 332,306 5.78
$13.47 17,000 4.0 13.47 -- --
--------- ------ --------- ------
$0.55 to $13.47 3,085,399 6.8 $ 2.99 2,042,810 $ 2.50
========= ====== ========= ======
F-13
</TABLE>
<PAGE>
INFONOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
The Company issued options and warrants to purchase 150,000 shares of the
Company's common stock in lieu of compensation for investor relations and
recruiting services. The Company expensed $99,000 related to the issuance
of these options and warrants during the year ended December 31, 1998 in
accordance with SFAS No. 123.
Stock Warrants - A summary of the status of the Company's warrants as of
December 31, 1999 and 1998 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1999 1998
------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
WARRANTS
<S> <C> <C> <C> <C>
Outstanding at beginning of year 532,863 $ 2.03 2,036,876 $ 4.14
Granted -- -- 105,000 0.69
Exercised (105,000) .69 (997,897) 1.14
Forfeited (208,500) 1.40 (611,116) 10.27
-------- ---------
Outstanding at end of year 219,363 3.27 532,863 2.03
======== =========
Warrants exercisable at year-end 219,363 498,780
Weighted-average fair value of warrants -- $ 0.08
granted during the year
</TABLE>
The following table summarizes information about warrants outstanding and
exercisable at December 31, 1999:
Weighted
Number Average Weighted
Range of Outstanding at Remaining Average
Exercise December 31, Contractual Exercise
Prices 1999 Life Price
------ ---- ---- -----
$ 1.30 8,500 4.4 $1.30
2.63 115,000 0.1 2.63
3.68 8,500 4.8 3.68
4.25 87,363 0.2 4.25
-------- -----
$1.30 to 4.25 $219,363 0.5 $3.26
======== =====
F-14
<PAGE>
INFONOW CORPORATION
NOTES TO FINANCIAL STATEMENTS
6. COMMITMENTS:
------------
Operating Lease Commitments - The Company has non-cancelable leases for its
facilities and certain office equipment. Following is a summary of future
lease commitments at December 31, 1999:
Year Ending
December 31, (In Thousands)
2000 $ 126
2001 115
2002 121
2003 128
2004 66
------
$ 556
======
Rent expense related to operating leases was $96,000 and $84,000 for the
years ended December 31, 1999 and 1998, respectively.
7. CONCENTRATIONS OF CREDIT RISK:
------------------------------
As of December 31, 1999, the Company has current contracts with 52
customers. During the year ended December 31, 1999, the Company received
17% of its revenues from one customer. During the year ended December 31,
1998, the Company received 33% of its revenues from two customers
accounting for 17% and 16% of its revenues in 1998, respectively. The
Company anticipates that revenues per customer will continue to become less
concentrated as additional customers are added to its revenue base and
projected revenues from new installations in 1999 produce revenues for a
full year in 2000.
8. SUBSEQUENT EVENTS:
------------------
In February 2000, the Company entered into a settlement agreement regarding
a disputed payable with a vendor. The vendor released its claim of $150,000
against the Company, and warrants to purchase 115,000 shares of the
Company's common stock at $2.63 per share which had been issued to the
vendor were canceled. The vendor also agreed to provide the Company with
certain software. The Company issued 47,500 shares of common stock to the
vendor.
F-15
INFONOW CORPORATION
STOCK PURCHASE AGREEMENT
SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
-------------------------------
Dated as of December 31, 1999
-------------------------------
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of December 31, 1999,
by and among InfoNow Corporation, a Delaware corporation (the "Company"), and
the purchasers listed on Schedule 2.2 hereto (collectively, the "Purchasers").
WHEREAS, at the First Closing, the Company wishes to sell to certain
investors (the "Initial Purchasers"), and the Initial Purchasers wish to
purchase from the Company, shares of the Company's Series B Convertible
Participating Preferred Stock, par value $0.001 per share (the "Series B
Preferred Stock"), upon the terms and subject to the conditions set forth in
this Agreement (the "First Shares");
WHEREAS, at the Second Closing, the Company wishes to sell to certain
investors (each a "Second Closing Purchaser" and collectively the "Second
Closing Purchasers"), and the Second Closing Purchasers wish to purchase from
the Company, shares of Series B Preferred Stock, upon the terms and subject to
the conditions set forth in this Agreement (the "Second Shares," and together
with the First Shares, the "Shares"); and
WHEREAS, the Company wishes to grant holders of certain warrants
registration rights set forth in Section 9 hereof.
NOW, THEREFORE, in consideration of the mutual terms and conditions herein
contained, and for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
SECTION 1.
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following definitions shall
apply:
"1998 Form 10-KSB" has the meaning set forth in Section 3.1(a).
"Action" means any action, complaint, petition, investigation, suit or
other proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity.
"Affiliate" shall mean any Person who is an "affiliate" (as defined in Rule
12b-2 of the General Rules and Regulations under the Exchange Act) of, and any
Person controlling, controlled by, or under common control with, any Person. For
the purposes of this Agreement, "control" includes the ability to have
investment discretion through contractual means or by operation of law.
"Agreement" means this Agreement as the same may be amended, supplemented
or modified in accordance with the terms hereof.
"Annual Reports" means the Company's Annual Reports on Form 10-KSB for the
years ended December 31, 1998, 1997 and 1996, each as filed with the SEC
(including, in each case, all amendments thereto filed with the SEC prior to the
date of this Agreement, all exhibits and schedules thereto and documents
incorporated by reference therein, but excluding any amendments thereto made
subsequent to the date hereof).
<PAGE>
"Audited Financials" has the meaning set forth in Section 3.7 of this
Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"By-Laws" means the amended and restated by-laws of the Company, as the
same may have been amended and as in effect on the First Closing Date.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock.
"Certificate of Designation" means the amendment to the Certificate of
Incorporation setting forth the designation, number and relative rights,
privileges and restrictions of the Series B Preferred Stock adopted by the Board
of Directors and filed with the Secretary of State of the State of Delaware
before the First Closing Date substantially in the form attached hereto as
Exhibit A.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company, as the same has been amended and as in effect on the First Closing
Date.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $0.001 per share, of the
Company and any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"Condition of the Company" means the assets, business, properties,
operations or financial condition of the Company and the Subsidiaries, taken as
a whole. "Contract" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"Contract" means any agreement, arrangement, bond, commitment, franchise,
indemnity, indenture, instrument, lease, license or understanding, whether or
not in writing.
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
<PAGE>
"Encumbrance" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, restriction
(whether on voting, sale, transfer, disposition or otherwise), whether imposed
by agreement, understanding, law, equity or otherwise, except for any
restrictions on transfer generally arising under any applicable United States
federal or state securities law.
"Environmental Laws" means federal, state and local laws, principles of
common law, regulations and codes, as well as orders, decrees, judgments or
injunctions issued, promulgated, approved or entered thereunder relating to
pollution, protection of the environment or public health and safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended (or any successor statute thereto).
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor statute thereto), and the rules and regulations of the Commission
promulgated thereunder.
"Financials" has the meaning set forth in Section 3.7 of this Agreement.
"First Closing" has the meaning set forth in Section 2.1 of this Agreement.
"First Closing Date" has the meaning set forth in Section 2.1 of this
Agreement.
"First Purchase Price" has the meaning set forth in Section 2.2 of this
Agreement.
"First Shares" has the meaning assigned to such term in the Recitals to
this Agreement.
"GAAP" means generally accepted United States accounting principles in
effect from time to time.
"Governmental Authority" means the government of any federal, state, city,
locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Governmental Entity" means any government or any agency, bureau, board,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government of or within the United States, whether
federal, state or local.
"Initial Purchasers" has the meaning assigned to such term in the Recitals
to this Agreement.
"Knowledge of the Company" means the actual knowledge of the executive
officers of the Company without investigation.
<PAGE>
"Law" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"Licenses" means any certificates, permits, licenses, franchises, consents,
approvals, orders, authorizations and clearances from appropriate Governmental
Authorities.
"Loss" means any action, cost, damage, disbursement, expense, liability,
loss, deficiency, diminution in value, obligation, penalty or settlement of any
kind or nature, whether foreseeable or unforeseeable, including but not limited
to, interest or other carrying costs, penalties, legal, accounting and other
professional fees and expenses incurred in the investigation, collection,
prosecution and defense of claims and amounts paid in settlement, that may be
imposed on or otherwise incurred or suffered by the specified Person.
"Material Adverse Effect" means a circumstance, fact, change, development
or effect (i) that could or could reasonably be expected to have a materially
adverse effect on the properties, results of operations, business, prospects or
condition (financial or otherwise) of the Company taken as a whole or (ii) that
materially adversely affects the ability of the Company to consummate the
transaction contemplated by this Agreement in any material respect or impairs or
delays the ability of the Company to effect the First Closing or the Second
Closing.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"Order" means any decree, injunction, judgment, order, ruling, assessment
or writ of any Governmental Entity.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Purchasers" has the meaning ascribed to such term in the Recitals to this
Agreement.
"Quarterly Reports" means the Company's Quarterly Reports on Form 10-QSB
for the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999,
each as filed with the SEC.
"Requirements of Law" means as to any Person, any law, treaty, rule,
regulation, right, privilege, qualification, license or franchise or
determination of an arbitrator or a court or other Governmental Authority or a
stock exchange, in each case applicable or binding upon such Person or any of
its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to herein.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" means the Annual Reports, the Quarterly Reports and all
other documents required to be filed by the Company with the SEC on or after
January 1, 1998 and prior to the date hereof pursuant to Section 13 or 15(d) of
the Exchange Act (including all exhibits and schedules thereto and documents
incorporated by reference therein), but shall not include any portion of any
document which is not deemed to be filed under applicable SEC rules and
regulations.
<PAGE>
"Second Closing" has the meaning set forth in Section 2.3 of this
Agreement.
"Second Closing Date" has the meaning set forth in Section 2.3 of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended (or any
successor statute thereto), and the rules and regulations of the Commission
promulgated thereunder.
"Subsidiary" means, as of the relevant date of determination, with respect
to any Person, a corporation or other entity of which 50% or more of the voting
power of the outstanding voting equity securities or 50% or more of the
outstanding economic equity interest is held, directly or indirectly, by such
Person. Unless otherwise qualified, or the context otherwise requires, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Company.
"Unaudited Financials" has the meaning set forth in Section 3.7 of this
Agreement.
SECTION 2.
PURCHASE AND SALE OF THE SHARES
-------------------------------
2.1 First Closing. Subject to the terms and conditions of this Agreement,
the closing of the sale and purchase of the First Shares (the "First Closing")
shall take place at the offices of Chrisman, Bynum & Johnson, P.C., 1900
Fifteenth Street, Boulder, Colorado 80302 on the date hereof or on such other
date and time as the Initial Purchasers and the Company may mutually agree (the
"First Closing Date").
2.2 Transactions at the First Closing. At the First Closing, subject to the
terms and conditions of this Agreement the Initial Purchasers severally (and not
jointly) shall purchase and acquire from the Company, and the Company shall
issue and sell to the Initial Purchasers an aggregate of 250,000 shares of
shares of Series B Preferred Stock for an aggregate purchase price of $5,000,000
(the "First Purchase Price"). At the First Closing, the Company shall deliver to
the Initial Purchasers duly executed certificates representing 250,000 shares of
Series B Preferred Stock, registered in the name of the Initial Purchasers or
their nominees, against payment by the Initial Purchasers of the First Purchase
Price payable in respect thereof by wire transfer of immediately available funds
to an account designated in a notice delivered by the Company.
2.3 Second Closing. Subject to the terms and conditions of this Agreement,
the closing of the sale and purchase of the Second Shares (the "Second Closing")
shall take place at the offices of Chrisman, Bynum & Johnson, P.C., 1900
Fifteenth Street, Boulder, Colorado 80302 on January 25, 2000, or on such other
date and at such other time as the Second Closing Purchasers and the Company may
mutually agree (the "Second Closing Date").
2.4 Transactions at the Second Closing. On the Second Closing Date the
Second Closing Purchasers severally (and not jointly) shall purchase and acquire
from the Company, and the Company shall issue and sell to each such Second
Closing Purchaser, such number of shares of Series B Preferred Stock as are set
<PAGE>
forth opposite such Second Closing Purchaser's name on the Schedule 2.2 hereto
for an aggregate purchase price of $11,000,000 (the "Second Purchase Pric ). At
the Second Closing, the Company shall deliver to each Second Closing Purchaser
duly executed certificates representing the number of shares of Series B
Preferred Stock set forth opposite such Second Closing Purchaser's name, each
registered in the name of such Second Closing Purchaser or its nominees, against
payment by each such Second Closing Purchaser of the portion of the Second
Purchase Price payable in respect thereof as set forth opposite such Second
Closing Purchaser's name on Schedule 2.2 hereto by wire transfer of immediately
available funds to an account designated in a notice delivered by the Company
not later than one Business Day prior to the Second Closing Date.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to the Purchasers, as the case
may be (the "Applicable Purchaser"), as follows:
3.1 Corporate Existence and Power.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company has the
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Company's annual report on Form 10-KSB
for the year ended December 31, 1998 (the "1998 Form 10-KSB"). The Company is
duly qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership, leasing or operation of property requires such qualification, other
than any failure to be so qualified or in good standing as would not singly or
in the aggregate with all such other failures reasonably be expected to have a
Material Adverse Effect.
(b) True, correct and complete copies of the Certificate of Incorporation
(other than the Certificate of Designation to be filed pursuant to the terms
hereof) and the By-Laws as in effect on the date hereof have been provided by
the Company to the Purchasers.
3.2 Power and Authority. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement. The execution, delivery and performance by the Company of
this Agreement and the consummation by the Company of the transactions
contemplated hereby have been duly authorized and approved by the Board of
Directors and no further corporate action on the part of the Company (other than
the filing of the Certificate of Designation) is necessary to authorize the
execution, delivery and performance by the Company of this Agreement or the
consummation by the Company of the transactions contemplated hereby. The Board
of Directors has duly adopted the Certificate of Designation and filed it with
the Delaware Secretary of State. This Agreement has been duly executed and
delivered by the Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability (regardless of whether considered in a
proceeding at law or in equity).
<PAGE>
3.3 No Contravention, Conflict, Breach, Etc. The execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not conflict with, contravene or result in
a breach or violation of any of the terms and provisions of, or constitute a
default under, or result in the creation or imposition of any Encumbrance upon
any assets or properties of the Company or any of its Subsidiaries or cause the
Company or any of its Subsidiaries to be required to redeem, repurchase or offer
to repurchase any of their respective indebtedness under (i) the certificate of
incorporation, the by-laws or other organizational document of the Company or
any of its Subsidiaries, (ii) any Law of any Governmental Authority having
jurisdiction over the Company or any of its Subsidiaries or any of their
respective assets, properties or operations or (iii) any indenture, mortgage,
loan agreement, note or other material agreement or instrument for borrowed
money, any guarantee of any agreement or instrument for borrowed money or any
lease, permit, license or other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or to which any of the assets, properties or operations of
the Company or any of its Subsidiaries is subject.
3.4 Consents. Except as set forth on Schedule 3.4, no consent, approval,
authorization, order, registration, filing or qualification of or with any (i)
Governmental Authority, (ii) stock exchange on which the securities of the
Company are traded or (iii) other Person (whether acting in an individual,
fiduciary or other capacity) is required to be made or obtained by the Company
or any of its Subsidiaries for the execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions contemplated
hereby.
3.5 Subsidiaries. Schedule 3.5 sets forth a complete and accurate list of
all of the Subsidiaries of the Company together with their respective
jurisdictions of incorporation or organization. Except for its Subsidiaries, the
Company holds no equity, partnership, joint venture or other interest in any
Person. True and complete copies of the certificate of incorporation, by-laws
and other organizational documents of the Subsidiaries as in effect on the date
hereof have been provided by the Company to the Purchasers. Each Subsidiary of
the Company has been duly incorporated or organized and is validly existing as a
corporation or other legal entity in good standing under the laws of the
jurisdiction of its incorporation or organization, has the corporate or other
organizational power and authority to own, lease and operate its properties and
to conduct its business as currently conducted and is duly qualified to transact
business as a foreign corporation or other legal entity and is in good standing
in each jurisdiction in which the conduct of its business or its ownership,
leasing or operation of property requires such qualification, other than any
failure to be so qualified or in good standing as would not singly or in the
aggregate with all such other failures reasonably be expected to have a Material
Adverse Effect. All of the outstanding capital stock of each Subsidiary of the
Company has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly or through other
Subsidiaries of the Company, free and clear of any Encumbrance, and there are no
rights granted to or in favor of any third party (whether acting in an
individual, fiduciary or other capacity), other than the Company or any
Subsidiary of the Company, to acquire any such capital stock, any additional
capital stock or any other securities of any such Subsidiary. There exists no
restriction, other than those pursuant to applicable law or regulation, on the
payment of cash dividends by any Subsidiary.
<PAGE>
3.6 SEC Documents.
(a) The Company has made available to the Purchasers true and complete
copies of all SEC Documents.
(b) As of its filing date, each SEC Document filed pursuant to the Exchange
Act (i) complied in all material respects with the applicable requirements of
the Exchange Act and (ii) did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(c) All SEC Documents have been filed on a timely basis, and each SEC
Document has included all exhibits, schedules and contracts required to be filed
pursuant to the provisions of the Exchange Act.
3.7 Financial Statements . The audited financial statements and notes
included in the SEC Documents (the "Audited Financials") comply in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC thereunder, were prepared in accordance with GAAP consistently
applied throughout the period involved except as noted therein, and fairly
present in all material respects the financial condition, results of operations,
cash flows and changes in shareholders' equity of the Company and its
Subsidiaries at the dates and for the periods presented. Since September 30,
1999, except as disclosed in the SEC Documents or as disclosed in Schedule 3.7,
the Company has not incurred any material liabilities and there has been no
change, and no development or event involving a prospective change, which has
had or could reasonably be expected to have, a Material Adverse Effect. The
unaudited quarterly consolidated financial statements and the related notes
included in the SEC Documents (the "Unaudited Financials" and together with the
Audited Financials, the "Financials"), fairly present in all material respects
the financial condition, results of operations and cash flows of the Company and
its Subsidiaries at the dates and for the periods to which they relate, subject
to normal year-end adjustments, and have been prepared in accordance with GAAP
applied on a consistent basis except as otherwise stated therein and have been
prepared on a basis consistent with that of the audited financial statements
referred to above subject to normal year-end adjustments except as otherwise
stated therein.
3.8 No Existing Violation, Default, Etc. The Company is not in violation
(i) of any provision of its Certificate of Incorporation, By-Laws or other
organizational documents or (ii) of any applicable Law or regulation, which
violation has or would reasonably be expected to have a Material Adverse Effect.
No breach, event of default or event that, but for the giving of notice or the
lapse of time or both, would constitute an event of default exists under any
Contract to which the Company is a party or by which the Company is bound or to
which any of the properties, assets or operations of the Company is subject,
which breach, event of default, or event that, but for the giving of notice or
the lapse of time or both, would constitute an event of default, has or would
reasonably be expected to have a Material Adverse Effect.
<PAGE>
3.9 Licenses and Permits . Except as set forth in Schedule 3.9, the Company
and its Subsidiaries have such Licenses as are necessary to own, lease or
operate their properties and to conduct their businesses in the manner described
in the SEC Documents and as currently owned or leased and conducted and all such
Licenses are valid and in full force and effect except such Licenses that the
failure to have or to be in full force and effect individually or in the
aggregate have not had, and would not reasonably be expected to have, a Material
Adverse Effect. None of the Company or any of its Subsidiaries has received any
written notice that any violations are being or have been alleged in respect of
any such License and no proceeding is pending or, to the Knowledge of the
Company, threatened, to suspend, revoke or limit any such License the effect of
which would reasonably be expected to have a Material Adverse Effect. The
Company and its Subsidiaries are in compliance with their respective obligations
under such Licenses, with such exceptions as individually or in the aggregate
have not had, and would not reasonably be expected to have, a Material Adverse
Effect, and no event has occurred that allows, or after notice or lapse of time
would allow, revocation, suspension, limitation or termination of such Licenses,
except such events as have not had, or would not reasonably be expected to have,
a Material Adverse Effect.
3.10 Title to Properties . The Company and its Subsidiaries have sufficient
title to all properties (real and personal) owned by the Company and any such
Subsidiary that are necessary for the conduct of the business of the Company and
any such Subsidiary as described in the SEC Documents filed with the SEC prior
to the date of this Agreement and as currently conducted, free and clear of any
Encumbrance that may interfere with the conduct of its business, and all
properties held under lease by the Company and the Subsidiaries are held under
valid, subsisting and enforceable leases, with such exceptions as individually
or in the aggregate have not had, and would not reasonably be expected to have,
a Material Adverse Effect.
3.11 Intellectual Property. There are no material intellectual property
rights or other intangible property rights (other than standard license
agreements and other related rights acquired by the Company or under which the
Company is the licensee in connection with the Company's use of administrative,
ministerial, accounting and financial office automation software and related
products) including, without limitation, (i) trademarks, service marks,
fictitious or assumed names, trade dress, trade names, brand names, Internet
domain names, designs, logos, or corporate names, whether registered or
unregistered, and all registrations and applications for registration thereof;
(ii) copyrights, including all renewals and extensions thereof, copyright
registrations and applications for registration thereof, and non-registered
copyrights; (iii) trade secrets, concepts, ideas, designs, research, processes,
procedures, techniques, methods, know-how, data, mask works, discoveries,
inventions, modifications, extensions, improvements, formulae and other
proprietary rights (whether or not patentable or subject to copyright, mask
work, or trade secret protection); and (iv) computer software programs,
including, without limitation, all source code, object code, and documentation
related thereto, patents, patent applications, and other patent rights
(including any divisions, continuations, continuations-in-part, substitutions,
or reissues thereof, whether or not patents are issued on any such applications
and whether or not any such applications are modified or resubmitted) owned or
licensed by the Company or any of its Subsidiaries ("Intellectual Property")
other than as disclosed in Schedule 3.11. Except as disclosed in Schedule 3.11:
(i) the Company owns or possesses sufficient legal rights to all Intellectual
Property necessary for its business as presently conducted without any known
conflict or infringement of rights of others; (ii) other than those contracts,
agreements, and instruments required to be filed as an exhibit to the 1998 Form
10-KSB, there are no material outstanding options, licenses, or agreements of
any kind relating to the Intellectual Property nor is the Company bound by or a
party to any material options, licenses, or agreements of any kind with respect
<PAGE>
to the intellectual property of any other person or entity; (iii) to the
Knowledge of the Company, the Company has not infringed upon or otherwise
violated the intellectual property rights of any third party; (iv) other than as
set forth on Schedule 3.11, the Company has not received any claim, charge,
demand, notice or other communication alleging that the Company has violated or,
by conducting its business as proposed, would violate any intellectual property
rights of any other person or entity; (v) other than as set forth on Schedule
3.11, the Company is unaware of any facts that would form a reasonable basis for
an action or claim by others alleging infringement by the Company of
Intellectual Property of others; and (vi) all of the Company's Intellectual
Property is owned by the Company, free and clear of all Encumbrances and held in
the Company's name. None of the execution or delivery of this Agreement or the
Certificate of Designation, or the carrying on of the Company's business by the
employees of the Company, will conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant or instrument related to the Company's Intellectual Property or Related
Intellectual Property. The Company has taken all action reasonably necessary and
desirable to maintain and protect each item of Intellectual Property owned by
the Company. Except as set forth on Schedule 3.11, each employee, officer and
director of the Company has executed an agreement regarding inventions and
confidentiality substantially in the form or forms delivered to the Purchasers.
The Company is unaware of uncited prior art that is more pertinent than the art
already of record in the U.S. Patent and Trademark Office in connection with the
patents and patent applications of the Company's Intellectual Property.
3.12 Environmental Matters. The Company and its Subsidiaries and their
operations and properties are and have been in compliance in all respects with
all applicable Environmental Laws, and no expenditures are or, to the Company's
Knowledge, will be required in order to comply with any applicable Environmental
Laws. There is no civil, criminal or administrative judgment, action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding, notice
or demand letter pending or to the Company's Knowledge, threatened against the
Company or any of its Subsidiaries pursuant to Environmental Laws which could
reasonably be expected to result in a material fine, penalty or other
obligation, cost or expense. There are no past or present events, conditions,
circumstances, activities, practices, incidents, agreements, actions or plans
which may prevent compliance by the Company or any of its Subsidiaries with, or
which have given rise to, or, to the Company's Knowledge, will give rise to,
material liability to the Company or any of its Subsidiaries under Environmental
Laws.
3.13 Capitalization. After giving effect to the transactions contemplated
hereby, the authorized capital stock of the Company will consist of 15,000,000
shares of Common Stock, $0.001 par value, and 1,962,335 shares of Preferred
Stock, $0.001 par value, of which 213,483 have been designated Series A
Convertible Preferred Stock and 816,000 shares have been designated Series B
Convertible Participating Preferred Stock. As of the First Closing Date, after
giving effect to the transactions contemplated hereby, the issued and
outstanding capital stock of the Company will consist of 7,189,203 shares of
Common Stock and 250,000 shares of Series B Preferred Stock. As of the Second
Closing Date, after giving effect to the transactions contemplated hereby, the
issued and outstanding capital stock of the Company will consist of 7,189,203
shares of Common Stock (increased by such number of shares as are issued upon
conversion or exercise of options, warrants and other convertible securities,
including Series B Preferred Stock, outstanding on the First Closing Date, and
upon exercise of options granted subsequent to the First Closing Date to
employees pursuant to an employee benefit plan approved by the Company's Board
<PAGE>
of Directors and consistent with the Company's past practice regarding such
option issuances) and 800,000 shares of Series B Preferred Stock (reduced by
such number of shares as are converted into Common Stock). All such shares of
Capital Stock of the Company have been duly authorized and upon payment therefor
as contemplated by this Agreement, all such shares shall be fully paid and
non-assessable. Other than rights granted to the holders of Series B Preferred
Stock pursuant to this Agreement, no class of Capital Stock of the Company is
entitled to preemptive or similar rights. None of the shares of Capital Stock of
the Company issued prior to the date of this Agreement have been issued in
violation of federal or state securities laws. Except as set forth in Schedule
3.13 and pursuant to this Agreement, the Company has not agreed to register any
securities under the Securities Act or under any state securities law or granted
registration rights to any person or entity. The Series B Preferred Stock shall
have the rights and preferences set forth in the Certificate of Designation. The
First Shares to be issued at the First Closing are convertible into 950,570
shares of Common Stock and the Second Shares to be issued at the Second Closing
are convertible into 2,091,254 shares of Common Stock, subject to antidilution
provisions set forth in the Certificate of Designation. Except as set forth in
Schedule 3.13 and except as contemplated by this Agreement, there are no shares
of capital stock of the Company reserved for issuance. Except for the Shares and
as set forth in Schedule 3.13, there are no options, warrants or other rights to
purchase shares of Capital Stock or other securities of the Company or any of
its Subsidiaries, or securities convertible into or exchangeable for shares of
Capital Stock or other securities of the Company or any of its Subsidiaries,
nor, except as required by this Agreement or the Certificate of Designation or
as set forth in Schedule 3.13, is the Company or any Subsidiary obligated in any
manner to issue shares of its Capital Stock or other securities. Except as
contemplated hereby and for relevant state and federal securities laws, there
are no restrictions on the Purchaser's ability to transfer shares of Capital
Stock of the Company.
3.14 Employee Benefits.
(a) Except for the plans described in the SEC Documents filed with the SEC
prior to the date of this Agreement and those listed in Schedule 3.14 (the
"Benefit Plans"), there are no employee benefit plans or arrangements of any
type (including, without limitation, plans described in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended and the regulations
thereunder ("ERISA") under which the Company has or in the future could have
directly, or indirectly through a Commonly Controlled Entity (within the meaning
of Sections 414(b), (c), (m) and (o) of the Code), any material liability with
respect to any current or former employee of the Company or any Commonly
Controlled Entity. No such Benefit Plan is a "multiemployer plan" (within the
meaning of ERISA Section 4001(a)(3)) or subject to Title IV of ERISA and, the
Company has never contributed to, or had any obligation to contribute to, any
such multiemployer plan or any plan subject to Title IV of ERISA.
(b) With respect to each Benefit Plan: (i) such Benefit Plan has been
maintained and administered at all times in material compliance with its terms
and applicable law and regulation; (ii) no event has occurred and to the
Knowledge of the Company, there exists no circumstance under which the Company
could directly, or indirectly through a Commonly Controlled Entity, incur any
material liability under ERISA, the Code or otherwise; (iii) there are no
actions, suits or claims pending or, to the Knowledge of the Company,
<PAGE>
threatened, with respect to any Benefit Plan or against the assets of any
Benefit Plan with respect to which suits management of the Company reasonably
believes the Company could incur any material liability; (iv) all contributions
and premiums due and owing to any Benefit Plan have been made or paid on a
timely basis and no "accumulated funding deficiency," as defined in Code Section
412, has been incurred, whether or not waived; and (v) if such Benefit Plan is
intended to be qualified under Section 401(a) of the Code, such Benefit Plan has
been determined to be so qualified and each trust created under such Benefit
Plan has been determined to be exempt from tax under Section 501(a) of the Code
and to the Knowledge of the Company, no event has occurred since the date of
such determinations, including effective changes in laws or regulations or
modifications to the Benefit Plans, that would adversely affect such
qualification or tax exempt status.
(c) The Company has no Postretirement Benefit Obligation (as defined in
Statement of Financial Accounting Standards No. 106) in respect of
post-retirement health and medical benefits for current and former employees of
the Company. No condition exists that would prevent the Company from amending or
terminating any plan providing health or medical benefits in respect of current
or former employees of the Company.
(d) No employee or former employee of the Company will become entitled to
any bonus, retirement, severance, job security or similar benefit or enhanced
such benefit (including acceleration of vesting or exercise of an incentive
award, stock option or restricted security) as a result of the transactions
contemplated hereby.
(e) All persons classified by the Company as independent contractors
satisfy the requirements of applicable law to be so classified and the Company
has no obligation to provide benefits to any such person under any Benefit Plan.
3.15 Taxes.
(a) The Company and its Subsidiaries have filed or caused to be filed, or
have properly filed extensions for, all material Tax returns that are required
to be filed and have paid or caused to be paid all Taxes as shown on said
returns and on all assessments received by it to the extent that such Taxes have
become due, except Taxes the validity or amount of which is being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves, in accordance with GAAP, have been set aside. The Company and its
Subsidiaries have paid or caused to be paid, or have established reserves for
all Tax liabilities applicable to the Company and its Subsidiaries for all
fiscal years that have not been examined and reported on by the taxing
authorities (or closed by applicable statutes). Schedule 3.15 sets forth the tax
year through which United States Federal income tax returns of the Company and
its Subsidiaries have been examined and closed. For purposes of this Section
3.15, "Tax" or "Taxes" means any federal, state, county, local, foreign and
other taxes (including, without limitation, income, profits, premium, estimated,
excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance,
capital levy, production, transfer, withholding, employment, unemployment
compensation, payroll and property taxes, import duties and other governmental
charges and assessments), whether or not measured in whole or in part by net
income, and including deficiencies, interest, additions to tax or interest, and
penalties with respect thereto, and including expenses associated with
contesting any proposed adjustments related to any of the foregoing.
<PAGE>
(b) Except as set forth on Schedule 3.15, with respect to all Tax Returns
of the Company and any of its Subsidiaries, (i) no audit is in progress and no
extension of time is in force with respect to any date on which any Tax Return
was or is to be filed and no waiver or agreement is in force for the extension
of time for the assessment or payment of any Tax; and (ii) there is no
unassessed deficiency proposed or, to the Company's Knowledge, threatened
against the Company or any of its Subsidiaries.
(c) Except as set forth on Schedule 3.15, neither the Company nor any of
its Subsidiaries has agreed to or is required to make any adjustments under
section 481 of the Code by reason of a change of accounting method or otherwise.
(d) None of the respective assets of the Company or any of its Subsidiaries
is required to be treated as being owned by any Person, other than the Company
or any of its Subsidiaries, pursuant to the "safe harbor" leasing provisions of
Section 168(f)(8) of the Code.
(e) The Company is not a "United States real property holding corporation"
("USRPHC") as that term is defined in Section 897(c)(2) of the Code and the
regulations promulgated thereunder.
3.16 Litigation. Except as set forth in Schedule 3.16 or as previously
disclosed in SEC Documents filed with the SEC prior to the date of this
Agreement, there are no pending actions, suits, proceedings, arbitrations or
investigations, royalty or other audits, complaints, against or affecting the
Company or any of its Subsidiaries or any of their respective properties, assets
or operations, or with respect to which the Company or any such Subsidiary is
responsible by way of indemnity or otherwise (together "Litigation Claims"),
that are required under the Exchange Act to be described in such SEC Documents
or that could singly, or in the aggregate, with all such other Litigation
Claims, reasonably be expected to have a Material Adverse Effect and, to the
Knowledge of the Company, no such Litigation Claims are threatened.
3.17 Labor Relations. Neither the Company nor any of its Subsidiaries is
engaged in any unfair labor practice. Except as disclosed in the SEC Documents
filed with the SEC prior to the date of this Agreement or as set forth on
Schedule 3.17, (a) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending or, to the Knowledge of the
Company, threatened against the Company or any of its Subsidiaries; (b) no
strike, material labor dispute, slowdown or stoppage has occurred within the
past 36 months or is pending or, to the Knowledge of the Company, threatened
against the Company, any of its Subsidiaries or any material supplier of the
Company; (c) neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or contract; and (d) no union organizing
activities are taking place that affect the employees of the Company or any
Subsidiary.
3.18 Receivables. All accounts and notes receivable reflected on the
September 30, 1999 Unaudited Financials, and all accounts and notes receivable
arising subsequent to the September 30, 1999 Unaudited Financials, (i) have
<PAGE>
arisen in the ordinary course of business of the Company or its Subsidiaries and
(ii) subject only to a reserve for bad debts and normal returns, credits,
adjustments and warranty coverage, in each case reflected in the September 30,
1999 Unaudited Financials in accordance with GAAP and consistent with past
practice, have been collected or, subject to the occurrence of unforeseen events
occurring after the date hereof, are collectible in the ordinary course of
business of the Company and its Subsidiaries in the aggregate recorded amounts
thereof in accordance with their terms.
3.19 Investment Company. Neither the Company nor any Person controlling the
Company is, and no such Person after giving effect to the transactions
contemplated hereby will be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
3.20 Insurance. The Company has in full force and effect (i) general
liability and (ii) directors and officers insurance policies, in each case, with
financially sound and responsible insurance companies, with extended coverage,
sufficient in amount (subject to reasonable deductions) in respect of its
properties that might be damaged or destroyed.
3.21 Exemption from Registration; Restrictions on Offer and Sale of Same or
Similar Securities. The offer and sale of the Shares made pursuant to this
Agreement will be exempt from the registration requirements of the Securities
Act. Neither the Company nor any Person acting on its behalf has, in connection
with the off ering of the Shares engaged in (i) any form of general solicitation
or general advertising (as those terms are used within the meaning of Rule
502(c) under the Securities Act), (ii) any action involving a public offering
within the meaning of Section 4(2) of the Securities Act or (iii) any action
that would require the registration under the Securities Act of the offering and
sale of the Shares pursuant to this Agreement or that would violate applicable
state securities or "blue sky" laws. The Company has not made and will not prior
to the Second Closing make, directly or indirectly, any offer or sale of shares
of its Capital Stock, if as a result the offer and sale of the securities
contemplated hereby, or any of them, could fail to be entitled to exemption from
the registration requirements of the Securities Act. As used herein, the terms
"offer" and "sale" have the meanings specified in Section 2(3) of the Securities
Act.
<PAGE>
3.22 Contracts. Schedule 3.22 lists all Contracts to which the Company is a
party and which involve payments to or from the Company in excess of $100,000
per year. Neither the Company nor any of its Subsidiaries nor, to the Knowledge
of the Company, any other party is in breach of or in default under any such
contract except for such breaches and defaults as in the aggregate have not had,
and would not reasonably be expected to, have a Material Adverse Effect.
3.23 No Material Adverse Change. Since October 1, 1999: (a) the Company and
its Subsidiaries have not incurred any material liability or obligation
(indirect, direct or contingent), or entered into any material oral or written
agreement or other transaction, that is not in the ordinary course of business
or that would reasonably be expected to result in a Material Adverse Effect; (b)
the Company and its Subsidiaries have not sustained any loss or interference
with its business or properties from fire, flood, windstorm, accident or other
calamity (whether or not covered by insurance) that has had or that would
reasonably be expected to have a Material Adverse Effect; (c) there has been no
material change in the indebtedness of the Company and its Subsidiaries; (d)
there has been no dividend or distribution of any kind declared, paid or made by
the Company or any of its Subsidiaries on any class of its capital stock; (e)
neither the Company nor any of its Subsidiaries has made (nor does it propose to
make) (i) any change in its accounting methods or practices or (ii) any change
in the depreciation or amortization policies or rates adopted by it, in either
case, except as may be required by law or applicable accounting standards; and
(f) there has been no event causing a Material Adverse Effect, nor any
development that would, singly or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.
3.24 Trade Relations. Except as set forth in Schedule 3.24, there exists no
actual or, to the Company's Knowledge, threatened termination, cancellation or
limitation of, or any adverse modification or change in, the business
relationship of the Company or any of its Subsidiaries with, any customer or any
group of customers whose purchases are individually or in the aggregate material
to the business of the Company or any of its Subsidiaries, or with any material
supplier, and, to the Company's Knowledge, there exists no present condition or
state of fact or circumstances that would materially adversely affect the
Condition of the Company or, to the Company's Knowledge, prevent the Company
from conducting its business after the consummation of the transactions
contemplated by this Agreement, in substantially the same manner in which such
business has heretofore been conducted and described in the SEC Documents.
3.25 Broker's, Finder's or Similar Fees. Other than fees payable to Needham
& Company, Inc. and Boulder Venture Partners, in each case as described in
Schedule 3.25, there are no brokerage commissions, finder's fees or similar fees
or commissions payable by the Company in connection with the transactions
contemplated hereby based on any agreement, arrangement or understanding with
the Company or any of its Subsidiaries or any action taken by any such entity.
3.26 Disclosure; Agreement and Other Documents . This Agreement and each of
the certificates furnished to the Purchasers by the Company in connection with
the purchase and sale of the Shares, taken as a whole, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which they were made, not misleading.
<PAGE>
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
Each Purchaser hereby represents and warrants to the Company as follows:
4.1 Existence and Power. Such Purchaser (a) is duly organized and validly
existing under the laws of the jurisdiction of its formation and (b) has the
requisite power and authority to execute, deliver and perform its obligations
under this Agreement.
4.2 Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of this Agreement and the transactions
contemplated hereby, including, without limitation, the purchase of the Shares,
(a) have been duly authorized by all necessary action and (b) do not contravene
the terms of such Purchaser's organizational documents, or any amendment
thereof.
4.3 Binding Effect. This Agreement has been duly executed and delivered by
such Purchaser and constitutes the legal, valid and binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability (regardless of whether considered in a
proceeding at law or in equity).
4.4 Purchase for Own Account. The Shares to be acquired by such Purchaser
pursuant to this Agreement are being or will be acquired for its own account and
with no intention of distributing or reselling such Shares or any part thereof
in any transaction that would be in violation of the securities laws of the
United States of America, or any state, without prejudice, however, to the
rights of such Purchaser at all times to sell or otherwise dispose of all or any
part of such Shares under an effective registration statement under the
Securities Act, or under an exemption from such registration available under the
Securities Act, and subject, nevertheless, to the disposition of such
Purchaser's property being at all times within its control. If such Purchaser
should in the future decide to dispose of any of the Shares, such Purchaser
understands and agrees that it may do so only in compliance with the Securities
Act and applicable state securities laws, as then in effect. Such Purchaser
agrees to the imprinting, so long as required by law, of a legend on
certificates representing the Shares substantially to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT."
4.5 Accreditation; Sophistication; Other Securities Laws Matters . Such
Purchaser (a) is an "accredited investor" within the meaning of Rule 501 under
the Securities Act; (b) has sufficient knowledge and experience in investing in
companies similar to the Company so as to be able to evaluate the risks and
merits of its investment in the Company and is able financially to bear the
risks thereof; (c) has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management; and (d) is a
resident of the jurisdiction listed below its name on the signature page hereto
for purposes of state "blue sky" securities law purposes.
<PAGE>
4.6 Broker's, Finder's or Similar Fees. There are no brokerage commissions,
finder's fees or similar fees or commissions payable by such Purchaser in
connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with such Purchaser or any action taken by such
Purchaser.
SECTION 5.
CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE
-------------------------------------------------------
The obligation of each Purchaser to pay the First Purchase Price or the
Second Purchase Price, as the case may be, and to perform any obligations
hereunder shall be subject to the satisfaction as determined by, or waiver by,
such Purchaser of the following conditions on or before the First Closing Date
or the Second Closing Date, as the case may be (the "Applicable Closing Date").
5.1 Representations and Warranties. The representations and warranties of
the Company contained in Section 3 hereof shall be true and correct in all
material respects (it being understood that, for purposes of determining the
accuracy of such representations and warranties, all "Material Adverse Effect"
and other materiality qualifications contained in such representations and
warranties shall be disregarded) at and on the Applicable Closing Date as if
made at and on such date, except to the extent that any representation and
warranty expressly speaks as of an earlier date, in which case such
representation and warranty is true and correct as of such date and except for
any activities or transactions which may have taken place after the date hereof
which are contemplated by this Agreement.
5.2 Compliance with this Agreement. The Company shall have performed and
complied in all material respects with all of its agreements and conditions set
forth herein that are required to be performed or complied with by the Company
on or before the Applicable Closing Date.
5.3 Secretary's Certificate. Such Purchaser shall have received a
certificate from the Company, in form and substance reasonably acceptable to
such Purchaser, dated the Applicable Closing Date and signed by a secretary or
an assistant secretary of the Company, certifying (a) that the attached copies
of the Certificate of Incorporation, the By-Laws and resolutions of the Board of
Directors of the Company approving this Agreement and the transactions
contemplated hereby, are all true, complete and correct and remain unamended and
in full force and effect, and (b) as to the incumbency and specimen signature of
each officer of the Company executing this Agreement and any other document
delivered in connection herewith on behalf of the Company.
5.4 Officers' Certificate. Such Purchaser shall have received a certificate
from the Company, in form and substance satisfactory to such Purchaser, dated
the Applicable Closing Date and signed by the Company's chief executive officer
and its treasurer, certifying that (a) the representations and warranties of the
Company contained in Section 3 hereof are true and correct in all material
respects on the Applicable Closing Date and (b) the Company has performed and
complied with in all material respects all of the agreements and conditions set
forth or contemplated herein that are required to be performed or complied with
by the Company on or before the Applicable Closing Date.
<PAGE>
5.5 Documents. Such Purchaser shall have received true, complete and
correct copies of such documents as they may reasonably request in connection
with or relating to the issue and sale of the Shares and the transactions
contemplated hereby, all in form and substance reasonably satisfactory to such
Purchaser.
5.6 Filing of Certificate of Designation. The Certificate of Designation
shall have been duly filed by the Company with the Secretary of State of the
State of Delaware in accordance with the General Corporation Law of the State of
Delaware.
5.7 Opinion of Counsel. Such Purchaser shall have received an opinion of
Chrisman, Bynum & Johnson, P.C., counsel to the Company, dated the Applicable
Closing Date, relating to the transactions contemplated hereby or referred to
herein, substantially in the form attached hereto as Exhibit B.
5.8 Approval of Purchasers. All actions and proceedings hereunder and all
documents required to be delivered by the Company hereunder or in connection
with the consummation of the transactions contemplated hereby, shall have been
acceptable to the Purchasers, in their reasonable judgment as to their form and
substance.
5.9 Shares. At the Applicable Closing, the Company shall have delivered to
each of the Purchasers stock certificates in definitive form representing the
number of Shares set forth opposite such Purchaser's name on Schedule 2.2.
5.10 Consents and Approvals. All consents, exemptions, authorizations, or
other actions by, or notices to, or filings with Governmental Authorities and
other Persons in respect of all Requirements of Law and with respect to those
Contractual Obligations of the Company which are necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the issuance of the Shares and shares of Common Stock issuable upon
conversion of the Shares) by, or enforcement against, the Company of this
Agreement shall have been obtained and be in full force and effect.
5.11 No Litigation. As of the Applicable Closing Date, no action, suit,
proceeding, claim or dispute shall have been brought or otherwise arisen on or
before the Applicable Closing Date, at law, in equity, in arbitration or before
any Governmental Authority against the Company or any of its Subsidiaries which
is reasonably likely to (a) have a Material Adverse Effect on the Condition of
the Company or (b) have an adverse effect on the ability of the Company to
perform its obligations under this Agreement.
5.12 No Judgment or Order. There shall not be on the Applicable Closing
Date any Order of a court of competent jurisdiction or any ruling of any
Governmental Authority or any condition imposed under any Requirement of Law
which would, in the reasonable judgment of the Purchasers, (a) prohibit or
restrict (i) the purchase of the Shares or (ii) the consummation of the
transactions contemplated by this Agreement, (b) subject the Purchasers to any
penalty or other onerous condition under or pursuant to any Requirement of Law
if the Shares were to be purchased hereunder or (c) restrict the operation of
the business of the Company or any of the Subsidiaries as conducted on the date
hereof. 5.13 No Material Adverse Change . From the date hereof until the
Applicable Closing Date, there shall have been no material adverse change in the
Condition of the Company.
<PAGE>
5.14 Lock-up Agreements. The Purchasers shall have received, prior to the
First Closing Date, lock-up agreements in substantially the form attached hereto
as Exhibit C, executed by all executive officers of the Company and by all
members of the Board of Directors of the Company who will continue to serve in
such capacity following the Second Closing.
5.15 Election of Directors. (a) With respect to the closing obligations of
Quantum Industrial Partners LDC and SFM Domestic Investors LLC, the Company
shall have taken all steps necessary to elect a designee of such entities to its
Board of Directors and (b) with respect to the closing obligations of Stolberg,
Meehan & Scano II, L.P., the Company shall have taken all steps necessary to
elect a designee of such entity to its Board of Directors, in each case at or
prior to the Second Closing Date and in accordance with Section 10.1 hereof.
5.16 Completion of Diligence. Such Purchaser shall have completed its
financial, legal and business due diligence to its sole satisfaction.
5.17 Confidentiality Agreement. Prior to the Second Closing, each of
Michael W. Johnson, W. Brad Browning and Kevin Andrew shall have entered into a
confidentiality agreement with the Company similar to that executed by other
employees of the Company.
SECTION 6.
CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE
----------------------------------------------------
The obligations of the Company to issue and sell the Shares and to perform
its other obligations hereunder, shall be subject to the satisfaction as
determined by, or waiver by, the Company of the following conditions on or
before the Applicable Closing Date:
6.1 Representations and Warranties. The representations and warranties of
such Purchaser contained in Section 4 hereof shall be true and correct at and on
the Applicable Closing Date as if made at and on such date, except to the extent
that any representation and warranty expressly speaks as of an earlier date, in
which case such representation and warranty is true and correct as of such date
and except for any activities or transactions which may have taken place after
the date hereof which are contemplated by this Agreement.
6.2 Compliance with this Agreement. Such Purchaser shall have performed and
complied in all material respects with all of its agreements and conditions set
forth herein that are required to be performed or complied with by the
Purchasers on or before the Applicable Closing Date.
6.3 Payment of Purchase Price. At the First Closing and the Second Closing,
as the case may be, the Company shall have received the First Purchase Price and
the Second Purchase Price, as the case may be.
6.4 No Judgment or Order. There shall not be on the Applicable Closing Date
or on the Second Closing Date any Order of a court of competent jurisdiction or
any ruling of any Governmental Authority or any condition imposed under any
Requirement of Law which would, in the reasonable judgment of the Company, (a)
prohibit or restrict (i) the sale of the Shares or (ii) the consummation of the
transactions contemplated by this Agreement or (b) subject the Company to any
penalty or other onerous condition under or pursuant to any Requirement of Law
if the Shares were to be sold hereunder.
<PAGE>
SECTION 7.
AFFIRMATIVE COVENANTS
---------------------
The Company hereby covenants and agrees with the Purchasers with respect to
this Section 7 that, so long as any of the Shares or the Common Stock issuable
upon the conversion thereof are outstanding, except to the extent that a
particular section of this Section 7 provides for an earlier termination, as
follows:
7.1 SEC Filings. From and after the date of this Agreement, the Company
agrees that it will use commercially reasonable efforts to file with the SEC,
within the time periods specified in the SEC's rules and regulations for as long
as they are applicable to the Company, (i) all quarterly and annual financial
information required to be filed with the SEC on Forms 10-QSB and 10-KSB, (ii)
all current reports required to be filed with the SEC on Form 8-K and (iii) any
other information required to be filed with the SEC.
7.2 Reservation of Shares . The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issue or delivery upon conversion of the Shares, as provided in the
Certificate of Designation and the Certificate of Incorporation, the number of
shares of Common Stock that may be issuable or deliverable upon such conversion
or exercise. The Company shall issue such shares of Common Stock in accordance
with the terms of this Agreement, the Certificate of Incorporation, the
Certificate of Designation (in the case of the shares of Common Stock issuable
upon conversion of the Shares), and otherwise comply with the terms hereof and
thereof.
7.3 Registration and Listing 7.4. If and for so long as the shares of
Common Stock are quoted on the Nasdaq or listed on any national securities
exchange, the Company will, if permitted by the rules of such system or
exchange, quote or list and keep quoted or listed on such system or exchange,
upon official notice of issuance, all shares of Common Stock issuable or
deliverable upon conversion of the Shares.
7.4 Director and Officer Liability Insurance . The Company will maintain
director and officer liability insurance which is commercially standard for a
company similarly situated to the Company.
7.5 Tax Matters.
(a) The parties hereto agree and acknowledge that unless otherwise required
in the opinion of outside counsel to the relevant party, as a result of a change
in applicable law, to comply with its obligations under the Code, (i) no party
hereto will take the position that any amount will be includible in income with
respect to the Shares issued pursuant to this Agreement under Section 305 of the
Code and that all parties shall file all Tax Returns accordingly (the "Reporting
Agreement") and (ii) no party shall take any position inconsistent with the
Reporting Agreement upon examination of any Tax Return, in any refund claim, in
any litigation or otherwise.
(b) The Company covenants that it will not become a USRPHC at any time
while Purchasers or any Affiliate of the Purchasers (a "Purchaser Entity") owns
the Shares or any Common Stock of the Company.
<PAGE>
(c) In the event that a Purchaser Entity desires to sell or dispose of any
of the Shares or any Common Stock, and upon demand by Purchaser Entity, the
Company agrees to deliver to Purchaser Entity a letter (the "Letter") which
complies with Sections 1.1445-2(c)(3) and 1.897-2(h) of the treasury regulations
promulgated under the Code (the "Treasury Regulations"), addressed to Purchaser
Entity, stating that the Company is not, and has not been, a USRPHC during the
period equal to the lesser of (i) the period beginning five years prior to the
date of the Letter through the date of the Letter and (ii) the period from the
date of this Agreement through the date of the Letter. The Letter shall be
delivered to the Purchaser Entity one business day prior to the close of any
sale of the Shares or any Common Stock by the Purchaser Entity (the "Delivery
Date"). The Letter shall be dated as of the Delivery Date and signed by a
corporate officer who must verify under penalties of perjury that the statement
is correct to his knowledge and belief pursuant to Section 1.897-2(h) of the
Treasury Regulations.
SECTION 8.
RIGHT OF FIRST REFUSAL
----------------------
8.1 Future Issuance of Shares; Right of First Refusal.
(a) Except for (i) capital stock or options to purchase capital stock of
the Company which may be issued to employees or directors of the Company
pursuant to a stock incentive plan or other employee benefit arrangement
approved by the Board of Directors, (ii) a subdivision of the outstanding shares
of Common Stock into a larger number of shares of Common Stock, (iii) capital
stock issued as full or partial consideration for a merger, acquisition, joint
venture, strategic alliance, license agreement or other similar non-financing
transaction, provided that such issuance is approved by the Company's Board of
Directors (including at least one director designated by the Second Purchasers),
(iv) capital stock issued as full or partial consideration for services,
provided that such issuance is approved by the Company's Board of Directors
(including at least one director designated by the Second Purchasers), (v)
capital stock issued in connection with a firm commitment underwritten publicly
registered offering, (vi) capital stock purchased by any Purchaser in the public
market or from the Company and (vii) capital stock issued upon exercise,
conversion or exchange of the Shares, or of any convertible securities, options
or warrants outstanding as of the date hereof, if the Company wishes to issue
any shares of capital stock or any other securities convertible into or
exchangeable or exercisable for capital stock of the Company (collectively, "New
Securities") to any Person (the "Subject Purchaser"), then the Company shall
send written notice (the "New Issuance Notice") to the holders of the Shares,
which New Issuance Notice shall state (x) the number of New Securities proposed
to be issued and (y) the proposed purchase price per share of the New Securities
that the Company is willing to accept (the "Proposed Price").
(b) Rights of First Refusal; Exercise. For a period of twenty (20) days
after receipt of the New Issuance Notice as provided in Section 8.1(a), each
initial holder of the Series B Preferred Stock and any assignee thereof (each, a
"Rightholder") shall have the right to purchase up to its Proportionate
Percentage (as hereinafter defined) of the New Securities at a purchase price
equal to the Proposed Price and upon the terms and conditions set forth in the
New Issuance Notice. Each Rightholder shall have the right to purchase up to
<PAGE>
that percentage of the New Securities determined by dividing (i) a number equal
to the number of shares of Common Stock into which the shares of Series B
Preferred Stock then owned by such Rightholder are convertible (including for
this purpose the number of shares of Series B Preferred Stock already converted
into Common Stock and shares acquired pursuant to the exercise of the rights
granted under this Section 8) by (ii) the sum of (x) the number of shares of
Common Stock then outstanding and (y) the number of shares of Common Stock into
which all outstanding shares of Preferred Stock are convertible (the
"Proportionate Percentage").
(c) The right of each Rightholder to purchase the New Securities under
subsection (a) above shall be exercisable by delivering written notice of its
exercise, prior to the expiration of the 20-day period referred to in subsection
(b) of this Section 8, to the Company, which notice shall state the amount of
New Securities that the Rightholder elects to purchase as provided in Section
8.1(b). The failure of a Rightholder to respond within the 20-day period shall
be deemed to be a waiver of the Rightholder's rights under Section 8.1(b);
provided that each Rightholder may waive its, his or her rights under Section
8.1(b) prior to the expiration of the 20-day period by giving written notice to
the Company. Each Rightholder shall have a right of over-allotment such that if
any Rightholder fails to exercise its right of first refusal to purchase its
Proportionate Percentage of the Shares, the other Rightholders may purchase the
non-exercising Rightholder's portion on the same proportionate percentage basis
described in the previous sentence.
(d) If, following the expiration of the 20-day period referred to above,
not all of the New Securities have been subscribed for by the Subject
Purchasers, each Rightholder shall have the option to reduce that number of New
Securities it has elected to purchase pursuant to Section 8.1(b) by a
proportionate amount.
(e) Closing. The closing of the purchase of New Securities subscribed for
by the Rightholders under Section 8.1(b) shall be held at the same time and
place as the closing of the New Securities subscribed for by the Subject
Purchasers (the "New Securities Closing"), or if there be no Subject Purchasers,
three (3) Business Days after the 20-day waiting period. At the New Securities
Closing, the Company shall deliver certificates representing the New Securities,
and the New Securities shall be issued free and clear of all liens and the
Company shall so represent and warrant, and further represent and warrant that
the New Securities shall be, upon issuance of the New Securities to the
Rightholders and after payment for the New Securities, duly authorized, validly
issued, fully paid and nonassessable by the Company. At the New Securities
Closing, the Rightholders purchasing the New Securities shall deliver payment in
full in immediately available funds for the New Securities purchased by it, him
or her. At the New Securities Closing, all of the parties to the transaction
shall execute any additional documents that are otherwise necessary or
appropriate.
(f) Sale to Subject Purchaser. The Company may sell to the Subject
Purchaser all of the New Securities not purchased by the Rightholders as
provided in Section 8.1(b) on terms and conditions that are no more favorable to
the Subject Purchaser than those set forth in the New Issuance Notice; provided,
however, that the sale is bona fide and made pursuant to a contract entered into
within three (3) months of the earlier to occur of (i) the waiver by the
Rightholders of their option to purchase the New Securities as provided in
Section 8.1(b) and (ii) the expiration of the 20-day period referred to in
Section 8.1(b). If such sale is not consummated within such four (4) month
period for any reason, then the restrictions provided for in this Section 8.1
shall again become effective, and no issuance and sale of New Securities may be
made thereafter by the Company without again offering the New Securities in
accordance with this Section 8.1. The New Securities Closing of any issue and
purchase contemplated by this Section 8.1(f) shall be held at the time and place
as the parties to the transaction may agree.
<PAGE>
(g) Termination of Rights of First Refusal. The Company's obligations and
the Rightholders' rights pursuant to this Section 8 shall terminate on the
fourth anniversary of this Agreement.
SECTION 9.
REGISTRATION RIGHTS
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9.1 Definitions. For purposes of this Section 9:
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the Common Stock issuable
or issued upon conversion of the Series B Preferred Stock, (ii) any Common Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Series B Preferred Stock or Common Stock and (iii) ) any Common Stock of the
Company issuable upon the exercise of warrants issuable to Needham & Company,
Inc. and Boulder Venture Partners described in Schedule 3.25, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his registration rights under this Section 9 are not assigned or for which
the rights under this Section 9 have terminated pursuant to Section 9.16 hereof;
(c) The number of shares of "Registrable Securities then outstanding" shall
be determined by the number of shares of Common Stock outstanding which are, and
the number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which are exercisable or convertible into, Registrable
Securities;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities;
(e) The term "Form S-3" means such form under the Securities Act as in
effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the SEC in lieu of Form S-3 which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
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9.2 Request for Registration.
(a) If the Company shall receive at any time after six months following the
date of the Second Closing a written request from the Holders of at least
33-1/3% of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of at
least 33-1/3% of the Registrable Securities then outstanding, with anticipated
aggregate proceeds, net of underwriting discounts and commissions, of not less
than $5,000,000), then the Company shall, within ten (10) days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 9.2(b), file as soon as practicable, and in any
event within sixty (60) days of the receipt of such request, a registration
statement under the Securities Act covering all Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of such
notice by the Company in accordance with Section 9.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 9.2 and the Company
shall include such information in the written notice referred to in subsection
9.2(a). In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
9.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 9.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) The Company is obligated to effect only three such registrations
pursuant to this Section 9.2.
(d) Notwithstanding the foregoing, if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 9.2 a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors, by a vote of at least 2/3 of its members, of the
Company it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer such filing for a period of not more than sixty (60) days after
receipt of the request of the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period.
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9.3 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its stock or
other securities under the Securities Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 9.5, the Company shall,
subject to the provisions of Section 9.8, cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be registered.
9.4 Obligations of the Company. Whenever required under this Section 9 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders; provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
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(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 9, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 9, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
(h) Cause all such Registrable Securities registered pursuant hereunder to
be listed on each securities exchange on which similar securities issued by the
Company are then listed.
(i) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.
9.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 9 with
respect to Registrable Securities that the selling Holders shall furnish to the
Company such customary information regarding themselves, the Registrable
Securities held by them, and the intended method of disposition of such
securities as shall be required to effect the registration of such Holders'
Registrable Securities.
9.6 Expenses of Demand Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 9.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (not to exceed $25,000 per
registration) shall be borne by the Company; provided, however, that the Company
shall not be required to pay for any expenses of any registration proceeding
begun pursuant to Section 9.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
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Securities to be registered (in which case all participating Holders shall bear
such expenses), unless the Holders of a majority of the Registrable Securities
agree to forfeit their right to one demand registration pursuant to Section 9.2;
provided further, however, that if at the time of such withdrawal, the Holders
have learned of a material adverse change in the condition, business or
prospects of the Company that was unknown to the Holders at the time of their
request, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to Section 9.2.
9.7 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
9.3 for each Holder, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
(not to exceed $25,000 per registration) selected by them, but excluding
underwriting discounts and commissions relating to Registrable Securities.
9.8 Underwriting Requirements. In connection with any offering involving an
underwriting of shares being issued by the Company, the Company shall not be
required under Section 9.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
believe will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata, first among the Holders and then among
other selling stockholders according to the total amount of securities entitled
to be included therein owned by each selling stockholder or in such other
proportions as shall mutually be agreed to by such selling stockholders) but in
no event shall (a) the amount of securities of the selling Holders included in
the offering be reduced below thirty percent (30%) of the total amount of
securities included in such offering or (b) notwithstanding (a) above, any
shares being sold by a stockholder exercising a demand registration right
similar to that granted in Section 9.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling stockholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and stockholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling stockholder," and any pro rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate amount
of Registrable Securities owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
9.9 Delay of Registration. No Holder shall have any right to obtain or seek
an injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 9.
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9.10 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 9:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers, directors and legal counsel of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state securities law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Company will
reimburse, as incurred, each such Holder, officer, director, legal counsel,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection 9.10(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter, any other Holder
selling securities in such registration statement, any of such Holder's
directors or officers and any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any of the foregoing persons may become subject, under the Securities Act,
the Exchange Act or other federal or state securities law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse, as incurred, any
legal or other expenses reasonably incurred by the Company or any person
intended to be indemnified pursuant to this subsection 9.10(b) in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 9.10(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided, that, in no event shall any indemnity under this subsection 9.10(b)
exceed the proceeds (net of underwriting discounts and commissions) from the
offering received by such Holder.
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(c) Promptly after receipt by an indemnified party under this Section 9.10
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 9.10, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party (together with all other
indemnified parties that may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 9.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
9.10.
(d) If the indemnification provided for in this Section 9.10 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of the Company and Holders under this Section 9.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 9, and otherwise.
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9.11 Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3,
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company and (iii) such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
9.14 Limitations on Subsequent Registration Rights. From and after the date
of this Agreement, the Company shall not, without the prior written consent of
the Holders of a majority of the outstanding Registrable Securities, enter into
any agreement with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder (a) to include such
securities in any registration filed under Section 9.2 or Section 9.3 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not in any manner reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
9.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 9.2 or Section 9.3.
9.15 Amendment of Registration Rights. Any provision of this Section 9 may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of at least 70% of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities at the time outstanding (including securities into which
such Registrable Securities are convertible), each future holder of all such
Registrable Securities, and the Company.
9.16 Termination of Registration Rights. The Company's obligations pursuant
to this Section 9 shall terminate with respect to each Holder severally upon the
earlier to occur of (a) five (5) years from the date of this Agreement or (b)
the date on which a Holder is able to sell all of such Holder's Registrable
Securities under Rule 144 within a single three (3) month period, provided that
no such termination shall occur pursuant to this Section 9.16(b) prior to the
second anniversary of the date of this Agreement.
<PAGE>
SECTION 10.
VOTING RIGHTS
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10.1 Board Membership. The Board of Directors of this Company shall consist
of five (5) members. For so long as the Purchasers maintain beneficial ownership
of at least 25% of the shares of Series B Preferred Stock, (i) each of (A)
Quantum Industrial Partners LDC and SFM Domestic Investors LLC, acting jointly
("Soros Investors"), and (B) Stolberg, Meehan & Scano II, L.P. ("Stolberg")
shall be entitled to nominate one (1) director of the Company at each annual
election of directors or any special meeting called to elect directors and (ii)
a representative of the Initial Purchasers shall be entitled to attend each
meeting of the Company's Board of Directors. The Purchasers agree to vote their
Shares for the nominees of the Soros Investors and Stolberg at any annual
meeting or any special meeting called to elect directors. The holders of Series
B Preferred Stock and Common Stock (voting together as a single class and not as
separate series, and on an as-converted basis) shall be entitled to elect the
three (3) remaining directors of the Company.
In the case of any vacancy in the office of a director nominated by the
Soros Investors or Stolberg, then the Purchasers agree to vote their Shares to
elect a replacement nominated by the Soros Investors or Stolberg, as the case
may be, for the unexpired term. The Purchasers also agree to vote their Shares
for the removal, with or without cause, of a director nominated by the Soros
Investors or Stolberg, as the case may be, upon the request of the nominating
Purchaser. Any future holder of Shares shall be required to become a party to
the voting agreements set forth in this Section 10.1.
10.2 Protective Provisions. In addition to any approvals required by law,
so long as the Purchasers retain through beneficial ownership shares of capital
stock representing, on an as-converted basis, at least 7.5% of the outstanding
shares of Common Stock on an as-converted basis (after giving effect to and
assuming exercise or conversion of all outstanding options, warrants and other
convertible securities, whether or not vested), the Company shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least 70% of the shares of Series B Preferred Stock purchased
under this Agreement or the Common Stock into which such shares are converted:
(a) consummate a merger, consolidation or sale of all or substantially all
of the assets of the Company in which the per share consideration received by
the holders of Series B Preferred Stock is less than three (3) times the
Conversion Price in effect immediately prior to the vote of the stockholders of
the Company to approve such transaction or, if there shall be no such vote, the
date of such transaction;
<PAGE>
(b) repurchase or redeem equity securities or debt (other than redemptions
pursuant to Section 6 of the Certificate of Designation and except to the extent
that such debt is due in accordance with its terms);
(c) authorize or issue any equity securities senior to or pari passu with
the Series B Preferred Stock;
(d) authorize or issue any additional shares of Series B Preferred Stock;
(e) increase or decrease the authorized size of the Company's Board of
Directors;
(f) incur, refinance, guarantee or assume any indebtedness other than in
the ordinary course of business, provided that all indebtedness of the Company
(including drawdowns under existing credit facilities) does not exceed an amount
equal to 10% of the market capitalization of the Company in the aggregate at the
time of incurrence;
(g) create, incur or assume any lien or encumbrance of any kind upon the
assets of the Company, whether now owned or hereafter acquired, other than
existing liens or encumbrances in excess of an amount equal to 10% of the market
capitalization of the Company at the time of the creation, incurrence or
assumption;
(h) engage in transactions with Affiliates other than those approved by the
Compensation Committee of the Company; and
(i) establish any non-wholly owned Subsidiary or sell or transfer any
Subsidiary's stock or cause any Subsidiary to issue any stock to any Person
other than the Company.
For purposes of this subsections (f) and (g) of this Section 10.2, the term
"market capitalization" shall mean the closing price of the Common Stock of the
Company on the principal market or exchange on which the Common Stock is then
traded (or, if there shall be no such market or exchange, the fair market value
of the Common Stock as determined in good faith by the Company's Board of
Directors) on the trading day immediately prior to the time of creation,
incurrence or assumption, multiplied by the number of shares of Common Stock
outstanding as of the close of business on such date (with the shares of Common
Stock issuable upon conversion of the Series B Preferred Stock as of such date
deemed to be outstanding).
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SECTION 11.
INDEMNIFICATION
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Except as otherwise provided in this Section 11, the Company agrees to
indemnify, defend and hold harmless each Purchaser and its Affiliates and their
respective officers, directors, agents, employees, subsidiaries, partners,
members and controlling persons to the fullest extent permitted by law from and
against any and all claims, losses, liabilities, damages, deficiencies,
judgements, assessments, fines, settlements, costs or expenses (including
interest, penalties and reasonable fees, disbursements and other charges of
counsel) (collectively, "Losses") based upon, arising out of or otherwise in
respect of any inaccuracy in or any breach of any surviving representation,
warranty, covenant or agreement of the Company contained in this Agreement.
Notwithstanding the foregoing (i) the Company shall not be liable pursuant to
this Section 11 unless such Losses exceed $350,000 in the aggregate, in which
case the Purchasers may recover from the Company Losses in excess of the first
$200,000, and (ii) the Company's liability pursuant to this Section 11 shall in
no event exceed in the aggregate $10,000,000.
SECTION 12.
TERMINATION OF AGREEMENT
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12.1 Termination. This Agreement may be terminated as follows:
(a) at any time on or prior to the Applicable Closing Date, by mutual
written consent of the Company and the Initial Purchasers or the Second Closing
Purchasers, as the case may be; or
(b) at the election of the Company or the Purchasers by written notice to
the other parties hereto after 5:00 p.m., New York City time on January 25, 2000
if neither the First Closing nor the Second Closing shall have been consummated
pursuant hereto, unless such date is extended by the mutual written consent of
the Company, the Initial Purchasers and the Second Purchasers; or
(c) at the election of the Company, if any one or more of the conditions to
its obligation to close set forth in Section 6 has not been satisfied or waived
and the First Closing or the Second Closing, as the case may be, shall not have
occurred on the scheduled Applicable Closing Date; or
(d) at the election of the Initial Purchasers, if any one or more of the
conditions to its obligation to close set forth in Section 5 has not been
satisfied or waived and the First Closing, shall not have occurred on the
scheduled First Closing Date, and at the election of the Second Purchasers, if
any one or more of the conditions to its obligation to close set forth in
Section 5 has not been satisfied or waived and the Second Closing shall not have
occurred on the scheduled Second Closing Date; or
(e) at the election of the Company if there has been a material breach of
any representation, warranty, covenant or agreement of the Initial Purchasers or
the Second Purchasers, as the case may be, contained in this Agreement, which
breach is incurable or has not been cured by such Purchaser within 10 days after
written notice from the Company; or
<PAGE>
(f) at the election of the Initial Purchasers or the Second Purchasers, as
the case may be, if there has been prior to (i) the First Closing Date, in the
case of the Initial Purchasers, or (ii) the Second Closing Date, in the case of
the Second Purchasers, a material breach by the Company of any representation,
warranty, covenant or agreement of the Company contained in this Agreement,
which breach is incurable or has not been cured by the Company within 10 days
after written notice from the Initial Purchasers or the Second Purchasers, as
applicable.
Notwithstanding anything to the contrary in this Section, the Initial
Purchasers shall have a right at the time set forth below to rescind this
Agreement and to receive, in exchange for the shares of Series B Preferred Stock
purchased at the Initial Closing, an amount equal to (i) the First Purchase
Price minus (ii) any amounts paid by the Company as reimbursement for fees
incurred by counsel to the Initial Purchasers pursuant to Section 13.11 if the
Company is unwilling or unable, solely as a consequence of its own actions or as
a result of an event having a Material Adverse Effect on its business, to effect
the Second Closing. The Initial Purchasers may exercise this right: (x) at any
time prior to January 31, 2000 if the Second Closing is scheduled to occur on
January 25, 2000; (y) if the Second Closing is postponed, within five days of
the rescheduled closing; or (z) on February 15, 2000 if the Second Closing has
not occurred by then.
12.2 Survival. If this Agreement is terminated and the transactions
contemplated hereby are not consummated as described above, this Agreement shall
become void and of no further force and effect; provided, however, that (i) a
breaching party shall be liable to the non-breaching party for damages caused by
such breach; (ii) none of the parties hereto shall have any liability in respect
of a termination of this Agreement pursuant to Section 12.1(a) or Section 12.1(b
and provided further, that none of the parties hereto shall have any liability
for speculative, special, consequential, incidental or unforeseeable damages
resulting from a termination of this Agreement.
SECTION 13.
MISCELLANEOUS
-------------
13.1 Survival of Representations, Warranties and Covenants. The
representations and warranties, covenants and agreements contained herein shall
survive until April 30, 2001.
13.2 Notices. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service, overnight mail or personal delivery:
(i) if to a Purchaser, to the address set forth below such Purchaser's
signature on the signature page hereof.
(ii) if to the Company:
InfoNow Corporation
1875 Lawrence Street, Suite 1100
Denver, Colorado 80202
Attention: Chief Executive Officer
Telecopy: (303) 293-0213
with a copy to:
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
Attention: David J. Cook, Esq.
Telecopy: (303) 449-5426
<PAGE>
All such notices and communications shall be deemed to have been duly given
when delivered by hand, if personally delivered; when delivered by courier or
overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied.
13.3 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of the parties hereto.
Subject to applicable securities laws, each of the Initial Purchasers and Second
Closing Purchasers may assign any of its rights under this Agreement to any of
its Affiliates but any such assignment shall not relieve any Initial Purchaser
or Second Closing Purchaser from its obligations hereunder. The Company may not
assign any of its rights under this Agreement, except to a successor-in-interest
to the Company, without the written consent of all of the Purchasers.
13.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the Purchasers in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by the Company or the Purchasers from the terms of any
provision of this Agreement, shall be effective only (i) if it is made or given
in writing, (ii) in the specific instance and for the specific purpose for which
made or given and (iii) prior to the second anniversary of the Second Closing,
by agreement of each Purchaser which retains beneficial ownership of at least
80% of the shares of Series B Preferred Stock purchased under this Agreement or
the Common Stock into which such shares are converted and between the second and
fifth anniversary of the Second Closing, by agreement of each Purchaser which
retains beneficial ownership of at least 50% of the shares of Series B Preferred
Stock purchased under this Agreement or the Common Stock into which such shares
are converted; provided that for purposes of calculating the ownership
percentage, the equity interests of the Soros Investors are aggregated and the
equity interests of the Putnam OTC and Emerging Growth Fund and Putnam Emerging
Information Sciences Trust are aggregated. Except where notice is specifically
required by this Agreement, no notice to or demand on the Company in any case
shall entitle the Company to any other or further notice or demand in similar or
other circumstances.
13.5 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
13.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
13.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
<PAGE>
13.8 Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
13.9 Rules of Construction. Unless the context otherwise requires, "or" is
not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement.
13.10 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of, and supercedes all prior
agreements relating to, the subject matter contained herein and therein. There
are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein or therein.
13.11 Fees. Upon the First Closing, the Company shall pay directly or
reimburse the Initial Purchasers for reasonable attorney's fee incurred in
connection with the transactions contemplated by this Agreement. Upon the Second
Closing, the Company shall pay directly or reimburse the Purchasers for their
reasonable out-of-pocket expenses (including attorney's fees (other than those
paid pursuant to the immediately preceding sentence), disbursements and other
charges) incurred in connection with the transactions contemplated by this
Agreement; provided, however, that the Company shall not be obligated to
reimburse the Purchasers for any reasonable out-of-pocket expenses in excess of
$75,000 in the aggregate.
13.12 Publicity; Confidentiality.
(a) Except as may be required by applicable law or the rules of any
securities exchange or market on which shares of Common Stock are traded, none
of the parties hereto shall issue a publicity release or public announcement or
otherwise make any disclosure concerning this Agreement, the transactions
contemplated hereby or the business and financial affairs of the Company,
without prior approval by the other parties hereto; provided, however, that
nothing in this Agreement shall restrict any Purchaser or the Company from
disclosing information (i) that is already publicly available, (ii) that was
known to such Purchaser or the Company on a non-confidential basis prior to its
disclosure by the Company or such Purchaser, as the case may be, (iii) that may
be required or appropriate in response to any summons or subpoena or in
connection with any litigation, provided that such Purchaser or the Company, as
the case may be, will use reasonable efforts to notify the Company or the
Purchaser, as the case may be, in advance of such disclosure so as to permit the
Company or the Purchaser, as the case may be, to seek a protective order or
otherwise contest such disclosure, and such Purchaser or the Company, as the
case may be, will use reasonable efforts to cooperate, at the expense of the
Company, with the Company or the Purchaser, as the case may be, in pursuing any
such protective order, (iv) to the extent that such Purchaser or the Company, as
the case may be, reasonably believes it appropriate in order to protect its
investment in the Shares in order to comply with any Requirement of Law, (v) to
such Purchaser's or the Company's, as the case may be, officers, directors,
agents, employees, members, partners, controlling persons, auditors or counsel,
(vi) to Persons who are parties to similar confidentiality agreements or (vii)
to a prospective transferee who executes a confidentiality agreement in
connection with any contemplated transfer of any of the Shares. If any
announcement is required by law or the rules of any securities exchange or
market on which shares of Common Stock are traded to be made by any party
hereto, prior to making such announcement such party will, to the extent
practicable, deliver a draft of such announcement to the other parties and shall
give the other parties reasonable opportunity to comment thereon.
<PAGE>
(b) Unless substantially in the form previously disclosed, the Purchasers
shall have the opportunity to review and reasonably modify any provision of any
public announcement or document which is to be released to the public or filed
with the SEC, which provision mentions the Purchasers or any of their
Affiliates, prior to the release of such document to the public or the filing of
such document with the SEC.
13.13 Further Assurances. Each of the parties shall execute such documents
and perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations or other actions by, or giving any notices
to, or making any filings with, any Governmental Authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Agreement.
13.14 Schedules. Anything disclosed on any schedule attached hereto or
otherwise disclosed in writing to the Purchasers shall be deemed disclosed on
all schedules attached hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
INFONOW CORPORATION
By:
Name: Michael W. Johnson
Title: President and Chief Executive Officer
<PAGE>
INFONOW CORPORATION
STOCK PURCHASE AGREEMENT
PURCHASERS' COUNTERPART SIGNATURE PAGE
QUANTUM INDUSTRIAL PARTNERS LDC
By:
Name:
Its:
Address:
SFM DOMESTIC INVESTORS LLC
By:
Name:
Its:
Address:
<PAGE>
INFONOW CORPORATION
STOCK PURCHASE AGREEMENT
PURCHASERS' COUNTERPART SIGNATURE PAGE
PUTNAM OTC AND EMERGING GROWTH FUND
By:
Name:
Its:
Address:
PUTNAM EMERGING INFORMATION SCIENCES TRUST
By:
Name:
Its:
Address:
<PAGE>
INFONOW CORPORATION
STOCK PURCHASE AGREEMENT
PURCHASERS' COUNTERPART SIGNATURE PAGE
STOLBERG, MEEHAN & SCANO II, L.P.
By:
Name:
Its:
Address:
<PAGE>
INFONOW CORPORATION
STOCK PURCHASE AGREEMENT
COUNTERPART SIGNATURE PAGE
(FOR PURPOSES OF SECTION 9 ONLY)
NEEDHAM & COMPANY, INC.
By:
Name:
Its:
Address:
<PAGE>
INFONOW CORPORATION
STOCK PURCHASE AGREEMENT
COUNTERPART SIGNATURE PAGE
(FOR PURPOSES OF SECTION 9 ONLY)
BOULDER VENTURE PARTNERS
By:
Name:
Its:
Address:
<PAGE>
<TABLE>
<CAPTION>
Schedule 2.2
SHARES AND PURCHASE PRICE
Shares of Series B Shares of Series B
Preferred Stock Purchased Preferred Stock Purchased Aggregate
Purchaser at the First Closing at the Second Closing Purchase Price
--------- -------------------- --------------------- --------------
<S> <C> <C> <C>
Quantum Industrial Partners LDC -- ** **
SFM Domestic Investors LLC -- ** **
Putnam OTC and Emerging Growth Fund 200,000 -- $4,000,000
Putnam Emerging Information Sciences Trust 50,000 -- $1,000,000
Stolberg, Meehan & Scano II, L.P. -- 200,000 $4,000,000
Total 250,000 550,000 $16,000,000
</TABLE>
** The allocation of shares purchased and the aggregate purchase price shall
be determined prior to the Second Closing Date, provided that Quantum
Industrial Partners LDC and SFM Domestic Investors LLC shall in the
aggregate purchase 350,000 shares of Series B Preferred Stock for
$7,000,000.
Exhibit 3.1.1
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
INFONOW CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
I, Kevin D. Andrew, Vice President, Chief Financial Officer, Secretary and
Treasurer of InfoNow Corporation, a corporation organized and existing under the
laws of the State of Delaware, DO HEREBY CERTIFY:
1. That no shares of the Series B Convertible Participating Preferred Stock
(herein, "Series B Preferred Stock") of this corporation have been issued.
2. That, pursuant to the authority conferred on the Board of Directors by
the Certificate of Incorporation of this corporation, as amended, the Board of
Directors on December ___, 1999 adopted the following resolutions which set
forth the terms of a series of preferred stock designated as Series B Preferred
Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this corporation by Article IV of the Certificate of Incorporation, a series
of preferred stock is hereby designated as "Series B Convertible Participating
Preferred Stock" of this corporation and that the designation and amount thereof
and the relative powers, rights, preferences and limitations of the shares of
such series are as follows:
B. Rights Preferences and Restrictions of the Preferred Stock. The
Series B Preferred Stock shall consist of 800,000 shares. The Series B
Preferred Stock shall have the voting power, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, as follows:
1. Dividend Provisions.
The holders of the Series B Preferred Stock shall be entitled to receive
dividends, out of funds legally available therefor, when and if declared by the
Board of Directors of this corporation.
In the event that a dividend is declared on the Common Stock, out of funds
legally available therefor, the holders of the Series B Preferred Stock shall be
entitled to receive dividends on such shares of Series B Preferred Stock equal
to that amount in dividends that would be paid to such holders if all shares of
Series B Preferred Stock were converted into shares of Common Stock at the
applicable Conversion Price (as defined in Section 3 below) on the record date
set for such dividend.
Dividends, if declared on any series of Preferred Stock, must be
declared and paid with respect to all series of Preferred Stock,
contemporaneously, in proportion to the number of shares of Common Stock which
would be held by each such holder if all shares of each series of Preferred
Stock were converted into shares of Common Stock at the applicable Conversion
Price (as defined in Section 3 below) on the record date set for such dividend.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, the holders of Series B
Preferred Stock shall be entitled to receive the greater of:
(i) an aggregate amount equal to what such holders would have received
had they exercised the Conversion Rights before the liquidation,
dissolution or winding up of this corporation, or:
(ii) an aggregate amount equal to the following:
(A) Prior and in preference to any distribution of any of the assets
of this corporation to the holders of Common Stock or other junior
equity security by reason of their ownership thereof, an amount equal
to the sum of (x) $20.00 per share (as adjusted for stock splits,
dividends, recapitalizations and the like) and (y) an amount equal to
all accrued but unpaid dividends on such share (the "Original Series B
Issue Price"), plus (B) after the distributions described in
subparagraph (A) above have been paid, the remaining assets of this
corporation available for distribution to stockholders shall be
distributed, subject to the rights of series of Preferred Stock which
may from time to time come into existence, among the holders of Series
B Preferred Stock and Common Stock pro rata based on the number of
shares of Common Stock held by each (assuming conversion of all such
Preferred Stock) until, with respect to the holders of the Series B
Convertible Preferred Stock, such holders shall have received an
aggregate amount equal to two (2) times the Original Series B Issue
Price (including amounts paid pursuant to subparagraph (A) of this
subsection (ii). Thereafter, any assets available for distribution
shall be distributed to the holders of the Common Stock of this
corporation pro rata in proportion to the number of shares of Common
Stock held by each.
(b) If upon the occurrence of any liquidation, dissolution or winding
up, the assets and funds thus distributed among the holders of such Series
B Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then, subject to the
rights of series of Preferred Stock which may from time to time come into
existence, the entire assets and funds of this corporation legally
available for distribution shall be distributed ratably among the holders
of Series B Preferred Stock in proportion to the product of the liquidation
preference of each such share and the number of shares held by each such
holder.
(c) (i) A consolidation or merger of this corporation with or into any
other corporation or corporations pursuant to which the stockholders of
this corporation prior to the merger or similar transaction shall own less
than fifty percent (50%) of the voting securities of the surviving
corporation, (ii) a sale, conveyance or disposition of all or substantially
all of the assets of this corporation, or (iii) the effectuation by this
-2-
<PAGE>
corporation of a transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of this corporation is
disposed of (other than the sale of Preferred Stock approved as required by
Section 5 hereof), shall be deemed to be a liquidation, dissolution or
winding up within the meaning of this Section 2 and shall entitle the
holders of Preferred Stock and Common Stock to receive at the closing in
cash, securities or other property (valued as provided in subsection 2(d)
below) amounts as specified in subsection 2(a) above.
(d) Whenever the distribution provided for in this Section 2 shall be
payable in securities or property other than cash, the value of such
distribution shall be determined as follows:
(i) Any securities to be delivered to the holders of Preferred Stock
and Common Stock pursuant to this Section 2 shall be valued as follows:
(A) Securities not subject to investment letter or other similar
restrictions on free marketability:
(1) If traded on a securities exchange or through The Nasdaq
Stock Market ("Nasdaq"), the value shall be deemed to be the average
of the closing prices of the securities on such exchange or system
over the 30-day period ending three days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (as
applicable) over the 30-day period ending three days prior to the
closing; and
(3) If there is no active public market, the value shall be the
fair market value thereof, as determined in good faith by the Board of
Directors of this corporation.
(B) The method of valuation of securities subject to investment letter
or other restrictions on free marketability (other than restrictions
arising solely by virtue of a stockholder's status as an affiliate or
former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A)(1), (2) or (3) to reflect the approximate
fair market value thereof, as determined in good faith by the Board of
Directors of this corporation.
(ii) The fair market value of any other property distributable to
stockholders pursuant to this Section 2 shall be as determined in good
faith by the Board of Directors of this corporation.
(e) In the event the requirements of subsections 2(b) and 2(c) are not
complied with, this corporation shall forthwith either:
-3-
<PAGE>
(i) cause such closing to be postponed until such time as the
requirements of this Section 2 have been complied with, or
(ii) cancel such transaction, in which event the rights, preferences
and privileges of the holders of the Preferred Stock shall revert to and be
the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 2(f)
hereof.
(f) This corporation shall give each holder of record of Preferred
Stock written notice of any impending event designated in subsection 2(b)
above not later than twenty (20) days prior to the stockholders' meeting
called to approve such transaction, or twenty (20) days prior to the
closing of such transaction, whichever is earlier, and shall also notify
such holders in writing of the final approval of such transaction. The
transaction shall in no event take place sooner than twenty (20) days after
this corporation has given the notice provided for herein; provided,
however, that such period may be shortened upon the written consent of the
holders of Preferred Stock which is entitled to such notice rights or
similar notice rights and which represents at least 70% of the voting power
of all then outstanding shares of such Preferred Stock.
(g) The provisions of subsection 2(f) are in addition to the
protective provisions of Section 5 hereof.
3. Conversion. The holders of Series B Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of this corporation or any
transfer agent for the Series B Preferred Stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
the Original Series B Issue Price by the Conversion Price at the time in
effect for the Series B Preferred Stock. The initial Conversion Price per
share for shares of Series B Preferred Stock shall be $5.26; provided,
however, that the Conversion Price for shares of Series B Preferred Stock
shall be subject to adjustment as set forth in subsection (d) below.
(b) Automatic Conversion. Upon the date on which the last sale price
of the Common Stock on Nasdaq or, if not quoted on Nasdaq, on the New York
Stock Exchange or any other national securities exchange, has been at least
three (3) times the Conversion Price for 30 consecutive trading days, each
outstanding share of Series B Preferred Stock shall automatically, with no
further action required to be taken by this corporation or the holder
thereof, be converted into such number of fully paid and nonassessable
shares of Common Stock as is obtained by dividing, for each such share
being converted, the Original Series B Issue Price (plus any accrued but
unpaid dividends thereon) by the Conversion Price then in effect; provided,
however, that no such automatic conversion shall take place prior to the
first anniversary of the date of issuance of such share. Immediately
thereafter, each holder of Series B Preferred Stock shall be deemed to be
-4-
<PAGE>
the holder of record of the Common Stock issuable upon conversion of such
holder's Series B Preferred Stock notwithstanding that the share register
of this corporation shall then be closed or that certificates representing
such Common Stock shall not then be actually delivered to such person. Upon
notice from this corporation, each holder of Series B Preferred Stock so
converted shall promptly surrender to this corporation, at any place where
this corporation shall maintain a transfer agent for its Series B Preferred
Stock and Common Stock, certificates representing the shares so converted,
duly endorsed in blank or accompanied by proper instruments of transfer. On
the date of such automatic conversion, all rights with respect to the
shares of Series B Preferred Stock so converted, including the rights, if
any, to receive notices and to vote, will terminate, except only the rights
of holders thereof to (x) receive certificates for the number of shares of
Common Stock into which such shares of Series B Preferred Stock have been
converted, and (y) exercise the rights to which they are entitled as
holders of Common Stock.
(c) Mechanics of Conversion. To effect conversion of shares of Series
B Preferred Stock pursuant to Section 3(a), a holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of this
corporation or of any transfer agent for the Series B Preferred Stock, and
shall give written notice by mail, postage prepaid, to this corporation at
its principal corporate office, of the election to convert the same and
shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office
to such holder of the Series B Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of the Series
B Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date.
(d) Conversion Price Adjustments of the Series B Preferred Stock. The
Conversion Price of the Series B Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) (A) If this corporation shall issue any Additional Stock (as
defined below) without consideration or for a consideration per share less
than $5.26, the new Conversion Price of the Series B Preferred Stock shall
be determined by multiplying the Conversion Price for the Series B
Preferred Stock in effect immediately prior to the issuance of Additional
Stock by a fraction:
(x) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance (for
purposes of this calculation only, including the number of shares of
Common Stock then issuable upon the conversion of all outstanding
-5-
<PAGE>
shares of Preferred Stock at the Conversion Price for such shares in
effect immediately prior to such issuance of Additional Stock) plus
the number of shares of Common Stock equivalents which the aggregate
consideration received by this corporation for the shares of such
Additional Stock so issued would purchase at the Conversion Price for
the shares of the Series B Preferred Stock with respect to which the
adjustment is being made; and
(y) the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance (for
purposes of this calculation only, including the number of shares of
Common Stock then issuable upon the conversion of all outstanding
shares of Preferred Stock at the Conversion Prices for such shares in
effect immediately prior to such issuance of Additional Stock) plus
the number of such shares of Additional Stock so issued.
Any series of issuances of Additional Stock consisting of Common Stock
or the same series of Preferred Stock, issued at the same price and
occurring within a three-month period, shall be treated as one issuance of
Additional Stock for the purposes of this calculation.
(B) No adjustment of the Conversion Price for the Series B Preferred
Stock shall be made in an amount less than one cent per share, provided
that any adjustments which are not required to be made by reason of this
sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to three years from the date of the
event giving rise to the adjustment being carried forward, or shall be made
at the end of three years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for
in subsections (E)(3) and (E)(4), no adjustment of such Conversion Price
for the Series B Preferred Stock pursuant to this subsection 3(d)(i) shall
have the effect of increasing the Conversion Price for the Series B
Preferred Stock above the Conversion Price for such series in effect
immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed,
paid or incurred by this corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
-6-
<PAGE>
(E) In the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe
for such convertible or exchangeable securities (which are not excluded
from the definition of Additional Stock), the following provisions shall
apply:
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal
to the consideration (determined in the manner provided in subsections
3(d)(i)(C) and (d)(i)(D)), if any, received by this corporation upon
the issuance of such options or rights plus the minimum purchase price
provided in such options or rights for the Common Stock covered
thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration,
if any, received by this corporation for any such securities and
related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the additional
consideration, if any, to be received by this corporation upon the
conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be
determined in the manner provided in subsections 3(d)(i)(C) and
(d)(i)(D)).
(3) In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to this corporation
upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including,
but not limited to, a change resulting from the anti-dilution
provisions thereof, the Conversion Price of the series of Series B
Preferred Stock obtained with respect to the adjustment which was made
upon the issuance of such options, rights or securities, and any
subsequent adjustments based thereon, shall be recomputed to reflect
such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion or exchange
of such securities; provided, however, that this section shall not
have any effect on any conversion of the Series B Preferred Stock
prior to such change or increase.
-7-
<PAGE>
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the series of Series
B Preferred Stock obtained with respect to the adjustment which was
made upon the issuance of such options, rights or securities or
options or rights related to such securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock actually issued upon the
exercise of such options or rights upon the conversion or exchange of
such securities or upon the exercise of the options or rights related
to such securities; provided, however, that this section shall not
have any effect on any conversion of the Series B Preferred Stock
prior to such expiration or termination.
(ii) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to subsection 3(d)(i)(E)) by this
corporation after the date of the issuance of the Series B Preferred Stock,
other than Common Stock
(A) issued pursuant to a transaction described in subsection
3(d)(iii) hereof;
(B) issued pursuant to an employee benefit, stock option or
stock incentive plan approved by this corporation's Board of
Directors;
(C) issued to non-employees in consideration for services, in an
aggregate amount not to exceed 75,000 shares (as adjusted
for any stock dividends, combinations, splits,
recapitalization and the like) of Common Stock per year;
(D) issued or issuable upon conversion of the Series B Preferred
Stock; or
(E) approved by the holders of at least 70% of the shares of the
then outstanding Series B Preferred Stock.
(iii) In the event this corporation should at any time or from time to
time after the date of issuance of the Series B Preferred Stock fix a
record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable
in additional shares of Common Stock or other securities or rights
-8-
<PAGE>
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such
holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then as of such record date (or the date
of such dividend distribution split or subdivision if no record date is
fixed), the Conversion Price of the Series B Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be increased in
proportion to such increase of outstanding shares determined in accordance
with subsection 3(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any time
after the effective date hereof is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for Series B Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of Series B Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares.
(v) Notwithstanding anything herein to the contrary, the operation of,
and any adjustment of the Conversion Prices pursuant to, the provisions of
subsection 3(d)(i) may be waived with respect to any specific share or
shares of Series B Preferred Stock, either prospectively or retroactively
and either generally or in a particular instance by a writing executed by
the registered holder of such share or shares. Any waiver pursuant to this
subsection 3(d)(v) shall bind all future holders of the shares of Series B
Preferred Stock for which rights have been waived. In the event that a
waiver of adjustment of Conversion Price under this subsection 3(d)(v)
results in different Conversion Prices for shares of Series B Preferred
Stock, the Secretary of this corporation shall maintain a written ledger
identifying the Conversion Price for each share of Series B Preferred
Stock. Such information shall be made available to any person upon request.
(e) Other Distributions. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in subsection
3(d)(iii), then, in each such case for the purpose of this subsection 3(d),
the holders of Series B Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the
holders of the number of shares of Common Stock of this corporation into
which their shares of Series B Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of
this corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere
in this Section 3 or in Section 2) provision shall be made so that the
-9-
<PAGE>
holders of Series B Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series B Preferred Stock the number of shares of
stock or other securities or property of this corporation or otherwise, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3 with
respect to the rights of the holders of Series B Preferred Stock after the
recapitalization to the end that the provisions of this Section 3
(including adjustment of the Conversion Price then in effect and the number
of shares purchasable upon conversion of the Series B Preferred Stock)
shall be applicable after that event as nearly equivalent as may be
practicable.
(g) No Impairment. This corporation will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by this corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 3
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of Series B Preferred
Stock against impairment.
(h) Fractional Shares and Certificate as to Adjustments.
(i) In connection with the conversion of any shares of Series B
Preferred Stock into Common Stock, no fractions of shares of Common Stock
shall be issued, but in lieu thereof this corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to
such fractional interest multiplied by the fair market value of the Common
Stock (as determined in good faith by this corporation's Board of
Directors) on the trading day on which such shares of Series B Preferred
Stock are deemed to have been converted. If more than one share of Series B
Preferred Stock shall be surrendered for conversion by the same holder at
the same time, the number of full shares of Common Stock issuable on
conversion thereof shall be computed on the basis of the total number of
shares of Series B Preferred Stock so surrendered. Promptly upon
conversion, this corporation shall pay to the holder of shares of Series B
Preferred Stock so converted out of funds legally available, an amount
equal to any accrued and unpaid dividends on the shares of Series B
Preferred Stock surrendered for conversion to the date of such conversion,
together with cash in lieu of any fractional interest of such holder.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of the Series B Preferred Stock, pursuant to this Section
3, this corporation, at its expense, shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish
to each holder of the Series B Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. This corporation shall, upon the
written request at any time of any holder of the Series B Preferred Stock
furnish or cause to be furnished to such holder a like certificate setting
forth (A) such adjustment and readjustment, (B) the Conversion Price at the
time in effect, and (C) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon
the conversion of a share of the Series B Preferred Stock.
-10-
<PAGE>
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
this corporation shall mail to each holder of Series B Preferred Stock at
least 10 days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Series B Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series B Preferred Stock;
and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Preferred Stock, in addition to such
other remedies as shall be available to the holder of the Series B
Preferred Stock, this corporation will immediately take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(k) Notices. Any notice required by the provisions of this Section 3
to be given to the holders of shares of Series B Preferred Stock shall be
deemed given if deposited in the United States mail, first class postage
prepaid, and addressed to each holder of record at such holder's address
appearing on the books of this corporation.
5. Protective Provisions. In addition to any approvals required by law, so
long as 200,000 shares of Series B Preferred Stock are outstanding, this
corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least 70% of the then
outstanding shares of Series B Preferred Stock:
(i) consummate a merger, consolidation or sale of all or substantially all
of the assets of this corporation in which the per share consideration
received by the holders of Series B Preferred Stock is less than three
(3) times the Conversion Price in effect immediately prior to the vote
of the stockholders of this corporation to approve such transaction
or, if there shall be no such vote, the date of such transaction;
(ii) repurchase or redeem equity securities or debt (other than redemptions
pursuant to Section 6 of this Certificate and except to the extent
that such debt is due in accordance with its terms);
-11-
<PAGE>
(iii) authorize or issue any equity securities senior to or pari passu with
the Series B Preferred Stock;
(iv) authorize or issue any additional shares of Series B Preferred Stock;
(v) increase or decrease the authorized size of this corporation's Board
of Directors;
(vi) incur, refinance, guarantee or assume any indebtedness other than in
the ordinary course of business, provided that all indebtedness of
this corporation (including drawdowns under existing credit
facilities) does not exceed an amount equal to 10% of the market
capitalization of this corporation in the aggregate at the time of
incurrence;
(vii) create, incur or assume any lien or encumbrance of any kind upon the
assets of this corporation, whether now owned or hereafter acquired,
other than existing liens or encumbrances in excess of an amount equal
to 10% of the market capitalization of this corporation at the time of
the creation, incurrence or assumption;
(viii) engage in transactions with Affiliates (as that term is defined in
the Stock Purchase Agreement) other than those approved by the
Compensation Committee of this corporation;
(ix) establish any non-wholly-owned subsidiary or sell or transfer any
subsidiary's stock.
For purposes of this subsections (vi) and (vii) of this Section 5, the term
"market capitalization" shall mean the closing price of the Common Stock of this
corporation on the principal market or exchange on which the Common Stock is
then traded (or, if there shall be no such market or exchange, the fair market
value of the Common Stock as determined in good faith by this corporation's
Board of Directors) on the trading day immediately prior to the time of
creation, incurrence or assumption, multiplied by the number of shares of Common
Stock outstanding as of the close of business on such date (whith the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock as of such
date deemed to be outstanding).
6. Redemption. Upon a Change in Control of this corporation that will
result in the holders of Series B Preferred Stock receiving cash or marketable
securities with an aggregate value of less than three (3) times the Conversion
Price, within thirty (30) days of the receipt by this corporation of a written
request from any holder of Series B Preferred Stock that all or some of such
holder's shares of Series B Preferred Stock be redeemed, and concurrently with
surrender by such holder of the certificate representing such shares, this
corporation shall, to the extent it may lawfully do so, redeem the shares
specified in such request by paying cash in an amount per share equal to (a) the
Original Series B Issue Price and (b) all accrued but unpaid dividends thereon.
"Change in Control", solely for purposes of this Section 6, shall mean (i) the
-12-
<PAGE>
acquisition of this corporation by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding any merger effected
exclusively for the purpose of changing the domicile of this corporation), (ii)
a sale of all or substantially all of the assets of this corporation or (iii)
the effectuation by this corporation of a transaction or series of related
transactions in which more than 50% of the voting power of this corporation is
disposed of (other than the sale of Preferred Stock approved as required by
Section 5 hereof), unless, in the case of either (i) or (ii), this corporation's
stockholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for this corporation's acquisition or sale or otherwise)
hold at least 50% of the voting power of the surviving or acquiring entity in
approximately the same relative percentages after such acquisition or sale as
before such acquisition or sale.
7. Voting Rights. Except as otherwise expressly provided herein or as
required by law, the holder of each share of Series B Preferred Stock shall have
the right to one vote for each share of Common Stock into which such Series B
Preferred Stock could be converted on the record date for the vote or written
consent of stockholders. In all cases any fractional share, determined on an
aggregate conversion basis, shall be rounded to the nearest whole share. With
respect to such vote, such holder shall have full voting rights and powers equal
to the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question
upon which holders of Common Stock have the right to vote.
8. Board of Directors. For so long as the Purchasers (the "Purchasers")
referred to in the Stock Purchase Agreement, dated as of December 30, 1999,
among the Company and the purchasers listed therein (the "Stock Purchase
Agreement") maintain beneficial ownership of at least 25% of the shares of
Series B Preferred Stock, the holders of Series B Preferred Stock shall have the
right to elect two of the directors.
9. Status of Converted Stock. In the event any shares of Series B Preferred
Stock shall be converted pursuant to Section 3 hereof, the shares so converted
shall be canceled and shall not be issuable by this corporation, and the
Restated Certificate of Incorporation of this corporation shall be appropriately
amended to effect the corresponding reduction in this corporation's authorized
capital stock.
10. Amendment. This Certificate of Amendment may only be amended (i) prior
to the second anniversary of the Second Closing, as defined in the Stock
Purchase Agreement, by agreement of each of the Purchasers which retains
beneficial ownership of at least 80% of the shares of Series B Preferred Stock
purchased under the Stock Purchase Agreement or the Common Stock into which such
shares are converted; (ii) between the second and fifth anniversaries of the
Second Closing, by agreement of each of the Purchasers which retains beneficial
ownership of at least 50% of the shares of Series B Preferred Stock purchased
under the Stock Purchase Agreement or the Common Stock into which such shares
are converted; and (iii) thereafter by holders of at least 66 2/3% of the Series
B Preferred Stock. And be it further
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<PAGE>
RESOLVED, that any Officer of this corporation be, and each of them hereby
is, authorized to execute a Certificate of Designation with respect to the
Series B Preferred Stock pursuant to section 151 of the General Corporation Law
of the State of Delaware and to take all appropriate action to cause such
Certificate to become effective, including, but not limited to, the filing of
such Certificate with the Secretary of State of the State of Delaware.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, I have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this 30th day of
December, 1999.
By
--------------------------------------------
Kevin D. Andrew
Vice President and Chief Financial Officer,
Secretary and Treasurer
-15-
Exhibit 4.5
FORM OF SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK CERTIFICATE
NUMBER SHARES
[LOGO]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
INFONOW CORPORATION
SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
The Corporation is authorized to issue Preferred Stock
This Certifies that******SPECIMEN**************** is the owner of fully
paid and non-assessable shares of the above Corporation transferrable only on
the books of the Corporation by the holder hereof in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
sealed with the Seal of the Corporation.
Dated:
/s/ Kevin D. Andrew [Corporate Seal] /s/ Michael W. Johnson
Secretary President
[BACK OF CERTIFICATE]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICATION EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE ACT.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTION, OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
- -----------------------------------------------------------------------
The following abbreviations, which used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
TEN COM- as tenants in common UNIF GIFT MIN ACT - Custodian(Minor)
TEN ENT- as tenants by the entireties under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right of (State)
survivorship and not as tenants
in common
- -------------------------------------------------------------------------------
<PAGE>
For value received, the undersigned hereby sells, assigns and transfers
unto ________________________________________________ shares represented by the
within Certificate, and hereby irrevocably constitutes and appoints
_____________________________ Attorney to transfer the said shares on the books
of the within-named Corporation with full power of substitution in the premises.
Dated:_____________________
In presence of ______________________________
Office Lease
Between
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
("Landlord")
and
INFONOW CORPORATION
("Tenant")
<PAGE>
TABLE OF CONTENTS
PARAGRAPHS:
- -----------
1. BUSINESS POINTS 1
2. INTERPRETING THIS LEASE 4
3. UNDERSTANDING THE PROJECT 4
4. TERM 5
5. PREPARING THE PREMISES 5
6. RENT AND SECURITY DEPOSIT 5
7. EXCESS OPERATING EXPENSES 6
8. LANDLORD SERVICES 8
9. OCCUPANCY AND CONTROL 10
10. TENANTS COVENANTS 10
11. REPAIRS, MAINTENANCE AND ALTERATIONS 12
12. ASSIGNMENT AND SUBLETTING BY TENANT 12
13. INDEMNITY 14
14. INSURANCE 15
15. FIRE OR CASUALTY 16
16. CONDEMNATION 17
17. DEFAULTS AND REMEDIES 17
18. END OF TERM 19
19. NOTICES 20
20. LANDLORD'S FINANCING 20
21. RIGHTS RESERVED BY LANDLORD 20
22. HAZARDOUS MATERIALS 21
23. LANDLORD'S INTEREST 22
24. EXECUTION AND SIGNING AUTHORITY 22
25. QUIET ENJOYMENT 22
EXHIBITS & RIDERS
- -----------------
EXHIBIT "A" LEGAL DESCRIPTION OF THE PROJECT
EXHIBIT "B" FLOOR PLAN OF PREMISES
EXHIBIT "C" CONSTRUCTION AGREEMENT
EXHIBIT "D" CERTIFICATE OF ACCEPTANCE
EXHIBIT "E" RULES AND REGULATIONS
EXHIBIT "F-1" LIABILITY INSURANCE CERTIFICATE
EXHIBIT "F-2" PROPERTY INSURANCE CERTIFICATE
RIDER NO.1 OPTION TO EXTEND
RIDER NO.2 PREFERENTIAL RIGHT TO LEASE
RIDER NO.3 RIGHT OF FIRST REFUSAL
RIDER NO.4 TERMINATION OPTION
<PAGE>
OFFICE LEASE
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are acknowledged, the Landlord named below leases to the Tenant named below, and
Tenant leases from Landlord, the Premises described below pursuant to this
Office Lease (this "Lease") entered into effective as of the Date of Lease
specified below:
1. BUSINESS POINTS. The key business terms used in this Lease are defined as
follows:
(a) "Date of Lease" (for reference purposes only): March 22, 1999
(b) "Landlord": CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a
Delaware limited partnership.
(c) "Tenant": INFONOW CORPORATION a Delaware corporation.
(d) "Building": Office building commonly known as "1875 Lawrence Street".
Street Address: 1875 Lawrence Street
Denver, Colorado 80202
RSF of the Building: 169,610.
(e) "Premises": Suite 1100, on the 11th floor of the Building, as shown on
the floor plan attached as Exhibit "B".
RSF of the Premises: 7,782.
(f) "Term": five (5) years.
(g) "Estimated Commencement Date": July 1, 1999.
(h) "Base Rent":
Rental Period Annual Base Rental Rate/RSF Monthly Base Rent
------------- --------------------------- -----------------
CD to 6/30/00 $13.00 $ 8,430.50
7/01/00 to 6/30/01 $14.00 $ 9,079.00
7/01/01 to 6/30/02 $15.00 $ 9,727.50
7/01/02 to 6/30/03 $16.00 $10,376.00
7/01/03 to ED $17.00 $11,024.50
CD = Commencement Date (pursuant to Paragraph 4,)
ED = Expiration Dale (pursuant to Paragraph 4)
(i) "Security Deposit": $8,430.50 (payable upon execution of the Lease).
(j) "Base Year": Calendar year 1999.
(k) "Parking Permits": Tenant shall take and pay for nine (9) permits
allowing access to unreserved spaces in parking facilities which Landlord
provides for the use of tenants and occupants of the Project. During the initial
Term (and, if applicable, during any renewal or extension term of this Lease),
Tenant shall pay Landlord's quoted monthly contract rate (as set from time to
time) for each unreserved permit, plus any taxes thereon.(1)
1
<PAGE>
(l) "Permitted Use": General office use, subject to Paragraph 9(a).
(m) Addresses:
TENANT'S ADDRESS PRIOR TO THE COMMENCEMENT
LANDLORD'S ADDRESSES FOR NOTICE: DATE:
- -------------------------------- -----
1875 Lawrence Street, Suite 730 1875 Lawrence Street, Suite 900
Denver, Colorado 80202 Denver, Colorado 80202
Attention: Property Manager Attention: Kevin Andrew
Telephone: (303) 296-7622 Telephone: (303) 293-0212
Facsimile: (303) 297-8351 Facsimile: (303) 293-0213
TENANT'S ADDRESS ON AND AFTER THE
with a copy to: COMMENCEMENT DATE:
- --------------- ------------------
Crescent Real Estate Equities
Limited Partnership The Premises
777 Main Street, Suite 2100 Attention: Kevin Andrew
Fort Worth, TX 76102
Attention: Senior Vice President,
Asset Management
Telephone: (817) 321-2100
Facsimile: (817) 321-2000
with a copy to:
- ---------------
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attn: Legal Department
Telephone: (817) 321-2100
Facsimile: (817) 321-2000
LANDLORD'S ADDRESS FOR PAYMENTS:
- --------------------------------
P.O. Box 844533
Dallas, Texas 75284-4533
(n) Additional Definitions: In addition to the key business terms defined
above, an index of the other defined terms used in the text of this Lease is set
forth below, with a cross-reference to the paragraph in this Lease in which the
definition of such term can be found:
(1) In the event that Tenant desires to obtain parking permits for the use
of parking spaces in addition to the foregoing, any such use shall be on a
month-to-month basis, subject to availability as determined by Landlord, and at
Landlord's then quoted monthly contract rate (as set from time to time) for each
such permit, plus any taxes thereon.
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ABS 8(d) Landlord's Mortgagee 20
ADA 2(c) Landlord's Reletting Expenses 17(d)
Alterations 11(c) Landlord's Rental Damages. 17(d)
Applicable Law 2(c) New Lease 21(c)
Beneficiary 13(a)(i) Operating Expenses 7(b)
Building Standard 2(b) Permitted Use 9(a)
Certificates 14(b)(iii) Prime Rate 17(d)
Claims 13(a)(ii) Project 3(a)
Collateral 17(g) Project Systems 7(b)(I)
Commencement Date 4 Providers 10(d)
Common Areas 3(b) Punchlist Items 5(b)
Construction Agreement 5(a) Relocated Premises 21(c)
Contamination 22(a) Relocation Date 21(c)
Control 12(a) Rent 6(a)
Current Providers 10(d) RSF 3(a)
Default Rate 17(b) Rules and Regulations 9(b)
Defend 13(a)(iii) Service Areas 3(b)
EOE 7(a) Service Interruption 8(e)
Event of Default 17(a) State 2(c)
Excess Operating Expenses 7(a) Substantial Completion 4(e) of the
Construction Agreement
Expiration Date 4 Telecommunications Services 10(d)
Fair Rental Value 17(d) Tenant Parties 13(a)(I)
Hazardous materials 22(a) Tenant's Contribution 15(b)
Hold Over 18(c) Tenant's FF&E 14(b)(I)(C)
HVAC 8(a) Tenant's Insurable Injuries 13(a)(ii)
Indemnify 13(a) Transfer 12(a)
Insurable Injuries 13(a)(ii) Waive 13(a)(iii)
ISO 13(a)(ii) Work 4(e) of the
Construction Agreement
Land 3(a)
Landlord Parties 13(a)(I)
Landlord's Contribution 15(b)
3
</TABLE>
<PAGE>
2. INTERPRETING THIS LEASE
(a) Usage of Certain Words, Bold italicized print in quotations marks,
e.g., "Transfer", indicates definition of a term. A defined term includes all
grammatical variations which are also shown with initial capital letters. For
example, the defined word "Transfer" includes "Transferee", "Transferring",
"Transferred", etc., as grammatically appropriate in the text. Cross-references
to other provisions of this Lease are in bold print following the word
"Paragraph ". The word "including" shall not be construed restrictively to limit
or exclude other items i-lot listed. Unless the context otherwise requires, the
singular includes the plural and the plural the singular, and the masculine,
feminine and neuter genders are interchangeable. Unless otherwise specified as a
business day, a "day" means a calendar day.
(b) Building Standard. "Building Standard" means the type, brand, quantity
or quality of materials, equipment, services, insurance coverages, methods,
scheduling and usages Landlord designates or determines from time to time to be
standard for the Building or the Project.
(c) Applicable Law. "Applicable Law" means all laws, statutes, ordinances,
court rulings, regulations, public or private restrictions and requirements now
or hereafter adopted by any governmental or other authority, board of fire
underwriters, titility company, property association, declarant or similar body,
affecting the Project or this Lease, including Title III of The Americans with
Disabilities Act of 1990, the Accessibility Guidelines for Buildings and
Facilities and any other law pertaining to disabilities and architectural
barriers (collectively, "ADA"). THE VALIDITY, PERFORMANCE AND ENFORCEMENT OF
THIS LEASE ARE GOVERNED BY THE APPLICABLE LAW OF THE STATE OR OTHER JURISDICTION
WHERE THE BUILDING IS LOCATED ("STATE"). ALL OBLIGATIONS UNDER THIS LEASE ARE
PERFORMABLE IN THE COLINTY OR OTHER JURISDICTION TN WHICH THE BUILDING IS
LOCATED, WHICH SHALL BE VENUE FOR ALL LEGAL ACTIONS.
(d) Entire Agreement This Lease contains the parties' entire agreement
regarding the subject matter hereof. There are no representations or warranties
between the parties not contained in this Lease. No amendment of this Lease
shall be effective unless in writing and duly signed by the party against whom
enforcement is sought. Any invalidated provision of this Lease shall be severed
from, and shall not impair the validity of, this Lease. The exhibits and riders
attached hereto are incorporated herein and made a part of this Lease for all
purposes.
3. UNDERSTANDING THE PROJECT.
(a) Project and Rentable Area. The "Project" consists of the tract of land
described on Exhibit "A" (the "Land"), the Building and all appurtenant parking
facilities, landscaping, fixtures, Common Areas, service buildings and related
improvements now or hereafter constructed thereon or on land acquired by
Landlord (or its affiliates) and added to the Project from time to time. The
"RSF" is the then-current square footage of rentable area of a given space
calculated using Building Standard methods of measurement.
(b) Common Areas and Service Areas. Landlord grants Tenant a non-exclusive
right to use the Common Areas during the Term for their intended purposes, in
common with others and subject to the provisions of this Lease. "Common Areas"
are all present and future areas, facilities and equipment in the Project
designated by Landlord for the common use of the occupants of the Building and
their customers, employees and invitees, including tunnels, walkways, sky
bridges and driveways, lobbies, landscaped areas, loading areas, public
corridors, public restrooms, stairs and elevators, and drinking fountains.
"Service Areas" are all present and future areas, facilities and equipment
serving the Project which are not generally accessible to Tenant or other
occupants of the Building, including mechanical, telecommunications, electrical
and similar rooms, and HVAC equipment areas.
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4. TERM. The Term shall commence on(2) (the "Commencement Date"), and shall end
on the last day of the calendar month in which it would otherwise expire (the
"Expiration Date"). Landlord shall not be liable or responsible for Claims made
or incurred by Tenant due to any delay in tendering the Premises. If the Term is
extended, the Expiration Date shall be the last day of the calendar month in
which the extended Term would otherwise expire. If the Lease is terminated prior
to the Expiration Date, the effective date of termination shall become the
Expiration Date, except for purposes of Paragraph 17.
5. PREPARING THE PREMISES.
(a) Condition, Tenant agrees to accept the Premises "as-is". However, all
improvements, if any, shall be constructed in the Premises, and the cost thereof
paid, in accordance with the "Construction Agreement" attached as Exhibit "C"
(if applicable). Except as expressly provided in this Lease or the Construction
Agreement, Landlord has not undertaken to perform any alteration or improvement
to the Premises.
(b) Acceptance. BY TAKING POSSESSION OF THE PREMISES, AND TO THE FULLEST
EXTENT PROVIDED BY PARAGRAPH 13(1), TENANT WAIVES (i) ANY CLAIMS DUE TO DEFECTS
IN THE PREMISES AND/OR THE PROJECT EXCEPT (A) MINOR FINISH ADJUSTMENTS IN WORK
PERFORMED BY LANDLORD ("Punchlist Items") SPECIFIED IN REASONABLE DETAIL BY
TENANT CONTEMPORANEOUSLY WITH TAKING POSSESSION, AND (B) LATENT DEFECTS IN
LANDLORD'S WORK OF WHICH TENANT NOTIFIES LANDLORD WITHIN 180 DAYS AFTER TAKING
POSSESSION; AND (ii) ALL EXPRESS AND IMPLIED WARRANTIES OF SUITABILITY,
HABITABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE. Except to the extent
otherwise expressly provided in this Lease, Tenant Waives the right to terminate
this Lease due to the condition of the Premises, the Building or the Project;
Punchlist Items; or Landlord's failure to perform its construction obligations
under this Lease. Tenant shall, within 15 days after Landlord's request, execute
and deliver a Certificate of Acceptance of the Premises substantially in the
form attached as Exhibit "D".
6. RENT AND SECURITY DEPOSIT.
(a) Definition. The term "Rent" includes Base Rent, Excess Operating
Expenses and any and all other sums payable by Tenant under this Lease. All Rent
(plus any applicable taxes thereon) shall be payable to Landlord at the Address
for Payments set forth above, or to such other place or entity as may from time
to time be designated in writing by Landlord, in lawful money of the United
States of America. Tenant shall pay Landlord monthly installments of Base Rent
and Excess Operating Expenses in advance on or before the first day of each
calendar month during the Term, without deduction, setoff or prior request for
payment. Rent for any partial month shall be prorated on a daily basis based on
a 365-day calendar year. Tenant may make Rent payments by electronic transfer in
accordance with Landlord's instructions.
(b) Base Rent. Beginning on the Commencement Date, Tenant shall pay
Landlord the Base Rent. Concurrently with its execution of this Lease, Tenant
shall pay Landlord prepaid rent equal to the aggregate Base Rent payable through
the end of the first full calendar month of the Term, based on the Estimated
Commencement Date.
(c) Security Deposit. Concurrently with its execution of this Lease, Tenant
shall pay Landlord the Security Deposit in order to secure Tenant's faithful
performance under this Lease (without being considered Rent or a measure of
Landlords damages and without prejudice to any other rights or remedies of
Landlord). The Security Deposit shall be held without interest and may be
commingled with other funds. If all or any portion of the Security Deposit is
ever applied under this Lease, Tenant shall immediately deposit additional funds
with Landlord equal to the amount so applied. Provided no uncured Event of
Default then exists under this Lease (and no condition exists which, with the
(2) July 1,1999
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passage of time or giving of notice, would become an Event of Default), the
Security Deposit (or the remaining balance after application under this Lease)
shall be refunded to Tenant within 30 days after the latest of (i) the
Expiration Date; (ii) payment of all Rent due tinder this Lease; (iii) surrender
of possession of the Premises to Landlord in accordance with this Lease; and
(iv) Landlord's receipt of Tenant's forwarding address and written request for
refund.
7. EXCESS OPERATING EXPENSES.
(a) Calculation, During the Term, Tenant shall pay Landlord Tenants
proportionate share of the amount (prorated for any partial calendar year) by
which Operating Expenses for each calendar year exceed Operating Expenses for
the Base Year ("Excess Operating Expenses" or "EOE"). Tenant's proportionate
share is equal to the RSF of the Premises divided by the RSF of the Building.
Operating Expenses are computed o an accrual basis in accordance with sound
accounting principles consistently applied. If the Building is less than fully
occupied or Building Standard services are not provided to the entire Building
during any calendar year (including the Base Year), all Operating Expenses which
vary directly with occupancy shall be "grossed-up" by Landlord as if the
Building had been fully occupied and Building Standard services had been
provided to the entire Building during such calendar year.
(b) Operating Expenses. "Operating Expenses" are all costs and expenditures
of every kind incurred by Landlord in connection with the ownership, operation,
maintenance, management, repair and protection of the Project which are directly
attributable or reasonably allocable to the Building, including Landlord's
personal property used in connection with the Project and including all costs
and expenditures within the following expense categories:
(i) Operation, maintenance, repair and replacements of any part of the
Project, including the mechanical, electrical, plumbing, HVAC, vertical
transportation, fire prevention and warning and security systems (collectively,
"Project Systems"); materials and supplies (such as light bulbs and ballasts);
equipment and tools; floor, wall and window coverings; personal property;
required or beneficial easements; and related service agreements and rental
expenses.
(ii) Administrative and management fees, including accounting,
information and legal services (except for negotiations and disputes with
specific tenants not affecting other parties); management office(s); and wages,
salaries, benefits, reimbursable expenses and taxes (or allocations thereof) for
full and part time personnel involved in operation, maintenance and management.
(iii) Janitorial service; window cleaning; waste disposal; gas, water
and sewer charges (including add-ons); and landscaping, including all applicable
tools and supplies.
(iv) Property, liability and other insurance coverages carried by
Landlord, including deductibles and an allocation of a portion of the cost of
blanket insurance policies maintained by Landlord and/or its affiliates.
(v) Real estate taxes, assessments, business taxes, excises,
association dues, fees, levies, charges and other taxes of every kind and nature
whatsoever, general and special, extraordinary and ordinary, foreseen and
unforeseen, including interest on installment payments, which may be levied or
assessed against or arise in connection with ownership, use, occupancy, rental,
operation or possession, or substituted, in whole or in part, for a tax
previously in existence by any taxing authority, or paid as rent under any
ground lease. Real estate taxes do not include Landlord's income, franchise or
estate taxes (except to the extent such excluded taxes are assessed in lieu of
taxes included above).
(vi) Compliance with Applicable Law, including license, permit and
inspection fees; and all expenses and fees, including attorneys fees and court
costs, incurred in negotiating or contesting real estate taxes or the validity
and/or applicability of any governmental enactments which may affect Operating
Expenses; provided Landlord shall credit against Operating Expenses any refunds
received from such negotiations or contests to the extent originally included in
Operating Expenses (less Landlords costs).
(vii) Security services, to the extent provided or contracted for by
Landlord,
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(viii) Goods and services purchased from Landlord's subsidiaries and
affiliates to the extent the cost of same is generally consistent with rates
charged by unaffiliated third parties for similar goods and services (except no
such limitation shall apply in emergencies).
(ix) Depreciation (or amortization) of expenditures incurred: (A) to
conform with Applicable Law; (B) to maintain Building Standards; or (C) with the
intention of promoting safe or reducing or controlling increases in Operating
Expenses, such as lighting retrofit and installation of energy management
systems. Such expenditures shall be depreciated or amortized uniformly over a
reasonable period of time determined by Landlord, together with interest on the
tmdepreciated or unamortized balance at the Prime Rate plus 2%.
(x) Electrical services used in the operation, maintenance and use of
the Project; sales, use, excise and other taxes assessed by governmental
authorities on electrical services supplied to the Project, and other costs of
providing electrical services to the Project.
(c) Exclusions. Operating Expenses exclude costs and expenditures in the
following categories:
(i) Leasing commissions, attorneys fees and other expenses related to
leasing tenant space and constructing improvements for the sole benefit of an
individual tenant.
(ii) ABS goods and services furnished to an individual tenant of the
Project which are separately reimbursable directly to Landlord in addition to
EOE.
(iii) Repairs required because of casualty or condemnation damage to
the extent of insurance or condemnation proceeds actually received by Landlord.
(iv) Except as provided in Paragraph 7(b)(ix), depreciation,
amortization, interest payments on any encumbrances on the Project and the cost
of capital improvements or additions and replacements.
(d) Estimated Monthly Payments. During each calendar year of the Term after
the Base Year, Tenant shall pay Landlord, in advance concurrently with each
monthly payment of Base Rent, 1/12th of Landlord's good-faith estimate of the
EOE to be payable by Tenant for such calendar year. By April 30th of the next
calendar year, or as soon thereafter as practical, Landlord shall furnish Tenant
a statement of actual Operating Expenses for the prior calendar year. Provided
no uncured Event of Default then exists hereunder (and no condition exists
which, with the passage of time or giving of notice, would become an Event of
Default), Landlord shall promptly refund any overpayment to Tenant for the prior
calendar year (or, at Landlord's option, apply such amount against Rent due or
to become due hereunder). Likewise, Tenant shall, within 30 days of Landlord's
invoice, pay Landlord any underpayment for the prior calendar year. The
foregoing obligations shall survive the Expiration Date. Landlord may alter its
billing procedures at any time, including adjusting estimated EOE based on
actual or expected increases in Operating Expenses. In no event shall Base Rent
be reduced if Operating Expenses for any calendar year are less than Operating
Expenses for the Base Year.
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(e) (see footnote below)(3)
8. LANDLORD SERVICES.
(a) Basic Services. Landlord shall as an Operating Expense, furnish the
following services to the Premises (to which services Landlord may at any time
and from time to time make reasonable cha ages): (i) running tap water from the
local utility at the supply points provided for general tenant use; (ii)
heating, ventilating and air conditioning / "HVA C") 01 weekdays between 8:00
a.m. and 6:00 p.m. and Saturdays between 8:00 a.m. and 12:00 noon, excluding
generally recognized business holidays; (iii) janitorial service 5 days per week
(excluding holidays); (iv) exterior window washing; (v) non-exclusive passenger
elevators sufficient for ingress and egress to the Premises, subject to proper
authorization and the Rules and Regulations; (vi) routine maintenance of the
Common and Service Areas; and (vii) replacement of Building Standard light
bulbs, tubes and ballasts.
(b) Electrical Service.
(i) Landlord shall furnish Building Standard electrical service to the
Premises sufficient to operate customary lighting, office machines and other
equipment of similar low electrical consumption. Landlord may, at any time and
from time to time, calculate Tenant's actual electrical consumption in the
Premises either by a survey conducted by a reputable consultant selected by
Landlord, or through separate meters installed, maintained and read by Landlord,
all at Tenant's expense. The cost of ABS electrical consumption shall be paid by
Tenant in accordance with Paragraph 8(d).
(ii) Landlord reserves the right to select the provider of electrical
services to the Building and/or the Project. To the fullest extent permitted by
Applicable Law, Landlord shall have the continuing right, upon 30 days written
notice, to change such utility provider and install a submeter for the Premises
at Tenant's expense. All charges and expenses incurred by Landlord due to any
such changes in electrical services, including maintenance, repairs,
installation and related costs, shall be incltided in the electrical services
costs referenced in Paragraph 7(h)(x), unless paid directly by Tenant.
(3)(e) Right to Audit. Within 60 days (the "Audit Election Period")
after Landlord furnishes its statement of actual Operating Expenses for any
calendar year (including the Base Year), Tenant may, at its expense during
Landlords normal business hours, elect to audit Landlords Operating
Expenses for such calendar year only, subject to the following conditions:
(i) the audit shall be prepared by a certified public accounting firm of
recognized national standing; (ii) in no event shall any audit be performed
by a firm retained on a 'contingency fee' basis; (iii) the audit shall
commence within 30 days after Landlord makes Landlords hooks and records
available to Tenant's auditor and shall conclude within 60 days after
commencement; (iv) the audit shall be conducted where Landlord maintains
its books and records and shall not unreasonably interfere with the conduct
of Landlord's business; (v) Tenant and its accounting firm shall treat any
audit in a confidential manner and shall each execute Landlord's
confidentiality agreement for Landlord's benefit prior to commencing the
audit; (vi) the accounting firm's audit report shall, at no charge to
Landlord, be submitted in draft form for Landlords review and approval
before the final approved audit report is delivered to Landlord; and (vii)
there is no uncured Event of Default under this Lease. Notwithstanding the
foregoing, Tenant shall have no right to conduct such an audit to the
extent Landlord furnishes to Tenant an audit report for the calendar year
in question prepared by an independent certified public accounting firm of
recognized national standing (whether originally prepared for Landlord or
another party). This paragraph shall not he construed to limit or abate
Tenant's obligation to pay Rent when due, including estimated EOE. Landlord
shall credit any overpayment determined by the approved audit against the
next sums due and owing by Tenant or, if no further Rent is due, refund
such overpayment directly to Tenant. Likewise, Tenant shall pay Landlord
any underpayment determined by the approved audit within 30 days of
determination. The foregoing obligations shall survive the Expiration Date.
If Tenant does not give written notice of its election to audit Landlord's
Operating Expenses during the Audit Election Period, Landlord's Operating
Expenses for the applicable calendar year shall be deemed approved for all
purposes, and Tenant shall have no further right to review or contest the
same.
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(iii) If submetering is installed for the Premises, Landlord may
charge for Tenant's actual electrical consumption monthly in al-rears at
commercially reasonable rates determined by Landlord, except as to electricity
directly purchased by Tenant from third party providers. Even if the Premises
are submetered, Tenant shall remain obligated to pay its proportionate share of
the cost of electrical services as provided in Paragraph 7(b)(x), except that
Tenant shall be entitled to a credit against electrical services costs eqtial to
that portion of the amounts actually paid by Tenant separately and directly to
Landlord which are attributable to Building Standard electrical services
submetered to the Premises.
(c) Parking. Landlord shall provide the Parking Permits described in Pa
agraph 1, which shall allow "in-c udout" privileges to the designated parking
facilities or areas using parking access cards or permits, as applicable. No
deductions from the monthly charge shall be made for days on which the pai-ld ~g
facilities are not used by Tenant. Landlord shall have the continuing right to
change the designation of such parking facilities or areas. Tenant, its
employees, contractors and invitees, shall at all times comply with the
applicable parking rules issued from time to time. Neither Tenant nor its
employees shall use any parking spaces designated for visitors or other
occupants of the Project. Tenant shall, within 15 days of Landlord's written
request, furnish Landlord a complete list of license plate numbers for all
vehicles operated by any Tenant Party. Tenant's sole remedy for any period
during which Tenant's use of any Parking Permit is precluded for any reason
shall be abatement of parking charges for such precluded permits.
(d) ABS Services. Building Standard services are furnished based upon
Building Standard (i) leasehold improvements; (ii) population density; (iii)
electrical consumption; (iv) electrical design capacity; and (v) hours of
operation (not to exceed 280 hours per month), and any other applicable
qualifications set forth in this Lease. "ABS" means over and above Building
Standard (including related modifications and equipment changes). All requests
for ABS services, whether HVAC, electrical, janitorial or other services, shall
be made in writing and are subject to Landlord's prior written approval, which
may include, as a condition to such approval, the imposition of restrictions or
other requirements by Landlord. Landlord shall install any equipment or other
modifications necessary to furnish any approved ABS services, all at Tenant's
expense (including all related consulting, acquisition, installation and
maintenance costs). Unless otherwise specified in this Lease, Tenant shall,
within 15 days of invoicing, pay the foregoing expenses and Landlord's
then-quoted standard charges for any ABS services furnished to or necessitated
by any Tenant Party. Landlord may withhold its consent to any ABS services or,
having previously granted consent, terminate or suspend any ABS services (and
remove any i-elated equipment or modifications at Tenant's expense), if (A)
Landlord determines the provision or continuation of such ABS services is
unnecessary or could damage the Building or Project Systems, create a dangerous
condition, entail unreasonable Alterations or expense, or disturb other tenants
in the Building; or (B) there exists an Event of Default or other condition
which, with the passage of time or giving of notice, would become an Event of
Default. ABS HVAC shall be furnished upon Tenant's written request given no
later than 12:00 noon of the preceding business day.
(e) Service Interruptions. Upon interruption of any service furnished by
Landlord under this Lease (a "Service Interruption") other than a Service
Interruption for scheduled maintenance, tests and inspections, Tenant shall
immediately notify Landlord, in which event Landlord shall use commercially
reasonable efforts to restore such service to the Premises. No Service
Interruption shall (i) constitute a breach by Landlord under this Lease; (ii)
relieve Tenant of any obligation under this Lease (except as provided below); or
(iii) be deemed a constructive eviction of Tenant from the Premises. Commencing
on the 4 consecutive business day of any Service Interruption within Landlord's
control, and except to the extent such Service Interruption is caused by a
Tenant Party, Tenant shall, as its sole remedy, be entitled to an equitable
diminution of Base Rent based upon the pro rata portion of the Premises rendered
unfit for occupancy for the Permitted Use. In the event of any conflict between
this Paragraph 8(e) and the casualty and condemnation provisions of Paragraphs
15 and 16, the latter shall control. EXCEPT AS PROVIDED IN THE PRECEDING
SENTENCE, AND TO THE FULLEST EXTENT PROVIDED BY PARAGRAPH 13(f), TENANT WAIVES
ALL CLAIMS AGAINST THE LANDLORD PARTIES ARISING FROM SERVICE INTERRUPTIONS.
(4) 6th
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9. OCCUPANCY AND CONTROL.
(a) Permitted Uses. The Premises shall be used by Tenant (and its permitted
Transferees) solely for the "Permitted Use" consistent with Building Standard
services, population density and hours of operation. The following ancillary
uses shall not be permitted in the Premises unless they are strictly limited to
the exclusive use of Tenant's employees and do not, in the aggregate, occupy
more than 10% of the RSF of the Premises or of any single floor (whichever is
less):
credit union; data processing; schools, training and other educational purposes;
telemarketing; collection agency; reservation centers; or storage. Tenant agrees
that the following uses are expressly prohibited i t the Premises: government
offices or agencies; personnel agencies; medical treatment and health care;
restaurants and other retail; customer service offices of a ptiblic utility
company; or any other purpose which would, in Landlord's reasonable opinion,
impair the reputation or quality of the Building, create unreasonable or
excessive demands or loads on any Project Systems, Common Areas or parking
facilities, impair Landlord's efforts to lease space or otherwise interfere with
the operation of the Project.
(b) Rules and Regulations. During the Term, Tenant shall comply with the
"Rules and Regulations" established by Landlord for the Project, as amended from
time to time. The current Rules and Regulations are attached as Exhibit "E".
This Lease shall control in the event of any conflict between this Lease and any
Rules and Regulations.
(c) Signage. Tenant shall not, without Landlord's prior written approval,
paint, affix, erect, display or distribute any signs, advertisements or notices
upon (or visible from) the exterior of the Premises or elsewhere in the Project,
except for Building Standard tenant identification information permitted by
Landlord in the main building directory or adjacent to the main entrance to the
Premises.(5)
(d) Consents. Where Landlord's consent or approval is required in this
Lease, Landlord may withhold such consent or approval in its sole discretion,
except as otherwise specified in the applicable provision. If Tenant requests
Landlord's consent or approval under any provision of this Lease and Landlord
fails or refuses to give such consent or approval, Tenant's sole remedy shall be
an injunction or an action for specific performance.
10. TENANT'S COVENANTS. Tenant covenants and agrees as follows:
(a) Tenant's Operations. Tenant shall, at its expense, promptly comply with
Applicable Law in its use and occtipancy of the Premises (including construction
of any Alterations required by Applicable Law). Tenant shall not do or permit
anything to be done in the Premises which shall in any way (i) obstruct or
interfere with the operation of the Project or with the rights of other tenants
of the Project; (ii) injure, disturb or annoy other tenants of the Project,
including the emission of offensive odors, noises or vibrations; (iii) tend to
harm the reputation of Landlord or the Project; (iv) deceive or defraud the
public; or (v) increase Landlord's insurance costs.
(b) No Recordation or Liens. Tenant shall not record this Lease (or a
memorandum thereof). Tenant shall not in any way encumber any interest in the
Premises or the Project, and shall cause any liens arising from acts or
omissions of, or due to a Claim against, a Tenant Party to be promptly
discharged by payment, bonding or otherwise. If Tenant fails to timely discharge
any such lien, Landlord may, without further notice to Tenant, discharge such
lien in any reasonable manner determined by Landlord on Tenant's behalf and at
Tenant's expense, payable within 30 days of Landlord's invoice.
(5) Subject to the requirements of the immediately preceding sentence,
Tenant shall have the right to have its company logo painted on the glass
entryway to the Building, at its sole cost and expense, and consistent in
size, design, type, manner and form with all such signage currently in
place on such glass entryway ("Signage"'). Tenant agrees not to make any
alterations or additions to the Signage without in each instance first
obtaining the written approval of Landlord, which approval shall not be
unreasonably withheld.
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(c) Security. Tenant shall (i) take reasonable steps to secure the Premises
and the personal property of all Tenant Parties in the Common Areas and parking
facilities of the Project, from unlawful intrusion, theft, fire and other
hazards; (ii) keep and maintain in good working order all ABS security devices
installed in the Premises (such as locks, smoke detectors and burglar alarms),
which shall be integrated with any other Building security systems; and (iii)
cooperate with Landlord and other tenants in the Project on security matters.
Tenant acknowledges that Landlord is not a guarantor of the security or safety
of the Tenant Parties or their property, and that such matters are the
responsibility of Tenant and the local law enforcement authorities. To THE
FULLEST EXTENT PROVIDED BY PARAGRAPH 13(f), TENANT WAIVES ALL CLAIMS AGAINST
TI-IE LANDLORD PARTIES RELATED TO SECURITY IN THE PREMISES OR THE PROJECT.
(d) Telecommnnications. Tenant shall, at its expense, arrange for all
voice, data and other telecommunications services to be furnished to the
Premises ("Telecommunications Services") by third party providers ("Providers").
However, Landlord reserves the right to (i) control access to, and use and
maintenance of, the Project Systems, roof, equipment areas and riser space of
the Building; (ii) renegotiate the terms (whether implied, oral or written)
under which any Providers furnish Telecommunications Services in the Building as
of the Commencement Date (collectively, "Current Providers"); provided, however,
such re-negotiation shall not prevent a Current Provider from furnishing
Telecommunications Services to the Premises; (iii) require Providers to enter
into a written license agreement with Landlord; and (iv) require Providers to
furnish customary evidence of financial creditworthiness and business reputation
acceptable to Landlord. After the Commencement Date, Tenant shall give Landlord
90 days prior written notice of Tenant's desire to use a new Provider who is not
a Current Provider. Tenant shall not extend Telecommunications Services, or
otherwise make its telecommunications facilities available, to other tenants or
occupants of the Project without Landlord's prior written consent. To THE
FULLEST EXTENT PROVIDED BY PARAGRAPH 13(f), TENANT WAIVES ALL CLAIMS AGAINST THE
LANDLORD PARTIES ARISING, OR ALLEGED TO ARISE, IN CONNECTION WITH
TELECOMMUNICATIONS SERVICES.
(e) Taxes. Tenant shall promptly pay directly to the taxing authority all
sales and/or ad valorem taxes now or hereafter levied by separate bill on
Tenant's personal property and ABS leasehold improvements. Tenant Waives all
rights under Applicable Law to protest appraised values or receive notice of
reappraisal regarding the Project (incltiding Landlord's personalty),
irrespective of whether Landlord contests same. To the extent such Waiver is
prohibited, Tenant appoints Landlord as Tenant's attorney-in-fact, coupled with
an interest, to appear and take all actions which Tenant would otherwise be
entitled to take under Applicable Law.
(f) Third Party Commissions, Tenant represents and warrants that no broker
or agent has represented Tenant in connection with this Lease except The
Staubach Company, which is acting as Tenant's agent6 in connection with this
Lease7. Tenant shall Indemnify and Defend each Landlord Party against any Claims
for real estate commissions or fees in connection with this Lease made by any
party Claiming through Tenant(8).
(g) Estoppel Letters and Financial Statements. Within 5 business days after
written request, Tenant shall execute and deliver to Landlord and/or its
designee (i) a current and complete financial statement for Tenant certified as
true and correct by Tenant's chief financial officer; and/or (ii) an estoppel
letter certifying (A) as true and correct, a copy of this Lease and any
amendments; (B) the then-effective business terms under Paragraph 1; (C) whether
Landlord is in defatilt and, if so, the nature of such default; (D) the date to
which Rent has been paid; and (E) any other matters Landlord, Landlord's
Mortgagee or any prospective purchaser may require; provided such statements are
true and accurate. Tenants failure to timely execute and return the requested
estoppel letter shall be conclusive evidence of the matters set forth therein.
(6) ("Tenant's Broker")
(7) and whose commission shall be paid by Landlord in the amount which
is the lesser of (i) six percent (60 o) of the total value of this Lease
(less the value for any Renewal Periods or for any Preferential Space [both
terms as hereinafter defined]) less any concessions and (ii) $3.00 per RSF
of the Premises.
(8) except as pertains to the commission referenced in the foregoing
sentence
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11. REPAIRS, MAINTENANCE AND ALTERATIONS.
(a) Landlord's Obligations. Landlord shall maintain the roof, foundation,
exterior windows and surfaces, load-bearing components of the Building and the
Project Systems, except (i) for wiring, ducts, conduit, plumbing or pipes within
leased space (even if installed by Landlord); (ii) for damage caused by a Tenant
Party; or (iii) as otherwise provided in this Lease.
(b) Tenant's Obligations. Tenant shall throughout the Term keep the
Premises and all furnishings, trade fixtures, equipment and leasehold
improvements therein in good condition and repair, including all necessary
repairs and replacements, but excluding ordinary wear and tear and damage from
casualty or condemnation, If Tenant fails to do so within 15 days after written
notice, Landlord may make the necessary repairs or replacements, and Tenant
shall reimburse Landlord therefor, plus a 15% administrative fee, within 15 days
of Landlord's invoice, Tenant shall not in any manner deface or injure any part
of the Project, and shall, upon demand, pay the cost (plus 15%) of Landlord's
repair and replacement of any damage or injury caused by any Tenant Party.
(c) Alterations. Except as expressly provided below, no alterations or
improvements to the Premises (collectively, "Alterations") shall be made without
Landlord's prior written consent, which shall not be unreasonably withheld.
Provided Tenant gives Landlord prior written notice and otherwise complies with
the provisions of this Paragraph, Landlord's consent shall not be required with
respect to Alterations which do not exceed the lesser of $10,000 or $1.00 per
RSF in the Premises in aggregate cost in any 12 month period. In no event shall
(and it shall be reasonable for Landlord to withhold its consent if) any
Alterations (i) interfere with construction in progress or other tenants in the
Project; (ii) adversely affect or alter the Project Systems, structural
integrity or exterior appearance of the Building; (iii) impair Building Standard
services or require ABS services (either during or after such work); (iv) be
visible from the exterior of the Premises or the Building; or (v) be permitted
if any uncured Event of Default then exists (or any condition exists which, with
the passage of time or giving of notice, would become an Event of Default). At
least 1 5 business days prior to commencing construction, Tenant shall in each
instance, whether or not Landlord's consent is required, furnish complete plans
and specifications for any proposed Alterations for Landlord's review and
approval. All Alterations shall be constructed at Tenant's expense (plus a
construction management fee to Landlord equal to 10% of the contract price) in a
good and workmanlike manner, and otherwise in compliance with Applicable Law,
the Rules and Regulations, Building Standard construction criteria and
Landlord's other reasonable requirements. Tenant acknowledges that Landlord is
no an architect or engineer, and that the Alterations will be designed and/or
constructed by Land lord using independent architects, engineers and contractors
(except for Alterations for which Landlord's prior written consent is not
required, which shall be constructed by Tenant using Landlord's approved
contractors). Accordingly, Landlord does not guarantee or warrant that the
applicable construction documents will comply with Applicable Law or be free
from errors or omissions, nor that the Alterations will be free from defects,
and Landlord will have no liability therefor. Upon completion, Tenant shall at
its expense, provide Landlord with "as built" plans on Landlord's CAD system (or
other format requested by Landlord).
12. ASSIGNMENT AND SUBLETTING BY TENANT.
(a) Transfer. Tenant shall not, without Landlord's prior written consent in
each instance in accordance with Paragraph 12(c), convey, assign or encumber
this Lease or any interest herein, directly or indirectly, voluntarily or by
operation of law, including the merger or conversion of Tenant with or into
another entity, or sublet all or any portion of the Premises, or permit the use
or occupancy of any part of the Premises by anyone other than Tenant
(collectively, "Transfer"). If Tenant is other than an individual, any change in
"control" of Tenant shall constitute a Transfer, and the surviving party in
control shall be the Transferee. "control" means the direct or indirect power to
direct or cause direction of the management and policies of an entity, whether
through ownership of voting securities, by contract or otherwise. Conversely,
Tenant shall not sublease space from, or assume the lease obligations of,
another tenant in the Project without Landlord's prior written consent,
Following any Transfer, Tenant (and any guarantors) shall remain fully liable
under this Lease, as then or thereafter amended with or without notice to or
consent of Tenant (or any guarantors), and Landlord may proceed directly under
this Lease against Tenant (or any guarantor) without first proceeding against
any other party. Tenant shall give Landlord written notice of any proposed
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Transfer at least 30 days prior to the anticipated effective date of the
proposed Transfer, which notice shall include a complete detailed written
description of the Transfer; the name, address, business and intended use of the
Transferee; a current audited financial statement for the Transferee certified
by recognized accounting firm; a copy of the proposed Transfer document;
appropriate evidence of the existence, good standing and signature authority of
the Transferee in the State; and such other pertinent information as Landlord
reasonably requests, together with Landlord's then-quoted Transfer processing
fee. If the proposed Transferee is subject to any new requirements tinder
Applicable Law (including ADA), (i) Tenant shall be liable for any costs or
expenses to comply with such requirements, and (ii) to the extent such
requirements require Alterations, Tenant shall deliver for Landlord's approval
plans and specifications complying with such additional requirements and
acceptable security assuring timely, lien-free completion of construction. If
the aggregate consideration paid to Tenant for a Transfer exceeds that payable
by Tenant under this Lease (prorated according to the Transferred interest),
then Tenant shall, within 15 days after receipt, pay such excess to Landlord.(9)
(b) Landlord's Options. Within 30 days after receipt of all required
Transfer information, Landlord shall give Tenant written notice of its election
(i) to consent to the Transfer; or (ii) to terminate this Lease as of the
effective date of the Transfer as to the space covered by such Transfer for the
remainder of the Term, in which event Tenant shall, subject to Paragraph 18, be
relieved of its obligations accruing after the termination date with respect to
the terminated interest; or (iii) not to consent to the Transfer, in which event
this Lease shall continue in full force and effect. If Landlord fails to timely
make such election, Landlord shall be deemed to have elected option (iii) above.
Any Transfer occurring without Landlord's consent shall be void and shall
constitute an Event of Default hereunder. In any event, all renewal and
expansion options and other preferential rights tinder this Lease are personal
to the original Tenant under this Lease and shall not be exercisable by any
Transferee. Neither Landlord's acceptance of any name for listing on the
Building directory or other signage, nor Landlord's acceptance of Rent from any
Transferee, shall be deemed, or substitute for, Landlord's consent to a
Transfer.
(c) Consent. Landlord shall not unreasonably withhold consent to any
Transfer pursuant to Paragraph 12(b)(iii). Landlord shall not be deemed to have
unreasonably withheld consent if: (i) Transferee's financial condition is not
reasonably satisfactory to Landlord or does not evidence Transferee's ability to
pay its obligations (including those undertaken in connection with the Transfer)
when due; (ii) the net worth of Transferee (plus any guarantor) is less than
that of Tenant (plus any guarantor) as of the Date of Lease or the effective
date of Transfer whichever is greater; (iii) Transferee refuses to provide
additional security required by Landlord as a result of a change in financial
creditworthiness or legal structure, such as increased security deposit,
guaranties, etc.; (iv) Transferee's use of the Premises conflicts with the
Permitted Use or any exclusive usage rights granted to any other tenant in the
Building; (v) the rise, nature, business, activities or reputation in the
business community of Transferee (or its principals, employees or invitees) are
not acceptable to Landlord;
(9) Notwithstanding the foregoing, Landlord shall consent to a
Transfer to an Affiliate (as defined below) unless: (i) Transferee's use of
the Premises conflicts with the Permitted Use or any exclusive usage rights
granted to any other tenant in the Building; (ii) the use, nature,
business, activities or reputation in the business community of Transferee
(or its principals, employees or invitees) are not acceptable to Landlord;
(iii) either the Transfer or any consideration payable to Landlord in
connection therewith adversely affects the real estate investment trust (or
pension fund) qualification tests applicable to Landlord or its affiliates;
(iv) an uncured Event of Default exists under this Lease (or a condition
exists which, with the passage of time or giving of notice, would become an
Event of Default); (v) Transferee is an occupant of, or Landlord is
otherwise engaged in lease negotiations with Transferee for, other premises
in the Project; (vi) Transferee is or has been involved in a dispute or
litigation with any Landlord Party; or (vii) Transferee fails to execute
Landlord's then-standard form of consent document, which will contain, in
the event of an assignment, an assumption by Transferee of all obligations
of Tenant under this Lease accruing after the date of Transfer. The term
"Affiliate" means any person or entity controlling, controlled by or under
common control with Tenant.
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(vi) either the Transfer or any consideration payable to Landlord in connection
therewith adversely affects the real estate investment trust (or pension fund)
qualification tests applicable to Landlord or its affiliates; (vii) an uncured
Event of Default exists under this Lease (or a condition exists which, with the
passage of time or giving of notice, would become an Event of Default); (viii)
Transferee is an occupant of, or Landlord is otherwise engaged in lease
negotiations with Transferee for, other premises in the Project; or (ix)
Transferee is or has been involved in a dispute or litigation with any Landlord
Party.
13. INDEMNITY.
(a) Definitions,
(i) Parties. The "Tenant Parties" are Tenant and its shareholders,
members, managers, partners, directors, officers, employees, agents,
contractors, sub lessees, licensees and invitees. The "Landlord Parties" are
Landlord, the manager of the Building, Landlord's Mortgagee(s) and any
affiliates or subsidiaries of the foregoing, and all of their respective
officers, directors, employees, shareholders, members, partners, agents and
contractors. A "Beneficiary" is the intended recipient of the benefits of
another party's Indemnity, Waiver or obligation to Defend.
(ii) Claims and Injuries. "Claims" means all damages, losses,
injuries, penalties, disbursements, costs, charges, assessments, expenses
(including legal, expert and consulting fees and expenses incurred in
investigating, Defending or prosecuting any allegation, litigation or
proceeding), demands, litigation, settlement payments, causes of action (whether
in tort or contract, in law, at equity or otherwise) or judgments. "Insurable
Injuries" refers to "advertising injury", "bodily injur , "personal injury" and
"property damage" collectively, as such terms are defined in Insurance Services
Office, Inc. ("ISO") form CG 0001 1093 "Commercial General Liability". "Tenant's
Insurable Injuries" are Insurable Injuries occurring (A) in the Premises or (B)
outside the Premises and caused or suffered by a Tenant Party.
(iii) Indemnify, Waive and Defend. "Indemnify" means to protect and
hold a party harmless from and against a potential Claim and/or to compensate a
party for a Claim actually incurred. "Waive" means to knowingly and voluntarily
relinquish a right and/or to release another party from liability. No Waive
shall occur except by a writing signed by the party against whom the Waiver is
claimed. No Waiver in one instance shall be deemed a Waiver in another instance,
however similar. No demand for or acceptance of partial payment or performance
shall Waive the underlying obligation or breach unless expressly agreed in
writing. "Defend" means to provide a competent legal defense of a Beneficiary
against a Claim with counsel reasonably acceptable (and at no cost) to the
Beneficiary.
(b) Indemnity Regarding Tenant's Performance. To THE FULLEST EXTENT
PROVIDED BY PARAGRAPH 13(f), TENANT SHALL INDEMNIFY AND DEFEND THE LANDLORD
PARTIES AGAINST ALL CLAIMS ARISING, OR ALLEGED TO ARISE, FROM THE FOLLOWING: (i)
ANY ACT OR OMISSION OF ANY TENANT PARTY, INCLUDING THE CONDUCT OF TENANT'S
BUSINESS IN THE PREMISES AND ANY INCREASE IN THE PREMIUM FOR ANY INSURANCE
POLICY CARRIED BY LANDLORD RESULTING THEREFROM; OR (ii) ANY MISREPRESENTATION
MADE BY TENANT OR ANY GUARANTOR OF TENANT'S OBLIGATIONS IN CONNECTION WITH THIS
LEASE.
(c) Indemnity Regarding Tenant's Insurable Injuries. TO THE FULLEST EXTENT
PROVIDED BY PARAGRAPH 13(f), TENANT SHALL INDEMNIFY AND DEFEND THE LANDLORD
PARTIES AGAINST ALL CLAIMS ARISING, OR ALLEGED TO ARISE, FROM TENANT'S INSURABLE
INJURIES.
(d) Indemnity Regarding Landlord's Insurable Injuries. To THE FULLEST
EXTENT PROVIDED BY PARAGRAPH 13(f), BUT SUBJECT TO ANY LIMITATIONS CONTAINED
ELSEWHERE IN THIS LEASE, INCLUDING PARAGRAPH 23, LANDLORD SHALL INDEMNIFY AND
DEFEND THE TENANT PARTIES AGAINST ALL CLAIMS ARISING FROM INSURABLE INJURIES
SUFFERED BY THIRD PARTIES IN THE COMMON AREAS OR SERVICE AREAS TO THE EXTENT
CAUSED, OR ALLEGED TO HAVE BEEN CAUSED, BY THE NEGLIGENT OR WILLFUL ACT OR
OMISSION OF ANY LANDLORD PARTY, BUT NOT AS TO CLAIMS FOR WHICH THE LANDLORD
PARTIES ARE INDEMNIFIED PURSUANT TO PARAGRAPHS 13(b) AND 13(c).
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(e) Waivers, To THE FULLEST EXTENT PROVIDED BY PARAGRAPH 13(1), (i) TENANT
WAIVES ALL CLAIMS AGAINST THE LANDLORD PARTIES ARISING, OR ALLEGED TO ARISE,
FROM (A) TENANT'S INSURABLE INJURIES, (B) ANY INSURABLE INJURIES TO ANY TENANT
PARTY CAUSED BY PARTIES OTHER THAN LANDLORD PARTIES, OR (C) BUSINESS
INTERRUPTION OR LOSS OF USE OF THE PREMISES SUFFERED BY TENANT; AND (ii)
LANDLORD WAIVES ALL CLAIMS AGAINST THE TENANT PARTIES ARISING, OR ALLEGED TO
ARISE, FROM THE DAMAGE TO OR LOSS OF TANGIBLE PROPERTY BELONGING TO A LANDLORD
PARTY.
(f) Scope of Indemnities and Waivers. ALL INDEMNITIES, WAIVERS AND
OBLIGATIONS TO DEFEND, WHEREVER CONTAINED IN THIS LEASE, (i) SHALL BE ENFORCED
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW FOR THE BENEFIT OF THE
APPLICABLE BENEFICIARY THEREOF, REGARDLESS OF ANY EXTRAORDINARY SHIFTING OF
RISKS, AND EVEN IF THE APPLICABLE CLAIM IS CAUSED BY THE ACTIVE OR PASSIVE
NEGLIGENCE OR SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE OF SUCH
BENEFICIARY, ANT) REGARDLESS OF WI-IETHER LIABILITY WITHOUT FAULT OR STRICT
LIABILITY IS IMPOSED UPON OR ALLEGED AGAINST SUCH BENEFICIARY, BUT NOT TO THE
EXTENT THAT A COURT OF COMPETENT JURISDICTION HOLDS IN A FINAL JUDGMENT THAT A
CLAIM IS CAUSED BY THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF SUCH
BENEFICIARY; (ii) ARE INDEPENDENT OF, AND SHALL NOT BE LIMITED BY, EACH OTHER OR
ANY INSURANCE OBLIGATIONS IN THIS LEASE (WHETHER OR NOT COMPLIED WITH); AND
(iii) SHALL SURVIVE THE EXPIRATION DATE UNTIL ALL RELATED CLAIMS AGAINST THE
BENEFICIARIES ARE FULLY AND FINALLY BARRED BY APPLICABLE LAW. NOTWITHSTANDING
THE POTENTIAL FOR EXTRAORDINARY SHIFTING OF RISK, LANDLORD AND TENANT
ACKNOWLEDGE THAT THEY HAVE EXECUTED THIS LEASE IN MATERIAL RELIANCE UPON
INCLUSION OF EACH SUCH INDEMNITY AND WAIVER.
(g) Reliance, In reliance on Tenant's Indemnities and Waivers in this Lease
and Tenant's insurance required by Paragraph 14(b), Landlord shall not carry
primary insurance for Tenant's Insurable Injuries. Tenant acknowledges that (i)
if Landlord had been required to carry primary insurance for Tenant's Insurable
Injuries, the Rent payable under this Lease would have been higher; and (ii)
Tenant is relying not on Landlord or Landlord's insurance in order to pay Claims
arising from Tenant's Insurable Injuries, but rather on (A) the insurance
required under Paragraph 14(b) and any additional insurance Tenant has elected
to carry as to Claims covered by insurance, (B) Tenant's own funds as to
deductibles, self-insured retentions under Tenant's insurance and Claims which
exceed Tenant's insurance limits, and (C) third parties (other than Landlord
Parties) as to Claims arising from the third party actions not covered by
Landlord's Indemnity.
14. INSURANCE.
(a) Landlord's Insurance. Landlord shall, as an Operating Expense, procure
and maintain (i) commercial general liability insurance with a combined single
limit of at least $5,000,000, and (ii) special form or all risks property
insurance covering the full replacement cost of (A) the shell and core of the
Building, (B) any fixtures and leasehold improvements Landlord is required by
this Lease to restore, and (C) any equipment and other personal property owned
by Landlord and used in connection with the Building.
(b) Tenant's Insurance.
(i) Required Policies. Tenant shall, at its sole expense, procure and
maintain the following insurance coverages throughout the Term:
(A) Commercial general liability insurance on ISO Form CG
00011093 or CG 0001 0695 (or, if Tenant has 2 or more locations
covered by the policy and the policy contains a general aggregate
limit, ISO form amendment "Aggregate Limits of Insurance Per Location"
CG 2504 1185) in the amounts and with the coverages described in
Exhibit "F-1". Landlord Parties shall be included as "additional
insureds" using ISO additional insured form CG 2026 1185, without
modification. A waiver of subrogation in favor of Landlord Parties
using ISO form CG 2404 1093 is also required.
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(B) Workers' compensation and employer liability coverage
with a waiver of subrogation in favor of the Landlord Parties on
endorsement form WC 429394 (Texas only) or ISO form WC 000313 (all
other states) and in the amounts and with the coverages described in
Exhibit "F-1".
(C) "Special form" or "all risks" property insurance on ISO
form CP 1030 (or equivalent Business Owner's Policy) in conformity
with Exhibit "F-2" with no exclusions other than standard printed
exclusions, including an ordinance or law coverage endorsement and a
waiver of subrogation in favor of the Landlord Parties, and covering
100% replacement cost of Tenant's furnishings, trade fixtures,
equipment and inventory ("Tenant's FF&E") and all ABS improvements and
Alterations to the Premises. The Landlord Parties shall be shown as
"loss payees as their interests may appear".
(D) Business income and extra expense coverage for 6 months'
income and expenses with waiver of subrogation in favor of the
Landlord Parties.
(ii) Form of Policies and Additional Requirements. All insurance
providers shall maintain ratings of Best's Insurance Guide A/VIII or Standard &
Poor Insurance Solvency Review A-, or better. All carriers must be admitted to
engage in the business of insurance in the State. All policies must be primary,
with the policies of Landlord and Landlord's Mortgagees being excess, secondary
and noncontributing. No cancellation, non-renewal or material modification shall
occur without 30 days' prior written notice by the insurance carrier to Landlord
and Landlord's Mortgagees. Tenant shall reinstate any aggregate limit which is
reduced because of losses paid to below 75% of the limit required by this Lease.
No policy shall contain a deductible or self-insured retention in excess of
$10,000 without Landlord's prior written approval. Tenant shall, at its expense,
also procure and maintain any other insurance coverages Landlord or Landlord's
Mortgagees may require.
(iii) Evidence of Insurance. Commercial general liability and workers'
compensation insurance must be evidenced by ACORD form 25 "Certificate of
Insurance" in the form and substance of Exhibit "F-1", and property and business
income insurance must be evidenced by ACORD form 27 "Evidence of Property
Insurance" in the form and substance of Exhibit "F-2" (collectively, the
"Certificates"). The Certificates must be delivered with the executed Lease, and
new Certificates must be delivered no later than 30 days prior to expiration of
the current policies. Copies of endorsements required by this Lease must be
attached to the Certificates delivered to Landlord. If requested in writing by
Landlord, Tenant shall promptly deliver to Landlord a certified copy of any
insurance policies required by this Lease. If the forms of policies,
endorsements, certificates or evidence of insurance required by this Paragraph
are superseded or no longer available, Landlord shall have the right to require
other equivalent or better forms.
15. FIRE OR CASUALTY.
(a) No Restoration. If the Premises or the Building are damaged by fire or
other casualty to the extent that reconstruction cannot reasonably be completed
within 1 year after the date of damage, as determined by Landlord, or more than
50% of the RSF of the Premises becomes untenantable due to casualty damage
within the last 12 months of the Term, then either Landlord or Tenant may, by
written notice given within 90 days of such damage, terminate this Lease, in
which event Tenant shall be entitled to a fair diminution of Base Rent while and
to the extent Tenant is unable to conduct its business in the Premises.
(b) Restoration. If this Lease is not so terminated, Landlord shall
reconstruct the Premises and/or the Building to substantially the same condition
as existed immediately prior to the date of damage, except that Landlord shall
not be required to spend more than the insurance proceeds made available for
such purposes by Landlord's Mortgagee. However, Landlord shall only be required
to reconstruct the Building Standard leasehold improvements existing in the
Premises on the date of damage (" Landlord's Contribution"). Tenant shall pay
the difference between the total cost of reconstructing the Premises and
Landlord's Contribution ("Tenant's Contribution"). Prior to Landlord's
commencement of reconstruction, Tenant shall place Landlord's estimate of
Tenant's Contribution in escrow with Landlord (or furnish Landlord with other
commercially reasonable assurances of payment). Tenant shall be entitled to a
fair diminution of Base Rent while and to the extent Tenant is unable to conduct
its business in the Premises.
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16. CONDEMNATION. If any portion of the Premises becomes permanently
untenantable upon condemnation (or conveyance by deed in lieu thereof) of any
portion of the Project, then either Landlord or Tenant may, by written notice
given within 60 days after the date of the taking, terminate this Lease as to
the untenantable portion of the Premises effective as of the date of the taking.
If this Lease is so terminated as to only part of the Premises, Landlord shall
(a) grant a fair diminution of Base Rent; and (b) make all repairs necessary to
convert the remaining Premises to a complete architectural and tenantable unit,
but only to the extent proceeds attributable to the area taken (based on an
equitable allocation excluding any award for land) are made available for such
purpose by Landlord's Mortgagee. Tenant Waives the right to assert any Claim for
the taking (or conveyance by deed in lieu thereof) of any right, interest or
estate under this Lease, and assigns such right to Landlord. However, Tenant
may, to the extent permitted by Applicable Law, pursue a Claim for its moving
expenses, inconvenience and business interruption in a proceeding independent of
Landlord's condemnation suit, so long as Landlord's award is not thereby reduced
or delayed.
17. DEFAULTS AND REMEDIES.
(a) Events of Default. Each of the following shall be an "Event of Default"
under this Lease: (i) Tenant fails to pay any monetary obligation under this
Lease when due; provided that the first such failure during any consecutive 12
month period shall not be an Event of Default if Tenant pays the amount due
within 5 days after written notice from Landlord; or (ii) Tenant fails to comply
with any non-monetary obligation under this Lease within 10 days after written
notice or, if such non-monetary failure is of a nature requiring more than 10
days to cure using reasonable diligence, fails to promptly commence such cure
within such 10-day period and thereafter diligently prosecute same to completion
within 10 additional days (provided that the foregoing notice procedure shall
not apply to the occurrences described in clauses (iii) through (ix) below for
which only a single informative notice without opportunity to cure is
necessary); or (iii) Tenant fails to comply with any single provision of this
Lease more than 2 times during any consecutive 12 month period during the Term
regardless of cure; (iv) the failure to dismiss any petition filed by or against
Tenant or any guarantor under the U.S. Bankruptcy Code (or similar law) within
45 days; or (v) the assignment of, or appointment of a receiver or trustee for,
Tenant's leasehold interest or substantially all of the assets of Tenant or any
guarantor; or (vi) Tenant fails to take possession of, or subsequently abandons
or vacates, the Premise 10; or (vii) if Ten ant is a legal entity, Tenant
dissolves, liquidates or otherwise ceases to exist in good standing in the
State; or (viii) the death or dissolution of any guarantor; or (ix) Tenant
becomes or is declared insolvent according to Applicable Law.
(b) Remedies. Upon any Event of Default, Landlord shall have the right: (i)
to terminate this Lease as to all or any interest therein; (ii) to terminate
Tenant's right of possession of all or any part of the Premises (including any
Parking Permits attributable thereto) without terminating this Lease; (iii) to
re-enter the Premises, change or pick locks, alter security devices and lock out
or expel Tenant and any other occupant of the Premises without complying with
Applicable Law, the benefits of which are Waived by Tenant to the fullest extent
permitted; (iv) to remove and store, at Tenant's expense, all property in the
Premises using such lawful force as may be necessary; (v) to apply any Security
Deposit as permitted under this Lease; (vi) to cure such Event of Default for
Tenant at Tenant's expense (plus a 150 o administrative fee); (vii) to withhold
or suspend payment of sums Landlord would otherwise be obligated to pay to
Tenant under this Lease, as amended; and/or (viii) to require all future
payments to be made by cashier's check or money order after the first time any
check is returned for insufficient funds, or the second time any sum due
hereunder is more than 5 days late. In addition, Landlord may, without regard to
any notice or cure provision and whether or not an Event of Default exists, (A)
impose a late charge of 10% on any amount not paid within 5 days after becoming
due or 20% on any amount not paid within 10 days after becoming due and (B)
charge interest on any amount not paid when due from the due date through the
date of payment at the "Default Rate", which is the lesser of 18% per annum or
the highest interest rate permitted by Applicable Law. TO THE FULLEST
(10) for a period of longer than 90 days
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EXTENT PROVIDED BY PARAGRAPH 13(1), TENANT SHALL INDEMMFY AND DEFEND LANDLORD
PARTIES AGAINST CLAIMS ARISING FROM ANY BREACH OF TENANT'S OBLIGATIONS UNDER
THIS LEASE.
(c) Election of Remedies. Landlord may exercise the foregoing rights and
remedies, as well as any other rights or remedies available tinder Applicable
Law, without (i) judicial process; (ii) further notice to Tenant; (iii)
incurring liability of any kind to Tenant, including liability for trespass or
conversion; (iv) constituting an eviction of Tenant; (v) releasing Tenant or any
guarantor from any obligation under this Lease; (vi) waiting until the
Expiration Date; or (vii) prejudicing any other right or remedy of Landlord. All
such rights and remedies, together with any rights and remedies available under
Applicable Law, are cumulative with no exercise of any one or more of them
prohibiting or waiving the exercise of any other. Landlord may, at any time
after terminating Tenant's right to possess the Premises without terminating
this Lease, elect to terminate this Lease and thereupon pursue any and all other
rights and remedies otherwise available upon such latter election.
(d) Measure of Damages. If Landlord either terminates this Lease or
terminates Tenant's right to possess the Premises without terminating this
Lease, Tenant shall immediately surrender and vacate the Premises and pay
Landlord (i) the cost of recovering the Premises; (ii) all Rent accrued through
the end of the month in which the termination becomes effective; (iii) all
expenses reasonably incurred by Landlord in enforcing its rights and remedies
under this Lease, including attorneys' fees, court costs and interest at the
Default Rate; (iv) "Landlord's Reletting Expenses" equal to commercially
reasonable costs, losses and expenses incurred by Landlord in reletting all or
any portion of the Premises, including the cost of removing and storing Tenant's
FF&E or other property, repairing and/or demolishing the Premises, removing
and/or replacing Tenant's signage and other fixtures, making the Premises ready
for a new tenant, including the cost of advertising, commissions, architectural
fees and leasehold improvements (even if amortized over a new lease term which
exceeds the balance of the Term), and any allowances and/or concessions provided
by Landlord; a id (v) "Landlord's Rental Damages" equal to the amount (never
less than zero) by which (A) the total Rent payable by Tenant for the portion of
the Term that is or would be remaining after the month in which the termination
becomes effective exceeds (B) the Fair Rental Value of the Premises for such
period. In calculating Landlord's Rental Damages, each monthly payment of Rent
and Fair Rental Value shall be discounted at the Prime Rate from its respective
due date to its present value as of the date of termination. The "Fair Rental
Value" is the total rental that would be received from a comparable tenant for a
comparable lease of premises in the Building of equivalent quality, size,
condition, remaining lease term and location as the Premises, taking into
account rental rates and concessions then generally prevailing in the market
place, the period of time the Premises are reasonably expected to remain vacant
before commencement of rental payments by a suitable new tenant, and all other
relevant factors. If any portion of the Premises is relet, the Fair Rental Value
for such relet portion shall be calculated based upon the rental receivable by
Landlord for the applicable reletting term. The "Prime Rate" is the "prime" rate
then published by Citibank, N.A., its successors or assigns, or another major
financial institution selected by Landlord. Until the earlier of the termination
of this Lease or the final determination of all damages under this Lease, all
Rent payable under this Lease shall continue to accrue and be payable when due
during the Term. Once the aggregate amount of damages is determined as provided
above, the unpaid balance, if any, shall thereafter accrue interest at the
Default Rate until paid in full.
(e) Mitigation of Damages. Upon termination of Tenant's right to possess
the Premises, Landlord shall, to the extent required by Applicable Law (and no
further), use objectively reasonable efforts to mitigate damages by reletting
the Premises. Landlord shall not be deemed to have failed to do so if Landlord
refuses to lease the Premises to a prospective new tenant with respect to whom
Landlord would be entitled to withhold its consent pursuant to Paragraph 12(c),
or who (i) is an affiliate, parent or subsidiary of Tenant; (ii) is not
acceptable to Landlord's Mortgagee(s); (iii) requires improvements to the
Premises to be made at Landlord's expense; or (iv) is unwilling to accept lease
terms then proposed by Landlord, including: (A) leasing for a shorter or longer
term than remains under this Lease, (B) re-configuring or combining the Premises
with other space, (C) taking all or only a part of the Premises, and/or (D)
changing the use of the Premises.
(f) Attorneys' Fees. In any dispute regarding this Lease, the prevailing
party shall be entitled to recover reasonable attorneys' fees, court costs and
expenses from the other party.
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(g) Landlord's Lien. To secure Tenant's obligations under this Lease,
'Tenant grants Landlord a contractual security interest on all of Tenant's FF&E
now or hereafter situated in the Premises and all proceeds therefrom, including
insurance proceeds (collectively, "Collateral"). No Collateral shall be removed
from the Premises without Landlord's prior written consent until all of Tenant's
obligations are fully satisfied (except in the ordinary course of business and
then only if replaced with items of same value and quality). Upon any Event of
Default, Landlord may, to the fullest extent permitted by Applicable Law and in
addition to any other remedies provided herein, enter upon the Premises and take
possession of any Collateral without being held liable for trespass or
conversion, and sell the same at public or private sale, after giving Tenant at
least 5 days written notice (or more if required by Applicable Law) of the time
and place of such sale. Such notice may be sent with or without return receipt
requested. Unless prohibited by Applicable Law, any Landlord Party may purchase
any Collateral at such sale. The proceeds from such sale, less Landlord's
expenses, including reasonable attorneys' fees and other expenses, shall be
credited against Tenant's obligations. Any surplus shall be paid to Tenant (or
as otherwise required by Applicable Law) and any deficiency shall be paid by
Tenant to Landlord upon demand. Upon request, Tenant shall execute and deliver
to Landlord a financing statement sufficient to perfect the foregoing security
interest or Landlord may file a copy of this Lease as a financing statement, as
permitted under Applicable Law.
(h) Force Majeure. Time is of the essence. If either party is unable to
perform any obligation under this Lease due to unavailability of materials or
equipment, strikes or other labor difficulties, governmental restrictions,
casualties or other causes beyond such party's reasonable control, such
obligation shall be stayed for the duration of such condition. This Paragraph
shall not affect or postpone the payment of Rent or other amounts due, except as
otherwise expressly provided in the attached Construction Agreement (if any).
18. END OF TERM.
(a) Surrender. Upon the earlier of the Expiration Date or Landlord's
termination of Tenant's right of possession of the Premises, Tenant shall
peaceably surrender the Premises (including all Alterations and leasehold
improvements) to Landlord, vacuum-clean, fiee of debris and in the same
condition existing as of the Commencement Date, subject to ordinary wear and
tear and except for damage due to casualty and condemnation.
(b) Removal of Improvements and Tenant's Property . Upon the earlier of the
Expiration Date or Landlord's termination of Tenant's right of possession of the
Premises pursuant to Paragraph 11(b), and except as otherwise expressly provided
in writing by Landlord at the time of installation, (i) all leasehold
improvements and Alterations installed in the Premises, including all built--in
fixtures and cabling, shall become Landlord's property; and (ii) provided there
is no uncured Event of Default, Tenant shall, at its expense, immediately remove
all of Tenant's FF&E from the Premises. However, except as otherwise expressly
provided in writing by Landlord at the time of installation, Landlord may, at
Tenant's expense, remove from the Premises (or require to be removed by Tenant
or an approved third party contractor) any or all Alterations, cabling and/or
ABS leasehold improvements. Tenant shall, within 30 days after Landlord's
invoice, reimburse Landlord for the cost to restore the Premises and otherwise
repair any damage caused by any of the foregoing removal work. All of Tenant's
foregoing obligations shall survive the Expiration Date. If Tenant's FF&E is not
timely removed, Landlord may, upon 10 days written notice to Tenant's address
(which notice Tenant agrees shall be deemed "reasonable"), and to the fullest
extent permitted by Applicable Law: (i) treat such property as abandoned by
Tenant with full rights of ownership in Landlord; (ii) remove and store such
property at Tenant's expense with reimbursement by Tenant to Landlord upon
demand; and/or (iii) sell or dispose of such property without delivering any
proceeds to Tenant. Tenant Waives all Claims against the Landlord Parties
arising from any right available to Tenant under Applicable Law restricting
Landlord's foregoing rights, and the right to assert any Claim against Landlord
for the value or use of any property abandoned by Tenant in the Premises.
(c) Hold Over, If any Tenant Party remains in possession of the Premises
after the Expiration Date, whether or not with Landlord's consent but without
executing a new lease ("Hold Over"), the Term shall not be extended, nor shall
any rights or remedies of Landlord be adversely affected, even if Landlord
thereafter accepts Rent. Instead, during the Hold Over, Tenant shall be deemed a
tenant at sufferance (and not a tenant at will or month--to-month tenant)
subject to all provisions of this Lease except that Base Rent and all amounts
payable to Landlord tinder Paragraph 7 shall be double the greater of (i) the
amount payable during the last month of the Term, or (ii) Landlord's
then--quoted rental rate for comparable space in the Project. Either party may
terminate the Hold Over immediately upon written notice. Tenant shall pay
Landlord all damages incurred by reason of any Hold Over11.
(11) provided however, so long as no uncured Event of Default exists
under the Lease, the Base Rent and all amounts payable to Landlord under
Paragraph 7 for the first 30 days of any such Hold Over shall be increased
to only 150% of such greater amount
19
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19. NOTICES. All notices shall be delivered by hand, reputable overnight courier
or certified mail (return receipt requested), postage prepaid, or by facsimile,
to Landlord at the Addresses for Notice specified in the Business Points (or
such other addresses specified in writing to Tenant); and to Tenant at the
appropriate address specified in the Business Points. Notice shall be deemed
given upon the date of confirmed receipt, if sent by hand, or tm next business
day after the date sent, if sent by post, overnight courier or
electronically-confirmed facsimile, except that a change of address notice shall
be effective 5 business days after actual receipt. Notices to Tenant addressed
to the Premises may be made by posting on the entrance door of the Premises.
20. LANDLORD'S FINANCING. This Lease is subordinate to all liens, encumbrances,
easements, deeds of trust and ground leases now or hereafter encumbering the
Building, and all refinancings, replacements, modifications, extensions or
consolidations thereof. Tenant shall attorn to any mortgagee, ground lessor,
trustee under a deed of trust or purchaser at a foreclosure or trustee's sale
("Landlord's Mortgagee") as "Landlord" under this Lease. Tenant shall, within 5
business days after Landlord's request, execute and deliver to Landlord in
recordable form whatever true and correct instruments may be required to
evidence such subordination and attornment. If Tenant fails to execute and
deliver such instrument as required, the statements therein shall be deemed to
be true. Landlord's Mortgagee may at any time subordinate its lien to this Lease
by unilaterally executing a subordinating instrument. Tenant shall not exercise
any right or remedy tinder this Lease or at law or in equity unless (a) Tenant
gives written notice to Landlord and Landlord's Mortgagee (whose name and
address shall be provided upon request) specifying the exact nature of the
alleged breach and how it may be remedied; and (b) both Landlord and Landlord's
Mortgagee fail to cure same within 30 days after receipt of Tenant's notice
(plus such additional time as Landlord's Mortgagee may require).
21. RIGHTS RESERVED BY LANDLORD. Landlord (and its designated agents,
contractors and managers) shall have the following rights:
(a) Access to the Premises. To enter the Premises upon reasonable notice
(except in emergencies when no notice is required) for purposes of (i)
inspection; (ii) making repairs, additions, improvements or alterations to the
Premises, any adjoining space or the Building as permitted or required under
this Lease or as Landlord elects; (iii) confirming Tenant's compliance with this
Lease; and (iv) exhibiting the Premises to prospective purchasers, mortgagees or
tenants. During each entry, Landlord shall tise reasonable good faith efforts to
minimize interference with Tenant's use of the Premises. In no event shall
Tenant be deemed constructively evicted nor entitled to any abatement of Rent.
Landlord shall at all times retain a mechanical or card key to all doors in or
about the Premises, except Tenant's vaults, safes and other portions of the
Premises reasonably designated by Tenant in writing as "secure areas" (to which
Landlord shall not be required to provide Building Standard maintenance or
janitorial services). In emergencies or if otherwise required to comply with
this Lease, Landlord shall have the right to use any and all means necessary to
open any doors, including doors to any designated secure areas, as may be
reasonably necessary tinder the circumstances. Landlord may erect scaffolding
and other structures where reasonably required by the character of the work.
(b) Project Modifications. To alter, decorate and repair or construct new
improvements upon the Project or any adjacent property, structurally or
otherwise, as determined by Landlord in its sole discretion, including changing
the arrangement, location and/or size of entrances, passageways, doorways,
corridors, elevators, stairs, restrooms and other public components, and to
place, inspect, repair and replace in the Premises (below floors, above ceilings
or next to columns) any utilities, pipes, cables or similar equipment serving
areas outside the Premises, or to rename the Project.
20
<PAGE>
(c) Right To Relocate. To require Tenant, upon 60 days notice, to relocate
the Premises to any other premises within the Building or to other buildings in
the Project ("Relocated Premises") on a date of relocation (the "Relocation
Date") specified therein.12 In such event, all reasonable expenses of moving
Tenant and decorating the Relocated Premises with substantially the same
leasehold improvements shall be at the expense of Landlord, including the
physical move, telephone installation and stationery costs.13 Within 5 business
days following receipt of Landlord's relocation notice, Tenant shall have the
option, effective as of the Relocation Date, either to enter into an appropriate
lease amendment relocating the Premises, or to terminate the Lease. Failure of
Tenant to choose either option shall constitute Tenant's election to relocate.
If Tenant elects to relocate, Landlord shall have the option to tender the
Relocated Premises to Tenant on any date within a 30 day period prior to or
after the Relocation Date, in which event the Relocation Date shall become the
date of tender of possession of the Relocated Premises. From the Relocation Date
through the Expiration Date, the aggregate Base Rent for the Relocated Premises
shall be the same as for the original Premises.
(d) Other Rights. To take such other measures Landlord deems necessary or
advisable for the ongoing operation, management, maintenance, repair and
protection of the Project. Tenant shall fully cooperate with all of such further
measures undertaken by Landlord.
22. HAZARDOUS MATERIALS.
(a) Definition. A "Hazardous Material" is any toxic, ignitable, reactive or
corrosive substance now or hereafter regulated by any governmental authority,
including any substance defined by Applicable Law as a "hazardous waste",
"extremely hazardous waste", "hazardous substance", "hazardous material" or
"regulated substance". "Contamination" means any release or disposal of a
Hazardous Material in or about the Premises or the Project which may result in a
fine, use restriction, cost recovery lien, remediation requirement or other
government action or imposition affecting any Landlord Party. For purposes of
this Lease, Claims arising from Contamination shall include diminution in value,
restrictions on use, adverse impact on leasing space, and all costs of site
investigation, remediation, removal and restoration work.
(b) Restrictions. No Hazardous Material shall be bin-ought upon, kept, used
or disposed of in or about the Premises or the Project by any Tenant Party
without Landlord's prior written consent, unless Tenant (i) demonstrates to
Landlord's reasonable satisfaction that any such Hazardous Material is necessary
in the ordinary course of Tenant's business and shall be used, kept and stored
in compliance with Applicable Law; and (ii) gives Landlord written notice of any
such Hazardous Material, including the current material safety data sheet.
(c) Remediation. If Contamination occurs as a result of an act or omission
of a Tenant Party, Tenant shall, at its expense, promptly take all actions
necessary to return the Premises, the Project and/or any adjoining property to
its condition prior to such Contamination, subject to Landlord's prior written
approval of Tenant's proposed methods, times and procedures for remediation.
Tenant shall provide Landlord reasonably satisfactory evidence that such actions
(12) The New Premises shall in all respects be substantially the same
or better, as reasonably determined by Landlord, in area, finish and
appropriateness for the Permitted Use.
(13) All moving costs (including the cost to relocate phones,
computers and other systems of similar nature), all costs of reprinting
stationery, cards and other printed material bearing Tenant's address at
the Premises if such address changes due to the relocation (but only the
quantity existing immediately prior to the relocation) and all other
out-of-pocket costs directly incurred by Tenant in connection with
relocations to the New Premises, including but not limited to reasonable
decorating and design costs, shall be paid by Landlord within thirty (30)
days after receipt of third party invoices therefor.
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shall not adversely affect any Landlord Party or Contaminated property. Landlord
may require that a representative of Landlord be present during any such actions
and/or that such actions be taken after business hours. If Tenant fails to take
any necessary remediation actions within 30 days after written notice from
Landlord or an authorized governmental agency (or any shorter period required by
any governmental agency), Landlord may take such actions and Tenant shall
reimburse Landlord therefor plus a 15% administrative fee, within 30 days of
Landlord's invoice.
23. LANDLORD'S INTEREST.
(a) Landlord's Liability. Landlord's liability for failure to perform its
obligations under this Lease shall be recoverable solely out of proceeds from
judicial sale upon execution and levy made against Landlord's interest in the
Building. Except as provided in the preceding sentence, Tenant Waives (i) all
other rights of recovery against any Landlord Party; and (ii) all Claims against
any Landlord Party and Landlord's Mortgagee for consequential, special or
punitive damages allegedly suffered by any Tenant Party, including lost profits
and business interruption. No Landlord Party shall have any personal liability
under this Lease.
(b) Conveyance. Landlord may convey any or all of its interest in this
Lease or the Project at any time. The term "Landlord" means only the owner of
the Landlord's interest in this Lease at the time in question. Immediately upon
conveyance by Landlord of such interest, the conveying party shall be released
from all obligations of "Landlord" thereafter arising under this Lease, and
Tenant shall attorn and look solely to the new Landlord for performance of such
obligations. Upon conveyance, the balance of any Security Deposit shall be
delivered to the new Landlord and Tenant shall thereafter look solely to the new
Landlord for application or return.
24. EXECUTION AND SIGNING AUTHORITY. Draft documents submitted for review do not
convey any right to Tenant in the Premises or other space. This Lease shall
become effective only upon full execution and delivery by all parties and, if
required, upon approval by Landlord's Mortgagee. This Lease may be executed in
counterparts, each of which shall be an original and all of which shall be one
and the same instrument. Each party and its counsel have reviewed and revised
this Lease after arms-length negotiations. Accordingly, the rule of construction
that ambiguities are resolved against the drafting party shall not apply to this
Lease or any amendments hereof. This Lease shall bind and inure to the benefit
of the parties and their respective heirs, executors, administrators, successors
and permitted Transferees, unless otherwise expressly set forth herein. Each
such pet-son or entity executing this Lease for Tenant shall be jointly and
severally bound and liable as "Tenant" tinder this Lease. If Tenant is a legal
entity, each person signing this Lease for Tenant represents and warrants to
Landlord (who reserves the right to request satisfactory evidence) that he is
authorized to do so without further signature or authorization from such legal
entity; that this Lease is fully binding on Tenant; and that Tenant is qualified
to do business in the State. Except as otherwise expressly extended to the
Landlord Parties or the Tenant Parties in this Lease, no beneficial rights are
given to any third parties by or under this Lease.
25. QUIET ENJOYMENT. So long as Tenant performs its obligations under this
Lease, it shall have the right to occupy the Premises without hindrance from
Landlord or any person lawfully Claiming through Landlord, subject to the terms
of this Lease, all superior mortgages, ground leases, deeds of trust, insurance
requirements and Applicable Law.
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ACCORDINGLY, the parties execute and deliver this Lease as of the Date of
Lease.
LANDLORD:
CRESCENT REAL ESTATE EQUITIZES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd., a
Delaware corporation, its General Partner
By: /s/ John L. Zogg, Jr.
-------------------------
Title: Vice President, Leasing/Marketing
SPECIAL NOTICE: THIS LEASE CONTAINS WAIVERS AND INDEMNITIES WHICH MAY MATERIALLY
AFFECT TENANT'S RIGHTS AND REMEDIES UNDER APPLICABLE LAW REGARDING THIS LEASE,
INCLUDING "EXPRESS NEGLIGENCE" PROVISIONS IN PARAGRAPH 13(f).
TENANT:
INFONOW CORPORATION, a Delaware corporation
By: /s/ Kevin D. Andrew
-----------------------
Title: Vice President and
Chief Financial Officer
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EXHIBIT "A"
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LEGAL DESCRIPTION OF THE PROJECT
LOTS 25 THROUGH 32, INCLUSIVE, BLOCII 66, EAST DENVER, CITY AND COUNTY OF
DENVER, STATE OF COLORADO.
<PAGE>
EXHIBIT "B"
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FLOOR PLAN OF PREMISES
[To be attached]
<PAGE>
EXHIBIT "C"
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CONSTRUCTION AGREEMENT
This Construction Agreement is attached as an Exhibit to an Office Lease
dated ____________1998 (the "Lease") between CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, as Landlord, and INFONOW CORPORATION, as Tenant. Unless
otherwise specified, all capitalized terms used herein shall have the same
meanings as in the Lease.
1. Approved Construction Documents,
(a) Tenants Information. No later than ___________________________________
Tenant shall submit to Landlord all information necessary for the preparation of
complete, detailed architectural, mechanical, electrical and plumbing drawings
and specifications for construction of the Work (as defined below) in the
Premises, including Tenants partition and furniture layout, reflected ceiling,
telephone and electrical outlets and equip pent rooms, initial Provider(s) of
Telecommunications Services, doors (including hardware and keying schedule),
glass partitions, windows, critical dimensions, structural loads5 millwork,
finish schedules, and HVAC and e1ectrical requirements, together with all
supporting information and delivery schedules ("Tenant's Information").
(b) Construction Documents. Following Landlord's execution of the Lease and
receipt of Tenant's Information, Landlord's designated architectural/engineering
firm shall prepare and submit to Tenant all finished and detailed architectural
drawings and specifications, including mechanical, electrical and plumbing
drawings (the "Construction Documents"). In addition, Landlord shall advise
Tenant of the number of days of Tenant Delay (defined below) attributable to any
extraordinary requirements (if any) contained in Tenants Information
(c) Approved Construction Documents. Within 3 days after receipt, Tenant
shall approve and return the Construction Documents to Landlord. Upon Tenants
approval, the Construction Documents shall become the "Approved Construction
Documents".
2. Pricing and Bids.
(a) Estimates. Following receipt of the Approved Construction Documents,
Landlord will promptly price the construction of the Work (defined below) in
accordance therewith and furnish Written price estimates to Tenant.
(b) Approved Pricing. Upon receipt, Tenant shall promptly review such
estimates and complete negotiations with Landlord for any changes or adjustments
thereto. Within 5 days after such receipt, Tenant shall return the estimates
with written approval to Landlord.
3. Landlord's Contributions.
(a) Construction Allowance. Landlord will contribute a sum not to exceed
$8.00 per RSF in the Premises (the "Construction Allowance"), towards the cost
of constructing the Work (as defined below) in accordance with this Construction
Agreement. Payments shall be made directly to Landlord's contractor performing
the Work. The cost of all space planning, design, consulting or review services
and construction drawings shall be included in the cost of the Work and may be
paid out of the Construction Allowance, to the extent sufficient funds are
available for such purpose.
(b) Unused Allowance(s). Any allowance made available to Tenant under this
Construction Agreement must be utilized for its intended purpose within 6 months
of the Date of Lease or be forfeited with no further obligation on the part of
Landlord.(14)
4. Construction.
(a) The Work. Subject to the terms of this Construction Agreement. Landlord
agrees to cause permanent leasehold improvements to be constructed in the
Premises (the "Work") in a good and workmanlike manner in accordance with the
Approved Construction Documents.
<PAGE>
(b) General Terms. Tenant acknowledges that Landlord is not an architect or
engineer, and that the Work will be designed and performed by independent
architects, engineers and contractors. Accordingly, Landlord does not guarantee
or warrant that the Approved Construction Documents will comply with Applicable
Law or be free from errors or omissions, nor that the Work will be free from
defects, and Landlord will have no liability therefor, In the event of such
errors, omissions or defects, and upon Tenant's written request, Landlord will
use commercially reasonable efforts to cooperate with Tenant in enforcing any
applicable warranties. In addition, unless expressly agreed to in writing by
Landlord prior to commencement of the Work, Landlord's approval of the
Construction Documents or the Work shall rot be interpreted to Waive or
otherwise modify the terms and provisions of the Lease.
(c) Electrical Design Capacity. The following parameters constitute
Building Standard electrical design capacity: (i) all lighting shall be
fluorescent lighting at 277 volts; (ii) the connected electrical load of a
electrical equipment serving the Premises shall not exceed an average of 4.0
watts per RSF; (iii) no single item or component of electrical equipment shall
have a rated electrical load greater than 0.5 kilowatt or require voltage other
than 120 volts, single phase (or 110 volts, depending on available service in
the Building); and (iv) no electrical equipment shall exceed the safe and lawful
capacity of the existing electrical circuit(s) and facilities serving the
Premises. Any requirements, services or equipment in excess or contravention of
any of the foregoing parameters (or any combination thereof) shall constitute
ABS electrical services subject to Landlord's approval and Tenant's compliance
with the other applicable provisions of the Lease, specifically including
Paragraph 8(d) thereof. However, the cost of purchasing and installing any ABS
electrical equipment approved by Landlord may be paid from the Construction
Allowance (if any) as part of the Work.
(d) ADA Compliance. Landlord shall, as an Operating Expense, be responsible
for ADA compliance for the base Building, core areas (including elevators,
Common Areas, Se vice Areas and the Project's parking facilities) and all points
of access into the Project. Tenant shall, at its expense, be responsible for ADA
compliance in the Premises, including restrooms on any floor now or hereafter
leased or occupied in its entirety by Tenant, its affiliates or Transferees.
Landlord shall not be responsible for determining whether Tenant is a public
accommodation under ADA or whether the Approved Construction Documents comply
with ADA requirements. Such determinations, if desired by Tenant, shall be the
sole responsibility of Tenant.
(e) Substantial Completion.
(i) Definition. Subject to adjustment under Paragraphs 4(e)(iii) and
4(e)(iv), "Substantial Completion" shall occur, with respect to the Premises,
when (A) II of the Work has been completed in accordance with his Construction
Agreement and the Approved Construction Documents, to the extent that Tenant
would have access to the Premises and would be able to conduct its business in a
reasonable manner, and (B) Landlord has obtained final inspection approval from
all appropriate regulatory authorities (if required) for the Premises, even
though adjustments or corrections may be necessary and Punchlist Items remain to
be completed.
(14) Notwithstanding the foregoing, in the event that any of the
Construction Allowance remains unused after the completion of the Work as
set forth in this Construction Agreement, the remaining Construction
Allowance may be utilized by Tenant for additional tenant improvements at
the Premises at any time during the initial Term of the Lease, which
additional tenant improvements shall be subject to Landlord's prior written
approval and also subject to all of the provisions of the Lease concerning
the construction of improvements or Alterations at the Premises, including
but not limited to Paragraph 11 thereof.
<PAGE>
(ii) Time of the Essence. Time is of the essence in connection with
the obligations of Landlord and Tenant under this Construction Agreement.
(iii) Tenant Delay. If Landlord is delayed in achieving Substantial
Completion due to a delay caused by a Tenant Party or for any other cause
arising from an act or omission of any Tenant Party, including (A) Tenant's
request for change orders to the Work, (B) Tenant's failure to timely deliver or
approve any required documentation, such as Tenant's Information, if applicable,
Construction Documents, pricing estimates and the like, (C) Tenant's failure to
pay any Cost Overruns (as defined below), or (D) Tenant's failure to otherwise
respond to any other Landlord request (collectively, "Tenant Delay"),
Substantial Completion shall be deemed to have occurred on the date Substantial
Completion would have been achieved bra for such Tenant Delay.
(iv) Other Delay. If Substantial Completion is delayed for any reason
other than Tenant Delay, Substantial Completion shall occur on the date when
actually achieved (subject to adjustment for Tenant Delay).
(v) Landlord Liability. Landlord shall not be liable or responsible
for any Claims incurred (or alleged) by Tenant due to any delay in achieving
Substantial Completion for any reason.(15)
5. Costs.
(a) Change Orders and Cost Overruns. All change orders must be approved in
advance in writing by Landlord. Change orders requested by Tenant and approved
by Landlord which delay or increase the cost of the Work shall be paid by Tenant
within 15 days of receipt of Landlord's invoice therefor (which payment may be
required by Landlord prior to commencing construction). Except as otherwise
expressly provided in this Construction Agreement, all costs of the Work in
excess of the Construction Allowance (collectively, "Cost Overruns") shall be
paid by Tenant to Landlord within 10 days of Landlord's invoice. In addition, at
Landlord's election, Landlord may require Tenant to prepay any projected Cost
Overruns within 5 days of Landlord's invoice. Landlord may stop or decline to
commence all or any portion of the Work until such payment (or prepayment) is
received. On or before the Commencement Date, and as a condition to Tenants
right to take possession of the Premises, Tenant shall pay Landlord the entire
amount of all Cost Overruns, less any prepaid amounts.
(b) Construction Management Fee. Within 10 days following the date of
invoice, Tenant shall, for supervision and administration of the construction
and installation of the Work, pay Landlord a construction management fee equal
to 5% of the aggregate contract price for the Work, which may be paid from the
unused portion of the Construction Allowance (if any). Tenant's failure to pay
such amount when due shall constitute an Event of Default under the Lease.
(15) Notwithstanding anything contained in the Lease or this
Construction Agreement to the contrary, Tenant acknowledges that Landlord
will be performing its obligations under this Construction Agreement while
Tenant is occupying the Premises, and agrees that Landlord, its agents,
employees and contractors shall have the right to enter the Premises during
business hours to perform the Work, Tenant understands that the work to be
performed pursuant to this Construction Agreement may result in noise,
vibration, dirt, dust and other circumstances commonly attendant to
construction. Tenant hereby waives any claim of injury or inconvenience to
Tenant's business, interference with Tenant's business, loss of occupancy
or quiet enjoyment of the Pi-emises, or any other loss occasioned by such
entry or the performance of the work required pursuant to the terms of this
Construction Agreement, nor shall the same relieve Tenant of any
obligations under the Lease, Landlord will attempt to minimize the
disruption to Tenant's business during its performance of the Work. No
entry of the Premises by Landlord under this Construction Agreement shall
be deemed a forcible or unlawful entry into the Premises, or a detainer of
the Premises, or an eviction, actual or constructive, of Tenant from the
Premises, or any part of the Premises, nor shall the entry entitle Tenant
to damage or an abatement of monthly Base Rent, Tenant's share of Operating
Expanses, or other charges that the Lease requires Tenant to pay. Tenant
shall fully cooperate with Landlord a td its contractors and shall not in
any way impede, inhibit or hinder any of the work to be performed pursuant
to the terms of this Construction Agreement.
<PAGE>
EXHIBIT "D"
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CERTIFICATE OF ACCEPTANCE OF PREMISES
Re: Office Lease dated ________, 1998 (the "Lease") between CRESCENT REAL
ESTATE EQUITIES LIMITED PARTNERSHIP ("Landlord") and INFONOW CORPORATION
("Tenant") for approximately 7,782 RSF of Premises on the 11th floor of the
Building. Unless otherwise specified, all capitalized terms used herein
shall have the same meanings as in the Lease.
Landlord and Tenant agree that:
1. Except for Punchlist Items if any, Landlord has fully completed all
Work required under the terms of the Lease.
2. The Premises are usable by Tenant as intended Landlord has no further
obligation to perform any Work or other construction (except Punchlist
Items), at-id Tenant acknowledges that both the Building at-id the
Premises are satisfactory in all respects.
3. The Commencement Date of the Lease is ___________,199__
4. The Expiration Date of the Lease is the last day of _________,
_______.
5. Tenant's Address at the Premises after the Commencement Date is:
Attention:
Telephone:
Facsimile:
All other terms and conditions of the Lease are ratified and acknowledged to be
unchanged.
EXECUTED as of_______________, 199___.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
LANDLORD:
---------
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd., a
Delaware corporation, its General Partner
By: /s/ John L. Zogg, Jr.
-------------------------
Title: Vice President, Leasing/Marketing
TENANT:
-------
INFONOW CORPORATION, a Delaware corporation
By: /s/ Kevin D. Andrew
-----------------------
Title: Vice President and CFO
<PAGE>
EXHIBIT "E"
-----------
RULES AND REGULATIONS FOR AT & T BUILDING
Landlord and Tenant agree that the following Rules and Regulations shall be
and hereby are made a part of this Lease, and Tenant agrees that Tenants
employees and agents, or any others permitted by Tenant to occupy or enter the
Premises, will at all times abide by said Rules and Regulations:
1. The sidewalks, entries, passages, corridors, stairways and elevators of
the Building shall not be obstructed by Tenant, or Tenants agents or employees,
or used for any purpose other than ingress to and egress from the Premises.
2. Furniture, equipment or supplies will be moved in or out of the Building
only upon the elevator designated by Landlord and then only during such hours
and in such manner as may be prescribed by Landlord and upon no less than
forty-eight (48) hours prior notice to Landlord. Landlord shall have the right
to approve or disapprove the movers or moving company employed by Tenant. Tenant
shall cause its movers to use only the loading facilities and elevator
designated by Landlord. In the event Tenants movers damage the elevator or any
part of the Building Tenant shall forthwith pay to Landlord the amount required
to repair said damage.
3. Landlord reserves the right to refuse admittance to the Building at any
time other than between the hours of 7:00 a.m. and 6:00 p.m. Monday through
Friday, and 8:00 a.m. to 1:00 on Saturday, to any person not producing both a
key to the Leased Premises and/or a pass issued by Landlord. In case of
invasion, riot, public excitement or other commotion, Landlord also reserves the
right to prevent access to the Building during the continuance of same. Landlord
shall in no case be liable for damages for the admission or exclusion of any
person to or from the Building.
4. No safe or articles, the weight of which may in the opinion of Landlord
constitute a hazard or damage to the Building or Building's equipment, shall be
moved into the Premises.
5. Safes and other equipment, the weight of which is excessive, shall be
moved into, from and about the Building only during such hours and in such
manner as shall be prescribed by Landlord; and Landlord shall have the right to
designate the location of such articles in the Premises (except Landlord shall
not designate the location of normal office equipment such as copiers, computers
or facsimile machines).
6. No sign, advertisement or notice shall be inscribed, painted or affixed
on any part of the inside or outside of the Building unless of such color, size
and style and in such place upon or in the Building, as shall be first
designated and approved in writing by Landlord, provided, however, there shall
be no obligation or duty on Landlord to allow any sign, advertisement or notice
to be inscribed, painted or affixed on any part of the inside or outside of the
Building except as otherwise provided in the Lease. No furniture shall be placed
in front of the Building or in any lobby or corridor, without the prior written
discretionary consent of Landlord. Landlord shall have the right to remove 11
non-permitted signs and furniture, without notice to Tenant, and at the expense
of Tenant.
7. Tenant shall not do or permit anything to be done in the Premises, or
bring or keep anything therein which would in any way increase the rate of fire
insurance on the Building or on property keep therein, constitute a nuisance or
waste, or obstruct or interfere with the rights of other tenants, or in any way
injure or annoy them, or conflict with any of the rules or ordinances of the
Fire Department or of the Department of Health of the City and County where the
Building is located.
8. Tenant shall not employ any person or persons other than the janitor of
Landlord for the purpose of cleaning or taking care of the Premises, without the
prior written consent of Landlord. Landlord shall be in no way responsible to
Tenant for any loss of property from the Premises, however occurring, or for any
damage done to Tenants furniture or equipment by the janitor or any of janitor's
staff, or by any other person or persons whomsoever; provided, however, that the
janitorial staff is bonded. The janitor of the Building may at all times keep a
pass key, and other agent of Landlord shall at all times be allowed admittance
to the Premises.
<PAGE>
9. Water closets and other water fixtures shall not be used for any purpose
other than that for which the same are intended, and any damage resulting to the
same from misuse on the part of Tenant, Tenant's agents or employees, shall be
paid for by Tenant. No person shall waste water by tying back or wedging the
faucets or in any other manner.
10. No animals shall be allowed in the offices, halls, corridors and
elevators in the Building. No person shall disturb the occupants of this or
adjoining buildings or premises by the use of any radio, sound equipment or
musical instrument or by the making of loud or improper noises.
11. No vehicles, including bicycles, shall be permitted in the offices,
halls, corridors, and elevators in the Building nor shall any vehicles be
permitted to construct the sidewalks or entrances of the Building.
12. Tenant shall not allow anything to be placed on the outside of the
Building, nor allow anything to be thrown by Tenant, Tenant's agents or
employees, out of the windows or doors, or down the corridors, elevator shafts,
or ventilating ducts or shafts of the Building, Tenant, except in case of fire
or other emergency, shall not open any outside window.
13. No additional lock or locks shall be placed by Tenant on any door in
the Building unless written consent of Landlord shall first have been obtained.
A reasonable number of keys to the toilet rooms if locked by Landlord will be
furnished by Landlord and neither Tenant, Tenant's agents or employees shall
have any duplicate keys made. At he termination of this tenancy, Tenant shall
promptly return to Landlord 11 keys to offices, toilet rooms or vaults.
14. No window shades, blinds, screens, draperies or other window coverings
will be attached or detached by Tenant without Landlords prior written consent.
Tenant agrees to abide by Landlord's rules with respect to maintaining uniform
curtains, draperies and/or linings at all windows and hallways.
15. No awnings shall be placed over any window.
16. If Tenant desires telegraphic, telephonic or other electric
connections. Landlord or Landlords agents will direct the electricians as to
where and how the wires may be introduced and without such directions, no boring
or cutting for wires will be permitted. Any such installation and connection
shall be made at Tenants expense.
17. Tenant shall not install or operate any steam or gas engine or boiler,
or carry on any mechanical operation in the Premises. The use of oil ,gas or
inflammable liquids for heating, lighting or any other purpose is expressly
prohibited. Explosives or other articles deemed extra hazardous shall not be
brought into the Building.
18. Any painting or decorating as may be agreed to be done by Landlord
shall be done during regular weekday working hours. Should Tenant desire such
work on Saturdays, Sundays, holidays or outside of regular working hours, Tenant
shall pay for the extra cost thereof.
19. Except as permitted by Landlord and except for normal office
decorating, Tenant shall not mark upon, paint signs upon, cut, drill into, drive
nails or screws into or in any way deface the walls, ceilings, partitions or
floors of the Premises or of the Building, and any defacement, damage or injury
caused by Tenant, Tenant's agents or employees, shall be paid for by Tenant.
20. Landlord shall at all times have the right, by Landlord's
representatives or agents, to enter the Premises and show the same to persons
wishing to lease them and may, at any time within sixty (60) days preceding the
termination of Tenant's Lease term, place upon the doors and windows of the
Premises a "For Lease" sign, which notice shall not be removed by Tenant.
21. Tenant shall not obstruct or interfere with the rights of other tenants
or the Building, or of persons having business in the Building, or in any way
injure or annoy such tenants or persons.
<PAGE>
22. Tenant shall not commit any act or permit anything in or about the
Building which shall or might subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business or
operation being carried on in or about the Building or for any other reason.
23. Tenant shall not use the Building for lodging, sleeping, or for any
immoral or illegal purpose or for any purpose that will damage the Building, or
the reputation thereof, or for any purposes other than those specified in the
Lease.
24. Canvassing, soliciting, peddling and distributing handbills in the
Building are prohibited, and Tenant shall cooperate to prevent such activities.
25. Tenant shall not conduct mechanical or manufacturing operations or
place or use any inflammable combustible explosive, or hazardous fluid,
chemical, device, substance or material in or about the Building, except for
materials which are norm 1 and customary office supplies and are kept in
quantities normally and customarily found in offices and are not in violation of
Applicable Law. Tenant shall comply with all statutes, ordinances, rules,
orders, regulations and requirements imposed by governmental or
quasi-governmental authorities in connection with fire and public safety and
fire prevention and shall not commit any act or permit any object to be brought
or kept in the Building, which shall result in a change of the rating of the
Building by the insurance Services Officer or any similar person or entity.
26. Tenant shall not use the building for manufacturing or for the storage
of goods, wares or merchandise, except as such storage may be incidental to the
use of the Premises for general office purposes and except in such portions of
the Premises as may be specifically designated by Landlord for such storage.
Tenant shall not occupy the Building or permit any portion of the Building to be
occupied for the manufacture of direct s le of liquor, narcotics, or tobacco in
any form, or as a medical office, barber shop, manicure shop, music or dance
studio or employment agency. Tenant shall not conduct in or about the Building
any attention, public or private, without the prior written approval of
Landlord.
27. Tenant shall not use in the Building any machines, other than the
standard office machines such as typewriters, calculators, copying machines and
similar machines, without the express prior written consent of Landlord.
Business machines and mechanical equipment belonging to Tenant which cause noise
or vibration that may be transmitted to the structure of the Building, to such a
degree as to be objectionable to Landlord or other tenants, shall be placed and
maintained by Tenant, at Tenant s expense, on vibration eliminators or in
noise-dampening housing or other devices sufficient to eliminate noise or
vibration.
28. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind within or out of the Building except in the refuse
containers provided therefore. Tenant shall not introduce into the Building any
substance which might add an undue burden to the cleaning or maintenance of the
Premises or the Building. Tenant shall exercise its best efforts to keep the
sidewalks, entrances, passages, courts, lobby areas, garages or parking areas,
elevators, escalators, stairways, vestibules, public corridors and halls in and
about the Building clean and free from rubbish.
29. Tenant shall use the Common Areas only as a means of ingress and
egress, and Tenant shall permit no loitering by any persons upon Common Areas or
elsewhere within the Building. The Common Areas and roof of the Building are not
for the use of the general public, and Landlord shall, in all cases, retain the
right to control or prevent access thereto by all persons whose presence in the
judgment of the Landlord, shall be prejudicial to the safety, character,
reputation or interests of the Building and its tenants. Tenant shall not enter
the mechanical rooms, air conditioning rooms, electrical closets, or similar
areas or go upon the roof of the Building without the express prior written
consent of Landlord.
30. Landlord its agents or representatives reserve the right to exclude or
expel from the Building any person, who, in the judgment of Landlord, is
intoxicated or under the influence of liquor or drugs or who shall in any manner
act in violation of the rules and regulations of the Building.
<PAGE>
31. Tenant shall not use the washrooms, restrooms and plumbing fixtures of
the Building, and appurtenances thereto, for any other purpose then the purposes
for which they were constructed, and Tenant shall not deposit any sweepings,
rubbish, rags or other improper substances therein. Tenant shall not waste water
by interfering or tampering with the faucets or otherwise, If Tenant or Tenant's
servants, employees, contractors, jobbers, agents, licensees, invitees, guests
or visitors cause any damage to such washrooms, restrooms, plumbing fixtures or
appurtenances, such damage shall be repaired at Tenant's expense and Landlord
shall not be responsible therefor.
32. The sashes, sash doors, skylights, windows and doors that reflect or
admit light or air into the common areas of the Building shall not be covered or
obstructed by Tenant, through placement of objects upon windowsills or
otherwise. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system of the Building by closing drapes and other
window coverings when the sun's rays fall upon the windows o he Premises. Tenant
shall not obstruct, alter or in any way impair the efficient operation of
Landlord's heating, ventilating, air conditioning, electrical, fire, safety, or
lighting systems, nor shall Tenant tamper with or change the setting of any
thermostat or temperature control valves in the Building.
33. Subject to applicable fire or other safety regulations, all doors
opening into Common Area and all doors upon the perimeter of the Premises shall
be kept closed and, during nonbusiness hours, locked, except when in use for
ingress or egress. if Tenant uses the Premises after regular business hours or
on nonbusiness days, Tenant shall lock any entrance doors to the Building or to
the Premises used by Tenant immediately after using such doors.
34. During the term of the Lease, Tenant shall comply with all statutes,
ordinances, rules, orders, regulations and requirements of the federal, state,
county and city governments and all departments thereof applicable to the
presence, storage, use, maintenance and removal of toxic, hazardous or
contaminated substances (collectively, "hazardous material") in, on or about the
Premises, which presence, storage, use, maintenance or removal is caused or
permitted by Tenant. In no event shall the aforesaid be construed to mean that
Landlord has given or will give its consent to Tenant's storing, using,
maintaining or removing hazardous materials in, on or about the Premises.
35. Tenant shall not permit its employees or agents to smoke in any lobby,
hallway, stairwell or restroom within the Building Complex or in any other areas
of the Building Complex posted as a non-smoking area.
36. Tenant agrees that Landlord may reasonably amend, modify, delete or add
new and additional rules and regulations to the use and care of the Premises and
the Building, provided such changes shall not unreasonably interfere with
Tenant's use of the Premises for office purposes. Tenant agrees to comply with
all such rules and regulations upon notice to Tenant from Landlord thereof. In
the event of any breach of any rules and regulations herein set forth or any
reasonable amendments, modifications or additions thereto. Landlord shall have
all remedies in this Lease provided for in the event of default by Tenant.
<PAGE>
EXHIBIT "F-1" AND EXHIBIT "F-2"
-------------------------------
Samples of Certificates of Insurance
<PAGE>
RIDER NO. 1
-----------
OPTION TO EXTEND
A. Renewal Period. Tenant may, at its option, extend the Term for one (1)
renewal period(s) of no less than three (3) and no more than five (5) years each
(the "Renewal Period(s)") by written notice to Landlord (the "Renewal Notice")
given16 no months prior to the expiration of the Term (as it may have been
extended) or preceding Renewal Period, as applicable, provided that at the time
of such notice and at the commencement of such Renewal Period, (i) Tenant
remains in occupancy of the Premises, and (ii) no uncured Event of Default
exists under the Lease (and no condition exists which, with the passage of time
and/or giving of notice, would be an Event of Default)17. Such Renewal Period
shall commence upon the expiration date of the initial Term (or preceding
Renewal Period, as applicable). The Base Rent payable during the Renewal Period
shall be at18 for the Premises, including any projected rate increases over the
applicable Renewal Period. However, in no event shall the Base Rent for any
Renewal Period be less than the Base Rent during the last year of the Term (or
preceding Renewal Period, as applicable). Except as provided in this Rider No.
1, all terms and conditions of the Lease shall continue to apply during the
Renewal Period(s).
B. Acceptance. Within 30 days of the Renewal Notice, Landlord shall notify
Tenant of the Base Rent for such Renewal Period (the "Rental Notice"). Tenant
may accept the terms set forth in the Rental Notice by written notice (the
"Acceptance Notice") to Landlord given within 15 days after receipt of the
Rental Notice. If Tenant timely delivers its Acceptance Notice, Tenant shall,
within 15 days after receipt, execute a lease amendment confirming the Base Rent
and other terms applicable during the Renewal Period. If Tenant fails timely (i)
to deliver its Acceptance Notice or (ii) to execute and return the required
lease amendment, then this option to extend shall automatically expire and be of
no further force or effect. In addition, this option to extend shall terminate
upon assignment of this Lease or subletting of all or any part of the
Premises.(19)
C. See footnote below (20)
(16) at least nine (9) but 110 more than twelve (12)
(17) ,which Renewal Notice shall expressly state Tenants desired
length of the Renewal Period, consistent with the requirements of this
paragraph and which Renewal Period must otherwise be limited to full
calendar months; if the Renewal Notice does not so expressly state, Tenant
shall be deemed to have elected a Renewal Period of five (5) years
(18) the Market Rental Rate
(19) In addition, this option to extend shall terminate upon Tenant's
exercise of its termination option as provided in Rider No. 4 of this
Lease.
(20) C. Market Rental Rate, The "Market Rental Rate" is the rate (or
rates) a willing tenant would pay and a willing landlord would accept for a
comparable transaction (e.g., renewal, expansion, relocation, etc., as
applicable, in comparable space and in a comparable building) as of the
commencement date of the applicable term, neither being under any
compulsion to lease and both having reasonable knowledge of the relevant
facts, considering the highest and most profitable use if offered for lease
in the open market with a reasonable period of time in which to consummate
a transaction. In calculating the Market Rental Rate, all relevant factors
will be taken into account, including the locations and quality of the
Building, lease term, amenities of the Project, condition of the space and
any concessions and allowances commonly being offered by Landlord for
comparable transactions in the Project. The parties agree that the best
evidence of the Market Rental Rate will be the rate then charged for
comparable transactions in the Project.
<PAGE>
RIDER NO. 2
PREFERENTIAL RIGHT TO LEASE
A. Preferential Right To Lease. Tenant shall have as preferential right to lease
approximately 4,984 RSF (+/- 20%, in Landlord's discretion) on the 11th floor of
the Building, as show on Exhibit "B" to the Lease (the "Preferential Space"), at
such time as such space becomes Available (as defined below) for direct lease to
a new tenant (whether or not a bona fide offer has been made); provided no
uncured Event of Default exists under the Lease (and no condition exists which,
with the passage of time and/or giving of notice, would be an Event of Default)
and Tenant remains in occupancy of the entire Premises. The Preferential Space
shall be deemed "Available" at such time as Landlord decides to offer the
Preferential Space for lease and such space is not longer any of the following:
(i) leased or occupied; (ii) assigned or subleased by the then-current tenant of
the space; (iii) released by the then-current tenant of the space by renewal,
extension or renegotiation (whether agreed to prior to or after the Date of
Lease); or (iv) subject to an expansion option, right of first refusal,
preferential right or similar obligation existing under any other tenant leases
for the Project as of the Date of the Lease.22
B. Acceptance. Prior to leasing the Preferential Space to a new tenant, Landlord
shall first offer such space in writing to Tenant specifying the amount and
location of such space, the anticipated date of tender of possession, the rental
rate(23) , and other applicable terms (the Preferential Rental Notice"). Tenant
shall have 5 days within which to accept or reject such offer. If Tenant accepts
Landlord's offer, Tenant shall, within 15 days after Landlord's written request,
execute and return a lease amendment adding the Preferential Space to the
Premises for all purposes under the Lease (including any extensions or renewals)
and confirming the Base Rent and other applicable terms specified in the
Preferential Rental Notice. Such lease amendment may, if applicable, contain a
construction agreement using Landlord's then-current form setting forth the
schedule and other terms and obligations of the parties regarding the
construction of any leasehold improvements in the Preferential Space. If Tenant
rejects such offer or fails timely to (i) accept such offer or (ii) execute and
return the required lease amendment, then this preferential right to lease shall
lapse and be of no further force and effect. In such event, Landlord shall be
relieved of any future obligations hereunder and may thereafter lease all or
part of the Preferential Space to any party without further notice or obligation
to Tenant.
C. Tender of Possession. The Preferential Space shall be leased for the period
commencing upon Landlord's tender of possession of the Preferential Space in
accordance with Landlord's offer and this Rider (the "Preferential Space
Commencement Date") and continuing through the expiration or earlier termination
of the Term, as it may be extended or renewed. Landlord shall not be liable for
any delay or failure to tender possession of the preferential Space by the
anticipated tender date for any reason, including by reason of any holdover
tenant or occupant, nor shall such failure invalidate the Lease or extend the
Term.
(21) From the commencement Date through and including December 31,
1999
(22) Notwithstanding anything to the contrary contained herein, the
preferential right to lease described in this Rider No. 2 shall terminate
as of December 31, 1999, and after that date shall be considered null, void
and of no further effect.
(23) ,which shall be identical to the rental rates for the Premises
set forth in Paragraph 1(h) of this Lease, for the applicable periods set
forth Paragraph 1(h)
<PAGE>
D. Condition of Premises. The Preferential Space shall be tendered in an "as-is"
condition. However, all leasehold improvements shall be constructed in the
Expansion Space in accordance with the construction agreement (if any) attached
to the applicable lease amendment24. Any allowances shall be prorated for any
delays in the Preferential Space Commencement Date, taking into account the
economic assumptions underlying the terms in the Preferential Rental Notice.
E. Parking. For the Preferential Space, Tenant shall take and pay for 3
additional permits allowing access to unreserved spaces in parking facilities
which Landlord provides for the use of tenants and occupants of the Project.
During the initial Term (and, if applicable, during any renewal or extension
term of this Lease), Tenant shall pay Landlord's quoted monthly contract rate
(as set from time to time) for each such unreserved permit, plus any taxes
thereon.
(24) , which construction agreement shall provide that
Landlord will contribute towards the cost of constructing leasehold
improvements in the Preferential Space an amount equal to $8.00 per RSF in
the Preferential Space, less $0.133 per RSF in the Preferential Space for
each full or partial month of the initial Term that has expired prior to
the Preferential Space Commencement Date.
<PAGE>
RIDER NO. 3
RIGHT OF FIRST REFUSAL
Provided the Lease is then in full force and effect and no event of default
shall have occurred25, Tenant shall have the right of first refusal as
hereinafter described to lease all (but no less than all) of the space the
("Right of First Refusal Space") on the 11th floor of the Building and
consisting of approximately 4,984 RSF (+/- 20%, in Landlord's discretion) and
which is labeled on Exhibit B to the Lease as the "Right of First Refusal Space"
at such time as Landlord engages in negotiations with a prospective tenant,
exercisable at the following times and upon the following conditions:
1. If Landlord enters into negotiations with a prospective tenant to lease
all or any part of the Right of First Refusal Space, Landlord shall notify
Tenant of such fact and shall include in such notice the rent, term, and
other terms (including finish out) at which Landlord is prepared to offer
such Right of First Refusal Space to such prospective tenant. Tenant shall
have a period of three (3) business days from the date of delivery of the
notice to notify Landlord whether Tenant elects to exercise the right
granted hereby to lease the entire Right of First Refusal Space. Tenant may
not lease less than the entire Offered Space. If Tenant fails to give any
notice to Landlord within the required three (3) business day period,
Tenant shall be deemed to have waived its right to lease the Right of First
Refusal Space.
2. If Tenant so waives its right to lease the Right of First Refusal Space
(either by giving written notice thereof or by failing to give any notice),
Landlord shall have the right to lease all or the applicable portion of the
Right of First Refusal Space to the prospective tenant and upon the
execution of such lease between Landlord and the prospective tenant this
Right of First Refusal shall thereafter be null, void and of no further
force or effect.
3. If Landlord does not enter into a lease with such prospective tenant
covering all or the applicable portion of the Right of First Refusal Space,
Landlord shall not thereafter engage in other lease negotiations with
respect to the Right of First Refusal Space without first complying with
the provisions of this Rider No. 3.
4. If Tenant exercises its right of first refusal as provided in this Rider
No. 3, Landlord and Tenant shall, within ten (10) days after Tenant
delivers to Landlord notice of its election, enter into a lease covering
the Right of First Refusal Space for the rent, for the term, and containing
such other terms and conditions as Landlord notified Tenant pursuant to
paragraph 1 above.
5. Any assignment or subletting by Tenant pursuant to the provisions of the
Lease shall terminate the right of first refusal of Tenant contained
herein. The right of first refusal of Tenant contained herein shall also
terminate upon Tenant's exercise of its termination option as provided in
Rider No. 4 to the Lease.
6. The right of first refusal of Tenant contained herein shall be subject
and subordinate to any rights of renewal, expansion or extension existing
under any other tenant leases for the Building as of the date of this
Lease.
(25) , and provided that Tenant has not previously exercised its
preferential right to lease as set forth in Rider No. 2 to the Lease, at
any time on or after January 1, 2000,
<PAGE>
RIDER NO. 4
TERMINATION OPTION
Tenant shall have the option to terminate this Lease at any time after the
third anniversary date of the Commencement Date provided Tenant gives Landlord
not less than nine (9) months prior written notice to terminate and provided
Tenant is not in default under this Lease at the time of the giving of such
notice nor on the Termination Date. Such notice must specify the date (which
cannot be prior to the third anniversary date of the Commencement Date) on which
Tenant desires the termination to become effective (the "Termination Date"). On
the date Tenant delivers written notice to Landlord of its election to terminate
this Lease, Tenant shall pay Landlord an amount equal to $4.00 per RSF of the
Premises as of the Termination Date if Tenant elects to terminate this Lease
effective as of the third anniversary date of the Commencement Date (the
"Termination Fee"), which Termination Fee shall be reduced by $.17 per RSF of
the Premises per month for each full month during which the Lease remains in
effect beyond the third anniversary date of the Commencement Date. As of the
Termination Date: (a) all Base Rent, additional Rent and other sums payable by
Tenant under this Lease shall be paid through and apportioned as of the
Termination Date; (b) neither party shall have any rights, liabilities or
obligations under this Lease for the period accruing after the Termination Date,
except those which, by the provisions of this Lease, expressly survive the
termination of this Lease; and (c) Tenant shall surrender the Premises in the
condition required under this Lease.(26)
(26) Notwithstanding anything contained in the foregoing, Tenant's
right to terminate the Lease as set forth in this Rider No. 4 shall
terminate automatically and shall be null and void if, prior to Landlord's
receipt of Tenant's notice of termination described above in this Rider No.
4, Landlord receives written notice of Tenant's exercise of either or both
Tenant's option to extend the Lease Term as provided in Rider No. 1 of this
Lease and/or Tenant's preferential right to lease as provided in Rider No.
2 of this Lease or Tenant's right of first refusal as provided in Rider No.
3 of this Lease. Notwithstanding the generality of the foregoing, with
respect to Tenant's exercise preferential right to leas as set forth in
Rider No. 2 of this Lease, if Landlord receives written notice of Tenant's
exercise of its preferential right to lease on or before December 31, 1999,
then Tenant's right to terminate the Lease as set forth herein shall remain
in effect. D-2
<PAGE>
FIRST AMENDMENT TO OFFICE LEASE
THIS FIRST AMENDMENT TO OFFICE LEASE (this "First Amendment) is entered
into as of the 31st day of March, 1999, by and between CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord'), and
INFONOW CORPORATION, a Delaware corporation (Tenant).
Recitals
--------
A. Landlord and Tenant executed that certain Office Lease dated March 2,
1999 (the "Lease"), covering certain space therein designated as Suite 1100,
containing approximately 7,782 RSF (the "Premises"), located on the eleventh
(11th) floor of that office building commonly known as AT&T Building, and
located at 1875 Lawrence Street, Denver, Colorado (the "Building").
B. Landlord and Tenant have agreed to change certain provisions of the
Lease as pertains to the security deposit and tenant finish, and otherwise amend
the Lease as set forth herein.
C. Unless otherwise expressly provided herein, capitalized lerms used
herein shall have the meanings as designated in the Lease.
Agreement
---------
In consideration of the sum of Ten Dollars ($10.00), the mutual covenants
and agreements contained herein and in the Lease, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Additional Security Deposit. At or before the time of execution of this
First Amendment, Tenant shall deposit with Landlord an additional $16,861 ~00
(the "Additional Security Deposit"), which Additional Security Deposit shall be
added to the existing Security Deposit and shall be considered a part of the
Security Deposit for all purposes.
2. Revisions to Construction Agreement. Paragraph 3(a) of the Construction
Agreement attached to the Lease as Exhibit C (the "Construction Agreement") is
hereby amended in its entirety to read as follows:
3. Landlord's Contribution
(a) Construction Allowance. Landlord will contribute a sum not to
exceed $4.00 per RSF in the Premises (the "Construction Allowance"),
towards the cost of constructing the Work (as defined below) in accordance
with this Construction Agreement. Payments shall be made directly to
Landlord's contractor performing the Work. The cost of all space planning,
design, consulting or review services and construction drawings shall be
included in the cost of the Work and may be paid out of the Construction
Allowance, to the extent sufficient funds are available for such purpose.
<PAGE>
3. Additional Construction Allowance. Provided that Tenant shall have
timely paid its Rent and otherwise sha11 have fulfilled its obligations under
the Lease during the first two years of the initial Term of the Lease, and
further provided that no Event of Default then exists, after the second
anniversary date of the Commencement Date of the Lease, Tenant shall be entitled
to an additional construction allowance of sum not to exceed $4.00 per 1 SF in
the Premises (the "Additional Construction Allowance"). Notwithstanding the
foregoing, any additional tenant improvements to which Tenant desires to apply
the Additional Construction Allowance shall be subject to Landlord's prior
written approval and also subject to all provisions of the Lease concerning the
construction of improvements or Alterations at the Premises, including but not
limited to Paragraph 11 thereof.
4. Return of Additional Security Deposit. Tenant shall be entitled to a
refund of the Additional Security Deposit after the second anniversary date of
the Commencement Date of the Lease, if the following conditions are then met:
(a) Tenant shall have timely paid its Rent and otherwise shall have fulfilled
its obligations under the Le se during the. first two years of the initial Term
of the Lease; (b) no Event of Default shall then exist' (c) Tenant's net worth
at such time shall be equal to or greater than Tenant's net worth as of the
Commencement Date of the Lease; (d) Tenant's current asset ratio shall be
greater than or equal to 1.0; (e) Tenant shall have provided, in a form
reasonably acceptable to Landlord, certified financial statements of Tenant (the
"Financial Statements") which Financial Statements shall confirm the information
required pursuant to subparagraphs (c) and (d); and (f~ Landlord shall have
approved the Financial Statements, which approval shall not be unreasonably
withheld if the Financial Statements confirm the information required pursuant
to subparagraphs (c) and (d).
5. Time of the Essence. Time is of the essence with respect to Tenant's
execution and delivery of this First Amendment to Landlord, If Tenant fails to
execute and deliver a signed copy of this First Amendment to Landlord by 5:00
p.m. (Denver, Colorado time) on March 26, 1999 it shall be deemed null and void
and shall have no force or effect, unless otherwise agreed in writing by
Landlord. Landlord's acceptance, execution and return of this document shall
constitute Landlord's agreement to waive Tenant's failure to meet the foregoing
deadline.
6. Binding Effect. Except as modified by this First Amendment, the terms
and provisions of the Lease shall remain in full force and effect, and the
Lease, as modified by this First Amendment, shall be binding upon the parties
hereto, their successors and permitted assigns. This First Amendment shall
become effective only aft r the full execution and delivery hereof by Landlord
and Tenant.
7. Ratification of Lease. All of the terms and provisions of the Lease as
herein amended and supplemented, are hereby ratified and confirmed and shall
remain in full force and effect.
8. Conflict. In the event of any conflict between the provisions of this
First Amendment and the provisions of the other portions of the Lease, the
provisions of this First Amendment shall control.
<PAGE>
EXECUTED as of the day and year first above written.
TENANT: LANDLORD:
- ------- ---------
INFONOW CORPORATION, a Delaware CRESCENT REAL ESTATE
corporation EQUITIES LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd., a
Delaware corporation, its general partner
By: /s/ Kevin D. Andrew By: /s/ John L. Zogg, Jr.
- ----------------------- -------------------------
Title: Vice President and CFO Title: Vice President, Leasing/Marketing
- ----------------------------- ----------------------------------------
<PAGE>
SECOND AMENDMENT TO OFFICE LEASE
THIS SECOND AMENDMENT TO OFFICE LEASE (this "Second Amendment") is entered
into as of the 14TH day of April, 1999, by and between CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), and
INFONOW CORPORATION, a Delaware corporation ("Tenant").
Recitals
--------
A. Landlord and Tenant executed that certain Office Lease dated March 2,
1999 (the "Original Lease"), covering certain space therein designated Suite
1100, containing approximately 7,782 RSF (the "Premises"), located on the
eleventh (11th) floor of that office building commonly known as AT&T Building,
and located at 1875 Lawrence Street, Denver, Colorado (the "Building").
B. The Original Lease has been amended by that certain First Amendment to
Office Lease (the "First Amendment") wherein, inter alia, Tenant and Landlord
agreed to change certain provisions of the Lease pertaining to the security
deposit and Construction Agreement. The Original Lease, as modified by the First
Amendment, is hereinafter referred to as the "Lease."
C. Landlord has discovered that the Lease contains an error in the
description of the RSF of the Building, and Landlord and Tenant desire to amend
and modify the Lease to correct that error, all on the terms and conditions
provided herein.
D. Unless otherwise expressly provided herein, capitalized terms used
herein shall have the meanings as designated in the Lease,
Agreement
---------
In consideration of the sum of Ten Dollars ($10.00), the mutual covenants
and agreements contained herein and in the Lease, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. RSF of the Building. The last line of Paragraph 1(d) of the Original
Lease is hereby amended in its entirety to read as follows: "RSF of the Building
184,581."
2. Time of the Essence. Time is of the essence with respect to Tenant's
execution and delivery of this Second Amendment to Landlord. If Tenant fails to
execute and deliver a signed copy of this Second Amendment to Landlord by 5:00
p.m. (Denver, Colorado time) on April 14, 1999 it shall be deemed null and void
and shall have no force or effect, unless otherwise agreed in writing by
Landlord. Landlord's acceptance, execution and return of this document shall
constitute Landlord's agreement to waive Tenant's failure to meet the foregoing
deadline.
3. Binding Effect. Except as modified by this Second Amendment, the terms
and provisions of the Lease shall remain in full force and effect, and the
Lease, as modified by this Second Amendment, shall be binding upon the parties
<PAGE>
hereto, their successors and permitted assigns. This Second Amendment shall
become effective only after the full execution and delivery hereof by Landlord
and Tenant,
4. Ratification of Lease, All of the terms and provisions of the Lease as
herein amended and supplemented, are hereby ratified and confirmed, and shall
remain in full force and effect.
5. Conflict. In the event of any conflict between the provisions of this
Second Amendment and the provisions of the other portions of the Lease, the
provisions of this Second Amendment shall control.
EXECUTED as of the day and year first above written.
TENANT: LANDLORD:
- ------- ---------
INFONOW CORPORATION, a Delaware CRESCENT REAL ESTATE EQUITIES
corporation LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities, Ltd., a
Delaware corporation, its general partner
By: /s/ Kevin D. Andrew By: /s/ John L. Zogg, Jr.
- ----------------------- -------------------------
Title: Vice President & CFO Title: Vice President, Leasing/Marketing
- --------------------------- ----------------------------------------
<PAGE>
THIRD AMENDMENT TO OFFICE LEASE
THIS THIRD AMENDMENT TO OFFICE LEASE (this "Third Amendment") is entered
into as of the 29th day of November, 1999, by and between CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), and
INFONOW CORPORATION, a Delaware corporation ("Tenant").
Recitals
--------
A. Landlord and Tenant executed that certain Office Lease dated March 2,
1999 (the "Original Lease"), covering certain space therein designated as Suite
1100, containing approximately
7,782 RSF (the "Premises"), located on the eleventh (11th) floor of that office
building commonly known as AT&T Building, and located at 1875 Lawrence Street,
Denver, Colorado (the "Building").
B. The Original Lease has been amended by that certain First Amendment to
Office Lease (the "First Amendment") dated March 31, 1999, wherein, inter alia,
Tenant and Landlord agreed to change certain provisions of the Lease pertaining
to the security deposit and Construction Agreement and that certain Second
Amendment to Office Lease (the "Second Amendment") dated April 14, 1999, wherein
Landlord and Tenant revised the Lease to reflect the correct RSF of the
Building. The Original Lease, as modified by the First Amendment and the Second
Amendment, is referred to herein as the "Lease."
C. Tenant has requested: (i) to enlarge the Premises by leasing an
additional 4,984 RSF located contiguous to the Premises on the 11th floor of the
Building, as shown on Exhibit A attached hereto (the "Expansion Space") and (ii)
to further amend and modify the Lease in certain respects as provided herein,
and Landlord has agreed to such modifications, all on the terms and conditions
contained herein.
D. Unless otherwise expressly provided herein, capitalized terms used
herein shall have the meanings as designated in the Lease.
Agreement
---------
In consideration of the sum of Ten Dollars ($10.00), the mutual covenants
and agreements contained herein and in the Lease, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Addition of Expansion Space to Premises. Effective upon the date hereof
(the "Execution Date"), the Expansion Space is hereby added to the Premises.
Effective upon the Execution Date, all references in the Lease to the Premises
shall be deemed to include the Expansion Space. The Expansion Space shall be
added to the Premises, for all purposes, as of the Execution Date and for the
balance of the Term, upon and subject to all of the terms, covenants and
conditions of the Lease, provided, however, that Tenant's obligation to make
rental payments under the Lease with respect to the Expansion Space, as set
forth below, shall commence upon the date of Landlord's delivery to Tenant of
the Expansion Space (the "Expansion Space Delivery Date").
<PAGE>
2. Expansion Space Delivery and Construction. Landlord and Tenant agree
that Tenant's leasehold interest in and right to occupy the Expansion Space is
subject to Landlord's completion of certain tenant improvements within the
Expansion Space (the "Work", as defined in the Work Letter [hereinafter
defined]) on the terms contained in that certain work letter attached hereto as
Exhibit B and incorporated herein by this reference (the "Work Letter"), which
Landlord anticipates to occur no later than February 1,2000 (the "Estimated
Expansion Space Delivery Date"). Landlord shall use reasonable efforts to
complete the Work and to deliver the Expansion Space to Tenant on or before the
Estimated Expansion Space Delivery Date.
3. Base Rent - Expansion Space. Commencing on the Expansion Space Delivery
Date, and continuing through the Term of the Lease, the Base Rent due and
payable for each rentable square foot contained in the Expansion Space (in
addition to any other Base Rent payable pursuant to the terms of the Lease),
shall be as follows:
Rental Period Annual Base Rental Rate/RSF Monthly Base Rent
Expansion Space Delivery $13.00 $5,399.33
Date to 6/30/00
7/01/00 to 6/30/01 $14.00 $5,814.67
7/01/01 to 6/30/02 $15.00 $6,230.00
7/01/02 to 6/30/03 $16.00 $6,645.33
7/01/03 to Expiration Date $17.00 $7,060.67
4. Tenant's Share of EOE. Commencing on the Expansion Space Delivery Date,
Tenant shall pay to Landlord Tenant's Share of EOE with respect to the Expansion
Space, in accordance with the terms and provisions of Paragraph 7 of the Lease.
All rental, including without limitation Base Rent and Tenant's Share of EOE,
shall be payable in accordance with the terms and provisions of the Lease.
5. Parking. As of the Expansion Space Delivery Date, Tenant shall take and
pay for an additional three (3) unreserved parking permits allowing access to
the parking facilities serving the Building (the "Additional Parking Permits").
As of the Expansion Space Delivery Date, and continuing through the initial Term
(and, if applicable, during any renewal or extension term of the Lease), Tenant
shall pay Landlord's quoted monthly contract rate (as set from time to time) for
each of the Additional Parking Permits, plus any taxes thereon. All of the other
terms of the Lease applicable to Tenant's parking rights shall be applicable to
the Additional Parking Permits provided in this Paragraph 5. The parking rights
provided in this Paragraph 5 are in addition to any other parking rights
provided in the Lease.
6. Termination of Preferential Right to Lease. Tenant is exercising its
preferential right to lease as set forth in Rider No. 2 to the Lease (the
"Preferential Right to Lease") through its taking of the Expansion Space
pursuant to the terms of this Third Amendment, and therefore the Preferential
Right to Lease is hereby terminated and shall be considered null, void and of no
further effect.
7. Time of the Essence. Time is of the essence with respect to Tenant's
execution and delivery of this Third Amendment to Landlord. If Tenant fails to
execute and deliver a signed copy of this Third Amendment to Landlord by 5:00
p.m. (Denver, Colorado time) on November 10, 1999 it shall be deemed null and
void and shall have no force or effect, unless otherwise agreed in writing by
Landlord. Landlord's acceptance, execution and return of this document shall
constitute Landlord's agreement to waive Tenant's failure to meet the foregoing
deadline.
8. Binding Effect. Except as modified by this Third Amendment, the terms
and provisions of the Lease shall remain in full force and effect, and the
Lease, as modified by this Third Amendment, shall be binding upon the parties
hereto, their successors and permitted assigns. This Third Amendment shall
become effective only after the full execution and delivery hereof by Landlord
and Tenant.
<PAGE>
9. Ratification of Lease. All of the terms and provisions of the Lease as
herein amended and supplemented, are hereby ratified and confirmed, and shall
remain in full force and effect.
10. Conflict. In the event of any conflict between the provisions of this
Third Amendment and the provisions of the other portions of the Lease, the
provisions of this Third Amendment shall control.
EXECUTED as of the day and year first above written.
TENANT: LANDLORD:
------- ---------
INFONOW CORPORATION, a Delaware CRESCENT REAL ESTATE
corporation EQUITIES LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd., a
Delaware corporation, its general partner
By: /s/ Kevin D. Andrew By: /s/ John L. Zogg, Jr.
- ----------------------- -------------------------
Title: Vice President and CFO Title: Vice President, Leasing/Marketing
- ----------------------------- ----------------------------------------
<PAGE>
EXHIBIT A
---------
Depiction of Expansion Space
[to be attached]
<PAGE>
EXHIBIT A
---------
Depiction of Expansion Space
<PAGE>
EXHIBIT B
---------
Work Letter
This Work Letter is attached as an Exhibit to that certain Third Amendment
to Office Lease (the 'Third Amendment") between CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, as Landlord, and INFONOW CORPORATION, as Tenant, for the
Expansion Space, containing approximately 4,984 RSF, located on the 11th floor
of the Building. Unless otherwise specified, all capitalized terms used in this
Work Letter shall have the same meanings as in the Third Amendment, and if not
defined in the Third Amendment, shall have the same meanings as in the Lease. In
the event of any conflict between the Lease (as amended by the Third Amendment)
and this Work Letter, the latter shall control.
1. Approved Construction Documents.
(a) Tenant's Information. No later than December 15, 1999, Tenant shall
submit to Landlord all information necessary for the preparation of complete,
detailed architectural, mechanical, electrical and plumbing drawings and
specifications for construction of the Work (as defined below) in the Expansion
Space, including Tenant's partition and furniture layout, reflected ceiling,
telephone and electrical outlets and equipment rooms, initial provider(s) of
telecommunications services, doors (including hardware and keying schedule),
glass partitions, windows, critical dimensions, structural loads, millwork,
finish schedules, and HVAC and electrical requirements (including Tenant's
connected electrical loads and the National Electrical Code (NFPA-70) Design
Load Calculations), together with all supporting information and delivery
schedules ("Tenant's Information").
(b) Construction Documents. Following Landlord's execution of the Third
Amendment and receipt of Tenant's Information, an architectural/engineering firm
approved by Landlord shall prepare and submit to Tenant all finished and
detailed architectural drawings and specifications, including mechanical,
electrical and plumbing drawings (the "Construction Documents"). J~ addition,
Landlord shall advise Tenant of the number of days of Tenant Delay (as defined
below) attributable to extraordinary requirements (if any) contained in Tenant's
Information. Landlord (or its designated representative) reserves the right to
designate the location(s) of all of Tenant's mechanical, electrical or other
equipment and the manner in which such equipment will be connected to Building
systems.
(c) Approved Construction Documents. Within 3 days after receipt, Tenant
shall (i) approve and return the Construction Documents to Landlord, or (ii)
provide Landlord Tenant's written requested changes to the Construction
Documents, in which event Landlord shall have the Construction Documents revised
(as Landlord deems appropriate) and resubmitted to Tenant for approval within 3
days after receipt. If Tenant fails to request changes within such 3 day period,
Tenant shall be deemed to have approved the Construction Documents. Upon Tenants
approval, the Construction Documents shall become the "Approved Construction
Documents". By granting approval of the Construction Documents (whether such
approval is expressly granted or deemed given as provided above), Tenant shall
be deemed to have confirmed by means of calculations or metering that the
available capacity of the Building electrical system will support Tenant's
electrical requirements.
<PAGE>
2. Pricing and Bids. Following receipt of the Approved Construction Documents,
Landlord will promptly price the construction of the Work with approved general
contractors in accordance with the Approved Construction Documents and furnish
written price estimates to Tenant. Upon receipt, Tenant shall promptly review
such estimates and complete negotiations with Landlord for any changes or
adjustments thereto. Within 5 days after such receipt, Tenant shall return the
estimates with written approval to Landlord. If Tenant fails to give its
approval within such 5 day period, the estimates will be deemed approved by
Tenant.
3. Landlord's Contributions. Landlord will provide a construction allowance not
to exceed $7.20 per RSF in the office space portion of the Expansion Space (the
"Construction Allowance"), toward the cost of constructing the Work. Payments
shall be made directly to Landlord's contractor performing the Work. The cost of
(a) all space planning, design, consulting or review services, (b) construction
drawings, (c) extension of electrical wiring from Landlord's designated
location(s) to the Expansion Space, (d) purchasing and installing all equipment
for the Expansion Space (including any submeters and other above building
standard electrical equipment approved by Landlord), (e) required metering,
re-circuiting or re-wiring for metering, equipment rental, engineering design
services, consulting services, studies, construction services, cost of billing
and collections, and (f) materials and labor, shall all be included in the cost
of the Work and may be paid out of the Construction Allowance, to the extent
sufficient funds are available for such purpose. All bills for the Work must be
submitted within six months after the Expansion Space Delivery Date, and
Landlord will make no further payments related to the Work after such six month
period.
4. Construction.
(a) General Terms. Subject to the terms of this Work Letter, Landlord
agrees to cause leasehold improvements to be constructed in the Expansion Space
(the "Work") in a good and workmanlike manner in accordance with the Approved
Construction Documents. Tenant acknowledges that Landlord is not an architect or
engineer, and that the Work will be designed and performed by independent
architects, engineers and contractors. Accordingly, Landlord does not guarantee
or warrant that the Approved Construction Documents will comply with Laws or be
free from errors or omissions, nor that the Work will be free from defects, and
Landlord will have no liability therefor. In the event of such errors, omissions
or defects, and upon Tenant's written request, Landlord will use commercially
reasonable efforts to cooperate with Tenant in enforcing any applicable
warranties. In addition, unless expressly agreed to in writing by Landlord prior
to commencement of the Work, Landlord's approval of the Construction Documents
or the Work shall not be interpreted to waive or otherwise modify the terms and
provisions of the Lease (as modified by the Third Amendment). Except with
respect to the economic terms set forth in Paragraph 3 of this Work Letter, the
terms and provisions contained in this Work Letter shall survive the completion
of the Work and shall govern in all applicable circumstances arising under the
Lease throughout the Term, including the construction of future improvements in
the Expansion Space. Tenant acknowledges that Tenant's Information and the
Approved Construction Documents must comply with (i) the definitions used by
Landlord for the electrical terms used in this Work Letter, (ii) the electrical
and HVAC design capacities of the Building, (iii) Landlord's policies concerning
communications and fire alarm services, and (iv) Landlord's policies concerning
Tenant's electrical design parameters, including harmonic distortion. Upon
Tenant's request, Landlord will provide Tenant a written statement outlining
items (i) through (iv) above.
<PAGE>
(b) ADA Compliance. Landlord shall, as a Building Operating Expense, be
responsible for ADA compliance for the base Building, core areas (including
elevators, Common Areas, Service areas and the Property's parking facilities)
and all points of access into the Building. Tenant shall, at its expense, be
responsible for ADA compliance in the Expansion Space, including restrooms on
any floor now or hereafter leased or occupied in its entirety by Tenant, its
affiliates or transferees. Landlord shall not be responsible for determining
whether Tenant is a public accommodation under ADA or whether the Approved
Construction Documents comply with ADA requirements. Such determinations, if
desired by Tenant, shall be the sole responsibility of Tenant.
(c) Substantial Completion. Time is of the essence in connection with the
obligations of Landlord and Tenant under this Work Letter. Landlord shall not be
liable or responsible for any claims incurred (or alleged) by Tenant due to any
delay in achieving Substantial Completion (as defined below) for any reason nor
shall it render the Lease or this the Third Amendment void or voidable, and
Tenant's sole and exclusive remedy for any delay in achieving Substantial
Completion for any reason other than Tenant Delay (as defined below) shall be
the resulting postponement (if any) of the commencement of rental payments for
the Expansion Space pursuant to the terms of the Third Amendment. Moreover,
notwithstanding anything contained in the Third Amendment or this Work Letter to
the contrary, Tenant acknowledges that Landlord will be performing its
obligations under this Work Letter while Tenant is occupying the Premises
contiguous to the Expansion Space, and agrees that Landlord, its agents,
employees and contractors shall have the right to enter the Premises during
business hours to perform the Work. Tenant understands that the work to be
performed pursuant to this Work Letter may result in noise, vibration, dirt dust
and other circumstances commonly attendant to construction. Tenant hereby waives
any claim of injury or inconvenience to its business, interference with Tenant's
business, loss of occupancy or quiet enjoyment of the Premises, or any other
loss occasioned by such entry or the performance of the Work required pursuant
to the terms of this Work Letter, nor shall the same relieve Tenant of any
obligations under the Lease (as amended by the Third Amendment). Landlord will
attempt to minimize the disruption to Tenant's business during its performance
of the Work. No entry of the Premises or Expansion Space by Landlord under this
Work Letter shall be deemed a forcible or unlawful entry into the Premises or a
detainer of the Premises, or an eviction, actual or constructive, of Tenant from
the Premises, or any part of the Premises, nor shall such entry entitle Tenant
to damages or an abatement of monthly Base Rent, Tenant's share of EOE, or other
charges that the Lease requires Tenant to pay. Tenant shall fully cooperate with
Landlord and its contractors and shall not in any way impeded, inhibit or hinder
any of the Work to be performed pursuant to the terms of this Work Letter. For
purposes of this Work Letter, the Work shall be deemed to be "Substantially
Complete" on the date that all Work has been performed, other than any details
of construction, mechanical adjustment or any other similar matter, the
noncompletion of which does not materially interfere with Tenant's use or
occupancy of the Expansion Space. However, if Landlord is delayed in the
performance of the Work as a result of any Tenant Delay(s), the Work shall be
deemed to be Substantially Complete on the date that Landlord could reasonably
have been expected to Substantially Complete the Work absent any Tenant Delay.
"Tenant Dela means any act or omission of Tenant or its agents, employees,
vendors or contractors that actually delays the Substantial Completion of the
Work, including, without limitation: (i) Tenant's failure to furnish information
or approvals within any time period specified in this Work Letter, including the
failure to prepare or approve preliminary or final plans by any applicable due
date; (ii) Tenant's selection of equipment or materials that have long lead
times after first being informed by Landlord in writing that the selection may
result in a delay; (iii) changes requested or made by Tenant to previously
approved plans and specifications; or (iv) performance of work in the Expansion
Space by Tenant or Tenant's contractor(s) during the performance of the Work.
<PAGE>
5. Costs.
(a) Change Orders and Cost Overruns. All changes to, and deviations from,
the Approved Construction Documents at the direction of Tenant (each, a "Change
Order"), including any (i) direction of Tenant to omit any portion of the Work,
(ii) additional architectural or engineering services, (iii) changes to
materials, whether standard materials, specially ordered materials, or specially
fabricated materials, (iv) cancellation or modification of supply or fabrication
orders, and (v) removal or alteration of any portion of the Work, must be
approved in advance in writing by Landlord. Change Orders requested by Tenant
and approved by Landlord which increase the cost of the Work shall be paid by
Tenant within 15 days of receipt of Landlord's invoice therefor (which payment
may be required by Landlord prior to commencing construction). Except as
otherwise expressly provided in this Work Letter, all costs of the Work in
excess of the Construction Allowance (collectively, "Cost Overruns") shall be
paid by Tenant to Landlord within 10 days of Landlord's invoice. In addition, at
Landlord's election, Landlord may require Tenant to prepay any projected Cost
Overruns within 5 days of Landlord's invoice. Landlord may stop or decline to
commence all or any portion of the Work until such payment (or prepayment) is
received. On or before the date of Substantial Completion, Tenant shall pay
Landlord the entire amount of all Cost Overruns, less any prepaid amounts.
Tenant's failure to pay, when due, any Cost Overruns or the cost of any Change
Order shall constitute an event of default under the Lease.
(b) Construction Management Fee. Within 10 days following the date of
invoice, Tenant shall, for supervision and administration of the construction
and installation of the Work, pay Landlord a construction management fee equal
to 2.5% of the aggregate contract price for the Work, which shall be paid from
the Construction Allowance. Tenant's failure to pay such construction management
fee when due shall constitute an event of default under the Lease.
<PAGE>
FOURTH AMENDMENT TO OFFICE LEASE
THIS FOURTH AMENDMENT TO OFFICE LEASE (this "Fourth Amendment') is entered
into as of the 3rd dayof January, 2000, by and between CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord"), and
INFONOW CORPORATION, a Delaware corporation ("Tenant").
Recitals
--------
A. Landlord and Tenant executed that certain Office Lease dated March 2,
1999 (the "Original Lease"), covering certain space therein designated as Suite
1100, containing approximately 7,782 RSF (the "Original Premises"), located on
the eleventh (11th) floor of that office building commonly known as AT&T
Building, and located at 1875 Lawrence Street, Denver, Colorado (the
B. The Original Lease has been amended by: (i) that certain First Amendment
to Office Lease (the "First Amendment") dated March 31, 1999, wherein, inter
alia, Tenant and Landlord agreed to change certain provisions of the Lease
pertaining to the security deposit and Construction Agreement; (ii) that certain
Second Amendment to Office Lease (the Second Amendment") dated April 14, 1999,
wherein Landlord and Tenant revised the Lease to reflect the correct RSF of the
Building; and (iii) that certain Third Amendment to Office Lease (the 'Third
Amendment") dated November 29, 1999, wherein Tenant leased an additional 4,984
RSF located contiguous to the Premises on the 11th floor of the Building (the
"Expansion Space"). The Original Lease, as modified by the First Amendment, the
Second Amendment and the Third Amendment is referred to herein as the "Lease."
The Original Premises, as enlarged by the Expansion Space, are hereinafter
referred to as the "Premises."
C. Tenant has requested: (i) to extend the time for use of its construction
allowance for the Original Premises; (ii) to utilize the construction allowance
originally allocated for improvements in the Original Premises for improvements
in the Expansion Space, and vice versa; arid (iii) to further amend and modify
the Lease in certain respects as provided herein, and Landlord has agreed to
such modifications, all on the terms and conditions contained herein.
D. Unless otherwise expressly provided herein, capitalized terms used
herein shall have the meanings as designated in the Lease.
Agreement
---------
In consideration of the sum of Ten Dollars ($10.00), the mutual covenants
and agreements contained herein and in the Lease and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlor and Tenant hereby agree as follows:
1. Extension of Construction Allowance Deadline. Subparagraph 3(b) of the
Construction Agreement attached as Exhibit C to the Original Lease is hereby
amended in its entirety to read as follows:
(b) Unused Allowance(s). Any allowance made available to Tenant under this
Construction Agreement must be utilized for its intended purposes on
or before April 30, 2000 or be forfeited with no further obligation on
<PAGE>
the part of Landlord. Notwithstanding the foregoing in the event that
any of the Construction Allowance remains unused after the completion
of the Work as set forth in this Construction Agreement, the remaining
Construction Allowance may be utilized by Tenant for additional tenant
improvements at the Premises at any time during the initial Term of
the Lease, which additional tenant improvements shall be subject to
Landlord's prior written approval and also subject to all of the
provisions of the Lease concerning the construction of improvements or
Alterations at the Premises, including but not limited to Paragraph 11
thereof.
2. Pooling of Construction Allowances for Original Premises and Expansion
Space. Notwithstanding anything to the contrary contained in the Original Lease
or the Third Amendment, Tenant shall be entitled to use the Construction
Allowance (as defined in the Original Lease) originally allocated for use in the
Original Premises, for the Work (as defined in the Third Amendment) in the
Expansion Space, and shall also be entitled to use the Construction Allowance
(as defined in the Third Amendment) originally allocated for use in the
Expansion Space, for the Work (as defined in the Original Lease) in the Original
Premises; provided, however, that nothing contained herein shall be deemed to
increase either Construction Allowance beyond its respective original amount as
set forth in the Original Lease and Third Amendment, respectively.
3. Time of the Essence. Time is of he essence with respect to Tenant's
execution and delivery of this Fourth Amendment to Landlord. If Tenant fails to
execute and deliver a signed copy of this Fourth Amendment to Landlord by 5:00
p.m. (Denver, Colorado time) on January 3, 2000 it shall be deemed null and void
and shall have no force or effect, unless otherwise agreed in writing by
Landlord. Landlord's acceptance, execution and return of this document shall
constitute Landlord's agreement to waive Tenant's failure to meet the foregoing
deadline.
4. Binding Effect. Except as modified by this Fourth Amendment, the terms
and provisions of the Lease shall remain in full force and effect, and the
Lease, as modified by this Fourth Amendment, shall be binding upon the parties
hereto, their successors and permitted assigns. This Fourth Amendment shall
become effective only after the full execution and delivery hereof by Landlord
and Tenant.
5. Ratification of Lease. All of the terms and provisions of the Lease as
herein amended and supplemented, are hereby ratified and confirmed, and shall
remain in full force and effect.
6. Conflict. In the event of any conflict between the provisions of this
Fourth Amendment and the provisions of the other portions of the Lease, the
provisions of this Fourth Amendment shall control.
EXECUTED as of the day and year first above written.
TENANT: LANDLORD:
INFONOW CORPORATION, a Delaware CRESCENT REAL ESTATE
Corporation EQUITIES LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd., a
Delaware corporation, its general
Partner
By: /s/ Kevin D. Andrew By: /s/ John L. Zogg, Jr.
- ----------------------- -------------------------
Title: Vice President & CFO Title: Vice President, Leasing/Marketing
- --------------------------- ----------------------------------------
March 27, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: InfoNow Corporation (File No. 0-19813)
Dear Sirs:
We have read Item 8 of InfoNow Corporation's Form 10-KSB for the year ended
December 31, 1999 and are in agreement with the statements contained in the
first, third, fourth, and fifth paragraphs therein as they relate to us.
Very truly yours,
/s/ HEIN + ASSOCIATES LLP
- -------------------------
HEIN + ASSOCIATES LLP
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statements of
InfoNow Corporation of our report dated February 8, 2000, accompanying the
consolidated financial statements of InfoNow Corporation also incorporated by
reference in such Registration Statement.
/s/ HEIN + ASSOCIATES LLP
- -------------------------
HEIN + ASSOCIATES LLP
Denver, Colorado
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from InfoNow's
Annual report to stockholders for the year ended December 31, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 5432
<SECURITIES> 0
<RECEIVABLES> 867
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6387
<PP&E> 2564
<DEPRECIATION> 1502
<TOTAL-ASSETS> 7479
<CURRENT-LIABILITIES> 1715
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 5719
<TOTAL-LIABILITY-AND-EQUITY> 7479
<SALES> 5780
<TOTAL-REVENUES> 5780
<CGS> 2907
<TOTAL-COSTS> 5949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (16)
<INCOME-PRETAX> (99)
<INCOME-TAX> 0
<INCOME-CONTINUING> (99)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (99)
<EPS-BASIC> (.72)
<EPS-DILUTED> (.72)
</TABLE>
