<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SQL FINANCIALS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 7372 58-1972600
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION)
OF INCORPORATION OR
ORGANIZATION)
---------------
SQL FINANCIALS INTERNATIONAL, INC.
3950 JOHNS CREEK COURT, SUITE 100
SUWANEE, GEORGIA 30024
(770) 291-3900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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THE CORPORATION TRUST COMPANY
CORPORATION TRUST CENTER
1209 ORANGE STREET
WILMINGTON, DELAWARE 19801
(302) 658-7581
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
G. DONALD JOHNSON, ESQ. OBY T. BREWER III, ESQ.
SHARON L. MCBRAYER, ESQ. JOHN FRANKLIN SMITH, ESQ.
ELIZABETH O. DERRICK, ESQ. LAUREN Z. BURNHAM, ESQ.
WOMBLE CARLYLE SANDRIDGE & RICE, PLLC MORRIS, MANNING & MARTIN, L.L.P.
1275 PEACHTREE STREET, N.E., SUITE 700 1600 ATLANTA FINANCIAL CENTER
ATLANTA, GEORGIA 30309 3343 PEACHTREE ROAD, N.E.
(404) 872-7000 ATLANTA, GEORGIA 30326
(404) 233-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.0001 par
value................. 3,372,700 shares $13.00 $43,845,100 $12,934
</TABLE>
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(1) Includes 375,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any, 497,700 shares owned by
certain stockholders of the Company and 300,000 shares issuable pursuant
to the exercise of a warrant issued by the Company.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with the Company's underwritten public offering of 2,500,000
shares of its Common Stock (the "Prospectus") and the other to be used in
connection with a resale of shares of Common Stock offered from time to time
by certain stockholders of the Company (the "Resale Prospectus").
The Sections in the Prospectus entitled "Prospectus Summary--The Company,"
"--Summary Consolidated Financial Data Schedule," "--Forward-Looking
Statements," "Risk Factors," "Divided Policy," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," "Management," "Certain Transactions,"
"Description of Capital Stock," "Shares Eligible For Future Sale," "Experts,"
"Additional Information," and "Financial Statements" are identical to the such
sections in the Resale Prospectus. The remaining Sections in the Resale
Prospectus are provided following the Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED FEBRUARY 23, 1998
2,500,000 SHARES
[LOGO]
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
SQL Financials International, Inc. (the "Company").
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price of the Common Stock will be between $11.00 and $13.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"SQLF."
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $1,400,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
total Price to Public, Underwriting Discount, and Proceeds to Company will
be $ , $ , and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any orders in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities LLC on or about , 1998.
-----------
NationsBanc Montgomery Securities LLC UBS Securities
, 1998
<PAGE>
[INSIDE FRONT COVER]
The inside front cover graphic depicts a transparent sphere made out of
hexagonal shapes. The sphere is blue in color, and the hexagonal shapes are
outlined in yellow. A cube, which is divided into smaller cubes, is inside the
sphere with its top and two sides exposed. The top and each side consist of
nine smaller cubes. Most of the smaller cubes are light red, while several are
a darker shade. A column to the left side of the sphere contains the text,
"SQL Financials(R) offers a complete suite of integrated applications: General
Ledger, Fixed Assets, Accounts Payable, Purchasing Control, Accounts
Receivable, Revenue Accounting, Personnel, Benefits, Payroll." Underneath the
sphere is the text "A client/server software company providing world class
Financial and Human Resource applications with a difference. . . . A
BREAKTHROUGH IN TIME."
The next graphic is titled Active Architecture. In this graphic, the same
sphere is shown bursting through the face of a clock. A line points to the
cube inside of the sphere from the text, "At the center are the Core
Components." Another line points to one of the hexagonal shapes making up the
sphere from the text, "Surrounding the Core is the Graphical Architects
layer." A third line points from the frame of the hexagonal shapes to the
text, "Supporting the Core Components and Graphical Architects is the Systems
Manager." Beneath the graphic is the following text:
"World Class Applications" means functionality that users can tailor to
their specific requirements. A "Breakthrough in Time" is achieved when
applications can be implemented, changed, and upgraded in a fraction of the
time demanded by other vendors' packages.
The SQL Financials solution is fundamentally different. Applications
based on the SQL Financials Active Architecture technology are designed to
enable organizations to adapt quickly to their specific requirements and to
respond just as quickly to changes in these requirements.
Active Architecture delivers a dynamic solution to business
customization. Active Architecture is comprised of flexible technology
layered around core business components. This agile and adaptable
technology allows users to tailor the system to their specific needs
without programming. Simply stated, Active Architecture is a world-class
solution that was built from the ground up to address rapid
implementations, modifications, and upgrades.
The final graphic is titled Graphical Architects and contains the text, "The
key to the Active Architecture technology is the visual manner in which users
specify their requirements through the Graphical Architects(TM) modules,
without the need for programmer assistance and without changing the source
code. These modules are designed to save time and reduce the cost of
ownership." The graphic consists of twelve blue hexagonal shapes arranged in
an "S" shape with each shape overlapping the next, increasing in size. The
first shape is labeled "Data Exchange," and from that text, a line points to
an image of a computer screen. The image is captioned, "Users can now control
data integration and conversion." The next hexagon is labeled "Workload." The
next hexagon is labeled "Solution," and a line points to another computer
screen, which is captioned, "Extend functionality by integrating with
customer's imaging system to view invoices online." The next hexagon is titled
"Business Controls" and a line points to a third computer screen image which
is captioned, "Users can click and drag a mouse to tailor unique business
rules such as reporting organization charts." The next two hexagons are
labeled "Internet" and "Workflow," and the last hexagon contains the label
"Analysis" and a line points to a fourth computer screen which is captioned,
"Quick Graphs provide information analysis at the users' fingertips."
----------------
SQL Financials(R) is a registered trademark of the Company and World Class
Applications . . . Breakthrough in Time(TM), Active Architecture(TM),
Graphical Architects(TM), Data Exchange/Graphical Architect(TM),
Solution/Graphical Architect(TM), Workload/Graphical Architect(TM),
Workflow/Graphical Architect(TM), Business Controls/Graphical Architect(TM),
Internet/Graphical Architect(TM) and Analysis/Graphical Architect(TM) are
trademarks of the Company. All other trademarks and registered trademarks used
in this Prospectus are the property of their respective owners.
----------------
3
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
SQL Financials International, Inc. ("SQL Financials" or the "Company")
develops, markets and supports client/server financial software applications
that reduce the total cost of ownership by minimizing the time, costs and risks
associated with implementing, changing and upgrading applications. The
Company's products are based on a flexible, open architecture called Active
Architecture(TM) which allows for seamless, rapid changes and upgrades without
modifying the source code. The Company's software provides organizations with
the broad functionality of custom-designed applications without the high total
cost of ownership traditionally associated with such applications. By providing
broad functionality, a flexible open architecture, and minimized implementation
and modification time, the Company addresses the needs of a wide range of
organizations while giving end users more control of their work environment.
Widespread adoption of client/server environments has provided end users with
greater access to information and more flexibility, resulting in increased
productivity and greater control. Client/server-based financial applications
have become the key integration point with other enterprise-level applications,
enabling users to automate and streamline core business processes, improve
tracking, analysis and reporting, and make faster, more informed decisions.
According to International Data Corporation, the market for enterprise-level
accounting, human resource and payroll client/server applications exceeded $3.0
billion in 1996, and is projected to grow at a compound annual growth rate of
30% through the year 2001 to over $12.0 billion.
Traditionally, organizations have had two alternatives when deploying
enterprise financial applications: either a highly complex custom-designed
application to meet the organization's specific requirements; or an off-the-
shelf application often lacking the functionality of custom-designed
applications. The limitations of both the custom-designed and traditional off-
the-shelf applications result in high total cost of ownership to the
organization. The largest components of such cost are the necessary labor and
programming resources. According to the Gartner Group, labor-related services,
including implementation and post-implementation services, comprise
approximately 71% of the five- year total cost of ownership for client/server
applications, with the acquisition cost of software comprising only 17% of the
total cost of ownership, and hardware and networking costs comprising the
balance.
The Company's product family includes a full suite of financial and human
resource applications. These applications cover the full range of financial and
accounting functions, including general accounting, expense accounting, revenue
accounting and human resources. The Company licenses a series of modules, its
Graphical Architects(TM), that are designed to extend, enhance, integrate and
change the look-and-feel of the Company's core applications. Through a visual
point-and-click interface, the Graphical Architects modules allow users to
personalize and configure the Company's applications without any source code
programming. In addition, the Company provides dedicated implementation
services as an integral part of its solution,and believes that these services
result in a high level of customer satisfaction, strong customer references and
long relationships. The Company provides ongoing support services to assist
customers in maintaining and updating their systems, training their employees
and adding functionality as the customers' business grows and their
requirements change.
The Company's objective is to become the leading provider of financial
applications to non-industrial organizations. The key elements of the Company's
strategy are: (i) to extend its technology leadership; (ii) to leverage its
expertise in financial applications; (iii) to capitalize on middle market
opportunities; (iv) to leverage its installed customer base; and (v) to expand
sales and marketing channels.
5
<PAGE>
The Company licenses its products and services primarily through a direct
sales force in the United States and Canada. The Company focuses its sales and
marketing efforts on value buyers in mid-sized non-industrial organizations,
including divisions of larger companies, which represent the fastest growing
segment of the financial applications market. At January 31, 1998, the Company
had more than 195 customers, including leading organizations such as National
Railroad Passenger Corporation ("Amtrak"), Blue Cross/Blue Shield of Alabama,
Chartwell Re Holdings Corporation, First Data Corporation, Land's End, Inc.,
A.C. Nielsen Company, T. Rowe Price Associates, Inc., Shaw Industries, Inc.,
Toronto-Dominion Bank and United Technologies Corporation.
The Company was incorporated in Delaware in 1991. Unless the context
otherwise requires, references in this Prospectus to the "Company" refer to SQL
Financials International, Inc. and its consolidated subsidiaries, SQL
Financials Services, L.L.C. (the "Services Subsidiary") and SQL Financials
Europe, Inc. The Company's principal executive offices are located at 3950
Johns Creek Court, Suite 100, Suwanee, Georgia 30024. The Company's telephone
number at that address is (770) 291-3900.
THE OFFERING
Common Stock offered by the Company .... 2,500,000 shares
Common Stock to be outstanding after
the Offering............................ 9,047,914 shares(1)
Use of Proceeds ........................ For general corporate purposes and
working capital, which may include
future acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol
........................................ SQLF
- --------
(1) Includes (i) 4,787,594 shares of Common Stock to be issued upon conversion
of all outstanding shares of the Company's Preferred Stock (the
"Conversion"); (ii) 225,000 shares of Common Stock issued by the Company in
connection with the purchase from Technology Ventures, LLC ("Tech
Ventures") its 20% interest in the Services Subsidiary (the "Acquisition");
and (iii) 131,250 shares of Common Stock to be issued upon conversion of
the Preferred Stock acquired upon the exercise of a warrant held by Tech
Ventures (the "Warrant Exercise"). The Conversion and Warrant Exercise will
be effected concurrently with the effective date of this Offering.
Excludes: (i) 1,652,700 shares of Common Stock reserved for issuance under
the Company's 1992 Stock Option Plan for which options to acquire 1,528,188
shares of Common Stock are outstanding as of the date of this Prospectus at
exercise prices ranging from $0.67 to $4.83 per share and a weighted
average exercise price of $2.35 per share; (ii) 1,000,000 shares of Common
Stock reserved for issuance under the Company's 1998 Stock Incentive Plan
for which no options have yet been granted; (iii) 300,000 shares of Common
Stock issuable upon the exercise of an outstanding warrant at an exercise
price of $3.67 per share issued in connection with the Acquisition; and
(iv) 95,610 shares of Common Stock issuable at a weighted average price of
$6.22 per share, upon conversion of Preferred Stock issuable upon the
exercise of outstanding warrants. See "Capitalization," "Management--
Employee Benefit Plans," "Certain Transactions" and Note 11 of Notes to the
Consolidated Financial Statements.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997 (1)
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $ 1,054 $ 3,821 $ 8,190 $13,056 $25,988 $25,988
Operating loss.......... (2,156) (5,157) (7,987) (7,658) (3,358) (3,801)
Net loss................ (2,170) (5,140) (8,049) (7,879) (4,110) (4,154)
Basic and diluted net
loss per share......... (2.23) (5.65) (6.19) (5.74) (2.97)
Weighted average common
shares
outstanding (2)........ 975 910 1,300 1,373 1,386
Pro forma basic and
diluted net loss per
share (3).............. $ (0.64)
Pro forma weighted
average common shares
outstanding (3)........ 6,503
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
PRO PRO FORMA
ACTUAL FORMA(4) AS ADJUSTED(5)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 7,213 $ 7,624 $34,124
Working capital (deficit)................... (453) (42) 26,458
Total assets................................ 15,019 17,575 44,075
Long-term debt, net of current portion...... 497 1,431 1,431
Redeemable convertible preferred stock...... 25,112 -- --
Total stockholders' equity (deficit)........ (27,910) (933) 25,567
</TABLE>
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(1) Pro forma statement of operations data gives effect to the following
transactions as if such transactions occurred on January 1, 1997: (i)
amortization of the goodwill to be recognized upon the completion of the
Acquisition of $143,000 for the year ended December 31, 1997, (ii) the
payment to an officer of the Company and owner of Tech Ventures of $225,000
for the resignation and termination of certain rights and positions and
$75,000 of severance upon the completion of the Offering (the "Officer
Payments"), (iii) the elimination of the minority interest in the income of
the Services Subsidiary of $478,000 for the year ended December 31, 1997,
and (iv) interest expense of $79,000 on the $1.1 million note payable
issued in connection with the Acquisition for the year ended December 31,
1997. See "Certain Transactions" and Note 11 to Notes to Consolidated
Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of weighted average shares outstanding.
(3) Pro forma to effect: (i) the Conversion; (ii) the Acquisition; and (iii)
the Warrant Exercise. See "Certain Transactions."
(4) Pro forma balance sheet data gives effect to the following transactions as
if such transactions occurred as of the date presented: (i) the goodwill of
$2.1 million, the present value of a note payable of $934,000 and the value
of the warrant to purchase 300,000 shares of Common Stock valued at
$428,000 to be recognized upon completion of the Acquisition; (ii) the
elimination of the minority interest of $243,000 related to the 20%
interest of Tech Ventures in the Services Subsidiary through the payment of
cash of $205,000, the repayment of a note receivable of $37,000 and the
elimination of the original $75,000 investment by Tech Ventures in the
Services Subsidiary; (iii) the Conversion; and (iv) the Warrant Exercise
resulting in proceeds to the Company of $612,000.
(5) Adjusted to give effect to the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $12.00 per share (the midpoint of the valuation range), after deducting
the estimated underwriting discount and offering expenses payable by the
Company, and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
7
<PAGE>
FORWARD-LOOKING STATEMENTS
Information contained in this Prospectus includes "forward-looking
statements" that are based largely on the Company's current expectations and
are subject to a number of risks and uncertainties. The Company faces many
risks and uncertainties, including those described in this Prospectus under the
caption "Risk Factors." Because of these many risks and uncertainties, the
Company's actual results may differ materially from any results presented in or
implied by the forward-looking statements included in this Prospectus.
----------------
Except as otherwise indicated, all information in this Prospectus: (i)
assumes no exercise of the Underwriters' over-allotment option; and (ii)
reflects a three-for-two split of the Company's Common Stock, effected in the
form of a stock dividend, upon the effective date of this Offering, whereby
each share of the Company's outstanding Common Stock will be converted into 1.5
shares of Common Stock.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider carefully the following risk factors in evaluating
the Company and its business before purchasing the shares of Common Stock
offered hereby.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE OPERATING RESULTS
The Company has incurred significant net losses in each year since its
formation. As of December 31, 1997, the Company had an accumulated deficit of
approximately $28.0 million. These losses have occurred, in part, because of
the substantial costs incurred by the Company to develop its products, expand
its product research and hire and train its direct sales force. Although the
Company has achieved recent revenue growth and profitability for the quarters
ended September 30, 1997 and December 31, 1997, there can be no assurance that
the Company will be able to generate the substantial additional growth in
revenues that will be necessary to sustain profitability. The Company plans to
continue to increase its operating expenses in order to fund higher levels of
research and development, increase its sales and marketing efforts, broaden
its customer support capabilities and expand its administrative resources in
anticipation of future growth. To the extent that increases in such expenses
precede or are not offset by increased revenues, the Company's business,
results of operations and financial condition would be materially adversely
affected. The Company's financial prospects must be considered in light of the
risks, costs and difficulties frequently encountered by emerging companies,
particularly companies in the competitive financial and human resource
software industry. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced, and is expected to continue to experience,
significant fluctuations in quarterly operating results caused by many
factors, including, but not limited to: (i) changes in the demand for the
Company's products; (ii) the timing, composition and size of orders from the
Company's customers, including the tendency for significant bookings to occur
in the fourth quarter; (iii) lengthy sales cycles; (iv) spending patterns and
budgetary resources of its customers; (v) the success of the Company in
generating new customers; (vi) introductions or enhancements of products, or
delays in the introductions or enhancements of products, by the Company or its
competitors; (vii) changes in the Company's pricing policies or those of its
competitors; (viii) the Company's ability to anticipate and effectively adapt
to developing markets and rapidly changing technologies; (ix) the Company's
ability to attract, retain and motivate qualified personnel; (x) changes in
the mix of products sold; (xi) the publication of opinions about the Company
and its products, or its competitors and their products, by industry analysts
or others; and (xii) changes in general economic conditions.
The loss of any large sale, or the deferral of a large sale to a subsequent
quarter, could have a material adverse effect on current quarter operating
results and could cause significant fluctuations in revenues and earnings from
quarter-to-quarter. Additionally, because the Company derives a smaller
percentage of its revenues from maintenance contracts than many financial and
human resource software companies with a longer history of operations, the
Company does not have a significant ongoing revenue stream that may tend to
mitigate quarterly fluctuations in operating results.
The Company also has experienced, and is expected to continue to experience,
a high degree of seasonality, and in recent years has recognized a
proportionately greater percentage of its total revenues in the fourth
quarter. Fourth quarter revenues in 1995, 1996 and 1997 were 39.1%, 33.6% and
32.5%, respectively, of total revenues for those years. As a result of this
seasonality, the Company may experience reduced net income, or even net
losses, in the first, second or third fiscal quarters in any year.
Consistent with software industry practice, the Company typically ships its
software promptly following receipt of a firm order. Accordingly, the Company
expects to continue to operate with minimal backlog. As a
9
<PAGE>
result, quarterly sales and operating results depend generally on the volume
and timing of orders within the quarter, the tendency of sales to occur late
in fiscal quarters and the ability of the Company to fill orders received
within the quarter, all of which are difficult to forecast and manage. The
Company's expense levels are based in part on its expectations of future
orders and sales. A substantial portion of the Company's operating expenses
are related to personnel, facilities and sales and marketing programs. This
level of spending for such expenses cannot be adjusted quickly and is,
therefore, relatively fixed in the near term. Accordingly, any significant
shortfall in demand for the Company's products in relation to the Company's
expectations would have an immediate and material adverse financial effect on
the Company.
Due to all of the foregoing factors, the Company believes that its quarterly
operating results are likely to vary significantly in the future. Therefore,
in some future quarter the Company's results of operations may fall below the
expectations of securities analysts and investors. In such event, or in the
event that such result is perceived by market analysts to have occurred, the
trading price of the Company's Common Stock would likely be materially
adversely affected.
DEPENDENCE ON DIRECT SALES MODEL
To date, the Company has sold its products exclusively through its direct
sales force. The Company intends to continue to differentiate itself from many
of its competitors by relying principally on its direct sales model. As a
consequence of this strategy, the Company's ability to achieve significant
revenue growth in the future will depend in large part on its success in
recruiting, training and retaining additional direct sales and consulting
personnel and on the continuing success of the direct sales force. The
Company's financial success will depend in large part on the ability of the
Company's direct sales force to increase sales to levels necessary to sustain
profitability. In order to increase sales, the Company must hire, train and
deploy a continually increasing staff of competent sales personnel. The
Company believes that there is a shortage of, and significant competition for,
direct sales personnel with the advanced sales skills and technological
knowledge necessary to sell the Company's products. The Company's inability to
hire, or failure to retain, competent sales persons would have a material
adverse affect on the Company's business, results of operations and financial
condition.
In addition, by relying primarily on a direct sales force model, the Company
may fail to leverage the additional sales capabilities that might be available
through other sales distribution channels, which may place the Company at a
disadvantage with respect to its competition. In the future, the Company
intends to develop indirect distribution channels through third-party
distribution arrangements. There can be no assurance that the Company will be
successful in establishing third-party distribution arrangements, or that any
such expansion of the Company's indirect distribution channels will result in
increased revenues. See "Business--Sales and Marketing" and "--Competition."
COMPETITION
The market for financial and human resource applications is intensely
competitive. The Company's applications are designed for use in a
client/server environment utilizing Windows NT and Unix servers. Principal
competitors that offer products that run on Windows NT or Unix servers in a
client/server environment include PeopleSoft, Inc. ("PeopleSoft"), Oracle
Corporation ("Oracle"), and Lawson Software, Inc. ("Lawson"). In 1997, J.D.
Edwards & Company introduced financial applications for use on Windows NT or
Unix servers in competition with the Company. The Company also faces indirect
competition from companies that sell financial software applications for use
mainly on proprietary mid-range computing systems, from suppliers of custom-
developed financial applications software systems, from the consulting groups
of major accounting firms and from the IT departments of potential customers
that choose to develop systems internally.
The majority of the Company's principal current and potential competitors
have significantly greater financial, technical and marketing resources and
name recognition than the Company. In addition, because of relatively low
barriers to entry and relatively high availability of capital in today's
markets, the Company believes that new competitors will emerge in the
Company's markets. The Company anticipates that it may face
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pricing pressures and that one or more companies in its markets may face
financial failure. In the past, a number of software markets have become
dominated by one or a small number of suppliers, and a small number of
suppliers or even a single supplier may dominate the Company's market. If the
Company does not offer products that continue to achieve success in its market
in the short term, the Company could suffer a loss in market share and brand
name acceptance. Moreover, any material reduction in the price of the
Company's products would negatively affect the Company's margins as a
percentage of net revenues and would require the Company to increase sales or
reduce costs to maintain or increase net income. The occurrence of any of the
foregoing would result in a material adverse effect on the Company's business,
results of operations and financial condition. There can be no assurance that
the Company will be able to compete effectively with current and future
competitors. See "Business--Competition."
RAPID TECHNOLOGICAL CHANGE; RISKS ASSOCIATED WITH NEW PRODUCTS AND PRODUCT
ENHANCEMENTS
The market for financial and human resource applications is characterized by
rapid technological change, frequent introductions of new and enhanced
products, changes in customer demands and evolving industry and financial
accounting standards and practices. The introduction of products embodying new
technologies and functionality can render existing products obsolete and
unmarketable. As a result, the Company's future success will depend, in part,
upon its ability to continue to enhance its existing products and develop and
introduce new products that keep pace with technological developments, satisfy
customer requirements and achieve market acceptance. There can be no assurance
that the Company will successfully identify new product opportunities and
develop and bring new products to the market in a timely and cost-effective
manner, or that products, capabilities or technologies developed by others
will not render the Company's products or technologies obsolete or
noncompetitive or shorten life cycles of the Company's products. The Company
has addressed and will continue to address product development and enhancement
initiatives primarily through the Company's internal research and development
staff, as well as through the licensing of third-party technologies.
Because of these potentially rapid changes in the financial and human
resource applications market, the life cycle of versions of the Company's
products is difficult to estimate. The Company's future success will depend
upon its ability to address the increasingly sophisticated needs of its
customers by developing and introducing enhancements to its products on a
timely basis that keep pace with technological developments, emerging industry
standards and customer requirements. The Company has recently released 32-bit
versions of its financial applications products. The Company believes that
these products offer the advanced functionality and technological capabilities
necessary to compete with generally available competitive products. There can
be no assurance, however, that the Company will be successful in developing
and marketing enhancements to existing products or in developing new products
that respond to technological changes, evolving industry or accounting
standards or practices or customer requirements. Any failure by the Company to
successfully develop and bring new or enhanced products to market that offer
advanced technology and functionality adequate to compete with other available
products could have a material adverse effect on the business, results of
operations and financial condition of the Company. See "Business--Industry
Background," "--Products," "--Technology" and "--Research and Development."
MANAGEMENT OF GROWTH
The Company recently has experienced significant growth in its sales and
operations and in the complexity of its products and product distribution
channels. The Company increased its sales by approximately 217% from
approximately $8.2 million in 1995 to approximately $26.0 million in 1997. The
Company increased the number of its employees from 105 at December 31, 1995 to
208 persons at December 31, 1997, and intends to further increase the size of
its sales force and development staff to address anticipated growth in sales.
The Company's growth, coupled with the rapid evolution of the Company's
markets, has placed, and is likely to continue to place, significant strains
on the Company's administrative, operational and financial resources and
increase demands on its internal systems, procedures and controls. If the
Company is unable to manage future growth effectively, the Company's business,
results of operations and financial condition could be materially adversely
affected. See "Business--Sales and Marketing," "--Employees," and
"Management."
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DEPENDENCE ON KEY PERSONNEL; ABILITY TO HIRE AND RETAIN PERSONNEL
The Company's performance is substantially dependent on the performance of
its key management, sales, support and technical personnel, all of whom are
employed at will and are not bound by an employment agreement to continue in
the employ of the Company. The loss of the services of any of such personnel
could have a material adverse effect on the business, results of operations
and financial condition of the Company. The Company does not maintain key
person life insurance policies on any of its employees or consultants other
than Joseph S. McCall.
The Company's success also is highly dependent on its continuing ability to
identify, hire, train, motivate and retain highly qualified management,
technical, and sales and marketing personnel. Competition for such personnel
is intense, and the Company believes that there is a shortage of qualified
personnel with the skills required to manage, develop, sell and market
financial and human resource applications and enhancements in today's highly
competitive environment. Accordingly, there can be no assurance that the
Company will be able to attract, assimilate or retain highly qualified
personnel in the future. The inability to attract and retain the necessary
personnel would have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Employees" and
"Management."
PLANNED INTERNATIONAL EXPANSION
To date, the Company has had limited experience selling or marketing its
products to customers outside of the United States and Canada. In 1994, the
Company investigated opportunities to market its products in the United
Kingdom and ultimately determined that expansion in that market was not
advantageous at that time. Notwithstanding that determination, the Company
believes that a potential market exists for its current applications in
countries other than the United States and Canada. Therefore, the Company
currently intends to expand its operations outside of the United States and
Canada and believes that an increasing percentage of its future sales will be
derived from international sales. However, because of the Company's limited
experience in international sales and marketing, no assurance can be given
that the Company will be able to successfully sell its products to customers
outside the United States and Canada. There are certain difficulties and risks
inherent in doing business internationally, including, but not limited to: (i)
costs of customizing products and services for international markets; (ii)
dependence on independent resellers; (iii) multiple and conflicting
regulations; (iv) exchange controls; (v) longer payment cycles; (vi)
unexpected changes in regulatory requirements; (vii) import and export
restrictions and tariffs; (viii) difficulties in staffing and managing
international operations; (ix) greater difficulty or delay in accounts
receivable collection; (x) potentially adverse tax consequences; (xi) the
burden of complying with a variety of laws outside the United States; (xii)
the impact of possible recessionary environments in economies outside the
United States; and (xiii) political and economic instability. The Company's
ability to expand its business in certain countries will require modification
of its products, including modifications to support foreign languages and
accounting principals and practices. Furthermore, the Company expects that its
export sales will be denominated predominantly in United States dollars. An
increase in the value of the United States dollar relative to other currencies
could make the Company's products and services more expensive and, therefore,
potentially less competitive in international markets. If the Company
successfully increases its international sales, its total revenues may also be
affected to a greater extent by seasonal fluctuations resulting from lower
sales that typically occur during the summer months in Europe and other parts
of the world. See "Business--Industry Background," "--Strategy" and "--Sales
and Marketing."
PRODUCT CONCENTRATION; MARKET ACCEPTANCE
The Company expects that revenues from its financial applications products
will continue to account for substantially all of the Company's product
revenues for the foreseeable future. During 1997, the Company released 32-bit
versions of its financial applications with enhanced functionality. Increased
market acceptance of this enhanced product family is critical to the Company's
ability to increase sales and therefore to sustain profitability. Any factor
adversely affecting sales or pricing levels of these applications will have a
material adverse effect on the Company's business, results of operations and
financial condition. Factors that may affect market acceptance include the
availability and price of competing products and technologies and the success
of
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the sales efforts of the Company. Moreover, the Company anticipates that its
competitors will introduce additional competitive products, particularly if
demand for financial applications increases, which may reduce future market
acceptance of the Company's products. The Company's future performance will
also depend in part on the successful development, introduction and market
acceptance of new and enhanced products. There can be no assurance that any
such new or enhanced products will be successfully developed, introduced or
marketed, and failure to do so would have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Products," "--Technology," and "--Competition."
LENGTHY SALES CYCLES
A customer's decision to license and implement the Company's financial and
human resource applications presents significant enterprise-wide implications
and involves a substantial commitment of the customer's management attention
and resources. The Company believes that the period between initial customer
contact and the customer's purchase commitment typically ranges from four to
seven months for its applications. Currently, the demand for solutions to the
Year 2000 problem generally has resulted in a temporary reduction in the sales
cycle for many companies that have chosen to implement client/server based
financial applications to resolve impending systems failure caused by the Year
2000. However, as more companies achieve Year 2000 compliance in their
financial applications, and as a result of the increased complexity of the
Company's products and an increase in the number and sophistication of
competing products, sales cycles are likely to increase in the future.
Accordingly, the Company's future sales cycle could extend beyond seven months
as a result of lengthy evaluation and approval processes that typically
accompany major initiatives or capital expenditures, including delays over
which the Company has little or no control. The loss of individual orders due
to increased sales and evaluation cycles, or delays in the sale of even a
limited number of systems, could have a material adverse effect on the
Company's business, results of operations and financial condition and, in
particular, could contribute to significant fluctuations in operating results
on a quarterly basis. See "Business--Sales and Marketing."
PROPRIETARY RIGHTS AND LICENSING
The Company's success depends significantly upon its internally developed
proprietary intellectual property and intellectual property licensed from
others. The Company relies on a combination of copyright, trademark and trade
secret laws as well as on confidentiality procedures and licensing
arrangements, to establish and protect its proprietary rights in its products.
The Company has no patents or patent applications pending, and existing trade
secret and copyright laws provide only limited protection of the Company's
proprietary rights. The Company has registered or applied for registration for
certain copyrights and trademarks and will continue to evaluate the
registration of additional copyrights and trademarks as appropriate. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Third parties may also
independently develop products similar to the Company's products. In addition,
the laws of some foreign countries do not protect proprietary rights to the
same extent as the laws of the United States.
The Company enters into license agreements with each of its customers. The
Company's license agreements provide for the customer's non-exclusive right to
use the object code version of the Company's products. The Company's license
agreements prohibit the customer from disclosing to third parties or reverse
engineering the Company's products and disclosing the Company's other
confidential information. In certain rare circumstances, typically for the
earliest releases of the Company's products, the Company has granted its
customers a source code license, solely for the customer's internal use.
The Company has in the past licensed and may in the future license on a non-
exclusive basis third-party software for use and distribution with the
Company's financial and human resource applications. Additionally, the
Company's human resource applications are based on software acquired under a
non-exclusive object code and source code license from a third party. Because
these third-party software licenses are non-exclusive, no assurance can be
given that these licensors will not grant similar licenses to the Company's
competitors. Expiration or termination of the Company's third-party licenses
or the inability of Company's licensors to
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adequately maintain or update software would adversely affect the Company's
ability to ship certain products. While it may be necessary or desirable in
the future to obtain third-party software licenses from alternative sources,
there can be no assurance that the Company will be able to do so on
commercially reasonable terms, if at all. See "Business--Proprietary Rights
and Licensing."
Although the Company does not believe that it is infringing the intellectual
property rights of others, claims of infringement are becoming increasingly
common as the software industry matures and expanded legal protections are
applied to software products. Third parties may assert infringement claims
against the Company with respect to the Company's proprietary technology and
intellectual property licensed from others. Generally, the Company's third-
party software licensors indemnify the Company from claims of infringement.
However, in the event the Company receives a claim of infringement relating to
third-party software distributed by the Company there can be no assurance that
the Company's licensors will be able to fully indemnify the Company for such
claim, it at all. Infringement claims against the Company can cause product
release delays, require the Company to redesign its products or require the
Company to enter into royalty or license agreements, which agreements may not
be available on terms acceptable to the Company or at all. Furthermore,
litigation, regardless of the outcome, could result in substantial cost to the
Company, divert management attention and delay customer purchasing decisions.
Any infringement claim against the Company could have a material adverse
effect on the Company's business, results of operations and financial
condition.
RISK OF PRODUCT DEFECTS; PRODUCT LIABILITY
As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released.
There can be no assurance that, despite testing by the Company and testing and
use by current and potential customers, errors will not be found in new
financial applications after commencement of commercial shipments or, if
discovered, that the Company will be able to successfully correct such errors
in a timely manner or at all. The occurrence of errors and failures in the
Company's products could result in the loss of or delay in market acceptance
of the Company's financial applications, and alleviating such errors and
failures could require significant expenditure of capital and other resources
by the Company. The consequences of such errors and failures could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Since the Company's financial applications are used by its customers for
financial reporting and analysis and payroll processing, design defects,
software errors, misuse of the Company's products, incorrect data from network
elements or other potential problems within or out of the Company's control
that may arise from the use of the Company's products could result in
financial or other damages to the Company's customers. Although the Company's
license agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential claims as well as any liabilities
arising from such claims, such provisions may not effectively protect the
Company against such claims and the liability and costs associated therewith.
Accordingly, any such claim could have a material adverse effect upon the
Company's business, results of operations and financial condition. The Company
provides warranties for its products after the software is purchased for the
period in which the customer maintains the Company's support of the product.
The Company's license agreements generally do not permit product returns by
the customer, and product returns and warranty expense for 1995, 1996 and 1997
represented less than 8.3%, 4.9% and 1.2% of total revenues during each
respective period. However, no assurance can be given that product returns
will not increase as a percentage of total revenues in future periods. See
"Business--Products," "--Technology," and "--Customers."
RELIANCE ON THIRD-PARTY SOFTWARE
The Company maintains nonexclusive license agreements with Microsoft
Corporation, Oracle Corporation and Sybase, Inc. which allow the Company to
integrate its products with relational database management systems provided by
these companies. If the Company's customers experience significant problems
with these database management systems and such problems are not corrected by
the database system provider, there can be no assurance that Company's
customers will be able to continue to use the Company's products.
Additionally, the
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Company's inability to maintain upward compatibility with a new database
management system release could impact the ability of the Company's customers
to use the Company's products. The customer's inability to use the Company's
products would affect customer's renewal of software maintenance for such
products, which would have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company relies on non-exclusive license agreements with Arbor Software
Corporation, Centura Corporation, FRx Software Corporation, and Personal Data
Systems, Inc. for third-party software that is distributed by the Company. The
loss of, or inability to maintain, any of these software licenses would result
in delays or reductions in product shipments until equivalent software could
be identified, licensed or developed. Any such delays could have a material
adverse effect on the Company's business, operating results and financial
condition. Further, in some instances the Company only receives object code
from its licensors, causing the Company to be reliant on software support
services from third parties. If these third parties fail to satisfy their
maintenance obligations to the Company, then the Company would likely fail to
satisfy its software support obligations to its customers. Any such failure
would have a material adverse effect on the Company's business, results of
operation and financial condition.
The termination of any such licenses or the failure of any of these third-
party licensors to adequately maintain or update their products could delay
the shipment of certain of the Company's products while it seeks to implement
software offered by alternative sources, and any required replacement licenses
could prove costly. While it may be necessary or desirable in the future to
obtain other licenses relating to one or more of the Company's products or
relating to current or future technologies, there can be no assurance that the
Company will be able to do so on commercially reasonable terms or at all.
The Company's financial applications are designed to be Year 2000 compliant.
However, the Company is in the process of determining the extent to which
third-party licensed software distributed by the Company is Year 2000
compliant, as well as the impact of any non-compliance on the Company and its
customers. Additionally, in the event relational database management systems
used with the Company's software are not Year 2000 compliant, there can be no
assurance that Company's customers will be able to continue to use the
Company's products. The Company does not currently believe that the effects of
any Year 2000 non-compliance in the Company's installed base of software will
result in a material adverse impact on the Company's business or financial
condition. However, the Company's investigation with respect to third-party
software is in its preliminary stages, and no assurance can be given that the
Company will not be exposed to potential claims resulting from system problems
associated with the century change.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Upon completion of this Offering, the Company's executive officers and
directors, and their affiliates, as a group, will beneficially own
approximately 25% of the Company's outstanding Common Stock. As a result,
these stockholders will be able to influence matters requiring approval by the
stockholders of the Company, including the election of directors and approval
of significant corporate transactions.
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company intends to use the net proceeds of this Offering for general
corporate purposes, including product development and working capital. The
Company may use a portion of the net proceeds of the Offering to acquire or
invest in businesses, technologies or products complementary to the Company's
business. The Company has no other specific plans to use the net proceeds of
this Offering. Accordingly, the Company will retain broad discretion to
allocate a substantial portion of the net proceeds of this Offering. Pending
any such uses, the Company plans to invest the net proceeds in investment-
grade, interest-bearing securities. See "Use of Proceeds."
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company may in the future engage in selective acquisitions of businesses
that are complementary to the business conducted by the Company. While the
Company has from time to time in the past considered
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acquisition opportunities, it has never acquired a significant business and
has no existing agreements or commitments to effect any acquisition.
Accordingly, there can be no assurance that the Company will be able to
identify suitable acquisition candidates available for sale at reasonable
prices, consummate any acquisition or successfully integrate any acquired
business into the Company's operations. Such integration risk includes, among
other things, the difficulty in assimilating the operations and personnel of
an acquired company; potential disruption of the Company's ongoing business;
inability to successfully integrate acquired systems into the Company's
operations, maintenance of uniform standards, controls and procedures; and
possible impairment of relationships with employees of an acquired business as
a result of changes in management. Further, acquisitions may involve a number
of additional risks, including diversion of management's attention, failure to
retain key acquired personnel, unanticipated events or circumstances and legal
liabilities, some or all of which could have a material adverse effect on the
Company's business, results of operations and financial condition. Problems
with an acquired business could have a material adverse impact on the
performance of the Company as a whole. The Company expects to finance any
future acquisitions with the proceeds of this Offering as well as with
possible debt financing, the issuance of equity securities (common or
preferred stock) or a combination of the foregoing. There can be no assurance
that the Company will be able to arrange adequate financing on acceptable
terms. If the Company were to proceed with one or more significant future
acquisitions in which the consideration consisted of cash, a substantial
portion of the Company's available cash (possibly including a portion of the
proceeds of this Offering) could be used to consummate the acquisitions. If
the Company were to consummate one or more significant acquisitions in which
the consideration consisted of stock, stockholders of the Company could suffer
significant dilution of their interests in the Company. Many business
acquisitions must be accounted for as a purchase. Most of the businesses that
might become attractive acquisition candidates for the Company are likely to
have significant intangible assets and acquisition of those businesses, if
accounted for as a purchase, would typically result in substantial goodwill
amortization charges to the Company, reducing future earnings. In addition,
such acquisitions could involve non-recurring acquisition-related charges,
such as the write-off or write-down of software development costs or other
intangible items.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the shares of
Common Stock of the Company, and there can be no assurance that an active
public market for the shares of Common Stock of the Company will develop or be
sustained after the Offering. The initial public offering price will be
determined by negotiation between the Company and the Underwriters based upon
several factors. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The market price
of the shares of Common Stock may be highly volatile and could be subject to
wide fluctuations in response to variations in results of operations,
announcements of technological innovations or new products by the Company or
its competitors, changes in financial estimates by securities analysts or
other events or factors. In addition, the financial markets have experienced
significant price and volume fluctuations that have particularly affected the
market prices of equity securities of many high technology companies and that
often have been unrelated to the operating performance of such companies or
have resulted from the failure of the operating results of such companies to
meet market expectations in a particular quarter. Broad market fluctuations or
any failure of the Company's operating results in a particular quarter to meet
market expectations may adversely affect the market price of the shares of
Common Stock. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which would
have a material adverse effect on the Company's business, results of
operations and financial condition.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock in the
public market after this Offering, or the perception that such sales could
occur, could adversely affect the market price of the shares of the Common
Stock. Of the 9,047,914 shares of Common Stock to be outstanding upon
completion of this Offering, shares are being registered in the
Registration Statement and covering this Prospectus and will
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be freely tradeable without restriction. All of the remaining shares of
Common Stock are restricted securities as that term is defined in Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities
Act"). Taking into consideration the effect of lock-up agreements entered into
by all officers and directors and stockholders of the Company, an additional
shares will become eligible for sale upon expiration of the lock-up
agreements 180 days after the date of this Prospectus, subject to the
provisions of Rules 144 and 701 of the Securities Act. The Company intends to
file a Registration Statement on Form S-8 after the completion of the
Offering, after which time an additional 277,578 shares issuable upon the
exercise of vested employee and consultant stock options will become eligible
for sale. The holders of approximately shares of Common Stock to be
outstanding upon the completion of this Offering are entitled to certain
rights with respect to registration of such shares for sale to the public
beginning 180 days after the completion of this Offering. See "Management--
Executive Compensation," "Description of Capital Stock" and "Shares Eligible
for Future Sale."
POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTITAKEOVER PROVISIONS
The Company's Certificate of Incorporation permits the issuance of up to
shares of Preferred Stock and permits the Board of Directors to fix the
rights, preferences, privileges and restrictions of such shares without any
further vote or action by the Company's stockholders. As of the date of this
Prospectus, the Company had 3,191,743 shares of Preferred Stock outstanding,
all of which will convert to 4,787,594 shares of Common Stock upon the
effectiveness of this Offering. Although the Company has no current plans to
issue new shares of Preferred Stock, the potential issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control
of the Company, may discourage bids for the Common Stock at a premium over the
market price of the Common Stock and may adversely affect the market price of,
and the voting and other rights of the holders of, Common Stock. At the
effective time of this Offering, the Company's Board of Directors will be
divided into three classes, each of which serves for a staggered three-year
term. Such staggered board may make it more difficult for a third party to
gain control of the Company's Board of Directors. In addition, certain
provisions of the Company's corporate charter and by-laws and of Delaware law
may be deemed to have an anti-takeover effect and may discourage takeover
attempts not first approved by the Board of Directors including takeovers
which certain stockholders may deem to be in their best interest. See
"Description of Capital Stock."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains certain forward-looking statements, including,
among others, (i) the ability of the Company to fund higher levels of research
and development, increase its sales and marketing efforts, broaden its
customer support capabilities and expand its administrative resources in
anticipation of future growth; (ii) the ability of the Company to continue to
rely principally on a direct sales model; (iii) the Company's plans to develop
indirect distribution channels through third-party arrangements; (iv) the
ability of the Company to increase the size of its sales force and development
staff; and (v) the expansion of the Company's operations outside of the United
States and Canada. These forward-looking statements are based largely on the
Company's current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from these forward-
looking statements. In addition to the other risks described elsewhere in this
"Risk Factors" discussion, important factors to consider in evaluating such
forward-looking statements include: (i) changes in external competitive market
factors or in the Company's internal budgeting process which might impact
trends in the Company's results of operations; (ii) unanticipated working
capital or other cash requirements; and (iii) various competitive factors that
may prevent the Company from competing successfully in the marketplace. In
light of these risks and uncertainties, many of which are described in greater
detail elsewhere in this "Risk Factors" discussion, there can be no assurance
that the forward-looking statements contained in this Prospectus will in fact
transpire.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share of Common Stock is substantially
higher than the book value per share of the outstanding Common Stock. As a
result, purchasers of Common Stock in this Offering will experience an
immediate dilution of $9.54 per share in the pro forma net tangible book value
of their Common
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Stock from the assumed initial public offering price of $12.00 per share.
Additional dilution is likely to occur upon the exercise of outstanding stock
options, which entitle the option holders to purchase shares of Common Stock
at prices significantly below the initial public offering price. To the extent
such options are exercised, there will be further dilution. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby are estimated to be approximately $26,500,000
($30,685,000 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $12.00 per share and after
deducting the estimated underwriting discounts and estimated expenses payable
by the Company in connection with the Offering.
The Company expects to use the net proceeds of this Offering for working
capital and other general corporate purposes. These purposes may include
increased expenditures on research and product development, expansion of the
Company's sales and marketing staff, the development of new distribution and
sales channels, including channels for international sales, and the expansion
of the Company's capabilities to provide implementation, training and upgrade
services, and customer support and maintenance.
From time to time in the ordinary course of business, the Company evaluates
the acquisition of businesses and technologies that complement the Company's
business, for which a portion of the net proceeds may be used. Currently,
however, the Company does not have any understandings, commitments or
agreements with respect to any such acquisitions. Pending application of the
net proceeds for the purposes described above, the Company intends to invest
the net proceeds in investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company currently anticipates that it will retain all future earnings
for use in its business and does not anticipate that it will pay any cash
dividends in the foreseeable future. The payment of any future dividends will
be at the discretion of the Company's Board of Directors and will depend upon,
among other things, the Company's results of operations, capital requirements,
general business conditions, contractual restrictions on payment of dividends,
if any, legal and regulatory restrictions on payment of dividends, and other
factors the Company's Board of Directors deems relevant. In addition, the
Company's line of credit prohibits the payment of dividends without prior
lender approval.
18
<PAGE>
CAPITALIZATION
The following table sets forth the long-term indebtedness and capitalization
of the Company at December 31, 1997 on an actual, pro forma and pro forma as
adjusted basis. The table should be read in conjunction with the Company's
Unaudited Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(2)
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, net of current portion, net of
a discount of $166,000 pro forma and pro forma
as adjusted................................... $ 497 $ 1,431 $ 1,431
Redeemable convertible preferred stock:
3,500,000 shares Preferred Stock, par value
$1.00 per share authorized; 262,500 shares
of Series A Preferred Stock issued and
outstanding; 454,888 shares of Series B
Preferred Stock issued and outstanding;
428,572 shares of Series C Preferred Stock
issued and outstanding; 701,755 shares of
series D Preferred Stock issued and
outstanding; 697,675 shares of Series E
Preferred Stock issued and outstanding;
628,809 shares of Series F Preferred Stock
issued and outstanding, actual; no shares
outstanding pro forma or pro forma as
adjusted.................................... 25,112 -- --
Stockholders' equity (deficit):
Preferred stock, $1.00 par value, 3,500,000
shares authorized, 3,174,199 shares of
redeemable convertible preferred stock
issued, actual; no shares issued and
outstanding pro forma or pro forma as
adjusted.................................... -- -- --
Common stock, $.0001 par value, 9,000,000
shares authorized and 1,467,160 shares
issued and outstanding, actual; 6,584,693
shares issued and outstanding, pro forma;
and 9,084,693 shares issued, pro forma as
adjusted(3)(4).............................. -- 1 1
Additional paid-in capital..................... 438 26,986 53,486
Accumulated deficit............................ (28,019) (28,019) (28,019)
Warrants....................................... 652 468 468
Treasury stock, at cost........................ (2) (2) (2)
Note from stockholder.......................... (612) -- --
Deferred compensation.......................... (367) (367) (367)
-------- -------- --------
Total stockholders' equity (deficit)......... (27,910) (933) 25,567
-------- -------- --------
Total capitalization....................... $ (2,301) $ 498 $ 26,998
======== ======== ========
</TABLE>
- --------
(1) Pro forma capitalization data gives effect to: (i) the Conversion; (ii)
the Acquisition; and (iii) the Warrant Exercise. See "Certain
Transactions" and Note 11 to Notes to Consolidated Financial Statements.
(2) Adjusted to give effect to the sale by the Company of 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share and the receipt of the estimated net proceeds therefrom.
See "Use of Proceeds."
(3) Includes 75,000 shares of Common Stock held in treasury. Excludes: (i)
1,652,700 shares of Common Stock reserved for issuance under the Company's
1992 Stock Option Plan for which options to acquire 1,528,188 shares of
Common Stock are outstanding as of the date of this Prospectus at exercise
prices ranging from $0.67 to $4.83 per share and a weighted average
exercise price equal to $2.35 per share; (ii) 1,000,000 shares of Common
Stock reserved for issuance under the Company's 1998 Stock Incentive Plan
for which no options have yet been granted; (iii) 300,000 shares of Common
Stock issuable upon the exercise of an outstanding warrant at an exercise
price of $3.67 per share issued in connection with the Acquisition and
(iv) 95,610 shares of Common Stock issuable at a weighted average price of
$6.22 per share upon exercise and conversion of Preferred Stock issuable
upon the exercise of outstanding warrants. See "Capitalization,"
"Management--Employee Benefit Plans," "--Director Compensation."
(4) The Company filed an amendment to its Articles of Incorporation subsequent
to December 31, 1997 to increase its authorized capital stock to
shares.
19
<PAGE>
DILUTION
As of December 31, 1997, the net tangible book deficit of the Company was
approximately $(29.2 million) or $(20.96) per share. The pro forma net
tangible book deficit of the Company, assuming completion of the Conversion,
the Acquisition and the Warrant Exercise, was $(4.3 million) or $(0.67) per
share. Pro forma net tangible book deficit per share is equal to the Company's
total pro forma tangible assets, less total liabilities, divided by the number
of shares of Common Stock outstanding on a pro forma basis at that date.
After giving effect to the sale by the Company of the 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share, and the receipt of the estimated net proceeds therefrom, the
pro forma net tangible book value of the Company as of December 31, 1997 would
have been approximately $22.2 million, or $2.46 per share. This represents an
immediate increase in pro forma net tangible book value of $3.13 per share to
existing stockholders and an immediate dilution of $9.54 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
------
Net tangible book deficit per share as of December 31, 1997... $(20.96)
Increase per share attributable to pro forma adjustments...... $ 20.29
-------
Pro forma net tangible book deficit per share as of December
31, 1997..................................................... $ (0.67)
Increase per share attributable to new investors.............. $ 3.13
-------
Pro forma net tangible book value per share as of December 31,
1997 after the Offering...................................... $ 2.46
------
Dilution per share to new investors........................... $ 9.54
======
</TABLE>
The following table sets forth, as of December 31, 1997, on a pro forma
basis after giving effect to the issuance of 4,761,283 shares of Common Stock
in connection with Conversion; 225,000 shares of Common Stock in connection
with the Acquisition; 131,250 shares of Common Stock in connection with the
Warrant Exercise, 2,500,000 shares of Common Stock offered hereby and the
total consideration, and the average price per share paid by the existing
stockholders and new investors, at an assumed initial public offering price of
$12.00 per share, and before deducting the underwriting discount and estimated
offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 6,509,693 72.3% $26,987,000 47.4% $ 4.15
New investors................... 2,500,000 27.7 30,000,000 52.6 $12.00
--------- ----- ----------- -----
Total......................... 9,009,693 100.0% $57,987,000 100.0%
========= ===== =========== =====
</TABLE>
Following completion of this Offering, the Company will have outstanding
options to acquire a total of 1,528,188 shares of Common Stock at exercise
prices ranging from $0.67 to $4.83 per share and a weighted average exercise
price of $2.35 per share, 300,000 shares of Common Stock issuable upon the
exercise of an outstanding warrant at an exercise price of $3.67 per share
issued in connection with the Acquisition, and warrants to acquire Preferred
Stock convertible into an aggregate of 95,610 shares of Common Stock at a
weighted average price of $6.22 per share of Common Stock. The exercise of a
material number of these options or warrants would have the effect of
increasing the pro forma net tangible book value dilution per share to new
investors in this Offering. See "Capitalization," "Management--Employee
Benefit Plans," "Description of Capital Stock."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company set forth below
should be read in conjunction with the Consolidated Financial Statements of
the Company, including the Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The statement of
operations data for the years ended December 31, 1993, 1994, 1995, 1996 and
1997 and the balance sheet data as of December 31, 1993, 1994, 1995, 1996 and
1997 have been derived from, and are qualified by reference to, the Company's
financial statements audited by Arthur Andersen LLP, independent public
accountants. The unaudited pro forma consolidated financial statements and
notes thereto are provided for informational purposes only and do not purport
to be indicative of the results that would have actually been obtained had the
transactions been completed on the dates indicated or that may be expected to
occur in the future.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997(1)
------- ------- ------- ------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees........... $ 715 $ 2,568 $ 5,232 $ 6,425 $13,506 $13,506
Services fees.......... 245 836 1,737 3,984 7,786 7,786
Maintenance fees....... 94 417 1,221 2,647 4,696 4,696
------- ------- ------- ------- ------- -------
Total revenues......... 1,054 3,821 8,190 13,056 25,988 25,988
Cost of revenues:
License fees........... 12 98 291 416 1,205 1,205
Services fees.......... 225 860 1,421 2,904 5,402 5,402
Maintenance fees....... 189 277 655 1,350 1,973 1,973
------- ------- ------- ------- ------- -------
Total cost of
revenues.............. 426 1,235 2,367 4,670 8,580 8,580
Operating expenses:
Research and
development........... 1,364 2,130 3,882 5,777 7,190 7,190
Sales and marketing.... 541 2,718 6,636 7,191 9,515 9,515
General and
administrative........ 879 2,895 3,292 3,076 4,061 4,504
------- ------- ------- ------- ------- -------
Total operating
expenses.............. 2,784 7,743 13,810 16,044 20,766 21,209
------- ------- ------- ------- ------- -------
Operating loss.......... (2,156) (5,157) (7,987) (7,658) (3,358) (3,801)
Interest expense
(income), net.......... 14 (17) 2 6 274 353
Minority interest....... 0 0 (60) (215) (478) --
------- ------- ------- ------- ------- -------
Net loss................ $(2,170) $(5,140) $(8,049) $(7,879) $(4,110) $(4,154)
======= ======= ======= ======= ======= =======
Basic and diluted net
loss per share......... $ (2.23) $ (5.65) $ (6.19) $ (5.74) $ (2.97)
======= ======= ======= ======= =======
Weighted average common
shares outstanding(2).. 975 910 1,300 1,373 1,386
======= ======= ======= ======= =======
Pro forma basic and
diluted net loss....... $ (0.64)
=======
Pro forma weighted
average common shares
outstanding(2)......... 6,503
=======
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 1,488 $ 492 $ 3,333 $ 3,279 $ 7,213 $ 7,624
Working capital
(deficit).............. 1,178 (1,424) (2,555) (3,422) (453) (42)
Total assets............ 1,981 1,506 6,341 9,159 15,019 17,575
Long-term debt, net of
current portion........ 190 143 93 1,093 497 1,431
Redeemable convertible
preferred stock........ 4,075 7,688 13,075 19,075 25,112 --
Total stockholders'
equity................. (2,961) (8,732) (15,927) (23,837) (27,910) (933)
</TABLE>
- --------
(1) Pro forma statement of operations data gives effect to the following
transactions as if they occurred on January 1, 1997: (i) the goodwill
amortization as a result of the Acquisition; (ii) the Officer Payments;
(iii) the elimination of the minority interest in the Services Subsidiary
in connection with the Acquisition; and (iv) the interest expense on the
note issued in connection with the Acquisition. Pro forma balance sheet
data gives effect to the following transactions as if such transactions
occurred as of the date presented: (i) the Acquisition; (ii) the
Conversion; and (iii) the Warrant Exercise. See "Certain Transactions" and
Note 11 of Notes to Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of weighted average common shares outstanding.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in November 1991 to develop, market, license and
support financial applications. In 1997, the Company introduced a series of
additional modules and product enhancements. Specifically, in the first
quarter of 1997, the Company introduced its human resource applications, which
included the Personnel, Benefits and Payroll modules. In 1997, the Company
introduced its Financial Statement Accelerator module, a distributed
management reporting solution, and a 32-bit version of its financial
applications (the "Denver Release"), which included two new modules,
Purchasing Control Solution/Graphical Architect. Total license revenues from
these new products in 1997 were $5.7 million. The Company intends to release a
32-bit version of its human resources applications toward the end of 1998. The
Company currently markets its products in the United States and Canada through
its direct sales force and has licensed its client/server applications to more
than 195 customers in a variety of industry segments, including insurance,
financial services, communications, retail, printing and publishing,
transportation and manufacturing. The Company also offers fee-based
implementation, training and upgrade services and on-going maintenance and
support of its products for a 12-month renewable term.
Through 1997, the Company recognized revenue in compliance with Statement of
Position ("SOP") 91-1 "Software Revenue Recognition." Commencing in 1998, the
Company adopted SOP 97-2 "Software Revenue Recognition." The adoption of this
SOP is not expected to have a significant impact on the Company's consolidated
financial statements. Under SOP-91-1 revenues from software licenses have been
recognized upon delivery of the product if there are no significant
obligations on the part of the Company following delivery and collection of
the related receivable is deemed probable by management. Revenues from service
fees relate to implementation, training and upgrade services performed by the
Company and have been recognized as the services are performed. Maintenance
fees relate to customer maintenance and support and have been recognized
ratably over the term of the software support agreement, which is typically 12
months. A majority of the Company's customers renew the maintenance and
support agreements after the initial term. To date, all of the Company's
customers have utilized the Company's implementation, training or upgrade
services, and approximately 92% of the Company's current customers are under
maintenance and support agreements. Revenues that have been prepaid or
invoiced, but that do not yet qualify for recognition under the Company's
policies are reflected as deferred revenues.
Cost of license fees include royalties and software duplication and
distribution costs. These costs are recognized by the Company as the
applications are shipped. Cost of services fees include personnel and related
costs incurred to provide implementation, training and upgrade services to
customers. These services were provided by the Services Subsidiary beginning
in March 1995 and prior to that time by third-party contractors. These costs
are recognized as the services are performed. Cost of maintenance fees include
personnel and related costs incurred to provide the ongoing support and
maintenance of the Company's products. These costs are recognized as incurred.
Research and development expenses consist primarily of personnel costs and
subcontractor fees and amortization of acquired software. The Company accounts
for software development costs under Statement of Financial Accounting
Standards ("SFAS") No. 86 "Accounting For the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed." Research and development expenses are
charged to expense as incurred until technological feasibility is established,
after which remaining costs are capitalized. The Company defines technological
feasibility as the point in time at which the Company has a working model of
the related product. Historically, the costs incurred during the period
between the achievement of technological feasibility and the point at which
the product is available for general release to customers have not been
material. Therefore, the Company has charged all software development costs to
expense as incurred.
Sales and marketing expenses consist primarily of salaries, commissions and
benefits to sales and marketing personnel, travel, tradeshow participation,
public relations and other promotional expenses. General and
22
<PAGE>
administrative expenses consist primarily of salaries for financial,
administrative and management personnel and related travel expenses, as well
as occupancy, equipment and other administrative costs.
The Company has net operating loss carryforwards ("NOLs") of approximately
$26.4 million at December 31, 1997, which begin expiring in 2007. The Company
established a valuation allowance equal to the NOLs and all other deferred tax
assets. The benefits from these deferred tax assets will be recorded when
realized which will reduce the Company's effective tax rate for future taxable
income, if any. Due to changes in the Company's ownership structure, the
Company's use of its NOLs as of February 16, 1996 of $15.8 million will be
limited to approximately $1.6 million in any given year to offset future
taxes. If the Company does not realize taxable income in excess of the
limitation in future years, certain NOLs will be unrealizable. NOLs generated
from February 16, 1996 through December 31, 1996 of $6.5 million and from
January 1, 1997 through December 31, 1997 of $4.1 million may be further
limited as a result of the Offering.
AFFILIATE RELATIONSHIPS
In March 1995, the Company and Tech Ventures, which is controlled by Joseph
S. McCall, formed the Services Subsidiary to provide implementation, training
and upgrade services exclusively for the Company's customers. On February 5,
1998, Tech Ventures sold its 20.0% interest in the Services Subsidiary to the
Company in exchange for 225,000 shares of the Company's Common Stock, a
warrant to purchase an additional 300,000 shares of Common Stock at a price of
$3.67 per share, and a non-interest bearing promissory note in the principal
amount of $1.1 million. The purchase of the remaining 20.0% of the Services
Subsidiary will be accounted for as a purchase and will result in goodwill in
the amount of $2.1 million that will be amortized over 15 years. The pro forma
effect of this transaction as of and for the year ended December 31, 1997 is
reflected in the pro forma financial statements included elsewhere in this
Prospectus. The consolidated financial information included herein includes
the accounts of the Company and the Services Subsidiary. See "Certain
Transactions."
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996 1997
------ ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
License fees.............. 67.2% 63.9% 49.2% 52.0%
Services fees............. 21.9 21.2 30.5 30.0
Maintenance fees.......... 10.9 14.9 20.3 18.0
------ ----- ----- -----
Total revenues.......... 100.0 100.0 100.0 100.0
------ ----- ----- -----
Cost of revenues:
License fees.............. 2.6 3.6 3.2 4.6
Services fees............. 22.5 17.3 22.3 20.8
Maintenance fees.......... 7.2 8.0 10.3 7.6
------ ----- ----- -----
Total cost of revenues.. 32.3 28.9 35.8 33.0
------ ----- ----- -----
Operating expenses:
Research and development.. 55.7 47.4 44.2 27.7
Sales and marketing....... 71.1 81.0 55.1 36.6
General and
administrative........... 75.8 40.2 23.6 15.6
------ ----- ----- -----
Total operating
expenses............... 202.6 168.6 122.9 79.9
------ ----- ----- -----
Operating loss.............. (134.9) (97.5) (58.7) (12.9)
Interest (income) expense... (0.4) 0.0 0.0 1.1
Minority interest........... 0.0 (0.8) (1.6) (1.8)
------ ----- ----- -----
Net loss.................... (134.5)% (98.3)% (60.3)% (15.8)%
====== ===== ===== =====
Gross margin on license
fees....................... 96.2% 94.4% 93.5% 91.1%
Gross margin on services
fees....................... (2.9) 18.2 27.1 30.6
Gross margin on maintenance
fees....................... 33.6 46.4 49.0 58.0
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Total Revenues. Total revenues increased 99.1% to $26.0 million in 1997 from
$13.1 million in 1996. This increase was attributable to substantial increases
in license fees, services fees and maintenance fees.
License Fees. License fees increased 110.2% to $13.5 million, or 52.0% of
total revenues, in 1997 from $6.4 million, or 49.2% of total revenues, in
1996. These increases in license fees resulted primarily from an increase in
the number of licenses sold, reflecting a continuing increase in the demand
for the Company's existing and new applications, and to a lesser extent, to
the increase in the average customer transaction size.
Services Fees. Services fees increased 95.4% to $7.8 million, or 30.0% of
total revenues, in 1997 from $4.0 million, or 30.5% of total revenues, in
1996. The increase in services fees was primarily due to increased demand for
professional services associated with the increase in the number of licenses
sold.
Maintenance Fees. Maintenance fees increased 77.4% to $4.7 million, or 18.0%
of total revenues in 1997 from $2.7 million or 20.3% of total revenues in
1996. The increase in maintenance fees was primarily due to the signing of
license agreements with new customers and the renewal of maintenance with
existing customers.
24
<PAGE>
COST OF REVENUES
Total Cost of Revenues. Cost of revenues increased 83.7% to $8.6 million, or
33.0% of total revenues, in 1997 from $4.7 million, or 35.8% of total
revenues, in 1996. The increase in the cost of revenues was primarily due to
an increase in personnel and related expenses and increased royalty expenses.
The decrease as a percentage of total revenues primarily reflects increased
utilization of personnel.
Cost of License Fees. Cost of license fees increased to $1.2 million, or
8.9% of total license fees, in 1997 compared to $416,000, or 6.5% of total
license fees, in 1996. The increase as a percentage of total license fees is
primarily attributable to increases in royalty expense on new products
introduced in 1997, components of which are licensed from third parties.
Cost of Services Fees. Cost of services fees increased 86.0% to $5.4
million, or 69.4% of total services fees, in 1997 compared to $2.9 million, or
72.9% of total services fees, in 1996. The increase in the cost of services
fees was primarily attributable to an increase in the personnel and related
costs to provide the implementation, training and upgrade services. Cost of
services fees as a percentage of total services fees decreased due to
increased utilization of personnel.
Cost of Maintenance Fees. Cost of maintenance fees increased 46.1% to $2.0
million, or 42.0% of total maintenance fees, in 1997 compared to $1.4 million,
or 51.0% of total maintenance fees, in 1996. The increase in the cost of
maintenance fees was primarily due to an increase in personnel and related
costs required to provide support and maintenance. Cost of maintenance fees as
a percentage of total maintenance fees decreased primarily due to more
productive use of personnel to support the maintenance customer base.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 24.5% to $7.2 million, or 27.7%
of total revenues, in 1997 from $5.8 million, or 44.2% of total revenues, in
1996. Research and development expenses increased primarily due to increased
personnel and contractor fees related to the effort required to develop the
Denver Release, which was released in September 1997. During the first half of
1997, the Company began to reduce development personnel and third-party
consultant costs as this project approached completion. The decrease in
research and development as a percentage of revenue from 1996 compared to 1997
is primarily due to the completion of the Denver Release, coupled with the
economies of scale realized through the growth in the Company's revenue. The
Company intends to continue to devote substantial resources toward research
and development efforts.
SALES AND MARKETING
Sales and marketing expenses increased 32.3% to $9.5 million in 1997 from
$7.2 million in 1996. As a percentage of total revenues, sales and marketing
expenses decreased to 36.6% in 1997 from 55.1% in 1996. The increase in
expenses was primarily attributable to the costs associated with additional
sales and marketing personnel and promotional activities. In January 1997, the
Company divided its U.S. and Canadian sales territory into east and west
regions and hired a second vice president of sales. In addition, the Company
hired two regional sales managers and several additional sales representatives
in early 1997. During 1997, the Company also incurred substantial marketing
expenditures to design and implement a promotional campaign, including
marketing collateral, trade shows and seminar presentations intended to
promote the Company's new market positioning. The decrease in sales and
marketing as a percentage of revenues from 1996 compared to 1997 reflects the
higher productivity of the Company's sales force.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 32.0% to $4.1 million in 1997
from $3.1 million in 1996. As a percentage of total revenues, general and
administrative expenses decreased to 15.6% in 1997 from 23.6% in 1996. The
increase in general and administrative expenses was primarily attributable to
increases in
25
<PAGE>
personnel and related costs. Also, the Company incurred increased rent and
equipment expense associated with the relocation of its headquarters in August
1997. In 1997, the Company recorded $58,000 in compensation expense related to
stock options granted. The Company believes that its general and
administrative expenses will continue to increase in future periods to
accommodate anticipated growth and expenses associated with its
responsibilities as a public company.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception,
the Company has not recorded any provision or benefit for income taxes in 1997
and in 1996. See Notes to Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Total Revenues. Total revenues increased 59.4% to $13.1 million in 1996 from
$8.2 million in 1995. This increase was attributable to substantial increases
in license fees, services fees and maintenance fees.
License Fees. License fees increased 22.8% to approximately $6.4 million in
1996, from $5.2 million in 1995. The increase reflected an increase in the
number of product licenses sold during the period. As a percentage of total
revenues, license fees decreased to 49.2% in 1996 from 63.9% in 1995. This
decrease was primarily attributable to the deferral of revenues on contracts
signed in 1996 related to the Denver Release to 1997.
Services Fees. Services fees increased 129.4% to $4.0 million, or 30.5% of
total revenues, in 1996 from $1.7 million, or 21.2% of total revenues, in
1995. These increases were attributable to increasing demand for services
associated with the Company's increasing customer base coupled with the
maturation of the Services Subsidiary that was created in March of 1995.
Maintenance Fees. Maintenance fees increased 116.8% to $2.7 million, or
20.3% of total revenues, in 1996 from $1.2 million, or 14.9% of total
revenues, in 1995. These increases resulted primarily from the signing of
license agreements with new customers and the renewal of maintenance with
existing customers.
COST OF REVENUES
Total Cost of Revenues. Cost of revenues increased 97.3% to $4.7 million, or
35.8% of total revenues in 1996 from $2.4 million, or 28.9% of total revenues,
in 1995. These increases were primarily due to an increase in personnel and
related expenses.
Cost of License Fees. Cost of license fees increased 43.0% to $416,000 in
1996 from $291,000 in 1995. The increase was primarily attributable to an
increase in royalty expense. As a percentage of total license fees, cost of
license fees increased to 6.5% in 1996 from 5.6% in 1995.
Cost of Services Fees. Cost of services fees increased 104.4% to $2.9
million, or 72.9% of total services fees, in 1996 from $1.4 million, or 81.8%
of total services fees, in 1995. The increase in absolute dollars was
primarily attributable to an increase in personnel and related costs required
to provide the implementation, training and upgrade services. The cost of
services fees as a percentage of total services fees decreased due to
increased utilization of personnel coupled with the Company's Services
Subsidiary being operational for all of 1996.
Cost of Maintenance Fees. Cost of maintenance fees increased 106.1% to $1.4
million, or 51.0% of total maintenance fees, in 1996 from $655,000, or 53.6%
of total maintenance fees, for 1995. The increase in absolute dollars was
primarily attributable to an increase in personnel and related costs to
provide support and maintenance services to the Company's growing customer
base. Cost of maintenance fees as a percentage of
26
<PAGE>
total maintenance fees decreased primarily due to more productive use of
personnel supporting the Company's maintenance customer base.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 48.8% to $5.8 million in 1996
from $3.9 million in 1995. This increase reflects increased personnel and
related expenses and third-party contractor fees as the Company increased
product development personnel to develop new products, including the Denver
Release and the prior releases of the Company's financial applications. As a
percentage of total revenues, research and development expenses decreased to
44.2% in 1996 from 47.4% in 1995. This decrease was attributable to the
economies of scale realized through substantial increases in total revenues.
SALES AND MARKETING
Sales and marketing expenses increased by 8.4% to $7.2 million in 1996 from
$6.6 million in 1995. Sales and marketing expenses increased primarily as a
result of increased sales and marketing personnel and related costs. As a
percentage of total revenues, sales and marketing expenses decreased to 55.1%
in 1996 from 81.0% in 1995. This decrease primarily reflects the higher
productivity of the Company's sales force.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased 6.6% to $3.1 million, or 23.6%
of total revenues, in 1996 from $3.3 million, or 40.2% of total revenues, in
1995. The decrease reflects lower general and administrative costs associated
with the closing of the United Kingdom office and allocations of costs to the
Services Subsidiary for administrative services performed on its behalf.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception,
the Company has not recorded any provision or benefit for income taxes in 1996
or 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES
Total Revenues. Total revenues increased 114.3% to $8.2 million in 1995 from
$3.8 million in 1994. This increase was attributable to substantial increases
in license fees and maintenance fees related to in large part to the Company's
expanded marketing efforts.
License Fees. License fees increased 103.7% to $5.2 million in 1995 from
$2.6 million in 1994. The increase was due to an increase in the number and
productivity of the direct sales force. The number of customers to which the
Company licensed its products doubled from 1994 to 1995. As a percentage of
total revenues, license fees decreased to 63.9% in 1996 from 67.2% in 1995.
This decrease reflects the fact that maintenance fees increased at a faster
rate than license fees during these periods.
Services Fees. Services fees increased 107.8% to $1.7 million in 1995 from
$836,000 in 1994. The dollar amount increase in services fees reflected the
increasing demand for implementation, training and upgrade services associated
with the growth in the Company's customer base and the formation of the
Services Subsidiary in March of 1995. As a percentage of total revenues,
services fees decreased to 21.2% in 1996 from 21.9% in 1995.
Maintenance Fees. Maintenance fees increased 192.8% to $1.2 million, or
14.9% of total revenues, in 1995 from $417,000, or 10.9% of total revenues, in
1994. These increases were primarily due to the signing of license agreements
associated with the increase in sales of the Company's applications and
renewals of maintenance with existing customers.
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<PAGE>
COST OF REVENUES
Total Cost of Revenues. Cost of revenues increased 91.7% to $2.4 million, or
28.9% of total revenues, in 1995, from $1.2 million, or 32.3% of total
revenues, in 1994. The increase was primarily attributable to an increase in
personnel and related expenses. The decrease as a percentage of total revenues
reflects increased utilization of personnel.
Cost of License Fees. Cost of license fees increased 196.9% to $291,000, or
5.6% of total license fees, in 1995 from $98,000, or 3.8% of total license
fees, in 1994. These increases were primarily attributable to an increase in
licenses on which the Company pays a royalty fee.
Cost of Services Fees. Cost of services fees increased 65.2% to $1.4 million
in 1995 from $860,000 in 1994. This increase was primarily attributable to an
increase in personnel and related expenses required to provide implementation,
training and upgrade services. As a percentage of total services fees
revenues, cost of services fees decreased to 81.8% in 1995 from 102.9% in
1994. This decrease reflected the increased productivity of the services
personnel in connection with the formation of the Services Subsidiary in March
of 1995. In 1994, the Company used third-party contractors to perform
implementation, training and upgrade services which resulted in increased
services cost.
Cost of Maintenance Fees. Cost of maintenance fees increased 136.5% to
$655,000, or 53.6% of total maintenance fees, in 1995 from $277,000, or 66.4%
of total maintenance fees, in 1994. The increase in absolute dollars was
attributable to an increase in personnel and related costs required to provide
customer support and maintenance services. As a percentage of total
maintenance fees, cost of maintenance fees decreased primarily due to more
productive use of personnel supporting the Company's maintenance customer
base.
RESEARCH AND DEVELOPMENT
Total research and development expenses increased 82.3% to $3.9 million in
1995 from $2.1 million in 1994. The increase resulted from increased personnel
and related costs required in the development of the Company's products. As a
percentage of total revenues, research and development expenses decreased to
47.4% in 1995 from 55.7% in 1994. This decrease was primarily attributable to
the economies of scale realized through a significant increase in revenues for
the period.
SALES AND MARKETING
Sales and marketing expenses increased 144.2% to $6.6 million, or 81.0% of
total revenues, in 1995 from $2.7 million, or 71.1% of total revenues, in
1994. These increases resulted from the costs associated with investigating
market opportunities in the United Kingdom, expanded marketing efforts and an
increase in the direct sales force.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased by 13.7% to $3.3 million in
1995 from $2.9 million in 1994. The increase in general and administrative
expenses was primarily attributable to increased personnel, rent and equipment
expenses. As a percentage of total revenues, general and administrative
expenses decreased to 40.2% in 1996 from 75.8% in 1995. This decrease was
primarily attributable to the economies of scale realized through a
significant increase in revenues.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception,
the Company has not recorded any provision or benefit for income taxes in 1995
or 1994. See Notes to Consolidated Financial Statements.
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<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for each of the eight quarters of fiscal 1996 and 1997. The
information for each of these quarters is derived from unaudited consolidated
financial statements and, in the opinion of management, includes all
adjustments consisting of only normal and recurring adjustments necessary for
a fair presentation of that information. The results of operations for any
quarter and any quarter-to-quarter trends are not necessarily indicative of
the results to be expected for any future period.
<TABLE>
<CAPTION>
1996 1997
-------------------------------------- ------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees.......... $ 288 $2,341 $ 1,568 $ 2,228 $ 1,938 $ 2,790 $4,298 $4,480
Services fees......... 759 927 1,056 1,242 1,611 1,665 2,064 2,446
Maintenance fees...... 518 579 631 919 897 1,020 1,251 1,528
------- ------ ------- ------- ------- ------- ------ ------
Total revenues...... 1,565 3,847 3,255 4,389 4,446 5,475 7,613 8,454
------- ------ ------- ------- ------- ------- ------ ------
Cost of revenues:
License fees.......... 25 114 105 172 178 200 478 349
Services fees......... 597 612 745 950 1,142 1,211 1,382 1,667
Maintenance fees...... 285 282 314 469 428 422 510 613
------- ------ ------- ------- ------- ------- ------ ------
Total cost of
revenues........... 907 1,008 1,164 1,591 1,748 1,833 2,370 2,629
------- ------ ------- ------- ------- ------- ------ ------
Operating expenses:
Research and
development.......... 1,231 1,344 1,413 1,789 1,927 2,147 1,606 1,510
Sales and marketing... 1,482 1,667 1,633 2,409 2,243 2,362 2,354 2,556
General and
administrative....... 569 684 821 1,002 864 924 978 1,295
------- ------ ------- ------- ------- ------- ------ ------
Total operating
expenses........... 3,282 3,695 3,867 5,200 5,034 5,433 4,938 5,361
------- ------ ------- ------- ------- ------- ------ ------
Operating (loss)
income................. (2,624) (856) (1,776) (2,402) (2,336) (1,791) 305 464
Interest expense
(income)............... (2) (9) 7 10 0 91 132 51
Minority interest....... (32) (63) (62) (58) (98) (91) (133) (156)
------- ------ ------- ------- ------- ------- ------ ------
Net (loss) income....... $(2,654) $ (910) $(1,845) $(2,470) $(2,434) $(1,973) $ 40 $ 257
======= ====== ======= ======= ======= ======= ====== ======
<CAPTION>
1996 1997
-------------------------------------- ------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees.......... 18.4% 60.9% 48.2% 50.8% 43.6% 51.0% 56.5% 53.0%
Services fees......... 48.5 24.0 32.4 28.3 36.2 30.4 27.1 28.9
Maintenance fees...... 33.1 15.1 19.4 20.9 20.2 18.6 16.4 18.1
------- ------ ------- ------- ------- ------- ------ ------
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------ ------- ------- ------- ------- ------ ------
Cost of revenues:
License fees.......... 1.6 3.0 3.2 3.9 4.0 3.7 6.3 4.1
Services fees......... 38.2 15.9 22.9 21.6 25.7 22.1 18.1 19.7
Maintenance fees...... 18.2 7.3 9.7 10.7 9.6 7.7 6.7 7.3
------- ------ ------- ------- ------- ------- ------ ------
Total cost of
revenues........... 58.0 26.2 35.8 36.2 39.3 33.5 31.1 31.1
------- ------ ------- ------- ------- ------- ------ ------
Operating expenses:
Research and
development.......... 78.6 34.9 43.4 40.8 43.3 39.2 21.1 17.9
Sales and marketing... 94.7 43.4 50.2 54.9 50.5 43.1 30.9 30.2
General and
administrative....... 36.4 17.8 25.2 22.8 19.4 16.9 12.8 15.3
------- ------ ------- ------- ------- ------- ------ ------
Total operating
expenses........... 209.7 96.1 118.8 118.5 113.2 99.2 64.8 63.4
------- ------ ------- ------- ------- ------- ------ ------
Operating (loss)
income............... (167.7) (22.3) (54.6) (54.7) (52.5) (32.7) 4.1 5.5
Interest expense
(income)............. (0.1) (0.2) 0.2 0.2 0.0 1.7 1.7 0.6
Minority interest..... (2.0) (1.6) (1.9) (1.4) (2.2) (1.6) (1.8) (1.9)
------- ------ ------- ------- ------- ------- ------ ------
Net (loss) income... (169.6)% (23.7)% (56.7)% (56.3)% (54.7)% (36.0)% 0.6% 3.0%
======= ====== ======= ======= ======= ======= ====== ======
</TABLE>
29
<PAGE>
The Company has experienced, and is expected to continue to experience,
significant fluctuations in quarterly operating results caused by many
factors, including, but not limited to: (i) changes in the demand for the
Company's products; (ii) the timing, composition and size of orders from the
Company's customers, including the tendency for significant bookings to occur
in the fourth quarter; (iii) lengthy sales cycles; (iv) spending patterns and
budgetary resources of its customers; (v) the success of the Company in
generating new customers; (vi) introductions or enhancements of products, or
delays in the introductions or enhancements of products, by the Company or its
competitors; (vii) changes in the Company's pricing policies or those of its
competitors; (viii) the Company's ability to anticipate and effectively adapt
to developing markets and rapidly changing technologies; (ix) the Company's
ability to attract, retain and motivate qualified personnel; (x) changes in
the mix of products sold; (xi) the publication of opinions about the Company
and its products, or its competitors and their products, by industry analysts
or others; and (xii) changes in general economic conditions. These factors
make the estimation and forecast of revenues difficult on a quarterly basis
and increase the potential margin for error in performance forecasts derived
from such estimates. For example, the Company realized lower than expected
revenues in the first quarter of 1996 as a result of the signing of an
unusually high number of contracts that contained contingencies requiring
deferral of revenue until the second quarter. The Company plans to continue
increasing the dollar amount of its product development and sales expenses on
a quarterly basis in an effort to increase its market share. These increases
will be based in part on the estimation and forecasting of future revenues. As
a result, the estimation of quarterly results of operations is difficult and
should not be relied upon as any indication of future performance. See "Risk
Factors--Fluctuations in Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the private sale
of equity securities, internally generated cash flow, credit facilities and a
credit line for equipment purchases. The Company had a working capital deficit
of $453,000 at December 31, 1997 primarily attributable to the current portion
of deferred revenue of $5.7 million at December 31, 1997. As of December 31,
1997, the Company's cash balance was $7.2 million.
Cash used in operating activities was approximately $11,000, $2.8 million,
and $4.7 million during 1997, 1996, and 1995, respectively. Cash used by
operations during each of these periods was primarily attributable to net
losses and an increase in accounts receivables, partially offset in each
period by increases in deferred revenues, accounts payable and noncash charges
such as depreciation and amortization.
Cash used in investing activities was approximately $1.2 million, $3.0
million, and $914,000 during 1997, 1996, and 1995, respectively. Cash used in
1996 included $2.0 million to purchase a nonexclusive software license for the
Company's human resource applications. The balance of cash used in 1996 as
well as in the other periods was used to acquire property and equipment.
Cash provided by financing activities was approximately $5.2 million, $5.7
million, and $8.5 million during 1997, 1996, and 1995, respectively. During
1997, 1996, and 1995, the Company received $6.0 million, $6.0 million, and
$5.9 million, respectively, of net proceeds from the sale of Preferred Stock.
In March 1997, the Company entered into a loan agreement and a master
leasing agreement for an equipment line of credit in the amount of $1.0
million (the "Equipment Line") with a leasing company. The Equipment Line
bears interest at rates negotiated with each loan or lease schedule (generally
22.0% to 22.5%) and is collateralized by all of the equipment purchased with
the proceeds thereof. As of December 31, 1997, the principal balance on the
Equipment Line payable was $655,000.
The Company has a revolving working capital line of credit with Silicon
Valley Bank. Borrowings outstanding under the line are limited to the lesser
of $3.0 million or 80% of license and implementation services revenue accounts
receivable plus 65% of maintenance revenue accounts receivable. Interest on
this line is at rates which range from prime plus 2.75% to prime plus 3.0% and
are collateralized by all of the assets of the
30
<PAGE>
Company. The Company's line of credit is renewable annually, subject to 60
days notice of termination prior to each annual renewal after March 28, 1998.
As of December 31, 1997, the Company had no outstanding balance and had $1.9
million available for future borrowings under this agreement.
In both June and August 1997, the Company received $1.0 million in bridge
loans from existing investors. In September 1997, the $2.0 million in bridge
loans discussed above were converted into 212,141 shares of Series F Preferred
Stock. In September 1997, the Company received $4.0 million of net proceeds
from the issuance of 416,668 shares of Series F Preferred Stock to certain
investors for $9.60 per share. The proceeds of this sale have been applied by
the Company to general working capital requirements and the payment of loans
outstanding.
The Company had available NOLs of approximately $26.4 million as of December
31, 1997 to reduce future income tax liabilities. These NOLs expire from 2007
through 2012 and are subject to review and possible adjustment by the
appropriate taxing authorities. Pursuant to the Tax Reform Act of 1986, the
utilization of NOLs for tax purposes may be subject to an annual limitation if
a cumulative change of ownership of more than 50% occurs over a three-year
period. As a result of this limitation, the Company will be limited to the use
of its NOLs in any given year. The Company had net deferred tax assets of
approximately $10.4 million at December 31, 1997 comprised primarily of net
operating loss carryforwards. The Company has fully reserved for these
deferred tax assets by recording a valuation allowance of $10.4 million.
The Company believes that the net proceeds from this Offering, together with
its current cash balances, cash provided by future operations and available
borrowings under its lines of credit, will be sufficient to meet its working
capital and anticipated capital expenditure requirements for at least the next
12 months. Although operating activities may provide cash in certain periods,
to the extent the Company experiences growth in the future its operating and
investing activities may require significant cash. Consequently, any such
future growth may require the Company to obtain additional equity or debt
financing.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 requires companies to display,
with the same prominence as other financial statements, the components of
other comprehensive income. SFAS No. 130 requires that an enterprise classify
items of other comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the balance sheet. SFAS No. 130 is effective for the Company's fiscal year
ending December 15, 1998. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company does not
expect that SFAS No. 130 will require significant revisions of prior
disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. SFAS No.
131 requires that an enterprise disclose certain information about operating
segments. SFAS No. 131 is effective for financial statements for the Company's
fiscal year ending December 31, 1998. The Company will evaluate the need for
such disclosures at that time.
The American Institute of Certified Public Accountants has issued Statement
of Position 97-2, "Software Revenue Recognition." SOP 97-2 supersedes SOP 91-1
and is effective for the Company for transactions entered into after December
31, 1997. The Company will adopt SOP 97-2 in the first quarter of 1998. The
adoption of the standards is not expected to have a significant impact on the
Company's consolidated financial statements.
31
<PAGE>
BUSINESS
INTRODUCTION
SQL Financials International, Inc. ("SQL Financials" or the "Company")
develops, markets and supports client/server financial software applications
that reduce the total cost of ownership by minimizing the time, costs and
risks associated with implementing, changing and upgrading applications. The
Company's products are based on a flexible, open architecture called Active
Architecture(TM) which allows for seamless, rapid changes and upgrades without
modifying the source code. The Company's software provides organizations with
the broad functionality of custom-designed applications without the high total
cost of ownership traditionally associated with such applications. By
providing broad functionality, a flexible open architecture, and minimized
implementation and modification time, the Company addresses the needs of a
wide range of organizations while giving end users more control of their work
environment.
The Company licenses its products and services primarily through a direct
sales force in North America. At January 31, 1998, the Company had more than
195 customers including leading organizations such as Amtrak, Blue Cross/Blue
Shield of Alabama, Chartwell Re Holdings Corporation, First Data Corporation,
Land's End, Inc., A.C. Nielsen Company, T. Rowe Price Associates, Inc., Shaw
Industries, Inc., Toronto-Dominion Bank, and United Technologies.
INDUSTRY BACKGROUND
Increasing global competition has driven organizations of all sizes to
improve operating efficiencies, reduce costs, speed time to market and improve
customer satisfaction. To achieve these objectives, organizations have
utilized information technology ("IT") systems to automate repetitive
processes, to facilitate communications throughout various departments and to
process increasingly sophisticated and detailed information. Organizations
therefore face the challenge of providing this critical information to a broad
group of end users to give them better control of their work environment and
to increase productivity and performance.
Recent advances in computing and communications, including the wide-spread
adoption of distributed computing, and the proliferation of third-party
enterprise software applications, have enabled organizations to provide
relevant information directly to the desktop. Organizations have deployed
enterprise client/server applications addressing the full range of functions
across the enterprise, including "front office" related functions such as
sales force automation, call center management and customer support and help
desk activities, and "back office" operations such as distribution,
manufacturing, production and supply chain planning and execution activities.
At the core of the enterprise software system are the organization's financial
applications that serve as a critical point of integration for all enterprise
applications and enable users to improve core business processes, monitor,
analyze and report business results, and make more informed decisions faster.
According to International Data Corporation, the market for enterprise-level
accounting, human resource and payroll client/server applications exceeded
$3.0 billion in 1996, and is projected to grow at a compound annual growth
rate of 30% through the year 2001 to over $12.0 billion.
Traditionally, organizations have had two alternatives when deploying
enterprise financial applications: either a highly complex custom-designed
application to meet the organization's specific requirements, typically
developed in a "legacy" environment; or an off-the-shelf application designed
to be implemented more rapidly in a distributed computing environment, at a
perceived lower cost of ownership, although often lacking the depth of
functionality of the custom-designed application.
While custom-designed applications have provided the desired degree of
functionality, their size and complexity generally require very lengthy
design, development and implementation efforts. Maintaining, updating and
upgrading these applications requires substantial internal resources and
generally requires the use of outside consultants. In addition, these
applications have limited flexibility to support diverse and changing
operations or to respond effectively to evolving business demands and
technologies. The high total cost of
32
<PAGE>
ownership and complexity associated with developing and maintaining custom-
designed applications have limited their utilization to organizations with
significant resources.
In recent years, organizations have increasingly deployed off-the-shelf
client/server financial applications to leverage their investment in
client/server technologies and provide end users with information that gives
them greater control over their work environment. However, traditional off-
the-shelf applications often require organizations to re-engineer established
business practices to accommodate application constraints or to customize the
applications with labor-intensive reprogramming to fit their needs. These
requirements significantly challenge resource-constrained organizations and
fail to provide the desired lower total cost of ownership.
Limitations of both custom-designed and off-the-shelf applications result in
higher total cost of ownership to the organization. The largest components of
such cost are the necessary labor and programming resources associated with
implementation and maintenance. According to the Gartner Group, labor-related
services, including implementation and post-implementation services, comprise
approximately 71% of the five-year total cost of ownership for client/server
applications, with the acquisition cost of software compromising only 17% of
the total cost of ownership and hardware and networking costs comprising the
balance.
Today, organizations acquiring or replacing their financial applications
seek broader functionality, better integration with existing systems and
applications, greater flexibility to change and upgrade, and a lower total
cost of ownership. Key to meeting these expectations are solutions that are
flexible, easy to implement, change and upgrade, provide information on demand
and, most importantly, put users in control.
THE SQL FINANCIALS SOLUTION
The Company offers a highly integrated suite of applications that matches
the functionality of custom-designed applications without the high total cost
of ownership traditionally associated with such applications. By providing
broad functionality, a flexible open architecture, minimized implementation,
modification and ongoing support time, and enhanced user control, the Company
addresses the needs of a broad range of organizations. The Company's
applications offer the following key benefits:
Broad Functionality. The Company's highly integrated suite of financial
applications covers the full range of financial and accounting functions,
including general accounting, expense accounting, revenue accounting and human
resources. The Company's applications are particularly suited to address the
financial, accounting and reporting needs of non-industrial firms. Through its
Graphical Architects modules, the Company provides additional capabilities,
including enhanced interaction with external software systems, user
personalization, job scheduling, analysis capabilities and Internet
connectivity.
Flexible, Open Architecture. The Company's applications are based on a
flexible, open architecture to fit in with the components of an organization's
existing IT infrastructure. These applications work with the popular
Microsoft, Oracle and Sybase databases and run on any operating system and
hardware platforms compatible with these databases, enabling customers to
easily migrate to alternative computing technologies. The flexibility of the
Company's applications, together with the ability to modify the functionality
without changing the source code, results in seamless, rapid changes or
upgrades. The openness of the architecture allows easy integration with third-
party technologies, including Microsoft BackOffice and Arbor Essbase, as well
as products from third-party financial reporting software companies.
Minimized Implementation, Modification and Ongoing Support Time. The
implementation of the Company's software can typically be achieved in less
than six months, depending on the number of modules being implemented, and
modifications can be made directly by the end user at the time of, or
subsequent to, implementation. In addition, the time, costs and risks
associated with changing and upgrading applications are minimized because
implementation of the Company's applications is done without any modification
to the underlying source code. The Company believes that this results in
implementation and post-implementation services costs well below the industry
average.
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<PAGE>
Enhanced End User Control. The Company's applications are designed to put
users in control by: (i) providing the flexibility to quickly set up
applications and personalize user interfaces; (ii) providing end users the
ability to directly tailor and change applications during or subsequent to
implementation; (iii) allowing users to upgrade in a minimal amount of time
without software development tools or significant IT personnel involvement;
(iv) allowing integration with other native or external applications in the
users' work environment; and (v) delivering information on demand and in the
form desired.
STRATEGY
The Company's objective is to become the leading provider of financial
applications to non-industrial organizations. The key elements of the
Company's strategy are as follows:
Extend Technology Leadership. The Company believes that extending technology
leadership, rapidly creating additional features and incorporating new
technologies are important competitive advantages in its marketplace. The
Company believes its Active Architecture technology is a key differentiator
that provides a significant advantage over competing products. In addition,
the Company believes it was one of the first software developers to utilize
object wrappers in financial applications to facilitate tailoring and
integration with other applications. The Company intends to continue to
identify and develop new and emerging technologies for its applications.
Leverage Expertise in Financial Applications. The Company intends to
leverage its expertise in financial applications to design, develop and offer
other financial and financially-related applications focused on meeting the
needs of non-industrial customers. For example, the Company recently
introduced several new applications, including Purchasing Control, Personnel,
Payroll and Benefits, as well as two new reporting solutions. In addition, the
Company intends to release additional applications, such as Project
Accounting, Order Entry, Inventory and Treasury.
Capitalize on Middle Market Opportunities. The Company focuses its sales and
marketing efforts on value buyers in mid-sized non-industrial organizations,
including divisions of larger companies, which represent the fastest growing
segment of the financial applications market. In its targeted industries,
financial and human resource applications typically represent the
organization's most critical systems. The Company believes that its flexible
user-controlled applications are well suited for rapidly growing mid-sized
organizations and value buyers that demand highly functional and scalable
financial applications without the high total cost of ownership traditionally
associated with financial applications.
Leverage Installed Customer Base. The Company believes that its installed
customer base represents a significant potential market for future sales of
its products. The Company continually uses its customer relationships: (i) to
sell new products and cross-sell products to multiple offices, divisions and
departments of a customer's organization; (ii) as a reference to gain new
customers; and (iii) to focus its efforts on selected vertical markets as a
means of expanding its market share.
Expand Sales and Marketing Channels. The Company intends to expand its
direct sales force by hiring additional experienced sales personnel. The
Company also intends to establish indirect distribution channels and
relationships with product vendors and consulting companies, as well as
increase its international market penetration by establishing relationships
with strategic partners with an international presence. The Company believes
that expanding its marketing relationships will provide increased access to
various geographic markets and potential customers.
Continue to Provide High Quality Customer Service. By providing superior
implementation, support and training services directly to its customers,
rather than through third-party resellers and system integrators, the Company
can achieve a high level of customer satisfaction, strong customer references
and long-term relationships. Direct customer service also allows for immediate
feedback which facilitates software improvements. The Company intends to
continue to expand its customer service and maintenance staff and to make
additional investments in its support infrastructure.
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<PAGE>
TECHNOLOGY
The Company's applications are based on an extensible, object-oriented,
proprietary architecture called "Active Architecture." The Active Architecture
technology is designed to achieve the following benefits: (i) flexible, high-
end functionality; (ii) the ability to modify the functionality without
changing the source code; (iii) the ability to easily integrate applications
into a customer's IT infrastructure; (iv) the ability to rapidly implement
changes and upgrade applications; (v) reduced total cost of ownership; and
(vi) users in control. Active Architecture is comprised of three elements: the
Core Components, the Graphical Architects modules and the System Manager
module.
Core Components. The core functionality for the Company's applications is
defined through a set of Core Components, the building blocks of the financial
and human resource applications. The Core Components perform financial and
accounting functions in the context of legal and regulatory requirements and
generally accepted accounting principles. Examples of these Core Components
include general ledger posting, accounts payable vouching, account structure
management and payroll processing. The Company's fundamental premise is that
users should not need to reprogram the Core Components. Contained within the
overall architectural framework is the ability to modify and seamlessly
upgrade the Company's applications while continuing to maintain the process
and data security, integrity and reliability of the Core Components. End users
can accommodate their business-specific requirements and technology changes,
such as integrating external software systems, user personalization, job
scheduling, analysis capabilities, Internet connectivity and application
management through the Graphical Architect modules which require no source
code programming.
Graphical Architects. The Company has developed Graphical Architects modules
that allow organizations to quickly and easily adapt to business-specific
requirements and changes in technology. The Company provides the Business
Controls/Graphical Architect as a standard component with all of its
applications and licenses other Graphical Architects modules with additional
functionality. Through Business Controls an organization can centrally
administer its business rules and policies and apply them across all financial
applications. This central control allows for consistency of management
policies and reduced set-up time in each of the application areas. Business
Controls also allows organizations to define and manage their chart of
accounts, analysis codes, default account segments and overrides, accounting
periods, inter-company transactions, tax management, accounting calendar,
cross-validation rules and multiple currencies.
System Manager. System Manager supports the Active Architecture technology
by integrating, synchronizing and managing all components of the application.
System Manager offers a visual point-and-click interface and is designed to
reduce systems and database administration efforts and the time required to
update external applications, as well as upgrades to the Company's application
itself. Through System Manager, the user orchestrates software installation,
database initialization, and software and database upgrades. These tasks are
simplified by System Manager's automated process which does not require
scripts or other programming. In addition, System Manager provides a single
point of control for security across all of the Company's applications.
Security information is automatically maintained and updated during the
upgrades.
The Company's applications incorporate a multi-tiered, client/server
architecture that supports Microsoft Windows 95 and/or NT clients, including
Netscape and Microsoft Internet Explorer, and most popular UNIX (AIX, HP-UX,
Solaris, VMS, etc.) and Windows NT servers running Microsoft SQL Server,
Oracle, and Sybase database management systems over a variety of network
topologies. Integration of the Company's applications with these databases is
achieved with a single version of the source code, allowing users to replace
or upgrade their hardware and database systems with minimal impact to the
customer's application. The Company currently offers both 16-bit and 32-bit
versions of its financial applications and 16-bit versions of its human
resource applications for the Windows 3.1, Windows 95, and Windows NT
platforms. The Company expects to offer 32-bit versions of its human resource
applications during 1998. The various technologies upon which the Active
Architecture has been built include Microsoft Visual C++ and the Microsoft
Foundation Classes, ActiveX, OLE/COM and Centura.
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PRODUCTS
The Company's product family includes a full suite of financial and human
resource applications designed to meet the needs of a broad range of
organizations.
APPLICATIONS
General Ledger, the Company's flagship application, delivers a comprehensive
solution including ledger accounting, consolidation and allocations, multi-
level segment accounts, automatic entry balancing, multiple financial
calendars within a single organization, recurring entries, average daily
balances and budgeting and profit sharing.
Accounts Payable controls vendor information, invoicing procedures and
payment activities, while providing for an unlimited number of bank accounts,
processing foreign currency gains and losses, and automatically reconciling
and balancing inter-company accounts and multiple payment methods.
Purchasing Control streamlines purchasing processes with end-user
requisitioning, quick access to contracts and price lists, automation of
receiving and matching processes and vendor management.
Accounts Receivable streamlines payment applications, provides management
and reporting of receivables activities, manages customer information and
inter-relationships, tracks the collection process, processes foreign currency
gains and losses and provides historical information.
Revenue Accounting combines invoice entry and billing applications, provides
user-defined rules for revenue recognition, automatically creates multi-line
tax distributions for multiple taxing authorities, calculates shipping charges
for specific lines of an invoice, supports a multi-catalog pricing structure
as well as user-defined pricing contracts and tracks customer deposits and
down payments.
Fixed Assets tracks and maintains asset investments and facilitates
compliance with tax and accounting regulations through user-defined
depreciation scheduling, which can be segmented by organization, asset or
book.
Personnel manages employment, compensation, career/succession planning,
position control, health and safety, applicant management, recruiting,
training, government compliance and business event notification.
Benefits manages benefit and accrual planning and enables control of auto
enrollment, flexible benefits, flexible spending accounts, cafeteria, defined
contributions, beneficiaries, eligibility, COBRA administration and leave
accrual processing.
Payroll manages control of payment and tax processing functions, streamlines
payroll processing, manages on-demand checks, direct deposit and earnings and
deductions.
GRAPHICAL ARCHITECTS
The Company licenses a series of modules, its Graphical Architects, that are
designed to extend, enhance, integrate and change the look-and-feel of the
Company's core applications. Through a visual point-and-click interface, the
Graphical Architects modules allow users to personalize and configure the
Company's applications without any source code programming. In addition to
Business Controls, which is a standard component of all applications,
Graphical Architects modules:
Data Exchange/Graphical Architect defines sources of data for import and
export purposes through a metadata interface for logical mapping of data
between the Company's applications and the customer's other internal systems
which simplifies implementation and streamlines changes to external data
sources.
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Workload/Graphical Architect enables users to manage and schedule tasks
effectively with job scheduling, resource allocation, process and report
distribution, and e-mail notification. Users can schedule tasks to run on
separate application servers at the most efficient processing time.
Solution/Graphical Architect allows users to personalize the look-and-feel
and the functions of their applications and facilitates the integration of the
Company's applications with other applications without changing the source
code.
Analysis/Graphical Architect provides a suite of applications that address
an organization's need for information on demand. Analysis/Graphical Architect
provides users with the following functions:
<TABLE>
<S> <C>
Quick Find Online access with extensive selection criteria to quickly
locate information.
- -----------------------------------------------------------------------------------
Quick Reports Report printing of online query results.
- -----------------------------------------------------------------------------------
Quick Graphs Graphical representations of online query results.
- -----------------------------------------------------------------------------------
Standard Reports Templates to simplify users' report definitions based upon
the organization's requirements.
- -----------------------------------------------------------------------------------
Financial Statement Flexible financial reporting system enabling sophisticated
Generator financial statements without any programming.
- -----------------------------------------------------------------------------------
Drill Down Analysis Intra-application, inter-application, and open drill down
into all supporting detail and information sources,
including information originated in third-party
applications.
- -----------------------------------------------------------------------------------
Financial Statement Integration of Financial Statement Generator with Arbor
Accelerator Software's Essbase for high performance reporting.
- -----------------------------------------------------------------------------------
FRx for Windows Flexible distributed management reporting solution,
utilizing FRx from FRx Software Corporation, which delivers
full drill down analysis without being connected to the
network.
- -----------------------------------------------------------------------------------
Document Manager Centralized report repository to store reports and make them
available to other users in the organization eliminating
redundancy and improving resource efficiency.
</TABLE>
Workflow/Graphical Architect allows users to define procedures and policies
(events) that trigger responses from the system. Workflow/Graphical Architect
allows users to extend the applications to conform to an organization's
business processes and policies, such as an accounting application
automatically generating approval requests for purchases over a certain dollar
amount.
Internet/Graphical Architect allows organizations to quickly deploy their
entire suite of financial and human resource applications to the World Wide
Web and tailor it specifically to the unique needs of each Web user.
Internet/Graphical Architect provides native Internet implementation of
information access-oriented applications such as invoice or payment status,
drill down inquiries, report viewing, and account balances.
CUSTOMERS
The Company sells its products to organizations seeking financial and human
resource applications that provide high levels of functionality and
flexibility, with minimal implementation time. As of January 31, 1998, the
Company's products were licensed to more than 195 customers in the United
States and Canada, representing a cross-section of industries, including
insurance, business and financial services, communications, retail, printing
and publishing, transportation and manufacturing. The Company's products are
generally licensed to end users
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under nonexclusive, nontransferable licenses for the customer's internal
operations.
CUSTOMER CASE STUDIES
While each customer engagement differs, the following examples illustrate
the types of business needs the Company has addressed:
FIRST DATA CORPORATION. First Data Corporation ("FDC") is a global leader in
payment systems, electronic commerce and information management products and
services. FDC and its principal operating units process the information that
allows millions of consumers to pay for goods and services by credit, debit or
smart card at the point of sale or over the Internet; by check or wire money.
In 1996, FDC processed approximately six billion transactions. FDC employs
40,000 people worldwide and serves clients throughout the United States, the
United Kingdom, Australia, Mexico, Germany, Asia Pacific and Spain through its
agent network to more than 120 countries around the world. FDC made a
strategic decision to phase out the mainframe and to standardize its financial
applications throughout the organization. Because the FDC companies were using
numerous disparate systems, the time and cost of implementation as well as
overall functionality were key requirements. FDC selected SQL Financials'
General Ledger, Accounts Payable, Accounts Receivable and Revenue Accounting
applications as its new corporate standard. FDC completed the implementation
of seven companies in only 15 months. The SQL Financials' Data
Exchange/Graphical Architect dramatically improved FDC's ability to manage the
conversion efforts from the various legacy systems as well as provided a quick
way to build the many interfaces necessary to integrate the new financial
systems. Data Exchange also enabled FDC to enhance its EDI capabilities and
integrate with its new laser check software. The new systems have enabled FDC
to streamline its processes and enable users to control the reporting and
information analysis. FDC has also licensed and plans to implement the SQL
Financials' Financial Statement Accelerator and Solution/Graphical Architect
products.
SHAW INDUSTRIES. Shaw Industries, Inc. ("Shaw") is the largest tufted carpet
manufacturer in the world, with approximately $3.5 billion in sales per year.
The need for immediate access to information drove Shaw's decision to replace
its legacy financial applications. Shaw also placed a high priority on the
ability to quickly implement and upgrade its applications. After conducting a
detailed evaluation of client/server vendors, Shaw selected SQL Financials'
General Ledger. Shaw reported minimized implementation time despite a
simultaneous year end closing. The new financial application enabled Shaw to
utilize the existing chart of accounts, to provide online immediate analysis
of its financial data, and put users in control of the new accounting system.
Shaw produces more than 1000 reports each monthly financial closing. One of
the primary benefits of the new system is the ability to easily accommodate
reporting reorganizations--a time consuming task that was accomplished
manually with the previous system. Shaw is currently implementing Fixed Assets
and Financial Statement Accelerator.
TORONTO-DOMINION BANK. Toronto-Dominion Bank ("TD Bank") is the 12th largest
bank in North America with assets of Canadian $163 billion at October 31, 1997
and worldwide corporate lending and investment banking activities. In the
United States, TD Bank provides corporate lending and investment banking
services from New York, and discount brokerage services through its wholly
owned subsidiary, Waterhouse Investor Services. With the objective of
achieving high productivity while carefully managing costs, TD Bank's
Corporate & Investment Banking Group decided on a single global client/server
general ledger. Its new General Ledger system required the following key
functional requirements: robust and flexible financial and management
reporting, sophisticated allocations, strong consolidations and multi-currency
features, an intuitive user interface and a flexible multi-segmented chart of
accounts. After an extensive evaluation, the Company's General Ledger was
selected as the standard general ledger solution. The Company's products will
enable TD Bank to implement a standard chart of accounts worldwide and
simplify the consolidation process, which should offer TD Bank a reduction in
training across offices. The Company's General Ledger has also reduced the
steps and time required to consolidate global information for management. To
address high volume reporting needs, TD Bank plans to
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implement Financial Statement Accelerator, which should reduce the time
required to run reports from hours to minutes.
SALES AND MARKETING
The Company sells its software and services primarily through its direct
sales force. As of January 31, 1998, the Company's direct sales force
consisted of 39 sales professionals and 9 marketing personnel, located in 11
domestic offices and one office located in Canada. The Company expects to
increasingly develop indirect channels in order to enhance its market
penetration and implementation capabilities. International revenues were
approximately 3% of total revenues for the year ended December 31, 1997, and
the Company expects that revenues from international customers will account
for a growing portion of the Company's total revenues. The sales cycle for the
Company's software averages between four to seven months.
The Company's marketing strategy is to position the Company as the leading
provider of applications to non-industrial organizations by providing
applications with a high level of functionality and flexibility with minimal
implementation time. In support of this strategy, the Company engages in a
full range of marketing programs focused on creating awareness and generating
qualified leads. These programs include developing and maintaining business
partners and participating in joint marketing programs, such as participating
in the Microsoft Solution Provider Program, as well as public relations,
telemarketing, developing databases of targeted customers, and conducting
advertising and direct mail campaigns. In addition, the Company participates
in trade shows and seminars and maintains a World Wide Web home page which is
integrated with the Company's sales, marketing, recruiting and fulfillment
operations.
IMPLEMENTATION SERVICES
The Company provides dedicated implementation services for the Company's
customers. The Company believes that the provision of superior implementation
services in conjunction with ease of implementation is integral to its success
in achieving a high level of customer satisfaction. By providing these
implementation services, the Company is able to minimize implementation time
by helping customers to implement an application module in an average of four
months, generally at a cost equal to or below the cost of the licensed
software. As of January 31, 1998, the Company employed 64 personnel providing
implementation services, which are typically offered to the Company's
customers on a time and materials basis.
The Company is also developing marketing relationships with companies
sharing a commitment to client/server implementations that deliver high
functionality and flexibility, while minimizing the time required to
implement, change and upgrade them. These companies include: Deloitte & Touche
Management Services and Solutions, The Client Server Factory and Grant
Thornton LLP.
CUSTOMER SERVICE AND MAINTENANCE
The Company believes that superior customer service and support, including
product support and maintenance, training, and consulting services, are
critical to achieve and maintain customer satisfaction. The Company's customer
service and support functions include the Company's call center, distribution
services, production support and account management, all of which are
integrated in a single group. The Company's customer service organization
provides a single point of contact for customers from execution of the license
agreements through post-implementation. Each of the Company's customers has
entered into an annual maintenance contract for the first year of use,
renewable on an annual basis. As of January 31, 1998, the Company employed 37
technical post-sales support personnel providing software maintenance and
support, and hotline access. In addition to telephone support, the Company
also offers support by electronic mail, electronic bulletin board and
facsimile. The Company intends to continue to expand its customer service and
maintenance staff and to make additional investments in its support
infrastructure.
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<PAGE>
RESEARCH AND DEVELOPMENT
The Company's success is in part dependent on its ability to continue to
meet customer and market requirements with respect to functionality,
performance, technology and reliability. The Company invests, and intends to
continue to invest, substantially in its research and development efforts. As
of January 31, 1998, the Company's research and development operation included
50 full-time employees, primarily located in Atlanta. In addition, the Company
has from time-to-time supplemented, and plans to continue to supplement, its
core resource pool through outside contractors and consultants when necessary.
The Company's research effort is currently focused on identifying new and
emerging technologies and engineering processes, as well as possible
technology alliances. The primary area of focus within the research effort
involves distributed component computing and associated technologies and
architectures, especially with respect to both Internet and intranet
transaction processing.
The Company's development effort is focused primarily on the product
delivery cycle and its associated technologies and software life-cycle
processes. The development operation consists of various functional and
technological teams who are responsible for bringing the various products that
the Company delivers to market. These teams consist of software engineering,
documentation, and quality assurance personnel. The specific responsibilities
of the development operation include: (i) enhancing the functionality and
performance within the currently available product line; (ii) developing new
products and/or integrating with strategic third-party products to strengthen
the product line; (iii) porting the product line to remain current and
compatible with new operating systems, databases, and tools; (iv) enhancing
the adaptability and extensibility of the product line through the release of
new and enhanced Graphical Architects; and (v) managing and continuously
improving the overall software development process. The Company continually
utilizes customer feedback in the product design process in order to meet
changing business requirements and is committed to developing technologies
which provide highly functional, integrated solutions in a rapid and efficient
manner.
Research and development expenditures were approximately $3.9 million, $5.8
million, $7.2 million for 1995, 1996, and 1997, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
COMPETITION
The market for the Company's products is highly competitive and subject to
rapid technological change. Although the Company has experienced limited
competition to date from products with comparable capabilities, the Company
expects competition to increase in the future. The Company currently competes
principally based on ease of use and reduced time of implementation, which are
a result of: (i) the breadth of its products' features; (ii) the automated,
scalable and cost-effective nature of its products; and (iii) the Company's
knowledge, expertise and service ability gained from close interaction with
customers. While the Company believes that it currently competes favorably
overall with respect to these factors, there can be no assurance that the
Company will be able to continue to do so.
The Company competes directly or indirectly with a number of competitors
that have significantly greater financial, selling, marketing, technical and
other resources than the Company, including the following companies:
PeopleSoft, Lawson and Oracle. In 1997, J.D. Edwards & Company introduced
financial applications for use on Windows NT or Unix servers, and additional
competitors may enter this market, thereby further intensifying competition.
These competitors may be able to devote greater resources to the development,
promotion, sale and support of their products than the Company. Moreover,
these companies may introduce additional products that are competitive with or
better than those of the Company or may enter into strategic relationships to
offer better products than those currently offered by the Company. There can
be no assurance that the Company's products would effectively compete with
such new products.
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<PAGE>
To remain competitive, the Company must continue to invest in research and
development, selling and marketing, and customer service and support. In
addition, as the Company enters new markets and utilizes different
distribution channels, the technical requirements and levels and bases of
competition may be different than those experienced in the Company's current
market. There can be no assurance that the Company will be able to
successfully compete against either current or potential competitors in the
future. See "Risk Factors--Competition."
PROPRIETARY RIGHTS AND LICENSING
The Company's success depends significantly on its internally developed
intellectual property and intellectual property licensed from others. The
Company relies primarily on a combination of copyright, trademark and trade
secret laws, as well as confidentiality procedures and licenses arrangements
to establish and protect its proprietary rights in its software products.
The Company has no patents, and existing trade secret and copyright laws
afford only limited protection of the Company's proprietary rights. The
Company has registered or applied for registration for certain copyrights and
trademarks, and will continue to evaluate the registration of additional
copyrights and trademarks as appropriate. The Company believes that, because
of the rapid pace of technological change in the software industry, the
intellectual property protection of its products is a less significant factor
in the Company's success than the knowledge, abilities and experience of the
Company's employees, the frequency of its product enhancements, the
effectiveness of its marketing activities and the timeliness and quality of
its support services. See "Risk Factors--Proprietary Rights and Licensing."
The Company enters into license agreements with each of its customers. The
Company's license agreements provide for the customer's non-exclusive right to
use the object code version of the Company's products. The Company's license
agreements prohibit the customer from disclosing to third parties or reverse
engineering the Company's products and disclosing the Company's other
confidential information. In certain rare circumstances, typically for the
earliest releases of the Company's products, the Company has granted its
customers a source code license, solely for the customer's internal use.
The Company has in the past liscensed and may in the future license on a
non-exclusive basis third-party software from third parties for use and
distribution with the Company's financial and human resource applications.
Additionally, the Company's human resource applications are based on software
acquired under a non-exclusive object code and source code license from a
third party. The Company has entered into agreements with its third party
licensors with customary warranty, software maintenance and infringement
indemnification terms.
EMPLOYEES
As of January 31, 1998, the Company had a total of 223 full-time employees,
all except six of whom were based in the United States. Of the total, 64 were
employed in implementation services, 50 were in research and development, 39
were in sales, 37 were in customer support, 24 were in finance, administration
and operations, and 9 were in marketing. The Company believes its future
performance depends in significant part upon the continued service of its key
engineering, technical support and sales personnel and on its ability to
attract or retain qualified employees. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel in the future. None of the Company's
employees are represented by a labor union or are subject to a collective
bargaining agreement. The Company has not experienced any work stoppages and
considers its relations with its employees to be good. See "Risk Factors--
Management of Growth;" "--Dependence Upon Key Personnel; Ability to Hire and
Retain Personnel."
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FACILITIES
The Company's corporate office and principal facility is located in Suwanee,
Georgia, where the Company leases approximately 41,000 square feet of space.
The lease commenced on June 15, 1997 and expires on July 15, 2004. The lease
requires annual payments of $386,000 for the first 12-month period with an
increase of 3% in each 12-month period after the first year. This facility
accommodates research and development, sales, finance, administration and
operations, customer support and marketing. The Company also leases 11
facilities, primarily for regional sales offices, elsewhere in the United
States and Canada, providing for aggregate annual lease payments of
approximately $218,000. Expiration dates on sales office leases range from
April 1998 to March 1999. The Company anticipates leasing additional space
during the next 12 months to meet its needs as a result of significant growth
in personnel.
LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen P. Jeffery........ 42 Chairman, Chief Executive Officer, President and
Director
William M. Curran, Jr..... 35 Vice President, Sales--East
Sally M. Foster........... 43 Vice President, Customer Support
David M. Funderburke...... 44 Vice President, Development
Robert C. Holler.......... 34 Vice President, Research
Steven M. Hornyak......... 32 Vice President, Marketing
Alain Livernoche.......... 38 Vice President, Sales--West
Arthur G. Walsh, Jr....... 50 Chief Financial Officer, Vice President, Human
Resources and Secretary/Treasurer
Joseph S. McCall.......... 48 Director
Tench Coxe(1)(2).......... 40 Director
William S. Kaiser(1)(2)... 42 Director
Donald L. House........... 56 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
STEPHEN P. JEFFERY joined the Company in November 1994 as Vice President of
Marketing and was elected Vice President of Sales and Marketing in June 1995.
He was elected President of the Company in October 1995, a member of the Board
of Directors in October 1997, Chairman of the Board in December 1997 and Chief
Executive Officer of the Company in February 1998. Prior to joining the
Company, Mr. Jeffery was employed by Hewlett-Packard Company, where he served
as the manager of Hewlett-Packard's client/server solutions and partner
programs as well as in a variety of sales and marketing management positions
in the U.S. and Europe for 15 years. Mr. Jeffery also served in sales with IBM
prior to joining Hewlett-Packard.
WILLIAM M. CURRAN, JR. joined the Company in February 1996 as Regional Sales
Manager for the Southern Region. In August 1997, Mr. Curran was elected Vice
President of Sales for the Eastern region. Prior to joining the Company, Mr.
Curran was employed by Geac Computer Corp. Ltd (formerly Dun & Bradstreet
Software) ("Geac") from November 1989 until February 1996 as a Senior Account
Executive where he was the top sales performer for the past 6 years. From June
1984 until November 1989, Mr. Curran served in a variety of sales positions
with Unisys Corporation.
SALLY M. FOSTER joined the Company in March 1997 as Vice President of
Customer Service. Prior to joining the Company, Ms. Foster served in several
positions at Geac, from August 1988 until March 1997, most recently as Vice
President/Director of Global Business Operations. From August 1985 until
August 1988, Ms. Foster served as the Division Operations Manager for the
General Motors Corporation, Electronic Data Systems Ltd. based in London,
England.
DAVID M. FUNDERBURKE joined the Company in August 1996 as Vice President of
Development, having effectively served in this role since April 1996. Mr.
Funderburke served as President, Chief Operating Officer and Manager of the
Services Subsidiary from March 1995 until July 1997. From February 1989 until
March 1995, he was Vice President and Chief Operating Officer of McCall
Consulting Group, Inc., where he managed
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implementations of the Company's products and consulting projects for other
McCall Consulting clients. From November 1984 until February 1989, Mr.
Funderburke was Director of Information Services with Trammell Crow & Company,
the largest commercial real estate developer in the U.S. Earlier, he was
employed with Andersen Consulting for eight years, where he served in several
roles, including the management of financial systems development projects.
ROBERT C. HOLLER joined the Company in June 1993 as the group leader for all
technology development. In January 1995, Mr. Holler was elected Vice President
of Development and in May 1996, he was elected Vice President of Research.
Before joining the Company, he served from 1989 to 1993 as a consultant with
McCall Consulting Group, where he managed the initial implementations of the
Company's products. Earlier, he was employed with Andersen Consulting as a
consultant.
STEVEN M. HORNYAK joined the Company in December 1994 as an Account
Executive and was promoted to Regional Sales Manager for the Northeast region.
In August 1997, Mr. Hornyak was elected Vice President of Marketing. Prior to
joining the Company, Mr. Hornyak served in a variety of sales and consulting
roles for Oracle Corporation from June 1992 until December 1994. Prior to
that, he was employed by Price Waterhouse in its management consulting
services group.
ALAIN LIVERNOCHE joined the Company in January 1997 as Vice President of
Sales for the Western region. Prior to joining the Company, Mr. Livernoche was
employed by Geac from June 1985 until January 1997, where he served in several
sales roles, most recently as Regional Vice President and General Manager for
the Central United States and Canada. From May 1981 until June 1985,
Mr. Livernoche was employed by Andersen Consulting in Canada and Europe with
primary focus on evaluations and implementations of financial and human
resource software.
ARTHUR G. WALSH, JR. joined the Company in November 1992 as Chief Operating
Officer and Secretary. In October 1995, Mr. Walsh was elected Vice President
of Customer Service and Treasurer. Currently, Mr. Walsh serves as Chief
Financial Officer, Vice President of Human Resources and Secretary/Treasurer.
From September 1989 until November 1992, he was Chief Operating Officer for
Wilson & McIlvaine, a general business Chicago law firm, where he was
responsible for overall management of the firm's business operations. Before
that, Mr. Walsh was employed with Andersen Consulting, from July 1974 until
September 1989, where he served in a variety of roles in Atlanta and Chicago,
lastly as Director of Finance and Administration for the Technical Services
Organization in Chicago world headquarters.
JOSEPH S. MCCALL co-founded the Company in November 1991 and has previously
served as its Chairman, President, and Chief Executive Officer and has been a
member of the Board of Directors since 1991. Mr. McCall currently serves as a
Director and consultant to the Company. Prior to founding the Company, Mr.
McCall founded McCall Consulting Group, Inc. in 1986, and he currently serves
as its President. Mr. McCall also formed Technology Ventures, LLC in 1994 and
currently serves as its sole manager. From 1975 to 1986, Mr. McCall managed
major systems integration and development projects and application software
evaluations and implementation engagements for Andersen Consulting.
TENCH COXE has served as a member of the Board of Directors of the Company
since September 1993. Mr. Coxe has served as a general partner of Sutter Hill
Ventures, a venture capital company located in Palo Alto, California, since
1989. From 1984 to 1987, Mr. Coxe served as Director of Marketing and in other
management positions with Digital Communications Associates. Mr. Coxe is
currently on the Board of Directors of a number of technology companies
including Avant! Corporation and Edify Corporation.
WILLIAM S. KAISER has served on the Board of Directors of the Company since
November 1992. Mr. Kaiser joined Greylock Management Corporation, a venture
capital company located in Boston, in 1986 and became a general partner in
1988. From 1983 to 1986, Mr. Kaiser served in a variety of marketing
management positions with Apollo Computer, primarily working with Apollo's
third-party suppliers. Mr. Kaiser is also on the Board of Directors of Avid
Technology, Inc. and Open Market, Inc.
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DONALD L. HOUSE served as Chairman of the Board of Directors of the Company
from January 1994 through December 1997, and as President from January 1993
through December 1993. From September 1991 until December 1992, Mr. House
served as President of Prentice Hall Professional Software, Inc., a subsidiary
of Simon and Schuster, Inc. From 1968 through 1987, Mr. House served in a
number of senior executive positions with Management Science America, Inc. Mr.
House is a director of Melita International Corporation, where he serves as
Chairman of the Audit Committee and a member of the Compensation Committee and
is a director of XcelleNet, Inc., where he serves as Chairman of its Audit and
Nominating Committees. Mr. House also serves as a member of the Board of
Directors of BT Squared Technologies, Inc., Intellimedia Commerce, Inc.,
Systems Techniques, Inc. and Telinet Technologies, LLC which are privately
held companies.
Executive officers of the Company are elected by the Board of Directors and
serve until their successors are duly elected and qualified. There are no
family relationships among any of the executive officers or directors of the
Company.
Concurrent with the effective date of this Offering, the Company's Board of
Directors will be divided into three classes, with the members of each class
of directors serving for staggered three-year terms. Messrs. McCall and Kaiser
will serve in the class the term of which expires in 1999; Messrs. Coxe and
House will serve in the class the term of which expires in 2000; and Mr.
Jeffery will serve in the class the term of which expires in 2001. Upon the
expiration of the term of each class of directors, directors comprising such
class of directors will be elected for a three-year term at the next
succeeding annual meeting of stockholders. The Company's classified Board of
Directors could have the effect of increasing the length of time necessary to
change the composition of a majority of the Board of Directors. In general, at
least two annual meetings of stockholders will be necessary for stockholders
to effect a change in a majority of the members of the Board of Directors. See
"Description of Capital Stock--Delaware Law and Certain Provisions of the
Company's Restated Certificate and By-laws."
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee consists of Messrs. Coxe and Kaiser. The Audit Committee
reviews, with the Company's independent auditors, the scope and timing of
their audit services and any other services they are asked to perform, the
auditor's report on the Company's financial statements following completion of
their audit and the Company's policies and procedures with respect to internal
accounting and financial controls. In addition, the Audit Committee will make
annual recommendations to the Board of Directors for the appointment of
independent auditors for the ensuing year.
The Compensation Committee consists of Messrs. Coxe and Kaiser. The
Compensation Committee will review and evaluate the compensation and benefits
of all officers of the Company, review general policy matters relating to
compensation and benefits of employees of the Company and make recommendations
concerning these matters to the Board of Directors. The Compensation Committee
also will administer the Company's stock option plan.
DIRECTOR COMPENSATION
Directors who are not employees of the Company (also referred to as "outside
directors") currently include Messrs. McCall, Coxe, House and Kaiser, and do
not receive an annual retainer or any fees for attending regular meetings of
the Board of Directors. Directors are not reimbursed for out-of-pocket
expenses incurred in attending such meetings.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned by Joseph S. McCall, the Company's Chief Executive Officer at December
31, 1997 and the Company's four other most highly
45
<PAGE>
compensated executive officers who were serving as executive officers at the
end of 1997 (collectively, the "Named Executive Officers") for services
rendered in all capacities to the Company in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
-------------------------- ------------
NUMBER OF
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(2) COMPENSATION
- --------------------------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Joseph S. McCall........ $ 151,350 $ 150,000 -- -- --
Chief Executive
Officer(3)
William M. Curran, $ 111,748 $ 197,910 -- 45,000 --
Jr. ...................
Vice President, Sales
Steven M. Hornyak....... $ 111,760 $ 130,822 -- 51,000 $53,394(4)
Vice President,
Marketing
Stephen P. Jeffery...... $ 175,000(6) $ 92,621 -- 75,000 --
President(5)
Alain Livernoche........ $ 136,752 $ 91,599 -- 60,000 --
Vice President, Sales
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission,
the compensation set forth in the table does not include medical, group
life insurance or other benefits which are available to all salaried
employees of the Company, and certain perquisites and other benefits,
securities or property that do not exceed the lesser of $50,000 or 10% of
the person's salary and bonus shown in the table.
(2) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive payments during fiscal
1997 to its executive officers. Options granted to the Named Executive
Officers were granted at fair market value on the date of grant as
determined by the Board of Directors.
(3) Mr. McCall resigned as the Company's Chief Executive Officer on February
5, 1998.
(4) One time payment for relocation expenses.
(5) Mr. Jeffrey was elected as the Company's Chief Executive Officer effective
as of February 5, 1998.
(6) Includes $14,583 in deferred compensation earned in 1997.
46
<PAGE>
The following table sets forth all individual grants of stock options during
fiscal year 1997, to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(2)
OPTIONS TO EMPLOYEES IN EXERCISE OR BASE -----------------
NAME GRANTED(1) FISCAL YEAR PRICE PER SHARE EXPIRATION DATE 5% 10%
---- ---------- ---------------- ---------------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. McCall........ -- -- -- -- -- --
Stephen P. Jeffery...... 75,000 9.3% $3.67 11/10/04 $112,054 $261,134
William M. Curran, Jr... 15,000 1.9 2.00 07/24/04 12,213 28,462
30,000 3.7 3.67 11/10/04 44,822 104,454
Alain Livernoche........ 15,000 1.9 1.00 04/13/04 6,107 14,231
15,000 1.9 2.00 07/24/04 12,213 28,462
30,000 3.7 3.67 11/10/04 44,822 104,454
Steven M. Hornyak....... 6,000 .7 1.00 01/01/04 6,107 14,231
15,000 1.9 1.00 05/23/04 12,213 28,462
30,000 3.7 3.67 11/10/04 44,822 104,454
</TABLE>
- --------
(1) All options were incentive stock options and were granted pursuant to the
Company's 1992 Stock Option Plan at an exercise price not less than fair
market value on the date of grant as determined by the Board of Directors
of the Company. Options vest in installments over a period of four years
with 20% of the options vested 12 months from the date of grant, 40%
vested 24 months after the date of grant, 70% vested 36 months after the
date of grant and 100% vested 48 months after the date of grant. The
options expire seven years after the date of grant.
(2) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming that the stock price on the date of grant
appreciates at the specified annual rates of appreciation, compounded
annually over the term of the option. These numbers are calculated based
on rules promulgated by the Securities and Exchange Commission. The actual
realizable value of the options based on the price to the public in this
Offering will substantially exceed the potential realizable value shown in
the table.
47
<PAGE>
The following table provides information regarding exercisable and
unexercisable stock options held as of December 31, 1997 by each of the Named
Executive Officers. There were no options exercised by the Named Executive
Officers in 1997.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joseph S. McCall........... 61,762 -- $185,493 $ --
Stephen P. Jeffery......... 37,500 225,000 110,125 415,500
William M. Curran, Jr...... 3,000 57,000 8,410 58,790
Alain Livernoche........... -- 60,000 -- 62,200
Steven M. Hornyak.......... 2,340 57,660 6,808 75,192
</TABLE>
- --------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated by determining the
difference between the estimated fair market value of the Company's Common
Stock underlying the option as of December 31, 1997 ($3.67 per share, as
determined by the Board of Directors) and the exercise price per share
payable upon exercise of such options. In determining the fair market
value of the Company's Common Stock, the Board of Directors considered
various factors, including the Company's financial condition and business
prospects, its operating results, the absence of a market for its Common
Stock and the risks normally associated with technology companies.
EMPLOYEE BENEFIT PLANS
1992 Stock Option Plan. The Company adopted its 1992 Stock Option Plan (the
"1992 Stock Option Plan") on November 22, 1992. The aggregate number of shares
reserved for issuance under the 1992 Stock Option Plan is 1,652,700 shares. As
of January 31, 1998, options to purchase 1,411,185 shares of Common Stock were
outstanding under the 1992 Stock Option Plan at exercise prices ranging from
$0.67 to $3.67 per share and a weighted average exercise price of $ per
share. Options vest in installments over a period of four years with 20% of
the options vested 12 months from the date of grant, 40% vested 24 months from
the date of grant, 70% vested 36 months from the date of grant and 100% vested
48 months after the date of grant. As of January 31, 1998, [ ] shares of
Common Stock have been issued pursuant to the exercise of options granted
under the 1992 Stock Option Plan. The purpose of the 1992 Stock Option Plan is
to provide incentives for key employees, officers, consultants and directors
to promote the success of the Company, and to enhance the Company's ability to
attract and retain the services of such persons. The majority of all options
granted under the 1992 Stock Option Plan are intended to qualify as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1985 as
amended (the "Code").
The 1992 Stock Option Plan is administered by the Compensation Committee of
the Board of Directors. The Compensation Committee has the authority to
determine exercise prices applicable to the options, the eligible officers,
directors, consultants or employees to whom options may be granted, the number
of shares of the Company's Common Stock subject to each option and the extent
to which options may be exercisable.
1998 Stock Incentive Plan. In February 1998, the Board of Directors adopted
and the stockholders approved the SQL 1998 Stock Incentive Plan (the "1998
Stock Plan"). Under the 1998 Stock Plan, the Board of Directors, or the
Compensation Committee of the Board of Directors, has the flexibility to
determine the type and amount of awards to be granted to eligible
participants. The 1998 Stock Plan is intended to secure for the Company and
its stockholders the benefits arising from ownership of the Company's Common
Stock by
48
<PAGE>
individuals employed or retained by the Company who will be responsible for
the future growth of the enterprise. The 1998 Stock Plan is designed to help
attract and retain superior personnel for positions of substantial
responsibility with the Company (including advisory relationships where
appropriate), and to provide individuals with an additional incentive to
contribute to the Company's success.
The Board or the Compensation Committee may make the following types of
grants under the 1998 Stock Plan, each of which will be an "Award": (i)
incentive stock options ("ISOs"); (ii) nonqualified stock options ("NSOs");
(iii) restricted stock awards ("Restricted Stock Awards"); (iv) stock
appreciation rights ("SARs"); and (v) restricted units ("Restricted Units").
Officers, key employees, employee directors, consultants and other independent
contractors or agents of the Company or its subsidiaries who are responsible
for or contribute to the management growth or profitability of the Company's
business will be eligible for selection by the Board of Directors or the
Compensation Committee to participate in the 1998 Stock Program, provided,
however, that ISOs may be granted only to a person who is an employee of the
Company or its subsidiaries.
The Company has authorized and reserved for issuance an aggregate of 200,000
shares of its Common Stock under the 1998 Stock Plan, to be automatically
increased to 1,000,000 shares of Common Stock upon the completion of this
Offering. The aggregate number of shares of Common Stock that may be granted
through Awards under the 1998 Stock Plan to any employee in any calendar year
may not exceed 200,000 shares. The shares of Common Stock issuable under the
1998 Stock Plan will be authorized but unissued shares. If any of the Awards
granted under the 1998 Stock Plan expire, terminate or are forfeited for any
reason before they have been exercised, vested or issued in full, the unused
shares subject to those expired, terminated or forfeited Awards will again be
available for purposes of the 1998 Stock Plan. The 1998 Stock Plan will
continue in effect until February 2008 unless sooner terminated under the
general provisions of the 1998 Stock Plan.
The 1998 Stock Plan will be administered by the Board of Directors or upon
its delegation to the Compensation Committee of the Board of Directors, by the
Compensation Committee, consisting of not less than two directors of the
Company who are "non-employee directors" (within the meaning of SEC Rule 16b-3
promulgated pursuant to the Securities Exchange Act of 1934, as amended), so
long as non-employee director administration is required under Rule 16b-3, and
who are "outside directors" (as defined in Section 162(m) of the Code), so
long as outside directors are required by the Code. Subject to the foregoing
limitations, as applicable, the Board of Directors may from time to time
remove members from the Compensation Committee, fill all vacancies on the
Compensation Committee, however caused, and may select one of the members of
the Compensation Committee as its chairman. The Compensation Committee may
hold meetings at such times and places as they may determine, will keep
minutes of their meetings, and may adopt, amend and revoke rules and
procedures in accordance with the terms of the 1998 Stock Plan.
401(k) Retirement Savings Plan. The Company maintains a Section 401(k)
Retirement Savings Plan (the "401(k) Plan"). The 401(k) Plan is intended to be
a tax-qualified defined contribution plan under Section 401(k) of the Code. In
general, Company employees who have completed six consecutive months of
service with the Company and are over 21 years of age may elect to participate
in the 401(k) Plan. Under the 401(k) Plan, participants may elect to defer a
portion of their compensation, subject to certain Code limitations. In
addition, at the discretion of the Board of Directors and subject to certain
Code limitations, the Company may make profit sharing contributions into the
401(k) Plan. The Company currently does not match contributions. A separate
account is maintained for each participant in the 401(k) Plan, which account
is 100% vested. Distributions from the 401(k) Plan may be in the form of a
lump-sum payment in cash or property or in the form of an annuity.
AGREEMENTS WITH EMPLOYEES
In February 1998, the Company entered into an agreement with Joseph S.
McCall whereby Mr. McCall resigned as the Company's Chief Executive Officer
and as Chairman, Chief Executive Officer and Manager of the Services
Subsidiary. Mr. McCall agreed to remain an employee of the Company at his
current salary, including incentive compensation, until the completion of this
Offering, at which time he will become as consultant to the Company for a
period of one year pursuant to the terms of an Independent Contractor
49
<PAGE>
Agreement. For his consulting services, the Company will pay Mr. McCall the
sum of $125,000 over the one year period, with the ability to earn an
additional $100,000 in incentive compensation if certain revenue targets are
met by the Company. Mr. McCall has agreed to continue to serve on the
Company's Board of Directors for at least six months following the termination
of his employment. In recognition of his past services, the termination of the
common stock voting trust agreement, and his resignation as CEO, the Company
agreed to pay Mr. McCall a lump sum of $225,000 on or before June 30, 1998 and
will pay Mr. McCall as severance an additional $75,000 payable in semi-monthly
installments over a one year period beginning on the effective date of the
termination of his employment with the Company.
The Company generally enters into confidentiality and nondisclosure
agreements with its employees. Pursuant to the terms of these agreements,
employees agree to confidentiality restrictions, employee and customer
nonsolicitation covenants and assignment of inventions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee reviews and approves compensation and
benefits for the Company's key executive officers, administers the Company's
stock option plan and makes recommendations to the Board regarding such
matters. No member of the Compensation Committee serves as a member of the
board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Board or Compensation
Committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated By-Laws of the Company (the "Restated By-Laws") and the Amended
Restated Certificate of Incorporation of the Company (the "Restated
Certificate") provide that the directors and officers of the Company shall be
indemnified by the Company to the fullest extent authorized by Delaware law,
as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
the Company. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the"Securities Act"), may be permitted to
directors, officers and controlling persons of the Company pursuant to the
Restated By-Laws, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. The Company has obtained insurance which
insures the directors and officers of the Company against certain losses and
which insures the Company against certain of its obligations to indemnify such
directors and officers. In addition, the Restated Certificate provides that
the directors of the Company will not be personally liable for monetary
damages to the Company for breaches of their fiduciary duty as directors,
unless they violated their duty of loyalty to the Company or its stockholders,
acted in bad faith, knowingly or intentionally violated the law, authorized
illegal dividends or redemptions or derived an improper personal benefit from
their action as directors. Such limitations of personal liability under the
Delaware Business Corporation Law do not apply to liabilities arising out of
certain violations of the federal securities laws. While non-monetary relief
such as injunctive relief, specific performance and other equitable remedies
may be available to the Company, such relief may be difficult to obtain or, if
obtained, may not adequately compensate the Company for its damages.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company where indemnification by the Company
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of January 31, 1998, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by:
(i) each person known by the Company to be the beneficial owner of more than
5% of the Company's Common Stock; (ii) each of the Company's directors; (iii)
each Named Executive Officer who is a beneficial
50
<PAGE>
owner of the Company's Common Stock (see "Management--Executive
Compensation"); and (iv) all executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK OUTSTANDING(2)
NUMBER OF SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------ ---------------- ---------- ----------
<S> <C> <C> <C>
Joseph S. McCall(3).............. 1,594,835 23.9% 4.3%
William S. Kaiser(4)............. 1,003,120 13.9 10.0
Greylock Limited Partnership(5).. 1,003,120 13.9 10.0
Hancock Venture Partners IV--Di-
rect Fund L.P.(6)............... 870,153 12.3 8.9
Tench Coxe(7).................... 753,176 10.7 7.7
Sutter Hill Ventures, a Califor-
nia Limited Partnership(7)...... 753,176 10.7 7.7
Highland Capital Partners II Lim-
ited Partnership(8)............. 594,678 8.6 6.2
Technology Crossover Ventures,
L.P.(9)......................... 576,464 8.4 6.0
Chase Venture Capital Associates,
L.P.(10)........................ 312,501 4.6 3.3
Spitfire Capital Partners,
L.P. (11)....................... 312,501 4.6 3.3
Donald L. House.................. 76,249 1.2 *
Stephen P. Jeffery(12)........... 43,800 * *
Steven M. Hornyak(13)............ 3,990 * *
William M. Curran, Jr.(13)....... 3,000 * *
Alain Livernoche................. -- -- --
All executive officers and direc-
tors as a group (12 persons).... 3,684,253 53.6% 25.6%
</TABLE>
- --------
* Indicates less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by
that person that are currently exercisable or that are or may become
exercisable within 60 days of January 31, 1998 are deemed outstanding.
Such shares, however, are not deemed outstanding for the purposes of
computing the percentage ownership of any other person. Except as
indicated in this footnote, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
such stockholder's name.
(2) Percentage includes all outstanding shares of Common Stock and assumes
the Conversion and the Warrant Exercise.
(3) Includes (i) 1,401,823 shares of Common Stock (all of the outstanding
Common Stock of the Company) which is subject to the Voting Trust
Agreement under which Mr. McCall serves as sole trustee and exercises
sole voting control; and 131,250 shares of Common Stock issuable upon
exercise of a warrant. The Voting Trust Agreement terminates upon the
closing of this Offering.
(4) Includes (i) 975,156 shares of Common Stock issuable upon conversion of
shares of Preferred Stock owned by Greylock Limited Partnership; and (ii)
27,966 shares of Common Stock issuable upon exercise of warrants. Mr.
Kaiser has voting control over the securities of the Company owned by
Greylock Limited Partnership.
(5) Consists of (i) 975,156 shares of Common Stock issuable upon conversion
of shares of Preferred Stock; and (ii) 27,966 shares of Common Stock
issuable upon conversion of shares of Preferred Stock subject to
outstanding warrants. Greylock Limited Partnership's address is One
Federal Street, Boston, Massachusetts 02110.
(6) Includes (i) 812,853 shares of Common Stock issuable upon conversion of
shares of Preferred Stock owned by Hancock Venture Partners IV--Direct
Fund L.P. ("Hancock"); (ii) 13,795 shares of Common Stock owned by
Hancock; and (iii) 42,781 shares of Common Stock issuable upon conversion
of shares of
51
<PAGE>
Preferred Stock owned by Falcon Ventures II, L.P. ("Falcon"); and 726
shares of Common Stock issuable upon conversion of shares of Preferred
Stock subject to outstanding warrants owned by Falcon. Falcon is an
affiliate of Hancock. Hancock's address is One Financial Center, Boston,
Massachusetts 02111.
(7) Includes (i) 491,692 shares of Common Stock held by Sutter Hill Ventures,
a California Limited Partnership ("Sutter Hill"); (ii) 22,183 shares of
Common Stock held by Mr. Coxe; and (iii) 240,456 shares of Common Stock
held of record for 11 other individuals and entitles associated with
Sutter Hill. Mr. Coxe is a Managing Director of the General Partner of
Sutter Hill and shares voting and investment power with respect to the
shares of Common Stock held by Sutter Hill. Mr. Coxe disclaims beneficial
ownership of the shares held by Sutter Hill and individuals and entities
associated with Sutter Hill, except as to the shares held of record in
his name and as to his partnership interest in Sutter Hill. Sutter Hill's
address is .
(8) Includes 578,104 shares of Common Stock issuable upon conversion of
shares of Preferred Stock. Highland Capital's address is One
International Place, Boston, Massachusetts 02110.
(9) Includes (i) 525,249 shares of Common Stock issuable upon conversion of
shares of Preferred Stock owned by Technology Crossover Ventures L.P.;
(ii) 8,914 shares of Common Stock owned by TCV; (iii) 41,596 shares of
Common Stock owned by Technology Crossover Ventures CV ("TCVCV"); and
(iv) 706 shares of Common Stock issuable upon conversion of shares of
Preferred Stock subject to outstanding warrants owned by TCVCV. TCVCV is
an affiliate of TCV L.P. TCV's address is 575 High Street, Suite 400,
Palo Alto, California 94301.
(10) Consists of 312,501 shares of Common Stock issuable upon conversion of
shares of Preferred Stock. Chase Venture Capital Associates, L.P.'s
address is 380 Madison Avenue, 12th Floor, New York, New York 10017.
(11) Consists of 312,501 shares of Common Stock issuable upon conversion of
shares of Preferred Stock. Spitfire Capital Partners, L.P.'s address is
600 Montgomery Street, San Francisco, California 94111.
(12) Includes 42,700 shares of Common Stock issuable upon the exercise of
options.
(13) Consists of 3,000 shares of Common Stock issuable upon the exercise of
options.
52
<PAGE>
CERTAIN TRANSACTIONS
In March 1995, the Company issued 450,000 shares of Common Stock to Tech
Ventures, an entity controlled by Joseph S. McCall, the Company's Chief
Executive Officer at that time and a member of the Company's Board of
Directors, in exchange for certain intellectual property rights, intangible
assets and $10,000 cash. Following the acquisition, the Company and Tech
Ventures formed the Services Subsidiary. The Company contributed the acquired
intellectual property rights, intangible assets and $10,000 cash to the
Services Subsidiary in exchange for an 80% interest in the Services
Subsidiary. Tech Ventures acquired the remaining 20% interest in the Services
Subsidiary in exchange for a $75,000 promissory note bearing interest at
7.74%, payable annually, with the principal due in a lump sum payment in March
2000 (the "Tech Ventures Note").
During 1996 and 1997, McCall Consulting Group, Inc. ("MCG"), an entity owned
by Tech Ventures, provided to the Company: (i) temporary services by
administrative employees; (ii) third-party consulting services in connection
with several product development projects; (iii) the lease of office equipment
and office space in the Company's prior headquarters facility; and (iv)
services in connection with the Company's sales process. The Company paid MCG
approximately $1.6 million and $1.4 million, respectively, during 1997 and
1996 for these services. In February 1998, the Company entered into an
Independent Contractor Agreement with MCG providing for the performance of
services by MCG for the Company and the assignment to the Company of the
intellectual property rights associated with the performance of such services.
The Company currently uses, and intends to continue to use, personnel from MCG
to provide these, and possibly other, services. In addition, in February 1998,
the Company granted to Tech Ventures and MCG a royalty-free license to use its
current products as well as certain of the Company's future products to be
designated by the Company, and agreed to provide to MCG without charge ongoing
support services as long as Tech Ventures owns at least 100,000 shares of the
Common Stock of the Company and has not modified the software. This license
agreement may be terminated by the Company if a competitor of the Company
acquires any interest in either MCG or Tech Ventures.
On February 5, 1998, Tech Ventures sold its 20% interest in the Services
Subsidiary to the Company in exchange for 225,000 shares of the Company's
Common Stock, a warrant to purchase an additional 300,000 shares of Common
Stock, at an exercise price of $3.67 per share and a non-interest bearing two-
year promissory note in the principal amount of $1.1 million, giving the
Company 100% ownership of the Services Subsidiary. The Company granted Tech
Ventures certain registration rights and agreed to register in this Offering
the 497,700 shares of Common Stock owned by Tech Ventures and to maintain the
effectiveness of such registration for a period of two years. Tech Ventures
has agreed not to sell any of its shares for a period of 180 days after the
effective date of this Offering. In addition, immediately prior to the
purchase and sale, the Services Subsidiary distributed approximately $241,000
to Tech Ventures as the accumulated unpaid profits earned by the Services
Subsidiary prior to February 5, 1998. The Company also agreed to pay Tech
Ventures a monthly sum equal to 20% of the net profits of the Services
Subsidiary until the earlier of (i) the completion of this Offering, or (ii) a
sale of the Company. All of the material terms of the purchase were agreed
upon by Tech Ventures and the Company in January 1998, including the number of
shares to be issued to Tech Ventures which was based on a valuation of the
Company's Common Stock at a price of $3.67 per share conducted by an
independent appraiser. The transaction was approved by the Company's Board of
Directors and consummated on February 5, 1998. The purchase of the 20%
interest in the Services Subsidiary has been accounted for in the first
quarter of 1998 based on the valuation of the Common Stock in January 1998 at
$3.67 per share. In February 1998, the Services Subsidiary also paid Tech
Ventures approximately $33,000 as consideration for the termination of the
Management Services Agreement entered into between the parties in March 1995,
and Tech Ventures paid in full to the Services Subsidiary the remaining
principal balance and accrued interest of approximately $33,000 due under the
Tech Ventures Note.
In February 1998, the Company entered into certain severance and related
agreements with Joseph S. McCall in connection with his resignation as the
Company's Chief Executive Officer. In connection therewith, the Company agreed
to pay Mr. McCall $225,000 before June 30, 1998, severance in the amount of
$75,000
53
<PAGE>
payable over a one year period beginning upon the consummation of this
Offering, and entered into an Independent Contractor Agreement whereby Mr.
McCall will serve as a consultant to the Company for one year for $125,000 in
compensation, with the ability to earn an additional $100,000 in incentive
compensation. See "Management--Agreements with Employees."
Tech Ventures provided recruiting services to the Company from January 1996
through January 1997 in the amount of $339,302. In addition, pursuant to a
Management Services Agreement, Tech Ventures received $25,000 for certain
administrative services rendered to the Services Subsidiary during each of
1997 and 1996.
On October 26, 1995, Tech Ventures received a warrant to purchase 87,500
shares of the Company's Series C Preferred Stock resulting from the conversion
and simultaneous cancellation of 87,500 shares of Series C Preferred Stock
held by Tech Ventures and the simultaneous amendment of a promissory note
payable by Tech Ventures to the Company which had been made by Tech Ventures
as payment for its original shares of Series C Preferred Stock. Upon the
consummation of this Offering, this warrant will expire. Tech Ventures has
informed the Company that it intends to exercise this warrant concurrent with
the closing of this Offering, which will result in 131,250 shares of Common
Stock after conversion.
The Company believes that all transactions set forth above were made on
terms no less favorable to the Company than would have been obtained from
unaffiliated third parties.
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of the Offering and the filing of the Company's
Restated Certificate, the authorized capital stock of the Company will consist
of shares of Common Stock, $.0001 par value per share, and shares of
preferred stock, $1.00 par value per share (the "Preferred Stock").
COMMON STOCK
As of the date of this Prospectus, there were 1,404,070 shares of Common
Stock issued and outstanding and held of record by 40 stockholders. Following
completion of this Offering, the Company will have 9,047,914 shares of Common
Stock issued and outstanding, comprised of: (i) 1,404,070 shares issued and
outstanding prior to this Offering; (ii) 2,500,000 shares issued by the
Company in connection with this Offering; (iii) 4,787,594 shares issued to
holders of the Company's Preferred Stock which automatically converts into
Common Stock upon the effective date of this Offering; (iv) 131,250 shares of
Common Stock issued to Tech Ventures in connection with the Warrant Exercise;
and (v) 225,000 shares to be issued to Tech Ventures in connection with the
Acquisition.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding Preferred
Stock. Holders of the Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are,
and the shares offered by the Company in this Offering will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.
54
<PAGE>
PREFERRED STOCK
Upon the closing of this Offering, all outstanding shares of Preferred Stock
will be converted into shares of Common Stock. Thereafter, the Board of
Directors will be authorized, subject to certain limitations prescribed by
law, without further stockholder approval, to issue from time to time up to an
aggregate of shares of Preferred Stock in one or more series and to fix or
alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof,
including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series or designations of such series. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change of control of
the Company. The Company has no present plans to issue any shares of Preferred
Stock.
The Company believes that the Preferred Stock will provide the Company with
increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might arise. Having
such authorized shares available for issuance will allow the Company to issue
shares of Preferred Stock without the expense and delay of holding a special
stockholders' meeting. The authorized shares of Preferred Stock, as well as
shares of Common Stock, will be available for issuance without further action
by stockholders of the Company, unless such action is required by applicable
law or the rules of any stock exchange or quotation system on which the
Company's securities may be listed or quoted.
DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED CERTIFICATE AND
BY-LAWS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder's becoming an
interested stockholder; (ii) upon consummation of the transaction which
resulted in the stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned
(x) by persons who are directors and also officers and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder.
Section 203 defines business combinations to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as an entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
The Company's Restated Certificate provides that, upon the effective date of
this Offering, the Company's Board of Directors will be classified into three
classes of directors. See "Management--Executive Officers and Directors." In
addition, the Company's Bylaws will not permit stockholders of the Company to
call a special meeting of stockholders. Only the Company's Board of Directors,
Chairman of the Board or President may call a special meeting of stockholders.
55
<PAGE>
These and other provisions could have the effect of making it more difficult
to acquire the Company by means of a tender offer, proxy contest or otherwise
or to remove the incumbent officers and directors of the Company. These
provisions may discourage certain types of coercive takeover practices and
encourage persons seeking to acquire control of the Company to first negotiate
with the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina, N.A.
LISTING
Application has been made to have the Common Stock approved for listing on
the Nasdaq National Market under the symbol "SQLF."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 9,047,914 shares of
Common Stock outstanding (assuming no exercise of outstanding stock options).
Of these shares, the 2,500,000 shares sold in this Offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by "affiliates" of the Company, as that term
is defined in Rule 144 ("Rule 144") under the Securities Act ("Affiliates"),
may generally only be sold in compliance with the limitations of Rule 144
described below.
LOCK-UP AGREEMENTS
All security holders and all officers and directors of the Company, who in
the aggregate hold all 1,404,070 of the outstanding shares of Common Stock,
have agreed, pursuant to the lock-up agreements, that they will not, without
the prior written consent of NationsBanc Montgomery Securities LLC, offer,
sell, contract to sell or otherwise dispose of, directly or indirectly, any
shares of Common Stock beneficially owned by them for a period of 180 days
after the date of this Prospectus.
SALES OF RESTRICTED SHARES
Concurrently with this Offering, the Company has registered issued and
outstanding shares of its Common Stock. Such shares will be freely tradable
upon the effectiveness of this Offering, subject only to provisions of the
lock-up Agreements. The remaining shares of issued and outstanding Common
Stock are deemed "Restricted Shares" under Rule 144. Of the Restricted Shares,
upon expiration of the Lock-up Agreements up to shares may be eligible for
sale in the public market immediately after this Offering pursuant to Rule
144(k) under the Securities Act. All of the remaining Restricted Shares would
be eligible for sale in the public market in accordance with Rule 144 or Rule
701 under the Securities Act beginning 90 days after the date of this
Prospectus but for the provisions of the lock-up agreements. Certain security
holders have the right to have their Restricted Shares registered by the
Company under the Securities Act as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated with those of others), including an Affiliate, who
has beneficially owned Restricted Shares for at least one year is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of (i) one percent of the then outstanding shares of Common
Stock (approximately 90,479 shares immediately after this Offering) or (ii)
the average weekly trading volume in the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the date on which notice of
such sale is filed. Sales under Rule 144 are also subject to certain
limitations on manner of sale, notice requirements, and availability of
current public information about the Company. In addition, under Rule 144(k),
a person who is not an Affiliate and has not
56
<PAGE>
been an Affiliate for at least three months prior to the sale and who has
beneficially owned Restricted Shares for at least two years may resell such
shares without compliance with the foregoing requirements. In meeting the one
and two year holding periods described above, a holder of Restricted Shares
can include the holding periods of a prior owner who was not an Affiliate.
Rule 701 under the Securities Act provides that the shares of Common Stock
acquired on the exercise of currently outstanding options may be resold by
persons, other than Affiliates, beginning 90 days after the date of this
Prospectus, subject only to the manner of sale provisions of Rule 144, and by
Affiliates under Rule 144 without compliance with its one-year minimum holding
period, subject to certain limitations.
STOCK OPTIONS
As of January 31, 1998, options to purchase a total of 1,411,185 shares of
Common Stock were outstanding and 1,137,844 of the shares issuable pursuant to
such options are not yet exercisable. An additional 204,690 shares of Common
Stock are available for future grants under the Company's 1992 Stock Option
Plan and 1,000,000 shares of Common Stock are available for future grants
under the Company's 1998 Stock Plan. See "Management--Stock Option Plans and
Warrants."
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable pursuant to the Company's
stock option plans. The Company expects to file these registration statements
approximately 60 days following the closing of this Offering, and such
registration statements are expected to become effective upon filing. Shares
covered by these registration statements will thereupon be eligible for sale
in the public markets, subject to the Lock-up Agreements, to the extent
applicable. The Company intends to file a registration statement on Form S-8
to register all shares of Common Stock issuable pursuant to its 1998 Stock
Plan upon commencement of the Offering.
REGISTRATION RIGHTS
After the consummation of this Offering, the holders of approximately
shares of Common Stock (the "Registrable Securities") or their transferees
(the "Holders"), will be entitled to certain demand and/or piggy-back
registration rights with respect to the Registrable Securities. These rights
are provided under agreements between the Company and the holders of the
Registrable Securities. Such agreements provide that certain of the Holders
are entitled, upon the request of the Holders of % of the Registrable
Securities, commencing on the earlier of (i) , 199 and (ii) the date which
is 90 days after the date of this Prospectus, to require the Company to use
its best efforts to register their Registrable Securities under the Securities
Act (the "Demand Registration Rights"). In addition, all of the Holders are
entitled, subject to certain limitations, to require the Company to use its
best efforts to include their shares of Common Stock in future registration
statements filed by the Company under the Securities Act (the "Piggyback
Registration Rights"). Except for the shares being registered concurrently
with this Offering, the Holders of the Piggy-back Registration Rights have
waived their rights to register their shares under the Registration Statement
containing this Prospectus. Certain of the Holders are also entitled, upon the
request of the Holders of % of the Registrable Securities, to require the
Company to use its best efforts to register their shares of Common Stock on
Form S-3 (the "S-3 Registration Rights"). The Company is not required to
effect more than two registrations under the Demand Registration Rights.
Registration of shares pursuant to the exercise of Demand Registration Rights,
S-3 Registration rights or Piggy-back Registration Rights under the Securities
Act would result in such shares becoming freely tradeable without restriction
under the Securities Act immediately upon the effectiveness of such
registration statement.
57
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, and UBS Securities LLC (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company the
number of shares of Common Stock indicated below opposite their respective
names at the initial public offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters are committed to purchase all
of the shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
NationsBanc Montgomery Securities LLC...........................
UBS Securities LLC..............................................
---------
Total....................................................... 2,500,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the initial public offering,
the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 375,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 2,500,000 shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise
this option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.
Each director and executive officer and certain other stockholders of the
Company have agreed, subject to certain limited exceptions, that they will
not, without the prior written consent of NationsBanc Montgomery Securities
LLC (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including
without limitation any short sale), pledge, transfer, establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Exchange
Act, or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock, or securities exchangeable or exercisable
for or convertible into shares of Common Stock, currently or hereafter owned
either of record or beneficially (as defined in Rule 13d-3 under the Exchange
Act) by such party, or publicly announce such party's intention to do any of
the foregoing, for a period of 180 days after the date of this Prospectus. In
addition, the Company has agreed in the Underwriting Agreement that, during
the period of 180 days after the date of this Prospectus, without the prior
written consent of NationsBanc Montgomery Securities LLC (which consent may be
withheld in its sole discretion), it will not, directly or indirectly, sell,
offer, contract or grant any option to sell, pledge, transfer or establish an
open "put equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of or transfer, or announce the offering
of, or file any Registration Statement under the Securities Act in respect of,
any shares of the Company's Common Stock, options or warrants to acquire
shares of the Common Stock or securities exchangeable or exercisable for or
convertible into shares of Common Stock other than pursuant to the Company's
1992 Stock Option Plan or 1997 Omnibus Stock Plan. NationsBanc Montgomery
Securities LLC may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to these lock-up
agreements. See "Shares Eligible for Future Sale."
58
<PAGE>
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their employees and controlling persons against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotment, stabilizing transactions, syndicate
covering transactions and penalty bids. In an over-allotment, the Underwriters
would allot more shares of Common Stock to their customers in the aggregate
than are available for purchase by the Underwriters under the Underwriting
Agreement. A stabilizing transaction means the placing of any bid, or
effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of a security. In a syndicate covering transaction, the Underwriters
would place a bid or effect a purchase to reduce a short position created in
connection with this Offering. Pursuant to a penalty bid, NationsBanc
Montgomery Securities LLC, on behalf of the Underwriters would be able to
reclaim a selling concession from shares of Common Stock sold by such
Underwriter are purchased in syndicate covering transactions. These
transactions may result in price of the Common Stock originally being higher
than the price that might otherwise prevail in the open market. These
transactions may be effected on the NASDAQ National Market, in the over-the-
counter market or otherwise and, if commenced, may be discontinued at any
time.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the number
of shares of Common Stock offered hereby.
Spitfire Capital Partners, L.P., an affiliate of NationsBanc Montgomery
Securities LLC, purchased 208,334 shares of the Company's Series F Preferred
Stock, which shares of Preferred Stock will automatically convert into 312,501
shares of Common Stock concurrent with the effective date of this Offering.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations between the Company and the
Representatives. Among the factors expected to be considered in such
negotiations are the history of, and prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, its
past and present operations and financial performance, its past and present
earnings and the trend of such earnings, the prospects for future earnings of
the Company, the present state of the Company's development, the prevailing
market conditions at the time of the Offering, market valuations of publicly
traded companies that the Company and the Representatives believe to be
comparable to the Company, and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Womble Carlyle Sandridge & Rice, PLLC, Atlanta,
Georgia. Certain legal matters in connection with this Offering will be passed
upon for the Underwriters by Morris, Manning & Martin, L.L.P., Atlanta,
Georgia.
EXPERTS
The consolidated financial statements included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments, exhibits, schedules and supplements
thereto) on Form S-1 under the Securities Act with respect to
59
<PAGE>
the Common Stock offered hereby. This Prospectus omits certain information
contained in the Registration Statement, and reference is made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained in this Prospectus regarding the contents of any
contract, agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance reference is made
to the copy of such contract, agreement or other document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, and the exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549, and at its regional offices in New
York (Seven World Trade Center, Suite 1300, New York, New York 10048) and in
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661). Copies of all or any part thereof may be obtained from the
Commission at prescribed rates. In addition, the Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants (including the Company) that file
electronically with the Commission which can be accessed at
http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by its independent accounts and
quarterly reports containing unaudited summary financial statements for each
of the first three quarters of each fiscal year.
60
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Operations...................................... F-6
Consolidated Statements of Stockholders' Deficit........................... F-7
Consolidated Statements of Cash Flows...................................... F-8
Notes to Consolidated Financial Statements................................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SQL Financials International, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of SQL
FINANCIALS INTERNATIONAL, INC. (a Delaware corporation) AND SUBSIDIARIES as of
December 31, 1996 and 1997 and the related consolidated statements of
operations, stockholders' deficit, and cash flows for each of the three years
in the period ended December 31, 1997. 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 SQL Financials
International, Inc. and subsidiaries as of December 31, 1996 and 1997 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
February 19, 1998
F-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
1996 1997 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................... $ 3,279 $ 7,213 $ 7,624
Accounts receivable............................ 2,605 4,388 4,388
Accounts receivable--related party............. 19 2 2
Prepaids and other current assets.............. 90 492 492
------- ------- -------
Total current assets......................... 5,993 12,095 12,506
------- ------- -------
PROPERTY AND EQUIPMENT:
Furniture and equipment........................ 2,176 3,094 3,094
Leasehold improvements......................... 215 280 280
------- ------- -------
Total property and equipment................. 2,391 3,374 3,374
Less accumulated depreciation.................. (1,181) (1,867) (1,867)
------- ------- -------
Property and equipment, net.................. 1,210 1,507 1,507
------- ------- -------
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $561 and $1,127 in 1996 and
1997, respectively............................ 1,783 1,267 3,412
Deposits and other long-term assets............ 173 150 150
------- ------- -------
Total other assets........................... 1,956 1,417 3,562
------- ------- -------
Total assets................................. $ 9,159 $15,019 $17,575
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
1996 1997 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities..... $ 2,637 $ 4,936 $ 4,936
Accounts payable--related party.............. 279 54 54
Short term debt.............................. 958 0 0
Deferred revenue............................. 4,686 5,717 5,717
Current maturities of long-term debt......... 855 1,841 1,841
-------- -------- --------
Total current liabilities.................. 9,415 12,548 12,548
NONCURRENT LIABILITIES:
Deferred revenue............................. 3,333 4,480 4,480
Long-term debt, net of current maturities,
net of discount of $166 at December 31,
1997, pro forma............................. 1,093 497 1,431
Other noncurrent liabilities................. 63 49 49
-------- -------- --------
Total liabilities.......................... 13,904 17,574 18,508
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY... 17 243 0
-------- -------- --------
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series A, 262,500 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 1,050 1,050 0
Series B, 454,888 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 3,025 3,025 0
Series C, 428,572 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 3,000 3,000 0
Series D, 701,755 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 6,000 6,000 0
Series E, 697,675 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 6,000 6,000 0
Series F, 0 and 628,809 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 0 6,037 0
-------- -------- --------
Total redeemable convertible preferred
stock..................................... 19,075 25,112 0
-------- -------- --------
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par value; 3,000,000 and
3,500,000 shares authorized in 1996 and
1997, respectively; 2,545,390 and 3,174,199
shares of redeemable convertible preferred
stock issued and outstanding in 1996 and
1997, respectively.......................... 0 0 0
Common stock, $.0001 par value; 6,750,000 and
9,000,000 shares authorized in 1996 and
1997, respectively; 2,185,348 and 1,467,160
shares issued in 1996 and 1997,
respectively; 6,584,693 shares issued pro
forma 1997.................................. 0 0 1
Additional paid in capital................... 472 438 26,986
Accumulated deficit.......................... (23,859) (28,019) (28,019)
Warrants..................................... 612 652 468
Less treasury stock, at cost................. (302) (2) (2)
Note from stockholder........................ (612) (612) 0
Deferred compensation........................ (148) (367) (367)
-------- -------- --------
Total stockholders' deficit................ (23,837) (27,910) (933)
-------- -------- --------
Total liabilities and stockholders'
deficit................................... $ 9,159 $ 15,019 $ 17,575
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-5
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
1995 1996 1997 1997
------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
License fees......................... $ 5,232 $ 6,425 $13,506 $13,506
Services fees........................ 1,737 3,984 7,786 7,786
Maintenance fees..................... 1,221 2,647 4,696 4,696
------- ------- ------- -------
Total revenues..................... 8,190 13,056 25,988 25,988
------- ------- ------- -------
COST OF REVENUES:
License fees......................... 291 416 1,205 1,205
Services fees........................ 1,421 2,904 5,402 5,402
Maintenance fees..................... 655 1,350 1,973 1,973
------- ------- ------- -------
Total cost of revenues............. 2,367 4,670 8,580 8,580
------- ------- ------- -------
OPERATING EXPENSES:
Research and development............. 3,882 5,777 7,190 7,190
Sales and marketing.................. 6,636 7,191 9,515 9,515
General and administrative........... 3,292 3,076 4,061 4,504
------- ------- ------- -------
Total operating expenses........... 13,810 16,044 20,766 21,209
------- ------- ------- -------
OPERATING LOSS......................... (7,987) (7,658) (3,358) (3,801)
INTEREST EXPENSE, net.................. 2 6 274 353
MINORITY INTEREST...................... (60) (215) (478) 0
------- ------- ------- -------
NET LOSS............................... $(8,049) $(7,879) $(4,110) $(4,154)
======= ======= ======= =======
BASIC AND DILUTED NET LOSS PER SHARE... $ (6.19) $ (5.74) $ (2.97)
======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................... 1,300 1,373 1,386
======= ======= =======
PRO FORMA BASIC AND DILUTED NET LOSS
PER SHARE............................. $ (0.64)
=======
PRO FORMA WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING.................... 6,503
=======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN ACCUMULATED TREASURY NOTE FROM DEFERRED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT WARRANTS STOCK AMOUNT STOCKHOLDER COMPENSATION DEFICIT
------ ------ ---------- ----------- -------- -------- ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December
31, 1994......... 1,710 $ 0 $ 7 $ (7,825) $ 0 (810) $(302) $(612) $ 0 $ (8,732)
Issuance costs,
redeemable
convertible
preferred stock,
Series D........ 0 0 0 (72) 0 0 0 0 0 (72)
Issuance of
common stock.... 465 0 310 0 0 0 0 0 0 310
Exercise of stock
options......... 6 0 4 0 0 0 0 0 0 4
Conversion of
redeemable
convertible
preferred stock
into warrants... 0 0 0 0 612 0 0 0 0 612
Net loss......... 0 0 0 (8,049) 0 0 0 0 0 (8,049)
----- --- ---- -------- ---- ---- ----- ----- ----- --------
BALANCE, December
31, 1995......... 2,181 0 321 (15,946) 612 (810) (302) (612) 0 (15,927)
Issuance costs,
redeemable
convertible
preferred stock,
Series E........ 0 0 0 (34) 0 0 0 0 0 (34)
Issuance of stock
options......... 0 0 148 0 0 0 0 0 (148) 0
Exercise of stock
options......... 4 0 3 0 0 0 0 0 0 3
Net loss......... 0 0 0 (7,879) 0 0 0 0 0 (7,879)
----- --- ---- -------- ---- ---- ----- ----- ----- --------
BALANCE, December
31, 1996......... 2,185 0 472 (23,859) 612 (810) (302) (612) (148) (23,837)
Issuance costs,
redeemable
convertible
preferred stock,
Series F........ 0 0 0 (50) 0 0 0 0 0 (50)
Issuance of
warrants........ 0 0 0 0 40 0 0 0 0 40
Unamortized debt
discount........ 0 0 (22) 0 0 0 0 0 0 (22)
Issuance of stock
options......... 0 0 277 0 0 0 0 0 (277) 0
Amortization of
deferred
compensation.... 0 0 0 0 0 0 0 0 58 58
Retirement of
treasury stock.. (735) 0 (300) 0 0 735 300 0 0 0
Exercise of stock
options......... 17 0 11 0 0 0 0 0 0 11
Net loss......... 0 0 0 (4,110) 0 0 0 0 0 (4,110)
----- --- ---- -------- ---- ---- ----- ----- ----- --------
BALANCE, December
31, 1997......... 1,467 $ 0 $438 $(28,019) $652 (75) $ (2) $(612) $(367) $(27,910)
===== === ==== ======== ==== ==== ===== ===== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................................... $(8,049) $(7,879) $(4,110)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 428 1,125 1,406
Minority interest............................... 60 216 478
Amortization of debt discount................... 0 0 18
Deferred compensation........................... 0 0 58
Loss on sale of property and equipment.......... 0 0 46
Changes in operating assets and liabilities:
Accounts receivable........................... (1,510) (986) (1,766)
Prepaids and other current assets............. 107 (31) (402)
Deposits and other long term assets........... (106) (22) 23
Accounts payable and accrued liabilities...... 1,676 637 2,074
Deferred revenue.............................. 2,644 4,180 2,178
Other noncurrent liabilities.................. 8 (53) (14)
------- ------- -------
Total adjustments........................... 3,307 5,066 4,099
------- ------- -------
Net cash used in operating activities....... (4,742) (2,813) (11)
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment............... (598) (958) (1,193)
Proceeds from sale of property and equipment...... 0 0 10
Purchases of intangible assets.................... (316) (2,000) (50)
------- ------- -------
Net cash used in investing activities....... (914) (2,958) (1,233)
------- ------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of redeemable convertible
preferred stock.................................. 5,927 5,966 5,987
Proceeds from issuance of common stock............ 314 3 11
Proceeds from notes payable and short term
borrowings, net.................................. 556 2,472 859
Repayments of notes payable and short term
borrowings....................................... (275) (490) (1,427)
Proceeds from preferred stock bridge financing.... 2,750 0 2,000
Repayment of preferred stock bridge financing..... (750) (2,000) (2,000)
Repayment of note receivable from holder of
minority interest................................ 0 0 38
Dividends paid to holder of minority interest..... (25) (234) (290)
------- ------- -------
Net cash provided by financing activities... 8,497 5,717 5,178
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 2,841 (54) 3,934
CASH AND CASH EQUIVALENTS, beginning of year........ 492 3,333 3,279
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year.............. $ 3,333 $ 3,279 $ 7,213
======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest............................ $ 126 $ 153 $ 330
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
SQL Financials International, Inc. (the "Company") was incorporated in the
state of Delaware on November 20, 1991. The Company develops, markets, and
supports client/server financial software applications and markets its
products under the trade name SQL Financials throughout the United States and
Canada. The Company provides installation and implementation services through
its majority-owned subsidiary, SQL Financial Services, Inc. (the "Services
Subsidiary") and is the sole owner of SQL Financials Europe, Inc.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the Company and its
majority-owned subsidiaries. All intercompany transactions and balances have
been eliminated.
Minority Interest
Minority interest represents the 20% ownership interest in the Services
Subsidiary (Note 3).
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. Estimates also affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
History of Operating Losses
The Company has incurred significant net losses in each year since its
formation. As of December 31, 1997, the Company had an accumulated deficit of
approximately $28.0 million. These losses have occurred, in part, because of
the substantial costs incurred by the Company to develop its products, expand
its product research, and hire and train its direct sales force. Although the
Company has achieved recent revenue growth and profitability for the quarters
ended September 30, 1997 and December 31, 1997, there can be no assurance that
the Company will be able to generate the substantial additional growth in
revenues that will be necessary to sustain profitability. The Company plans to
continue to increase its operating expenses in order to fund higher levels of
research and development, increase its sales and marketing efforts, broaden
its customer support capabilities and expand its administrative resources in
anticipation of future growth. To the extent that increases in such expenses
precede or are not offset by increased revenues, the Company's business,
results of operations and financial condition would be materially adversely
affected. The Company's financial prospects must be considered in light of the
risks, costs and difficulties frequently encountered by emerging companies,
particularly companies in the competitive financial software industry.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
F-9
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The book values of cash, trade accounts receivable, trade accounts payable,
and other financial instruments approximate their fair values principally
because of the short-term maturities of these instruments. The fair value of
the Company's long-term debt is estimated based on current rates offered to
the Company for debt with similar terms and maturities. Under this method, the
Company's fair value of financial instruments was not materially different
from the stated value at December 31, 1996 and 1997.
Credit and Concentrations of Product Risk
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The credit risk is mitigated by
the large number of customers comprising the customer base.
Substantially all of the Company's product revenues are derived from sales
of its financial applications. Increased market acceptance of the Company's
product family is critical to the Company's ability to increase sales and
thereby sustain profitability. Any factor adversely affecting sales or pricing
levels of these applications will have a material adverse effect on the
Company's business, results of operations, and financial condition.
Revenue Recognition
Revenues from license fees are recognized upon delivery of the product if
there are no significant postdelivery obligations. Revenues from services fees
are recognized as the services are performed. Maintenance fees relate to
customer maintenance and support and are recognized ratably over the term of
the software support services agreement, which is typically 12 months.
Revenues that have been prepaid or invoiced but that do not yet qualify for
recognition under the Company's policies are reflected as deferred revenues.
Deferred Revenues
Deferred revenues at December 31, 1996 and 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Deferred revenues:
Deferred license fees...................................... $1,662 $ 1,027
Deferred services fees..................................... 336 127
Deferred maintenance fees.................................. 6,021 9,043
------ -------
Total deferred revenues.................................. 8,019 10,197
Less current portion......................................... 4,686 5,717
------ -------
Noncurrent deferred revenues................................. $3,333 $ 4,480
====== =======
</TABLE>
The Company has in the past, and is expected in the future, to introduce
additional modules and product enhancements. As a result, deferred revenues
resulting from contracts executed in a prior period are recognized in the
quarter in which delivery of the new product occurs. This practice has, and
will in the future continue to cause fluctuations in revenues and operating
results from period to period.
F-10
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment consist of furniture, computers, other office
equipment, purchased software, and leasehold improvements. These assets are
depreciated on a straight-line basis over a two-, three-, or five-year life.
Improvements are amortized over the term of the lease. Depreciation expense
for the years ended December 31, 1995, 1996, and 1997 was $370,000, $640,000,
and $840,000, respectively.
Intangible Assets
Intangible assets include organizational costs, goodwill, and purchased
software licensing rights. Organizational costs are capitalizable costs
associated with the formation of the Company and its subsidiaries. These costs
are being amortized on a straight-line basis over a period of 60 months.
Goodwill in the amount of approximately $290,000, resulting from the excess of
the purchase price over the value of the assets acquired and liabilities
assumed in the purchase of the 80% interest in the Services Subsidiary (Note
3) in 1995, is also being amortized on a straight-line basis over a period of
60 months.
In 1996, the Company entered into a license and private label agreement to
purchase a nonexclusive and perpetual license for human resource, payroll, and
benefits software. The agreement allows the Company to modify and enhance the
software and to license these software products to its customers. The purchase
price of $2,000,000 is included in intangible assets and is being amortized on
a straight-line basis over the estimated useful life of 48 months.
Amortization expense related to the agreement for the years ended December 31,
1995, 1996, and 1997 was approximately $0, $417,000, and $500,000,
respectively. The amortization expense related to the agreement is included in
research and development expense in the accompanying consolidated statements
of operations.
Total amortization expense relating to all intangibles was $58,000,
$485,000, and $566,000 for the years ended December 31, 1995, 1996, and 1997,
respectively.
Capitalized Software Development Costs
Research and development expenses are charged to expense as incurred.
Computer software development costs are charged to research and development
expense until technological feasibility is established; after which, remaining
software production costs are capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed." The Company has
defined technological feasibility as the point in time at which the Company
has a working model of the related product. Historically, the development
costs incurred during the period between the achievement of technological
feasibility and the point at which the product is available for general
release to customers have not been material. Accordingly, the Company has
concluded that the amount of development costs capitalizable under the
provisions of SFAS No. 86 was not material to the financial statements for the
years ended December 31, 1995, 1996, and 1997. Therefore, the Company has
charged all software development costs to expense as incurred for the years
ended December 31, 1995, 1996, and 1997.
Impairment of Long Lived and Intangible Assets
The Company periodically reviews the values assigned to long-lived assets,
including property and other assets, to determine whether any impairments are
other than temporary. Management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.
The Company periodically reviews the value assigned to goodwill and
intangible assets to determine whether events and circumstances have occurred
which indicate that the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance of goodwill may not be
recoverable. The Company uses an estimate of undiscounted cash flows over the
remaining life of the goodwill and other intangible assets in measuring
whether the goodwill and other intangible assets are recoverable.
F-11
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities include the following as of
December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accounts payable.............................................. $ 261 $ 973
Accrued taxes, other than income taxes........................ 204 396
Accrued compensation, benefits, and commissions............... 865 1,636
Accrued returns and allowances................................ 634 338
Accrued other................................................. 673 1,593
------ ------
$2,637 $4,936
====== ======
</TABLE>
Historical and Pro Forma Net Loss Per Share
Historical basic and diluted net loss per share was computed in accordance
with SFAS No. 128, "Earnings per Share," using the weighted average number of
common shares outstanding. Historical basic and diluted net loss per share
does not include the impact of common stock equivalents, including redeemable
convertible preferred stock, as their effect would be antidilutive.
Pro forma basic and diluted loss per share was computed using historical
loss per share, adjusted to give effect to the exercise of a warrant to
purchase preferred stock that is convertible into 131,250 shares of common
stock upon the Offering (the "Warrant Exercise"), the conversion of the
preferred stock upon the closing of an initial public offering, and the
225,000 shares issued in the purchase of the remaining minority interest in
the Services Subsidiary (Note 11).
Net loss for basic and diluted earnings per share are the same for basic and
diluted earnings per share; therefore, no reconciliation of the numerator is
presented. The following is a reconciliation of the denominators used for
basic and diluted loss per share:
<TABLE>
<CAPTION>
PRO FORMA
1995 1996 1997 1997
----- ----- ----- ----------
<S> <C> <C> <C> <C>
Weighted Shares................................. 1,300 1,373 1,386 1,386
Conversion of Preferred Stock................... 0 0 0 4,761
Warrant Exercise................................ 0 0 0 131
Purchase of Minority Interest................... 0 0 0 225
----- ----- ----- -----
Total......................................... 1,300 1,373 1,386 6,503
===== ===== ===== =====
</TABLE>
Stock Based Compensation Plan
The Company accounts for its stock-based compensation plan under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Effective in fiscal year 1996, the Company adopted the disclosure
option of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No.
123 requires that companies which do not choose to account for stock-based
compensation as prescribed by the statement shall disclose the pro forma
effects on earnings and earnings per share as if SFAS No. 123 had been
adopted.
New Accounting Pronouncements
The American Institute of Certified Public Accountants has issued a
Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2
supersedes SOP 91-1 "Software Revenue Recognition," and is effective for the
Company for transactions entered into after December 31, 1997. The Company
will adopt SOP
F-12
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
97-2 in the first quarter of 1998. The adoption of the standards in the
statement is not expected to have a significant impact on the Company's
consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is designed to improve the
reporting of changes in equity from period to period. SFAS No. 130 is
effective for the Company's fiscal year ending December 31, 1998. The Company
will adopt SFAS No. 130 for fiscal 1998. Management does not expect SFAS No.
130 to have a significant impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires that an enterprise disclose certain information about
operating segments. SFAS No. 131 is effective for financial statements for the
Company's fiscal year ending December 31, 1998. The Company does not expect
that SFAS No. 131 will require revision of prior disclosures.
2. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1995, 1996, and 1997, the Company
engaged in a number of transactions with McCall Consulting Group, Inc.
("McCall Consulting Group") and Technology Ventures LLC ("Technology
Ventures"), entities controlled by Joseph S. McCall, an officer and director
of the Company (the "Officer"). In the opinion of management, the rates, terms
and considerations of the transactions with related parties approximate those
with nonrelated entities.
During the years ended December 31, 1995, 1996 and 1997, McCall Consulting
Group provided the following for the Company: temporary help by administrative
employees and third-party contract labor services, the lease of office
equipment and office space and services in connection with the Company's sales
process.
During the years ended December 31, 1996 and 1997, Technology Ventures
provided recruiting and administrative services to the Company.
Expenses relating to services provided by McCall Consulting Group were as
follows for the years ended December 31, 1995, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Contract labor expense:
Implementation expense............................... $ 150 $ 0 $ 0
Research and development............................. 386 1,250 1,450
Commissions expense.................................... 495 0 0
Administrative services................................ 25 22 38
Office rental expense.................................. 0 96 71
Training............................................... 70 37 19
Software and equipment purchases and rental expense.... 0 24 33
------ ------ ------
Total.............................................. $1,126 $1,429 $1,611
====== ====== ======
</TABLE>
F-13
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amounts owed related to services provided by McCall Consulting Group were as
follows as of December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Accounts payable and accrued liabilities........................... $234 $52
==== ===
Accounts receivable................................................ $ 19 $ 2
==== ===
</TABLE>
Expenses relating to services provided by Technology Ventures were as
follows for the years ended December 31, 1995, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Recruiting services........................................... $ 0 $339 $ 0
Administrative services....................................... 19 23 23
--- ---- ---
Total....................................................... $19 $362 $23
=== ==== ===
</TABLE>
Amounts owed related to services provided by Technology Ventures were as
follows as of December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Accounts payable and accrued liabilities........................... $45 $ 2
=== ===
</TABLE>
3. SQL FINANCIAL SERVICES, INC.
On March 9, 1995, the Company issued 450,000 shares of common stock to
acquire certain intellectual property rights and tangible assets valued at
$300,000 from Technology Ventures, a related party controlled by the Officer.
Subsequent to the acquisition, the Company and Technology Ventures formed a
subsidiary, the Services Subsidiary, which is 80%-owned by the Company. The
Company contributed the acquired intellectual property rights and tangible
assets to the Services Subsidiary. Technology Ventures acquired the remaining
20% interest in the Services Subsidiary in exchange for a $75,000 note bearing
interest at 7.74%, payable annually, with the principal due in a lump sum
payment in March 2000. As of December 31, 1996 and 1997, the note was
reflected as a reduction of minority interest in consolidated subsidiary. The
Services Subsidiary provides implementation services for the Company's
software applications. The Services Subsidiary had income of approximately
$299,000, $1,080,000 and $2,390,000 for the years ended December 31, 1995,
1996 and 1997, respectively. The Services Subsidiary distributed dividends of
approximately $125,000, $1,169,000 and $1,448,000 during the years ended
December 31, 1995, 1996 and 1997, respectively, to the Company and the
related-party minority interest holder. Subsequent to December 31, 1997, the
minority interest in the Services Subsidiary was purchased by the Company. See
Note 11.
F-14
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES
The Company files a consolidated tax return with its majority owned
subsidiaries. The components of the income tax provision (benefit) for the
years ended December 31, 1995, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal......................................... $ 0 $ 0 $ 0
State........................................... 0 0 0
------- ------- -------
0 0 0
------- ------- -------
Deferred:
Federal......................................... (2,542) (2,494) (1,287)
State........................................... (477) (468) (241)
------- ------- -------
(3,019) (2,962) (1,528)
------- ------- -------
Valuation allowance............................... 3,019 2,962 1,528
------- ------- -------
Total......................................... $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
The following is a summary of the items which caused recorded income taxes
to differ from taxes computed using the statutory federal income tax rate for
the years ended December 31, 1995, 1996, and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Tax benefit at statutory rate........................ (34.0)% (34.0)% (34.0)%
Effect of:
State income tax, net.............................. (4.0) (4.0) (4.0)
Other.............................................. 0.5 0.4 1.1
Valuation allowance................................ 37.5 37.6 36.9
------ ------ ------
Provision (benefit) for income taxes................. 0.0 % 0.0 % 0.0%
====== ====== ======
</TABLE>
F-15
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and liabilities are determined based on the difference
between the financial accounting and tax bases of assets and liabilities.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 8,462 $ 10,047
Deferred revenue........................................ 151 0
Depreciation and amortization........................... 167 326
Accrued liabilities..................................... 123 238
Other................................................... 5 3
------- --------
8,908 10,614
------- --------
Deferred tax liabilities:
Services Subsidiary..................................... (3) (181)
Amortization of purchased software...................... (5) (5)
------- --------
(8) (186)
------- --------
Net deferred tax assets before valuation allowance........ 8,900 10,428
Valuation allowance....................................... (8,900) (10,428)
------- --------
Net deferred tax assets................................... $ 0 $ 0
======= ========
</TABLE>
A valuation allowance is provided when it is determined that some portion or
all of the deferred tax assets may not be realized. Accordingly, since it
currently is more likely than not that the net deferred tax assets resulting
from the net operating loss carryforwards ("NOLs") and other deferred tax
items will not be realized, a valuation allowance has been provided in the
accompanying consolidated financial statements as of December 31, 1996 and
1997. The Company established the valuation allowance for the entire amount of
the deferred tax assets attributable to the NOL carryforwards, as well as for
the net deferred tax assets created as a result of temporary differences
between book and tax. The Company will recognize such income tax benefits when
realized. The NOLs at December 31, 1997 were approximately $26,439,000 and
expire at various dates through 2012.
The Company's ability to benefit from certain NOL carryforwards is limited
under Section 382 of the Internal Revenue Code when ownership of the Company
changed by more than 50%, as defined. The Company is limited to using the NOL
carryforwards of $15,800,000 generated prior to February 16, 1996. The
limitation does not permit the Company to use in excess of $1,600,000 of
certain NOL carryforwards per year. If the Company does not realize taxable
income in excess of the limitation in future years, certain NOLs will be
unrealizable. NOLs generated from February 16, 1996 through December 31, 1996
of $6,500,000 and NOLs generated from January 1, 1997 through December 31,
1997 of $4,139,000 may also be further limited as a result of the proposed
initial public offering.
F-16
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
The Company's short- and long-term debt consists of the following as of
December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ -----
<S> <C> <C>
Notes payable to a bank, due in installments through December
31, 1997, secured by certain equipment, bearing interest at a
rate of prime plus 1.75% to 2%................................ $ 323 $ 0
Working capital line of credit with a bank expiring April 7,
1997, payable on demand, repaid with proceeds from the new
line-of-credit agreement, secured by all company assets,
bearing interest at a rate of prime plus 1%................... 635 0
Payable for purchased software licensing rights, payable in
installments over a two-year period through March 1998 at the
rate at which the Company licenses human resource, payroll and
benefits software to its customers............................ 1,855 1,632
Equipment notes payable to a leasing company, payable in
monthly installments of $27,000, with final principal
installments of $169,000 due March 2000 and August 2000,
secured by certain company assets, bearing interest at a
weighted average rate of 22.1%................................ 0 655
Note payable to a financing company, payable in monthly
installments of $1,500 through November 2000, secured by
certain company assets, bearing interest at 8%................ 0 51
Note payable to a former shareholder, secured by treasury
shares of common stock, bearing interest at 8%................ 93 0
------ -----
2,906 2,338
Less short-term debt........................................... 958 0
Less current portion of long-term debt......................... 855 1,841
------ -----
$1,093 $ 497
====== =====
</TABLE>
During 1997, the Company entered into a new line-of-credit agreement with a
bank bearing interest at prime (8.5% at December 31, 1997) plus 2.75% or 3%,
depending on certain terms, as defined. The new line-of-credit agreement with
the bank provides for maximum borrowings not to exceed the lesser of
$3,000,000 or 80% of eligible license and implementation services revenue
accounts receivable plus 65% of eligible maintenance revenue accounts
receivable and is collateralized by substantially all the Company's assets.
The Company had $0 outstanding under the line of credit and availability of
approximately $1,950,000 under the line of credit at December 31, 1997.
Under the provisions of the line-of-credit agreement, the Company must
comply with certain restrictive covenants. These covenants, among other
things, require the Company to maintain specified levels of profitability.
During 1997, the Company entered into debt and lease agreements with a
leasing company. The debt and lease agreements provide total borrowing
capability of up to $1,000,000 for equipment purchases. As of December 31,
1997, the Company had approximately $655,000 outstanding under these
agreements and $345,000 available for future equipment purchases.
During 1997, the Company paid all amounts outstanding under the note payable
to a former shareholder. In accordance with the agreement, the Company retired
the treasury shares provided as collateral for the note.
F-17
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of long-term debt at December 31, 1997 are as
follows (in thousands):
<TABLE>
<S> <C>
December 31:
1998................................................................ $1,841
1999................................................................ 256
2000................................................................ 241
------
$2,338
======
</TABLE>
6. ROYALTY AGREEMENTS
The Company is a party to royalty and other equipment manufacturer
agreements for certain of its applications. The Company incurred a total of
$227,000, $355,000 and $1,109,000 in royalty fees for the years ended December
31, 1995, 1996 and 1997, respectively, pursuant to these agreements. The
royalties and fees paid are included in cost of revenues--license fees in the
accompanying statements of operations.
During 1992, the Company entered into a royalty agreement with a former
stockholder. This agreement grants a 3.75% royalty on certain revenues of the
Company, less certain discounts or commissions, collected from any transfer,
sale, or licensing of specific modules of the software. The Company incurred
royalties of $135,000, $177,000 and $295,000 for the years ended December 31,
1995, 1996 and 1997, respectively, pursuant to this royalty agreement.
7. EMPLOYEE BENEFIT PLANS
The Company sponsors the SQL Financials 401(k) Plan (the "Plan"), a defined
contribution plan covering substantially all employees of the Company. Under
the Plan's deferred compensation arrangement, eligible employees who elect to
participate in the Plan may contribute between 2% and 20% of eligible
compensation, as defined, to the Plan. The Company, at its discretion, may
elect to provide for either a matching contribution or discretionary profit
sharing contribution or both. During the years ended December 31, 1995, 1996,
and 1997, the Company did not make matching or discretionary profit sharing
contributions to the Plan.
8. STOCK OPTION PLAN
The Company has a stock option plan for employees, consultants, and other
individual contributors to the Company which enables the Company to grant up
to 1,652,700 qualified and nonqualified incentive stock options (the "1992
Plan"). The qualified options are to be granted at an exercise price not less
than the fair market value at the date of grant. The nonqualified options are
to be granted at an exercise price of not less than 85% of the fair market
value at the date of grant. Fair market values are to be determined by the
board of directors. The stock option committee determines the period within
which options may be exercised, but no option may be exercised more than ten
years from the date of grant. The stock option committee also determines the
period over which the options vest. Options are generally exercisable for
seven years from the grant date and generally vest over a period of four years
at a rate of 20% for years one and two and 30% for years three and four. At
December 31, 1997, the Company had options outstanding to acquire 1,368,744
shares of common stock under the stock option plan and 256,794 shares
available for grant.
The stock option plan also provides for stock purchase authorizations and
stock bonus awards. As of December 31, 1997, no such awards have been granted
under the plan.
F-18
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company adopted the 1998 Stock Incentive Plan (the "1998 Plan") in the
first quarter of 1998. Under the 1998 Plan, the board of directors have the
flexibility to determine the type and amount of awards to be granted to
eligible participants, who must be employees of the Company or its
subsidiaries. The 1998 Plan provides for grants of incentive stock options,
nonqualified stock options, restricted stock awards, stock appreciation rights
and restricted units. The Company has authorized and reserved for issuance an
aggregate of 200,000 shares of common stock under the 1998 Plan, to be
automatically increased to 1,000,000 shares of common stock upon completion of
the offering. See Note 11. The aggregate number of shares of common stock that
may be granted through awards under the 1998 Plan to any employee in any
calendar year may not exceed 200,000 shares. No options have been granted
under the 1998 Plan. The 1998 Plan will continue in effect until February 2008
unless sooner terminated.
The Company applies the principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for its plan. Accordingly, the
Company recognizes deferred compensation when the exercise price of the
options granted is less than the fair market value of the stock at the date of
grant, as determined by the board of directors. The deferred compensation is
presented as a component of equity in the accompanying balance sheets and is
amortized over the periods expected to be benefited, generally the vesting
period of the options.
During 1996 and 1997, the Company granted options with exercise prices below
the fair market value at the date of grant. The fair market value of the
Company's common stock was determined by an independent appraisal for the
period from August 1996 to December 1997. These independent appraisals
resulted in the following values:
<TABLE>
<CAPTION>
FAIR
PERIOD VALUE
------ -----
<S> <C>
August 28, 1996 through December 4, 1996.............................. $1.23
December 5, 1996 through July 23, 1997................................ 1.43
July 24, 1997 through November 9, 1997................................ 2.00
November 10, 1997 through December 31, 1997........................... 3.67
</TABLE>
Accordingly, the Company recorded deferred compensation of $148,000 and
$277,000 for options granted during the years ended December 31, 1996 and
1997, respectively. The Company amortizes deferred compensation over four
years, the vesting period of the options. The Company recognized $58,000 of
compensation expense related to option grants for the year ended December 31,
1997.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
For SFAS No. 123 purposes, the fair value of each option grant has been
estimated as of the date of grant using the Black Scholes option pricing model
with the following assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Dividend yield......................... 0% 0% 0%
Expected volatility.................... 70 70 65
Risk free interest rate at the date of
grant................................. 5.39%-7.60% 5.27%-6.69% 5.78%-6.82%
Expected life.......................... Five years Five years Four years
</TABLE>
Using these assumptions, the fair values of the stock options granted during
the years ended December 31, 1995, 1996, and 1997 are $76,000, $355,000, and
$699,000, respectively, which would be amortized over the vesting period of
the options. Had compensation cost been determined consistent with the
provisions of SFAS
F-19
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
No. 123, the Company's pro forma net loss and net loss per share in accordance
with SFAS No. 123 for the years ended December 31, 1995, 1996, and 1997 would
have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net loss:
As reported.................................... $(8,049) $(7,879) $(4,110)
Pro forma in accordance with SFAS No. 123...... (8,059) (7,911) (4,269)
Basic and diluted net loss per share:
As reported.................................... (6.19) (5.74) (2.97)
Pro forma in accordance with SFAS No. 123...... (6.20) (5.76) (3.08)
</TABLE>
Because SFAS No. 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that expected in future years.
A summary of changes in outstanding options during the years ended December
31, 1995, 1996, and 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES PRICE EXERCISE PRICE
--------- ----------- --------------
<S> <C> <C> <C>
December 31, 1994..................... 220,326 $0.67 $0.67
Granted............................. 220,875 $0.67 $0.67
Canceled............................ (140,661) $0.67 $0.67
Exercised........................... (6,000) $0.67 $0.67
---------
December 31, 1995..................... 294,540 $0.67 $0.67
Granted............................. 559,830 $0.67-$1.00 $0.87
Canceled............................ (63,579) $0.67 $0.67
Exercised........................... (4,350) $0.67 $0.67
---------
December 31, 1996..................... 786,441 $0.67-$1.00 $0.81
Granted............................. 802,845 $1.00-$3.67 $2.96
Canceled............................ (203,730) $0.67-$3.67 $0.95
Exercised........................... (16,812) $0.67-$1.00 $0.68
---------
December 31, 1997..................... 1,368,744 $0.67-$3.67 $2.05
=========
Vested and exercisable at December 31,
1997................................. 264,369 $0.67-$1.00 $0.73
========= =========== =====
</TABLE>
F-20
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the exercise price range, weighted average
exercise price and remaining contractual lives by year of grant for the number
of options outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE WEIGHTED REMAINING
NUMBER PRICE AVERAGE CONTRACTUAL
YEAR OF GRANT OF SHARES RANGE PRICE LIFE (YEARS)
------------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C>
1995 and prior:
Options granted at fair
value........................ 222,765 $ 0.67 $0.67 4.01
1996:
Options granted at fair
value........................ 134,895 0.67 0.67 5.42
Options granted at less than
fair value................... 249,489 1.00 1.00 5.93
1997:
Options granted at less than
fair value................... 209,625 1.00-2.00 1.45 6.40
Options granted at fair
value........................ 551,970 3.67 3.67 6.86
---------
Total....................... 1,368,744 0.67-3.67 2.05 6.01
=========
</TABLE>
Based on the appraised values, the weighted average grant date fair value of
options granted during the years ended December 31, 1996 and 1997 was $1.14
and $3.04, respectively.
Subsequent to December 31, 1997, the Company granted options to acquire
182,250 shares of common stock under the 1992 Plan to certain employees at an
average exercise price equal to $4.45.
9. STOCKHOLDERS' EQUITY
STOCKHOLDERS' AGREEMENT
All owners of the Company's common stock are parties to the Company's
stockholders' agreement. This agreement provides, among other things, for a
right of first refusal to the Company and then to all other stockholders of
the Company to purchase any selling stockholders' shares at a price equal to
that agreed to by a third party. The stockholders' agreement terminates upon
an initial public offering, with the exception of the registration rights of
the shares covered by the agreement.
All the holders of common stock are party to a stockholders' voting
agreement dated September 1, 1995 whereby the Officer is named voting trustee
and votes all common shares. As of December 31, 1997, the Officer controlled
the right to vote 22.6% of the Company's outstanding voting stock, after
dilution from the preferred stockholders. The stockholders' agreement naming
the Officer as voting trustee terminates upon the consummation of an initial
public offering (Note 11).
PREFERRED STOCK
The Company is authorized to issue 3,500,000 shares of preferred stock. Of
this authorized amount, the Company has issued and outstanding 262,500 of
Series A Preferred Stock ("Series A"), 454,888 of Series B Preferred Stock
("Series B"), 428,572 of Series C Preferred Stock ("Series C"), 701,755 of
Series D Preferred Stock ("Series D"), 697,675 of Series E Preferred Stock
("Series E"), and 628,809 of Series F Preferred Stock ("Series F") at December
31, 1997.
Preferred stockholders are entitled to participate in any dividends paid to
common stockholders and have the voting rights and powers of the common
stockholders, as defined. Preferred stockholders receive preferential
F-21
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
distributions in the event of liquidation of the Company for $4 per share of
Series A, $6.65 per share of Series B, $7 per share of Series C, $8.55 per
share of Series D, $8.60 per share of Series E, and $9.60 per share of Series
F, plus any unpaid declared dividends.
Each share of preferred stock is convertible at the option of the holder at
any time into the number of common shares which results from the effective
conversion rate, as defined. The conversion values at December 31, 1997 are $4
for Series A, $6.65 for Series B, $7 for Series C, $8.55 for Series D, $8.60
for Series E, and $9.60 for Series F. The conversion prices at December 31,
1997 are $2.67 for Series A, $4.43 for Series B, $4.67 for Series C, $5.70 for
Series D, $5.73 for Series E, $6.40 for Series F. Further, in accordance with
the Company's certificate of incorporation, the preferred stock will
automatically convert at the defined conversion rate if the Company
consummates an initial public offering with a price per share and gross
proceeds in excess of defined thresholds. The Company is in the process of
obtaining waivers in regards to these thresholds.
Certain quantities of all series of preferred shares may be put to the
Company by the preferred stockholders within 30 days following the preferred
redemption dates for an amount per share equal to the conversion value of the
preferred stock plus any declared but unpaid dividends. The preferred
redemption dates and the applicable quantities of shares eligible for
redemption, as defined in the certificate of incorporation, are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING VALUE OF
REDEEMABLE STOCK
CONVERTIBLE ELIGIBLE FOR
PREFERRED STOCK REDEMPTION
--------------- ------------
<S> <C> <C>
Preferred redemption dates:
September 30, 1998.......................... 33.3% $ 8,371
September 30, 1999.......................... 50.0 12,556
September 30, 2000.......................... 100.0 25,112
Date of termination of employment of the
Officer, as defined.......................... 100.0 25,112
</TABLE>
SERIES A
On November 24, 1992, pursuant to a stock purchase agreement, the Company
sold 250,000 shares of Series A to Greylock Limited Partnership ("Greylock")
for an aggregate sum of $1,000,000. Stock issuance costs of $62,000 were
incurred in connection with the sale of the preferred shares, resulting in net
proceeds of $938,000. Additionally, on June 30, 1993, pursuant to a stock
purchase agreement, the Company sold 12,500 shares of Series A for an
aggregate sum of $50,000.
SERIES B
On September 21, 1993, pursuant to a stock purchase agreement, the Company
sold a total of 454,888 shares of Series B at a price of $6.65 per share to
Greylock and additional third party investors. The aggregate proceeds from the
sale of this stock totaled $3,025,000. Stock issuance costs of $30,000 were
incurred in connection with the sale of the preferred shares, resulting in net
proceeds of $2,995,000.
SERIES C
On April 1, 1994, pursuant to a stock purchase agreement, the Company sold a
total of 428,572 shares of Series C at a price of $7 per share to certain
existing stockholders and additional third-party investors, resulting in
aggregate proceeds of $3,000,000. Stock issuance costs of $16,000 were
incurred, resulting in net proceeds of $2,984,000.
F-22
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On August 1, 1994, 87,500 shares of Series C were issued to Technology
Ventures, a related party controlled by the Officer, in exchange for a
promissory note in the amount of $612,000, with interest accruing at 6.75% per
annum. The note was guaranteed by the Officer and is secured by the assets of
an entity controlled by the Officer. As of December 31, 1996 and 1997, the
note was reflected as a reduction of stockholders' equity in the accompanying
balance sheets. Effective July 31, 1995, the 87,500 shares of Series C issued
to Technology Ventures were exchanged for a warrant to purchase the shares.
The note was amended effective July 31, 1995 so that the principal amount is
due and payable only upon the exercise of the warrant. The warrant has been
reflected in the statements of stockholders' deficit, with the corresponding
note as a reduction of stockholders' deficit. The warrant expires on the
earlier of August 1, 1999 or an initial public offering (Note 11).
SERIES D
On January 24, 1995, the Company received an advance on a pending equity
financing arrangement. The Company issued promissory notes to certain existing
preferred stockholders totaling $750,000 at an interest rate of 6%. In
addition, the Company issued warrants to the above parties to purchase 17,544
shares of Series D at a price of $8.55 per share.
On February 21, 1995, the Company issued 701,755 shares of Series D for
$8.55 per share to certain existing preferred stockholders and additional
third party investors. Of the proceeds, $750,000 was used to repay the advance
on financing discussed above. Gross proceeds before stock issuance costs were
$6,000,000. Stock issuance costs of $73,000 were incurred, resulting in net
proceeds of $5,927,000.
On January 5, 1996, the Company entered into an agreement with its bank to
extend its old working capital line of credit. As part of the agreement, the
Company granted the bank a warrant to purchase 8,201 shares of Series D
convertible preferred stock at $8.55 per share. The warrant expires on January
4, 1999.
SERIES E
On February 15, 1996, the Company issued 697,675 shares of Series E for
$8.60 per share to certain existing preferred stockholders and additional
third party investors. Of the proceeds, $2,000,000 was used to repay an
advance on the financing received in 1995. Proceeds from the sale of this
stock, before stock issuance costs, were $6,000,000. Stock issuance costs of
$34,000 were incurred, resulting in net proceeds of $5,966,000.
On March 28, 1997, the Company entered into an agreement with its bank to
amend its working capital line of credit. As part of the agreement, the
Company granted the bank a warrant to purchase 8,721 shares of Series E
convertible preferred stock at $8.60 per share. The warrant expires on March
28, 2000.
SERIES F
On June 5, 1997 and August 5, 1997, the Company received advances on a
pending equity financing arrangement. The Company issued convertible
promissory notes to certain existing preferred stockholders totaling
approximately $2,000,000 and bearing interest at a rate of 8.5%. The notes
were convertible upon the consummation of a private equity offering providing
gross proceeds in excess of defined thresholds. In connection with the
issuance of the notes, the Company issued warrants to the above parties to
purchase 46,821 shares of Series F at a price of $9.60 per share. The value of
the warrants of $40,000 was recorded as a debt discount and was amortized over
the period in which the convertible notes were outstanding. For the year ended
December 31, 1997, the Company amortized $18,000 of the discount to interest
expense.
F-23
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 27, 1997, the Company issued 416,668 shares of Series F to
third party investors for $9.60 per share. Upon issuance of Series F to the
third party investors, the aforementioned convertible notes and accrued
interest were converted to 212,141 shares of Series F at $9.60 per share.
Gross proceeds before stock issuance costs were $6,037,000. Stock issuance
costs of $50,000 were incurred, resulting in net proceeds of $5,987,000.
10. COMMITMENTS AND CONTINGENCIES
LEASES
On March 20, 1997, the Company entered into an 85 month lease for office
space beginning on June 15, 1997. The lease requires annual payments of
$386,000 beginning July 1, 1997 for the first 12 month period with an increase
of 3% in each 12 month period after the first year. The Company is also
receiving the first month's rent free. The 3% escalation and the first month's
free rent are recognized on a straight line basis over the life of the lease.
Lease expenses relate to the lease of office space, telephone, and computer
equipment. Rents charged to expense were approximately $576,000, $749,000, and
$772,000 for the years ended December 31, 1995, 1996, and 1997, respectively.
Aggregate future minimum lease payments under noncancelable operating leases
as of December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
December 31:
1998................................................................ $ 616
1999................................................................ 501
2000................................................................ 513
2001................................................................ 526
2002................................................................ 491
Thereafter............................................................ 841
------
$3,488
======
</TABLE>
LETTERS OF CREDIT
At December 31, 1997, standby letters of credit of approximately $290,000
and $210,000 had been issued in accordance with provisions under certain of
the Company's lease and financing agreements. The letters of credit of
$290,000 and $210,000 expire in July 1998 and August 1998, respectively.
PRODUCT LIABILITY
As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released.
There can be no assurance that, despite testing by the Company and testing and
use by current and potential customers, errors will not be found in new
financial applications after commencement of commercial shipments or, if
discovered, that the Company will be able to successfully correct such errors
in a timely manner or at all. The occurrence of errors and failures in the
Company's products could result in loss of or delay in the market acceptance
of the Company's financial applications, and alleviating such errors and
failures could require significant expenditure of capital and other resources
by the Company. The consequences of such errors and failures could have a
material adverse effect on the Company's business, results of operations and
financial condition.
F-24
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LITIGATION
The Company is subject to litigation related to matters arising in the
normal course of business, including product liability. As of December 31,
1997, management is not aware of any unasserted, asserted, or pending material
litigation or claims against the Company.
11. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
The Company is planning an initial public offering (the "Offering") of its
common stock which is targeted for completion in the second quarter of 1998.
There can be no assurance that the Offering will be completed.
TRANSACTIONS WITH OFFICER
In February 1998, the Company entered into an agreement with the Officer
whereby the Officer resigned as the Company's chief executive officer and as
chairman, chief executive officer and manager of the Services Subsidiary. The
Officer agreed to remain an employee of the Company at his current salary,
including incentive compensation, until the completion of the Offering, at
which time he will become a consultant to the Company for a period of one year
pursuant to the terms of an independent contractor agreement. For his
consulting services, the Company will pay the Officer the sum of $125,000 over
the one year period, with the ability to earn an additional $100,000 in
incentive compensation if certain revenue targets are met by the Company. The
Officer has agreed to continue to serve on the Company's board of directors
for at least six months following the termination of his employment. In
recognition of past services to the Company, the termination of the voting
trust discussed in Note 9, and resignations of certain positions noted above,
the Company agreed to pay the Officer a lump sum of $225,000 on or before June
30, 1998 and will pay the Officer as severance an additional $75,000, payable
in semi monthly installments over a one year period beginning on the effective
date of the termination of his employment with the Company.
CONVERSION OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
In accordance with the Company's certificate of incorporation, all
redeemable convertible preferred shares will convert to common shares on the
closing date of the initial public offering if the initial public offering
meets certain defined thresholds. The unaudited pro forma consolidated balance
sheet as of December 31, 1997 assumes that the conversion occurred on December
31, 1997. The unaudited pro forma statement of operations for the year ended
December 31, 1997 assumes that the conversion of the shares occurred at the
beginning of the period. In the opinion of management, all adjustments
necessary to present fairly such unaudited pro forma balance sheet and
statement of operations have been made.
STOCK SPLIT
On February 19, 1998, the Company's board of directors approved a three-for-
two stock split on the Company's common stock to be affected in the form of a
stock dividend. All share and per share data in the accompanying financial
statements have been adjusted to reflect the split. The effect of the split is
presented retroactively within stockholders' deficit at December 31, 1994 by
transferring the par value for the additional shares issued from the
additional paid-in capital account to the common and preferred stock accounts.
ACQUISITION OF MINORITY INTEREST IN THE SERVICES SUBSIDIARY
On February 5, 1998, the Company purchased Technology Ventures' 20%
ownership in the Services Subsidiary for a purchase price of $2,220,000. In
exchange for the 20% interest in the Services Subsidiary, the
F-25
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company issued 225,000 shares of common stock to Technology Ventures and
granted Technology Ventures a warrant to purchase an additional 300,000 shares
of common stock at a purchase price of $3.67 per share. The warrant expires on
February 5, 2000. In addition, the Company agreed to pay Technology Ventures
the sum of $1,100,000 February 5, 2000 pursuant to a nonnegotiable,
noninterest-bearing subordinated promissory note (the "Note"). Technology
Ventures has agreed not to sell any of its shares for a period of 180 days
after the effective date of the Offering. In addition, prior to the purchase
and sale, the Services Subsidiary distributed approximately $241,000 to
Technology Ventures as the accumulated unpaid profits earned by the Services
Subsidiary prior to February 5, 1998. The Company also agreed to pay
Technology Ventures a monthly sum equal to 20% of the net profits of the
Services Subsidiary until the earlier of (i) the completion of the Offering or
(ii) a sale of the Company. All of the material terms of the purchase and sale
were agreed to by Technology Ventures and the Company in January 1998, and the
purchase and sale have been accounted for in the first quarter of 1998 based
on a valuation of the common stock at $3.67 per share at such time. In
February 1998, the Services Subsidiary also paid Technology Ventures
approximately $33,000 as consideration for the termination of a management
services agreement entered into between the parties in March 1995, and
Technology Ventures paid in full to the Services Subsidiary the remaining
principal balance and all accrued interest due under its $75,000 promissory
note (the "Tech Ventures Note").
The purchase price of $2,220,000 was determined by including the following:
(i) 225,000 shares of common stock at $3.67 per share or $825,000, (ii) a note
payable of $1,100,000 discounted for no interest at 8.5% for two years
resulting in a net note payable of $934,000, (iii) cash paid of $33,000, and
(iv) a warrant valued at $428,000, determined using the Black Scholes Model
using expected volatility of 65%, an expected term of two years, and a risk
free rate of 5.5% to determine a value per share of $1.43 or a total value of
$428,000. The shares of common stock issued to Technology Ventures have been
included in the pro forma basic and diluted net loss per share for the year
ended December 31, 1997. The Company has accounted for the transaction using
the purchase method of accounting. The purchase price has been allocated to
assets acquired and liabilities assumed based on the fair market value at the
date of acquisition. Goodwill resulting from the transaction in the amount of
$2,145,000 will be amortized over 15 years. The Company will impute interest
on the note payable and recognize the interest over the term of the note, two
years. The unaudited pro forma consolidated balance sheet as of December 31,
1997 assumes the acquisition occurred on December 31, 1997. The pro forma
statement of operations for the year ended December 31, 1997 reflects pro
forma adjustments as if the acquisition occurred at the beginning of the
period presented. In the opinion of management, all adjustments necessary to
present fairly such unaudited pro forma balance sheet and statement of
operations have been made.
UNAUDITED PRO FORMA INFORMATION
The accompanying unaudited pro forma consolidated balance sheet as of
December 31, 1997 is based on the Company's historical balance sheet as of
December 31, 1997, as adjusted to reflect (i) the goodwill of $2,145,000 to be
recognized upon the acquisition of the minority interest in the Services
Subsidiary, (ii) the elimination of the minority interest of $243,000 related
to the 20% interest of Technology Ventures in the Services Subsidiary,
including the distribution of profits earned by the Services Subsidiary
through December 31, 1997 of $205,000, the repayment by Technology Ventures of
the outstanding principal balance of the Tech Ventures Note of $37,000, and
the elimination of Technology Ventures initial $75,000 capital contribution,
(iii) the exercise of the warrant for 87,500 shares of Series C preferred
stock held by Technology Ventures that is convertible into 131,250 shares of
common stock concurrently with the effective date of the Offering resulting in
proceeds to the Company of $612,000, and (iv) the issuance of 4,761,283 shares
of common stock by the Company upon the conversion of all of the outstanding
redeemable convertible preferred stock on the effective date of the Offering.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1997 is based on the Company's historical statement of
operations for the year, as adjusted to reflect (i) the
F-26
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amortization of the goodwill to be recognized upon the acquisition of the
minority interest in the Services Subsidiary of $143,000 for the year ended
December 31, 1997, (ii) the payment to the Officer of $225,000 and $75,000
discussed above, (iii) the elimination of the minority interest in the
Services Subsidiary of $478,000 for the year ended December 31, 1997, and (iv)
interest expense of $79,000 on the Note. In the opinion of management, all
adjustments necessary to present fairly such unaudited pro forma balance sheet
and statement of operations have been made. These unaudited pro forma
consolidated financial statements are provided for informational purposes only
and do not purport to be indicative of the results that would have actually
been obtained had the transactions been completed on the dates indicated or
that may be expected to occur in the future. The pro forma information does
not give effect to the proceeds expected to be received by the Company from
completion of the initial public offering.
F-27
<PAGE>
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No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company or the Underwriters. This Prospectus does not consti-
tute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction in which such an offer or so-
licitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company or that the infor-
mation contained herein is correct as of any time subsequent to the date here-
of.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Conditions and Results
of Operations............................................................ 22
Business.................................................................. 32
Management................................................................ 43
Principal Stockholders.................................................... 50
Certain Transactions...................................................... 53
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 56
Underwriting.............................................................. 58
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Combined Financial Statements.................................... F-1
</TABLE>
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addi-
tion to the obligation of dealers to deliver a Prospectus when acting as Un-
derwriters and with respect to their unsold allotments or subscriptions.
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2,500,000 SHARES
[LOGO]
COMMON STOCK
----------------
PROSPECTUS
----------------
NationsBanc Montgomery Securities LLC
UBS Securities
, 1998
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<PAGE>
PROSPECTUS
497,700 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.0001 PER SHARE)
This Prospectus relates to 497,700 shares (the "Shares") of Common Stock,
$.0001 par value per share (the "Common Stock"), of SQL Financials
International, Inc., a Delaware corporation (the "Company"), that may be
offered and sold from time to time by the selling stockholders named herein
(the "Selling Stockholders").
The Company will not receive any proceeds from the sale of the Shares by the
Selling Stockholders.
Pursuant to the Prospectus, the Shares may be sold by the Selling
Stockholders, from time to time while the Registration Statement to which this
Prospectus relates is effective, on the Nasdaq National Market or otherwise at
prices and terms prevailing at the time of sale, at prices and terms related
to such prevailing prices and terms, in negotiated transactions or at fixed
prices that may be higher or lower than prevailing prices at the time of sale.
Although the Selling Stockholders have advised the Company of the manner in
which they currently intend to sell the Shares pursuant to this Registration
Statement, the Selling Stockholders may choose to sell all or a portion of
such Shares from time to time in any manner described herein. The methods by
which the Shares may be sold by the Selling Stockholder include, without
limitation: (i) ordinary brokerage transactions, which may include long or
short sales, (ii) transactions which involve crosses or block trades or any
other transactions permitted by the Nasdaq National Market or such other
market on which the Common Stock is then quoted, (iii) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus, (iv) "at the market" to or through market makers
or into an existing market for the Common Stock, (v) in other ways not
involving market makers or established trading markets, including direct sales
to purchasers or sales effected through agents, (vi) through transactions in
the settlement options or swaps or other derivatives (whether exchange-listed
or otherwise), or (vii) any combination of any such methods of sale. In
effecting sales, brokers and dealers engaged by any of the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers
or dealers may receive commissions or discounts from the Selling Stockholders
to sell a specified number of Shares at a stipulated price per share, and, to
the extent such a broker or dealer is unable to do so acting as agent for the
Selling Stockholder, may purchase as principal any unsold shares at the price
required to fulfill such broker or dealer commitment to the Selling
Stockholder. Brokers or dealers who acquire shares as principals may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other brokers or dealers, including transactions of the nature
described above) in the over-the-counter market, in negotiated transactions or
otherwise, at market prices and terms prevailing at the time of sale, at
prices and terms related to such prevailing prices and terms, in negotiated
transactions or at fixed prices and in connection with the methods as
described above. The Shares may be sold directly by any of the Selling
Stockholders or by pledgees, donees, transferees or other successors in
interest. The Selling Stockholders and brokers and dealers through whom sales
of Shares may be effected may be deemed to be "underwriters," as defined under
the Securities Act of 1933, as amended (the "Securities Act"), and any profits
realized by them in connection with the sale of the Shares may be considered
to be underwriting compensation.
The agreements between the Company and the Selling Stockholders referenced
herein provides that the Company will indemnify the Selling Stockholders
against certain liabilities, including civil liabilities under the Securities
Act, or, if such indemnification is held by a court to be unavailable, will
contribute to the amount of such liabilities and expenses. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers, or persons controlling the Company pursuant
to the foregoing provisions, its certificate of incorporation or bylaws, the
Company has been informed that in the opinion the Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "SQLF." On , 1998, the reported closing sales price of
the Common Stock on the Nasdaq National Market was $ per share.
The Company will bear all expenses (other than underwriting discounts and
selling commissions, state and local transfer taxes, and fees and expenses of
counsel or other advisors to the Selling Stockholders) in connection with the
registration of the Shares, which are estimated to be $ .
All dealers effecting transactions in the securities offered hereby may be
required to deliver a copy of this Prospectus. The names of any agent or
dealer and applicable commissions or discounts and other information with
respect to a particular offer may be required to be set forth in an
accompanying Prospectus Supplement.
Neither delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED.
SEE "RISK FACTORS" COMMENCING ON PAGE FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is , 1998
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered hereby.
SELLING STOCKHOLDERS
The Selling Stockholders are Tech Ventures and . Tech Ventures
beneficially owned 497,700 shares of Common Stock and Warrant to purchase an
additional 300,000 shares as of 1998, or % of the number of shares of
the Company's Common Stock calculated in accordance with Section 13(a) of the
Securities Exchange Act of 1934. Tech Ventures is controlled by Joseph S.
McCall, a member of the Company's board of directors. The Common Stock was
issued to Tech Ventures on February 5, 1998 in connection with the Company's
purchase of Tech Ventures' 20% ownership interest in SQL Financials Services
L.L.C.
Mr. McCall founded the Company in November 1991 and has previously served as
its Chairman, President, and Chief Executive Officer and has been a member of
the Board of Directors since 1991. Mr. McCall currently serves as a Director
and consultant to the Company. Prior to founding the Company, Mr. McCall
founded McCall Consulting Group, Inc. in 1986 and he currently serves as its
President.
All of Shares of Common Stock beneficially owned by the Selling Stockholders
may be offered and sold pursuant to this Prospectus.
[TO ADD POSSIBLE OTHER SELLING STOCKHOLDERS HERE.]
[TO ADD A PRINCIPAL AND SELLING STOCKHOLDERS TABLE.]
PLAN OF DISTRIBUTION
Pursuant to the Prospectus, the Shares may be sold by the Selling
Stockholders, from time to time while the Registration Statement to which this
Prospectus relates is effective, on the Nasdaq National Market or otherwise at
prices and terms prevailing at the time of sale, at prices and terms related
to such prevailing prices and terms, in negotiated transactions or at fixed
prices. Although the Selling Stockholders have advised the Company of the
manner in which they currently intends to sell the Shares pursuant to this
Registration Statement, the Selling Stockholders may choose to sell all or a
portion of such Shares from time to time in any manner described herein. The
methods by which the Shares may be sold by the Selling Stockholders include,
without limitation: (i) ordinary brokerage transactions, which may include
long or short sales, (ii) transactions which involve crosses or block trades
or any other transactions permitted by the Nasdaq National Market, (iii)
purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus, (iv) "at the market" to or
through market makers or into an existing market for the Common Stock, (v) in
other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents, (vi)
through transactions in options or swaps or other derivatives (whether
exchange-listed or otherwise), or (vii) any combination of any such methods of
sale. In effecting sales, brokers and dealers engaged by any of the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers
or dealers may receive commissions or discounts from the Selling Stockholders
to sell a specified number of shares at a stipulated price per share, and, to
the extent such a broker or dealer is unable to do so acting as agent for the
Selling Stockholders, may purchase as principal any unsold Shares at the price
required to fulfill such broker or dealer commitment to the Selling
Stockholders. Brokers or dealers who acquire Shares as principals may
thereafter resell such Shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other brokers or dealers, including transactions of the nature
described above) in the over-the-counter market, in negotiated transactions or
otherwise, at market prices and
<PAGE>
terms prevailing at the time of sale, at prices and terms related to such
prevailing prices and terms, in negotiated transactions or at fixed prices and
in connection with the methods as described above. The Shares may be sold
directly by the Selling Stockholders or by pledgees, donees, transferees or
other successors in interest.
The Company will maintain the effectiveness of the registration of the
Shares offered hereby until , 2000, two years from the effective date of
the Company's initial public offering or (ii) the date on which the Shares
offered hereby, in the opinion of counsel, may be sold by the Selling
Stockholders pursuant to Rule 144 of the Securities Act (without regard to
volume limitations). Any Shares which qualify for sale pursuant to Rule 144
under the Securities Act may be sold under that Rule rather than pursuant to
this Prospectus. There can be no assurance that the Selling Stockholders will
sell any or all of the Shares offered hereby.
The Company is bearing all of the costs relating to the registration of the
Shares including fees of counsel for the Company. Any commissions, discounts
or other fees payable to a broker, dealer, underwriter, agent or market maker
in connection with the sale of any of the Shares will be borne by the Selling
Stockholders.
Pursuant to the terms of the Acquisition Agreement dated February 5, 1998,
the Company has agreed to indemnify the Tech Ventures, a Selling Stockholder,
any person who controls Tech Ventures, and any underwriters for the Tech
Ventures, against certain liabilities and expenses arising out of or based
upon the information set forth in this Prospectus, and the Registration
Statement of which this Prospectus is a part, including liabilities under the
Securities Act, and if such indemnification is held by a court to be
unavailable, to contribute to the amount of such liabilities and expenses.
The Selling Stockholders and any brokers participating in such sales may be
deemed to be underwriters within the meaning of Section 2(11) of the
Securities Act. Any commissions paid or any discounts or concessions allowed
to any broker, dealer, underwriter, agent or market maker and, if any such
broker, dealer, underwriter, agent or market maker purchases any of the Shares
as principal, any profits received on the resale of such Shares, may be deemed
to be underwriting commissions or discounts under the Securities Act.
Because the Selling Stockholders may be deemed to be underwriters, the
Selling Stockholders will be subject to prospectus delivery requirements under
the Securities Act. Furthermore, in the event the Selling Stockholders are
deemed underwriters and a sale of shares is deemed to be a "distribution" or
part of a distribution of the Shares, such Selling Stockholders, any selling
broker or dealer and any "affiliated purchasers" may be subject to Regulation
M under the Exchange Act, which prohibits, with certain exceptions, any such
person from bidding for or purchasing any security which is the subject of
such distribution until his participation in that distribution is completed.
In addition, Regulation M prohibits, with certain exceptions, any "stabilizing
bid" or "stabilizing purchase" for the purpose of pegging, fixing or
stabilizing the price of Common Stock in connection with this Offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Womble Carlyle Sandridge & Rice, PLLC, Atlanta,
Georgia.
<PAGE>
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No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities other than the shares of
Common Stock to which it relates or an offer to, or a solicitation of, any
person in any jurisdiction in which such an offer or solicitation would be un-
lawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or that the information contained herein
is correct as of any time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Conditions and Results
of Operations............................................................ 22
Business.................................................................. 32
Management................................................................ 43
Selling Stockholders......................................................
Certain Transactions...................................................... 53
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 56
Plan of Distribution......................................................
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Combined Financial Statements.................................... F-1
</TABLE>
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497,000 SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 1998
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<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 14,085
National Association of Securities Dealers, Inc. fee.............. 5,275
Nasdaq National Market listing fee................................ *
Accountants' fees and expenses.................................... *
Legal fees and expenses........................................... *
Blue Sky fees and expenses........................................ *
Transfer Agent's fees and expenses................................ *
Printing and engraving expenses................................... *
Miscellaneous..................................................... *
---------
Total Expenses.................................................. 1,400,000
=========
</TABLE>
- --------
* To be completed by amendment. All fees other than the SEC registration fee,
the NASD fee and the NASDAQ listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated By-Laws of the Company (the "Restated By-Laws") and the
Restated Certificate of Incorporation (the "Restated Certificate") of the
Company provide that the directors and officers of the Company shall be
indemnified by the Company to the fullest extent authorized by Delaware law,
as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
the Company. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the"Securities Act"), may be permitted to
directors, officers and controlling persons of the Company pursuant to the
Restated By-Laws, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. The Company intends to obtain insurance
which insures the directors and officers of the Company against certain losses
and which insures the Company against certain of its obligations to indemnify
such directors and officers. In addition, the Restated Certificate of the
Company provides that the directors of the Company will not be personally
liable for monetary damages to the Company for breaches of their fiduciary
duty as directors, unless they violated their duty of loyalty to the Company
or its stockholders, acted in bad faith, knowingly or intentionally violated
the law, authorized illegal dividends or redemptions or derived an improper
personal benefit from their action as directors. Such limitations of personal
liability under the Delaware Business Corporation Law do not apply to
liabilities arising out of certain violations of the federal securities laws.
While non-monetary relief such as injunctive relief, specific performance and
other equitable remedies may be available to the Company, such relief may be
difficult to obtain or, if obtained, may not adequately compensate the Company
for its damages.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company where indemnification by the Company
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
Section 8 of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
Underwriters named therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued the securities set forth
below which were not registered under the Securities Act:
(i) On April 1, 1994, the Company issued 428,572 shares of Series C
Preferred Stock for $7.00 per share. Of the 428,572 shares of Series C
Preferred Stock, 87,500 shares were issued to Tech Ventures in exchange for
a promissory note payable by Tech Ventures in the amount of $612,500.
II-1
<PAGE>
(ii) On October 25, 1995, the Company issued a Warrant to Tech Ventures
to purchase 87,500 shares of Series C Preferred Stock at an exercise price
of $7.00 per share in exchange for the 87,500 shares of Series C Preferred
Stock held by Tech Ventures and amendment of the $612,500 promissory note
to the Company payable by Tech Ventures.
(iii) On February 21, 1995, the Registrant issued 15,000 shares of its
Common Stock to the Company's then-current common stockholders for $0.67
per share and 701,755 shares of its Series D Preferred Stock for $8.55 per
share. In addition, the Company issued warrants to purchase a total of
17,544 shares of its Series D Preferred Stock at an exercise price of $8.55
per share.
(iv) On January 5, 1996, the Registrant issued a warrant to purchase
5,848 shares of Series D Preferred Stock at an exercise price of $8.55 per
share. The warrant was issued to a lender in exchange for the lender's
agreement to extend the Company's working capital line of credit.
(v) On February 15, 1996, the Registrant issued 697,675 shares of its
Series E Preferred Stock for $8.60 per share. In addition, the Company
issued warrants to its lender to purchase 8,721 shares of its Series E
Preferred Stock at an exercise price of $8.60 per share.
(vi) On September 26, 1997, the Registrant issued 628,809 shares of
Series F Preferred Stock for $9.60 per share. Of the 628,809 shares of
Series F Preferred Stock, Spitfire Capital Partners, L.P., an affiliate of
NationsBanc Montgomery Securities LLC, acquired 208,334 shares of Series F
Preferred Stock for $9.60 per share.
(vii) On September 26, 1997, the Registrant issued warrants to purchase
46,821 shares of Series F Preferred Stock for $9.60 per share to certain
stockholders in connection with loans made to the Company.
(viii) On February 5, 1998, the Registrant issued 225,000 shares of
Common Stock and a warrant to purchase 300,000 shares of Common Stock at an
exercise price of $3.69 per share, to Technology Ventures LLC in exchange
for its 20% interest in SQL Financials Services, LLC.
(ix) Since September 30, 1994, the Registrant has issued stock options to
purchase an aggregate of 1,036,705 shares of its Common Stock under the
1992 Stock Option Plan at a weighted average exercise price of $0.95 per
share.
Except as described above, no underwriters were engaged in connection with
any of the foregoing issuances of securities. The sale and issuance of shares
listed above were exempt from registration under the Securities Act by virtue
of Sections 3(a), 3(b) and 4(a) of the Securities Act and in reliance on Rule
701 and Regulation D promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a list of exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.
2.1 --Acquisition Agreement between the Registrant and Technology
Ventures, LLC dated February 5, 1998.
2.2 --Non-Negotiable Subordinated Promissory Note to Technology
Ventures, LLC dated February 5, 1998.
2.3 --Warrant for purchase of 200,000 shares issued to Technology
Ventures, LLC dated February 5, 1998.
3.1 --Amended and Restated Certificate of Incorporation of the
Registrant dated September 26, 1997.
3.2 --Bylaws of the Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.3* --Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the effectiveness of this
Offering.
3.4* --Form of Amended and Restated Bylaws of the Registrant, to be
effective upon the effectiveness of this Offering.
4.1* --See Exhibits 3.3 and 3.4 for provisions of the Amended and
Restated Certificate of Incorporation and Amended and Restated
Bylaws of the Registrant defining rights of the holders of Common
Stock of the Registrant.
4.2* --Specimen Stock Certificate.
5.1* --Opinion of Womble Carlyle Sandridge & Rice, PLLC, as to the
legality of the shares being registered.
--Amended and Restated Shareholders' Voting Agreement dated
10.1 September 1, 1995.
--Restated Shareholders Agreement dated September 1, 1995, as
10.2 amended.
10.3 --Stock Purchase Agreement dated February 15, 1996 (Series E).
10.4 --Stock Purchase Agreement dated September 26, 1997 (Series F).
10.5 --SQL 1992 Stock Option Plan, effective November 22, 1992.
--1998 Stock Incentive Plan, effective February 5, 1998 (with form
10.6 option agreement).
10.7 --Lease Agreement between the Registrant and Technology
Park/Atlanta, Inc. dated March 20, 1997.
10.8 --License and Private Label Agreement between the Registrant and
Personnel Data Systems, Inc. dated March 1, 1996 (with addendum).
--Loan and Security Agreement with Silicon Valley Bank dated March
10.9 28, 1997.
--Leasing Technologies International, Inc. Master Lease Agreement
10.10 dated March 13, 1997.
10.11 --Leasing Technologies International, Inc. Master Note and
Security Agreement dated March 20, 1997.
10.12* --Software License and Support Agreement between the Registrant
and McCall Consulting Group dated February 5, 1998.
--Agreement between the Registrant and Joseph S. McCall dated
10.13 February 5, 1998.
10.14 --Independent Contractor Agreement between the Registrant and
McCall Consulting Group, Inc. dated February 5, 1998.
10.15 --Independent Contractor Agreement between Registrant and Joseph
S. McCall dated February 5, 1998.
10.16 --Letter Agreement regarding Joseph McCall 1998 Compensation Plan
dated February 5, 1998.
11.1 --Statement re: Computation of Per Share Earnings.
21.1 --List of Subsidiaries.
23.1 --Consent of Arthur Andersen LLP.
--Consent of Womble Carlyle Sandridge & Rice, PLLC (included in
23.3* Exhibit 5.1).
24.1 --Powers of Attorney (included on signature page).
27.1 --Financial Data Schedule. (For SEC use only)
</TABLE>
- --------
* To be filed by amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SUWANEE, STATE OF
GEORGIA ON THE 20TH DAY OF FEBRUARY, 1998.
SQL Financials International, Inc.
By: /s/ Stephen P. Jeffery
--------------------------------
STEPHEN P. JEFFERY CHAIRMAN, CHIEF
EXECUTIVE OFFICER AND PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS JOSEPH S. MCCALL AND STEPHEN S. JEFFERY, AND
EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND ANY SUBSEQUENT
REGISTRATION STATEMENTS PURSUANT TO RULE 462 UNDER THE SECURITIES ACT AND TO
FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH OF SAID
ATTORNEYS-IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE
TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Stephen P. Jeffery Chairman, Chief February 20, 1998
- ------------------------------------- Executive Officer
STEPHEN P. JEFFERY (Principal
Executive Officer);
President and
Director
/s/ Arthur G. Walsh, Jr. Chief Financia February 20, 1998
- ------------------------------------- Officer (Principal
ARTHUR G. WALSH, JR. Financial and
Accounting Officer)
/s/ Joseph S. McCall Director February 20, 1998
- -------------------------------------
JOSEPH S. MCCALL
/s/ William S. Kaiser Director February 20, 1998
- -------------------------------------
WILLIAM S. KAISER
/s/ Donald L. House Director February 20, 1998
- -------------------------------------
DONALD L. HOUSE
/s/ Tench Coxe Director February 20, 1998
- -------------------------------------
TENCH COXE
II-5
<PAGE>
Exhibit 1.1
[Draft of February 19, 1998]
2,500,000 Shares
SQL Financials International, Inc.
Common Stock
Underwriting Agreement
dated [___], 1998
<PAGE>
UNDERWRITING AGREEMENT
_______________, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
UBS SECURITIES LLC
As Representatives of the several Underwriters
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
Introductory. SQL Financials International, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in Schedule A (the "Underwriters") an aggregate of 2,500,000
shares (the "Firm Common Shares") of its Common Stock, par value $0.0001 per
share (the "Common Stock"). In addition, the Company has granted to the
Underwriters an option to purchase up to an additional 375,000 shares (the
"Optional Common Shares") of Common Stock, as provided in Section 2. The Firm
Common Shares and, if and to the extent such option is exercised, the Optional
Common Shares are collectively called the "Common Shares." NationsBanc
Montgomery Securities LLC and UBS Securities LLC have agreed to act as
representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement." Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement," and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus." All references
in this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus or the Prospectus, or any amendments or
supplements to any of the foregoing, shall include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
<PAGE>
Section 1. Representations and Warranties of the Company.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements.
The Registration Statement and any Rule 462(b) Registration Statement
have been declared effective by the Commission under the Securities Act. The
Company has complied to the Commission's satisfaction with all requests of the
Commission for additional or supplemental information. No stop order suspending
the effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical in all substantive respects to the copy
thereof delivered to the Underwriters for use in connection with the offer and
sale of the Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the time it
became effective and during the period ending on such date, as in the opinion of
counsel for the Underwriters, the Prospectus is no longer required by law to be
delivered in connection with sales by an Underwriter or dealer (the "Prospectus
Delivery Period"), complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters.
The Company has delivered to the Representatives one complete manually
signed copy of the Registration Statement and of each consent and certificate of
experts filed as a part thereof, and conformed copies of the Registration
Statement (without exhibits) and preliminary prospectuses and the Prospectus, as
amended or supplemented, in such quantities and at such places as the
Representatives has reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company.
The Company has not distributed and will not distribute, prior to the
later of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material in
connection with the offering and sale of the Common Shares other than a
preliminary prospectus, the Prospectus or the Registration Statement and any
other material permitted under the Securities Act.
<PAGE>
(d) The Underwriting Agreement.
This Agreement has been duly authorized, executed and delivered by, and
is a valid and binding agreement of, the Company, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(e) Authorization of the Common Shares.
The Common Shares to be purchased by the Underwriters from the Company
have been duly authorized for issuance and sale pursuant to this Agreement and,
when issued and delivered by the Company pursuant to this Agreement [and upon
receipt by the Company of the purchase price therefor], will be validly issued,
fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights.
There are no persons with registration or other similar rights to have
any equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by this Agreement, except for
such rights as have been duly waived.
(g) No Material Adverse Change.
Except as otherwise disclosed in the Prospectus, subsequent to the
respective dates as of which information is given in the Prospectus: (i) there
has been no material adverse change, or any development that could reasonably be
expected to result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects, whether or not
arising from transactions in the ordinary course of business of the Company and
its subsidiaries, considered as one entity (any such change is called a
"Material Adverse Change"); (ii) the Company and its subsidiaries, considered as
one entity, have not incurred any material liability or obligation, indirect,
direct or contingent, not in the ordinary course of business nor entered into
any material transaction or agreement not in the ordinary course of business;
and (iii) there has been no dividend or distribution of any kind declared, paid
or made by the Company or, except for dividends paid to the Company or their
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.
(h) Independent Accountants.
Arthur Andersen LLP, which has expressed its opinion with respect to
the financial statements (which term as used in this Agreement includes the
related notes thereto) and supporting schedules filed with the Commission as a
part of the Registration Statement and included in the Prospectus, are
independent public or certified public accountants as required by the Securities
Act.
(i) Preparation of the Financial Statements.
The financial statements filed with the Commission as a part of the
Registration Statement and included in the Prospectus present fairly the
consolidated financial position of the Company and its subsidiaries as of and at
the dates indicated and the results of their operations and cash flows for the
periods specified. The supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. Such
financial statements and supporting schedules have been
<PAGE>
prepared in conformity with generally accepted accounting principles applied on
a consistent basis throughout the periods involved, except as may be expressly
stated in the related notes thereto. No other financial statements or supporting
schedules are required to be included in the Registration Statement. The
financial data set forth in the Prospectus under the captions "Prospectus
Summary--Summary Selected Financial Data," "Selected Financial Data" and
"Capitalization" fairly present the information set forth therein on a basis
consistent with that of the audited financial statements contained in the
Registration Statement.
(j) Incorporation and Good Standing of the Company and its
Subsidiaries.
Each of the Company and its subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and, in the case of the Company, to enter into and perform its
obligations under this Agreement. The Company and each subsidiary is duly
qualified as a foreign corporation to transact business and is in good standing
in each jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material Adverse
Change. All of the issued and outstanding capital stock of each subsidiary has
been duly authorized and validly issued, is fully paid and nonassessable and is
owned by the Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance or claim. The Company
does not own or control, directly or indirectly, any corporation, association or
other entity other than the subsidiaries listed in Exhibit 21.1 to the
Registration Statement.
(k) Capitalization and Other Capital Stock Matters.
The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" (other than
for subsequent issuances, if any, pursuant to employee benefit plans described
in the Prospectus or upon exercise of outstanding options or warrants described
in the Prospectus). The Common Stock (including the Common Shares) conforms in
all material respects to the description thereof contained in the Prospectus.
All of the issued and outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable and have been
issued in compliance with federal and state securities laws. None of the
outstanding shares of Common Stock were issued in violation of any preemptive
rights, rights of first refusal or other similar rights to subscribe for or
purchase securities of the Company. There are no authorized or outstanding
options, warrants, preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company or any of its subsidiaries
other than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents in all material respects the information required
to be shown with respect to such plans, arrangements, options and rights.
(l) Stock Exchange Listing.
The Common Shares have been approved for inclusion on the Nasdaq
National Market, subject only to official notice of issuance.
(m) Non-Contravention of Existing Instruments; No
Further Authorizations or Approvals Required.
<PAGE>
Neither the Company nor any of its subsidiaries is in violation of its
charter or by-laws or is in default (or, with the giving of notice or lapse of
time, would be in default) ("Default") under any indenture, mortgage, loan or
credit agreement, note, contract, franchise, lease or other instrument to which
the Company or any of its subsidiaries is a party or by which it or any of them
may be bound (including, without limitation, the Company's note payable to
______________) or to which any of the property or assets of the Company or any
of its subsidiaries is subject (each, an "Existing Instrument"), except for such
Defaults as would not, individually or in the aggregate, result in a Material
Adverse Change. The Company's execution, delivery and performance of this
Agreement and consummation of the transactions contemplated hereby and by the
Prospectus (i) have been duly authorized by all necessary corporate action and
will not result in any violation of the provisions of the charter or by-laws of
the Company or any subsidiary, (ii) will not conflict with or constitute a
breach of, or Default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, or require the consent of any other part to, any
Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate, result
in a Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company or any subsidiary. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been obtained or
made by the Company and are in full force and effect under the Securities Act,
and such as may be required under applicable state securities or blue sky laws
and from the National Association of Securities Dealers, Inc. (the "NASD").
(n) No Material Actions or Proceedings.
There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened (i) against or
affecting the Company or any of its subsidiaries, (ii) which has as the subject
thereof any officer or director of, or property owned or leased by, the Company
or any of its subsidiaries or (iii) relating to environmental or discrimination
matters, where in any such case (A) there is a reasonable possibility that such
action, suit or proceeding might be determined adversely to the Company or such
subsidiary and (B) any such action, suit or proceeding, if so determined
adversely, would reasonably be expected to result in a Material Adverse Change
or adversely affect the consummation of the transactions contemplated by this
Agreement. No material labor dispute with the employees of the Company or any of
its subsidiaries exists or, to the best of the Company's knowledge, is
threatened or imminent.
(o) Intellectual Property Rights.
The Company and its subsidiaries own or possess sufficient trademarks,
trade names, patent rights, copyrights, licenses, approvals, trade secrets and
other similar rights (collectively, "Intellectual Property Rights") reasonably
necessary to conduct their businesses as now conducted; and the expected
expiration of any of such Intellectual Property Rights would not result in a
Material Adverse Change. Neither the Company nor any of its subsidiaries has
received any notice of infringement or conflict with asserted Intellectual
Property Rights of others, which infringement or conflict, if the subject of an
unfavorable decision, would result in a Material Adverse Change.
<PAGE>
(p) All Necessary Permits, etc.
The Company and each subsidiary possess such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company nor any subsidiary has received any notice
of proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse Change.
(q) Title to Properties.
The Company and each of its subsidiaries have good and marketable title
to all the properties and assets reflected as owned in the financial statements
referred to in Section 1(i) above, in each case free and clear of any security
interests, mortgages, liens, encumbrances, equities, claims and other defects,
except such as do not materially and adversely affect the value of such property
and do not materially interfere with the use made or proposed to be made of such
property by the Company or such subsidiary. The real property, improvements,
equipment and personal property held under lease by the Company or any
subsidiary are held under valid and enforceable leases, with such exceptions as
are not material and do not materially interfere with the use made or proposed
to be made of such real property, improvements, equipment or personal property
by the Company or such subsidiary.
(r) Tax Law Compliance.
The Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns and have paid all taxes
required to be paid by them and, if due and payable, any related or similar
assessment, fine or penalty levied against them. The Company has made adequate
charges, accruals and reserves in the applicable financial statements referred
to in Section 1(i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company has
not been finally determined.
(s) Company Not an "Investment Company."
The Company has been advised of the rules and requirements under the
Investment Company Act of 1940, as amended (the "Investment Company Act"). The
Company is not, and after receipt of payment for the Common Shares will not be,
an "investment company" within the meaning of Investment Company Act and will
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(t) Insurance.
The Company and its subsidiaries are insured by recognized, financially
sound and reputable institutions with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for their businesses including, but not limited to, policies covering
real and personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction, acts of vandalism and earthquakes. The
Company has no reason to believe that it or any subsidiary will not be able
(i) to renew their existing insurance coverage as and when such policies expire
or (ii) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct their business as now conducted and at a
cost that would not result in a Material Adverse Change.
<PAGE>
Neither the Company nor any subsidiaries has been denied any insurance coverage
which it has sought or for which it has applied.
(u) No Price Stabilization or Manipulation.
The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Common Shares.
(v) Related Party Transactions.
There are no business relationships or related-party transactions
involving the Company or any subsidiaries or any other person required to be
described in the Prospectus which have not been described as required.
(w) No Unlawful Contributions or Other Payments.
Neither the Company nor any subsidiaries nor, to the best of the
Company's knowledge, any employee or agent of the Company or any subsidiaries,
has made any contribution or other payment to any official of, or candidate for,
any federal, state or foreign office in violation of any law or of the character
required to be disclosed in the Prospectus.
(x) Company's Accounting System.
The Company maintains a system of accounting controls sufficient to
provide reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(y) Compliance with Environmental Laws.
Except as would not, individually or in the aggregate, result in a
Material Adverse Change (i) neither the Company nor any subsidiaries is in
violation of any federal, state, local or foreign law or regulation relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or wildlife, including without limitation, laws and regulations relating
to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum and petroleum products (collectively, "Materials of Environmental
Concern"), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which violation
includes, but is not limited to, noncompliance with any permits or other
governmental authorizations required for the operation of the business of the
Company or any of its subsidiaries under applicable Environmental Laws, or
noncompliance with the terms and conditions thereof, nor has the Company or any
of its subsidiaries received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that alleges that
the Company or any of its subsidiaries is in violation of any Environmental Law;
(ii) there is no claim, action or cause of action filed with a court or
governmental authority, no investigation with respect to which the Company or
any of its subsidiaries has received written notice, and
<PAGE>
no written notice by any person or entity alleging potential liability for
investigatory costs, cleanup costs, governmental responses costs, natural
resources damages, property damages, personal injuries, attorneys' fees or
penalties arising out of, based on or resulting from the presence, or release
into the environment, of any Material of Environmental Concern at any location
owned, leased or operated by the Company or any of its subsidiaries, now or in
the past (collectively, "Environmental Claims"), pending or, to the best of the
Company's knowledge, threatened against the Company or any of its subsidiaries
or any person or entity whose liability for any Environmental Claim the Company
or any of its subsidiaries has retained or assumed either contractually or by
operation of law; and (iii) to the best of the Company's knowledge, there are no
past or present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission, discharge,
presence or disposal of any Material of Environmental Concern, that reasonably
could result in a violation of any Environmental Law or form the basis of a
potential Environmental Claim against the Company or any of its subsidiaries
against any person or entity whose liability for any Environmental Claim the
Company or any of its subsidiaries has retained or assumed either contractually
or by operation of law.
(z) ERISA Compliance.
The Company and its subsidiaries and any "employee benefit plan" (as
defined under the Employee Retirement Income Security Act of 1974, as amended,
and the regulations and published interpretations thereunder (collectively,
"ERISA")) established or maintained by the Company, its subsidiaries or their
"ERISA Affiliates" (as defined below) are in compliance in all material respects
with ERISA. "ERISA Affiliate" means, with respect to the Company, any member of
any group of organizations described in Sections 414(b),(c),(m) or (o) of the
Internal Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company a member. No
"reportable event" (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established or
maintained by the Company or any of its ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company or any of its ERISA Affiliates,
if such "employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under ERISA). Neither the Company, its
subsidiaries nor any of their ERISA Affiliates has incurred or reasonably
expects to incur any liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "employee benefit plan" or (ii) Sections
412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan" established
or maintained by the Company, its subsidiaries or any of their ERISA Affiliates
that is intended to be qualified under Section 401(a) of the Code is so
qualified and nothing has occurred, whether by action or failure to act, which
would cause the loss of such qualification.
Any certificate signed by an officer of the Company in his official
capacity and delivered to the Representatives or to counsel for the Underwriters
shall be deemed to be a representation and warranty by the Company to each
Underwriter as to the matters set forth therein.
Section 2. Purchase, Sale and Delivery of the Common Shares.
The Firm Common Shares.
The Company agrees to issue and sell to the several Underwriters the
Firm Common Shares upon the terms herein set forth. On the basis of the
representations, warranties and agreements herein contained, and upon the terms
but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Common Shares set forth opposite their names on Schedule A. The purchase
price per Firm Common Share to be paid by the several Underwriters to the
Company shall be [$_____] per share.
<PAGE>
The First Closing Date.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters and payment therefor shall be made at the offices of
NationsBanc Montgomery Securities, Inc., 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on [___], or such other time
and date not later than 10:30 a.m. San Francisco time, on [___] as the
Representatives shall designate by notice to the Company (the time and date of
such closing are called the "First Closing Date"). The Company hereby
acknowledges that circumstances under which the Representatives may provide
notice to postpone the First Closing Date as originally scheduled include, but
are in no way limited to, any determination by the Company or the
Representatives to recirculate to the public copies of an amended or
supplemented Prospectus or a delay as contemplated by the provisions of
Section 10.
The Optional Common Shares; the Second Closing Date.
In addition, on the basis of the representations, warranties and
agreements herein contained, and upon the terms but subject to the conditions
herein set forth, the Company hereby grants an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
375,000 Optional Common Shares from the Company at the purchase price per share
to be paid by the Underwriters for the Firm Common Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-allotments
in connection with the sale and distribution of the Firm Common Shares. The
option granted hereunder may be exercised at any time (but not more than once)
upon notice by the Representatives to the Company, which notice may be given at
any time within 30 days from the date of this Agreement. Such notice shall set
forth (i) the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, (ii) the names and denominations in
which the certificates for the Optional Common Shares are to be registered and
(iii) the time, date and place at which such certificates will be delivered
(which time and date may be simultaneous with, but not earlier than, the First
Closing Date; and in such case the term "First Closing Date" shall refer to the
time and date of delivery of certificates for the Firm Common Shares and the
Optional Common Shares). Such time and date of delivery, if subsequent to the
First Closing Date, is called the "Second Closing Date" and shall be determined
by the Representatives and shall not be earlier than three nor later than five
full business days after delivery of such notice of exercise. If any Optional
Common Shares are to be purchased, each Underwriter agrees, severally and not
jointly, to purchase the number of Optional Common Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the total number of Optional Common Shares to
be purchased as the number of Firm Common Shares set forth on Schedule A
----------
opposite the name of such Underwriter bears to the total number of Firm Common
Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
Public Offering of the Common Shares.
The Representatives hereby advise the Company that the Underwriters
intend to offer for sale to the public, as described in the Prospectus, their
respective portions of the Common Shares as soon after this Agreement has been
executed and the Registration Statement has been declared effective as the
Representatives, in its sole judgment, has determined is advisable and
practicable.
<PAGE>
Payment for the Common Shares.
Payment for the Common Shares shall be made at the First Closing Date
(and, if applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Company.
It is understood that the Representatives has been authorized, for its
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Common
Shares and any Optional Common Shares the Underwriters have agreed to purchase.
NationsBanc Montgomery Securities LLC, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by the Representatives by the First Closing Date or
the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any of
its obligations under this Agreement.
Delivery of the Common Shares.
The Company shall deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters certificates for
the Firm Common Shares at the First Closing Date, against the irrevocable
release of a wire transfer of immediately available funds, in accordance with
the Company's written wire transfer instructions, for the amount of the purchase
price therefor. The Company shall also deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters, certificates for
the Optional Common Shares the Underwriters have agreed to purchase at the First
Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds, in
accordance with the Company's written wire transfer instructions, for the amount
of the purchase price therefor. The certificates for the Common Shares shall be
in definitive form and registered in such names and denominations as the
Representatives shall have requested at least two full business days prior to
the First Closing Date (or the Second Closing Date, as the case may be) and
shall be made available for inspection on the business day preceding the First
Closing Date (or the Second Closing Date, as the case may be) at a location in
New York City as the Representatives may designate. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters.
Not later than 12:00 p.m. on the second business day following the date
the Common Shares of released by the Underwriters for sale to the public, the
Company shall delivery or cause to be delivered copies of the Prospectus in such
quantities and at such places as the Representatives shall request.
Section 3. Additional Covenants of the Company.
The Company further covenants and agrees with each Underwriter as
follows:
(a) Representatives' Review of Proposed Amendments and
Supplements.
During such period beginning on the date hereof and ending on the later
of the First Closing Date or the last day of the Prospectus Delivery Period,
prior to amending or supplementing the Registration Statement (including any
registration statement filed under Rule 462(b) under the Securities Act) or the
Prospectus, the Company shall furnish to the Representatives for review a copy
of each such proposed amendment or supplement, and the Company shall not file
any such proposed amendment or supplement to which the Representatives
reasonably objects.
<PAGE>
(b) Securities Act Compliance.
After the date of this Agreement, the Company shall promptly advise the
Representatives in writing (i) of the receipt of any comments of, or requests
for additional or supplemental information from, the Commission, (ii) of the
time and date of any filing of any post-effective amendment to the Registration
Statement or any amendment or supplement to any preliminary prospectus or the
Prospectus, (iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or of any
proceedings to remove, suspend or terminate from listing or quotation the Common
Stock from any securities exchange upon which the it is listed for trading or
included or designated for quotation, or of the threatening or initiation of any
proceedings for any of such purposes. If the Commission shall enter any such
stop order at any time, the Company will use its best efforts to obtain the
lifting of such order at the earliest possible moment. Additionally, the Company
agrees that it shall comply with the provisions of Rules 424(b), 430A and 434,
as applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under such Rule 424(b) were
received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters.
If, during the Prospectus Delivery Period, any event shall occur or
condition exist as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the opinion of the Representatives or counsel for the Underwriters it
is otherwise necessary to amend or supplement the Prospectus to comply with law,
the Company agrees to promptly prepare (subject to Section 3(a) hereof), file
with the Commission and furnish at its own expense to the Underwriters and to
dealers, amendments or supplements to the Prospectus so that the statements in
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the
Prospectus.
The Company agrees to furnish the Representatives, without charge,
during the Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may reasonably
request.
(e) Blue Sky Compliance.
The Company shall cooperate with the Representatives and counsel for
the Underwriters to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the state securities or blue sky laws
or Canadian provincial securities laws of those jurisdictions designated by the
Representatives, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as required for
the distribution of the Common Shares. The Company shall not be required to
qualify as a foreign corporation or to take any action that would subject it to
general service of process in any such jurisdiction where it is not presently
qualified or where it would be subject to taxation as a foreign corporation. The
Company will advise the Representatives promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the Common
Shares for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such
<PAGE>
purpose, and in the event of the issuance of any order suspending such
qualification, registration or exemption, the Company shall use its best efforts
to obtain the withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds.
The Company shall apply the net proceeds from the sale of the Common
Shares sold by it in all material respects the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent.
The Company shall engage and maintain, at its expense, a registrar and
transfer agent for the Common Stock.
(h) Earnings Statement.
As soon as practicable, the Company will make generally available to
its security holders and to the Representatives an earnings statement (which
need not be audited) covering the twelve-month period beginning after the
effective date of the Registration Statement that satisfies the provisions of
Section 11(a) of the Securities Act.
(i) Periodic Reporting Obligations.
During the Prospectus Delivery Period the Company shall file, on a
timely basis, with the Commission and the Nasdaq National Market all reports and
documents required to be filed under the Exchange Act.
(j) Agreement Not To Offer or Sell Additional Securities.
During the period of 180 days following the date of the Prospectus, the
Company will not, without the prior written consent of NationsBanc Montgomery
Securities LLC (which consent may be withheld at the sole discretion of
NationsBanc Montgomery Securities LLC), directly or indirectly, sell, offer,
contract or grant any option to sell, pledge, transfer or establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act,
or otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares of
Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of Common
Stock (other than as contemplated by this Agreement with respect to the Common
Shares); provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon exercise of
options, pursuant to any stock option, stock bonus or other stock plan or
arrangement described in the Prospectus (collectively "Stock Plans"), and file
registration statements under the Securities Act but only with respect to shares
issued with respect to such Stock Plans and make announcements with respect
thereto, but only if the holders of such shares, options, or shares issued upon
exercise of such options, agree in writing not to sell, offer, dispose of or
otherwise transfer any such shares or options during such 180 day period without
the prior written consent of NationsBanc Montgomery Securities LLC (which
consent may be withheld at the sole discretion of the NationsBanc Montgomery
Securities LLC).
<PAGE>
(k) Future Reports to the Representatives.
During the period of five years hereafter the Company will furnish to
the Representatives at Two International Place, Boston, MA 02110; Attention: Mr.
Benjamin Howe (i) as soon as practicable after the end of each fiscal year,
copies of the Annual Report of the Company containing the balance sheet of the
Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public or certified public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current
Report on Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of its
capital stock.
NationsBanc Montgomery Securities LLC, on behalf of the several
Underwriters, may, in its sole discretion, waive in writing the performance by
the Company of any one or more of the foregoing covenants or extend the time for
their performance.
Section 4. Payment of Expenses.
The Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in connection
with the transactions contemplated hereby, including without limitation (i) all
expenses incident to the issuance and delivery of the Common Shares (including
all printing and engraving costs), (ii) all fees and expenses of the registrar
and transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the Prospectus, and all amendments and
supplements thereto, and this Agreement, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the state securities or blue sky laws or the provincial securities laws of
Canada, and, if requested by the Representatives, preparing and printing a "Blue
Sky Survey" or memorandum, and any supplements thereto, advising the
Underwriters of such qualifications, registrations and exemptions, (vii) the
filing fees incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) all fees and expenses associated with filing to list and listing
the Common Stock on the Nasdaq National Market, and (ix) all other fees, costs
and expenses referred to in Item 13 of Part II of the Registration Statement.
Except as provided in this Section 4, Section 6, Section 8 and Section 9 hereof,
the Underwriters shall pay their own expenses, including the fees and
disbursements of their counsel.
Section 5. Conditions of the Obligations of the Underwriters.
The obligations of the several Underwriters to purchase and pay for the
Common Shares as provided herein on the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then
<PAGE>
made, to the timely performance by the Company of its covenants and other
obligations hereunder, and to each of the following additional conditions:
(a) Accountants' Comfort Letter.
On the date hereof, the Representatives shall have received from Arthur
Andersen LLP, independent public or certified public accountants for the
Company, a letter dated the date hereof addressed to the Underwriters, in form
and substance satisfactory to the Representatives, containing statements and
information of the type ordinarily included in accountant's "comfort letters" to
underwriters, delivered according to Statement of Auditing Standards No. 72 (or
any successor bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the Registration
Statement and the Prospectus (and the Representatives shall have received
additional conformed copies of such accountants' letter for each of the several
Underwriters).
(b) Compliance with Registration Requirements; No Stop
Order; No Objection from NASD.
For the period from and after effectiveness of this Agreement and prior
to the First Closing Date and, with respect to the Optional Common Shares, the
Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by
Rule 424(b) under the Securities Act; or the Company shall have filed a
post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective
amendment shall have become effective;
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in
effect and no proceedings for such purpose shall have been instituted
or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change.
For the period from and after the date of this Agreement and prior to
the First Closing Date and, with respect to the Optional Common Shares, the
Second Closing Date, in the judgment of the Representatives there shall not have
occurred any Material Adverse Change.
(d) Opinion of Counsel for the Company.
On each of the First Closing Date and the Second Closing Date the
Representatives shall have received the favorable opinion of Womble Carlyle
Sandridge & Rice, PLLC, counsel for the Company, dated as of such Closing Date,
the form of which is attached as Exhibit A (and the Representatives shall have
received additional conformed copies of such counsel's legal opinion for each of
the several Underwriters).
(e) Opinion of Counsel for the Underwriters.
<PAGE>
On each of the First Closing Date and the Second Closing Date the
Representatives shall have received the favorable opinion of Morris, Manning &
Martin, L.L.P., counsel for the Underwriters, dated as of such Closing Date,
with respect to the matters set forth in paragraphs (i), (v), (vi), (vii), (ix),
(x) and the next-to-last paragraph of Exhibit A (and the Representatives shall
have received additional conformed copies of such counsel's legal opinion for
each of the several Underwriters).
(f) Officers' Certificate.
On each of the First Closing Date and the Second Closing Date the
Representatives shall have received a written certificate executed by the
Chairman of the Board, Chief Executive Officer or President of the Company and
the Chief Financial Officer or Chief Accounting Officer of the Company, dated as
of such Closing Date, to the effect set forth in subsections (b)(ii) and (c) of
this Section 5, and further to the effect that:
(i) for the period from and after the date of this Agreement
and prior to such Closing Date, there has not occurred any Material
Adverse Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1 of this Agreement are true and correct
with the same force and effect as though expressly made on and as of
such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date.
(g) Bring-down Comfort Letter.
On each of the First Closing Date and the Second Closing Date the
Representatives shall have received from Arthur Andersen LLP, independent public
or certified public accountants for the Company, a letter dated such date, in
form and substance satisfactory to the Representatives, to the effect that they
reaffirm the statements made in the letter furnished by them pursuant to
subsection (a) of this Section 5, except that the specified date referred to
therein for the carrying out of procedures shall be no more than three business
days prior to the First Closing Date or Second Closing Date, as the case may be
(and the Representatives shall have received additional conformed copies of such
accountants' letter for each of the several Underwriters).
(h) Lock-Up Agreement from Certain Stockholders of the
Company.
On the date hereof, the Company shall have furnished to the
Representatives an agreement in the form of Exhibit B hereto from each director,
officer and each beneficial owner of Common Stock (as defined and determined
according to Rule 13d-3 under the Exchange Act, except that a one hundred eighty
day period shall be used rather than the sixty day period set forth therein),
and such agreement shall be in full force and effect on each of the First
Closing Date and the Second Closing Date.
(i) Additional Documents.
On or before each of the First Closing Date and the Second Closing
Date, the Representatives and counsel for the Underwriters shall have received
such information, documents and opinions as they may reasonably require for the
purposes of enabling them to pass upon the issuance and sale of the Common
Shares as contemplated herein, or in order to evidence the accuracy of any of
the representations and warranties, or the satisfaction of any of the conditions
or agreements, herein contained.
<PAGE>
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
Section 6. Reimbursement of Underwriters' Expenses.
If this Agreement is terminated by the Representatives pursuant to
Section 5, Section 7, Section 10 or Section 11, or if the sale to the
Underwriters of the Common Shares on the First Closing Date is not consummated
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or to comply with any provision hereof, the Company
agrees to reimburse the Representatives and the other Underwriters (or such
Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Representatives and the Underwriters in connection
with the proposed purchase and the offering and sale of the Common Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.
Section 7. Effectiveness of this Agreement.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representatives of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company to any Underwriter,
except that the Company shall be obligated to reimburse the expenses of the
Representatives and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of
any Underwriter to the Company, or (c) of any party hereto to any other party
except that the provisions of Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
Section 8. Indemnification.
(a) Indemnification of the Underwriters.
The Company agrees to indemnify and hold harmless each Underwriter, its
officers and employees, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act and the Exchange Act against any loss,
claim, damage, liability or expense, as incurred, to which such Underwriter or
such controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at common
law or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged
<PAGE>
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby, and which is included as part
of or referred to in any loss, claim, damage, liability or action arising out of
or based upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by NationsBanc Montgomery Securities, Inc.) as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further, that
with respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person asserting
any loss, claim, damage, liability or expense purchased Common Shares, or any
person controlling such Underwriter, if copies of the Prospectus were timely
delivered to the Underwriter pursuant to Section 2 and a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Common Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 8(a) shall be in addition to any
liabilities that the Company may otherwise have.
(b) Indemnification of the Company, its Directors and
Officers.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act or the Exchange Act, against
any loss, claim, damage, liability or expense, as incurred, to which the
Company, or any such director, officer or controlling person may become subject,
under the Securities Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based upon
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or arises out of or is based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written information
furnished to the Company by the Representatives expressly for use therein; and
to reimburse the Company, or any such director, officer or
<PAGE>
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. The Company hereby acknowledges that the
only information that the Underwriters have furnished to the Company expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) are the statements set forth
(A) as the last paragraph on the inside front cover page of the Prospectus
concerning stabilization by the Underwriters and (B) in the table in the first
paragraph and as the second and second to last paragraphs under the caption
"Underwriting" in the Prospectus; and the Underwriters confirm that such
statements are correct. The indemnity agreement set forth in this Section 8(b)
shall be in addition to any liabilities that each Underwriter may otherwise
have.
(c) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof,
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section 8 or to
the extent it is not prejudiced as a proximate result of such failure. In case
any such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent that
it shall elect, jointly with all other indemnifying parties similarly notified,
by written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that a conflict may arise between the positions of the indemnifying
party and the indemnified party in conducting the defense of any such action or
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (NationsBanc Montgomery Securities,
Inc. in the case of Section 8(b) and Section 9), representing the indemnified
parties who are parties to such action) or (ii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party.
(d) Settlements.
The indemnifying party under this Section 8 shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party against any loss,
claim, damage,
<PAGE>
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 8(c) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding.
Section 9. Contribution.
If the indemnification provided for in Section 8 is for any reason held
to be unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount paid or payable by such indemnified party, as incurred, as a
result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other hand, from the offering of the Common Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company, and the total underwriting discount received by the Underwriters, in
each case as set forth on the front cover page of the Prospectus bear to the
aggregate initial public offering price of the Common Shares as set forth on
such cover. The relative fault of the Company, on the one hand, and the
Underwriters, on the other hand, shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact or any such
inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
<PAGE>
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
Section 10. Default of One or More of the Several Underwriters.
If, on the First Closing Date or the Second Closing Date, as the case
may be, any one or more of the several Underwriters shall fail or refuse to
purchase Common Shares that it or they have agreed to purchase hereunder on such
date, and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase does not
exceed 10% of the aggregate number of the Common Shares to be purchased on such
date, the other Underwriters shall be obligated, severally, in the proportions
that the number of Firm Common Shares set forth opposite their respective names
on Schedule A bears to the aggregate number of Firm Common Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the Representatives with the consent of the
non-defaulting Underwriters, to purchase the Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Second Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Common
Shares and the aggregate number of Common Shares with respect to which such
default occurs exceeds 10% of the aggregate number of Common Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Common Shares are not made within 48 hours
after such default, this Agreement shall terminate without liability of any
party to any other party except that the provisions of Section 4, Section 6,
Section 8 and Section 9 shall at all times be effective and shall survive such
termination. In any such case either the Representatives or the Company shall
have the right to postpone the First Closing Date or the Second Closing Date, as
the case may be, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
<PAGE>
Section 11. Termination of this Agreement.
Prior to the First Closing Date this Agreement maybe terminated by the
Representatives by notice given to the Company if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York or California authorities; (iii) there
shall have occurred any outbreak or escalation of national or international
hostilities or any crisis or calamity, or any change in the United States or
international financial markets, or any substantial change or development
involving a prospective substantial change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable to market the
Common Shares in the manner and on the terms described in the Prospectus or to
enforce contracts for the sale of securities; (iv) in the judgment of the
Representatives there shall have occurred any Material Adverse Change; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the
Representatives may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured. Any termination pursuant to this Section 11 shall be without liability
on the part of (a) the Company to any Underwriter, except that the Company shall
be obligated to reimburse the expenses of the Representatives and the
Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the
Company, or (c) of any party hereto to any other party except that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
Section 12. Representations and Indemnities to Survive Delivery.
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers and of the several Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
Section 13. Notices.
All communications hereunder shall be in writing and shall be mailed,
hand delivered or telecopied and confirmed to the parties hereto as follows:
If to the Representatives:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5704
Attention: Mr. William Bunting
<PAGE>
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
SQL Financials International, Inc.
Two Ravinia Drive
Suite 1000
Atlanta, Georgia 30346
Facsimile: (770) 390-2899
Attention: Mr. Stephen P. Jeffery
with a copy to:
Womble Carlyle Sandridge & Rice, PLLC
1275 Peachtree Street, N.E.
Suite 700
Atlanta, Georgia 30309
Facsimile: (404) 888-7490
Attention: G. Donald Johnson, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 14. Successors.
This Agreement will inure to the benefit of and be binding upon the
parties hereto, including any substitute Underwriters pursuant to Section 10
hereof, and to the benefit of the employees, officers and directors and
controlling persons referred to in Section 8 and Section 9, and in each case
their respective successors, personal representatives and assigns, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
<PAGE>
Section 15. Partial Unenforceability.
The invalidity or unenforceability of any Section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other Section, paragraph or provision hereof. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
Section 16. Governing Law Provisions.
(a) Governing Law.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction.
Any legal suit, action or proceeding arising out of or based upon this
Agreement or the transactions contemplated hereby ("Related Proceedings") may be
instituted in the federal courts of the United States of America located in the
City and County of San Francisco or the courts of the State of California in
each case located in the City and County of San Francisco (collectively, the
"Specified Courts"), and each party irrevocably submits to the exclusive
jurisdiction (except for proceedings instituted in regard to the enforcement of
a judgment of any such court (a "Related Judgment"), as to which such
jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such suit, action or other proceeding brought in any such court has been brought
in an inconvenient forum.
(c) Waiver of Immunity.
With respect to any Related Proceeding, each party irrevocably waives,
to the fullest extent permitted by applicable law, all immunity (whether on the
basis of sovereignty or otherwise) from jurisdiction, service of process,
attachment (both before and after judgment) and execution to which it might
otherwise be entitled in the Specified Courts, and with respect to any Related
Judgment, each party waives any such immunity in the Specified Courts or any
other court of competent jurisdiction, and will not raise or claim or cause to
be pleaded any such immunity at or in respect of any such Related Proceeding or
Related Judgment, including, without limitation, any immunity pursuant to the
United States Foreign Sovereign Immunities Act of 1976, as amended.
Section 17. General Provisions.
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in two or more counterparts, each one of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement may not be amended or
modified unless in writing by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party
<PAGE>
whom the condition is meant to benefit. The Table of Contents and the Section
headings herein are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
SQL FINANCIALS INTERNATIONAL, INC.
By:
---------------------------------------
Stephen P. Jeffery, Chairman,
Chief Executive Officer and President
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
NATIONSBANC MONTGOMERY SECURITIES LLC
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: NATIONSBANC MONTGOMERY SECURITIES LLC
By:
----------------------------------------
Richard A. Smith, Authorized Signatory
<PAGE>
SCHEDULE A
UNDERWRITERS
Number of Firm Common
Name of Underwriter Shares to be Purchased
NationsBanc Montgomery Securities LLC ................. [___]
UBS Securities LLC..................................... [___]
[___] ................................................. [___]
[___] ................................................. [___]
Total......................................... 2,500,000
<PAGE>
EXHIBIT A
OPINION OF COUNSEL FOR THE COMPANY
The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to Section
5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing
as a corporation under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Underwriting Agreement.
(iii) Each significant subsidiary (as defined in Rule 405 under the
Securities Act) has been duly incorporated and is validly
existing as a corporation under the laws of the jurisdiction
of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its
business as described in the Prospectus.
(iv) All of the issued and outstanding capital stock of each such
significant subsidiary has been duly authorized and validly
issued, is fully paid and nonassessable and is owned by the
Company, directly or through subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance or,
to the best knowledge of such counsel, any pending or
threatened claim.
(v) Subject to the assumptions set forth in the Prospectus, the
authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conform to the
descriptions thereof set forth in the Prospectus. All of the
outstanding shares of Common Stock have been duly authorized
and validly issued, are fully paid and nonassessable and, to
the best of such counsel's knowledge, have been issued in
compliance with the registration and qualification
requirements of federal and state securities laws. The form of
certificate used to evidence the Common Stock is in due and
proper form and complies with all applicable requirements of
the charter and by-laws of the Company and the General
Corporation Law of the State of Delaware. The description of
the Company's stock option, stock bonus and other stock plans
or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately
and fairly presents the information required to be shown with
respect to such plans, arrangements, options and rights.
<PAGE>
(vi) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar
right to subscribe for or purchase securities of the Company
arising (i) by operation of the charter or by-laws of the
Company or the General Corporation Law of the State of
Delaware or (ii) to the best knowledge of such counsel,
otherwise.
(vii) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by
applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles.
(viii) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale
pursuant to the Underwriting Agreement and, when issued and
delivered by the Company pursuant to the Underwriting
Agreement against payment and receipt by the Company of the
consideration set forth therein, will be validly issued, fully
paid and nonassessable.
(ix) The Registration Statement and the Rule 462(b) Registration
Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of
such counsel, no stop order suspending the effectiveness of
either of the Registration Statement or the Rule 462(b)
Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been
instituted or are pending or are contemplated or threatened by
the Commission. Any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time
period required by such Rule 424(b).
(x) The Registration Statement, including any 424(b) Registration
Statement, the Prospectus and each amendment or supplement to
the Registration Statement and the Prospectus, as of their
respective effective or issue dates (other than the financial
statements and supporting schedules included therein or in
exhibits to or excluded from the Registration Statement, as to
which no opinion need be rendered) comply as to form in all
material respects with the applicable requirements of the
Securities Act.
(xi) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xii) The statements (i) in the Prospectus under the captions "Risk
Factors--Shares Eligible for Future Sale," "Risk
Factors--Certain Anti-Takeover Provisions,"
"Management--Limitation of Liability and Indemnification of
Officers and Directors," "Description of Capital Stock,"
"Shares Eligible for Future Sale," and "Underwriting" and (ii)
in Item 14 and Item 15 of the Registration Statement, insofar
as such statements constitute matters of law, summaries of
legal matters, the Company's charter or by-law provisions,
documents or legal proceedings, or
<PAGE>
legal conclusions, has been reviewed by such counsel and
fairly present and summarize, in all material respects, the
matters referred to therein.
(xiii) To the knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or
threatened which are required to be disclosed in the
Registration Statement, other than those disclosed therein.
(xiv) To the knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto; and the
descriptions thereof and references thereto are correct in all
material respects.
(xv) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental
authority or agency, is required for the Company's execution,
delivery and performance of the Underwriting Agreement and
consummation of the transactions contemplated thereby and by
the Prospectus, except as required under the Securities Act,
applicable state securities or blue sky laws and from the
NASD.
(xvi) The execution and delivery of the Underwriting Agreement by
the Company and the performance by the Company of its
obligations thereunder (other than performance by the Company
of its obligations under the indemnification section of the
Underwriting Agreement, as to which no opinion need be
rendered) (i) have been duly authorized by all necessary
corporate action on the part of the Company; (ii) will not
result in any violation of the provisions of the charter or
by-laws of the Company or any subsidiary; (iii) will not
constitute a breach of, or Default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to any material
Existing Instrument; or (iv) to the best knowledge of such
counsel, will not result in any violation of any law,
administrative regulation or administrative or court decree
applicable to the Company or any subsidiary.
(xvii) The Company is not, and after receipt of payment for the
Common Shares will not be, an "investment company" within the
meaning of Investment Company Act.
(xviii) To the knowledge of such counsel, there are no persons with
registration or other similar rights to have any equity or
debt securities registered for sale under the Registration
Statement or included in the offering contemplated by the
Underwriting Agreement, except for such rights as have been
duly waived.
(xiv) To the knowledge of such counsel, based upon a certificate of
an appropriate officer of the Company as to matters of fact,
neither the Company nor any subsidiary is in violation of its
charter or by-laws or any law, administrative regulation or
administrative or court decree applicable to the Company or is
in Default in the performance or observance of any obligation,
agreement, covenant or condition contained in any material
Existing Instrument, except in each such
<PAGE>
case for such violations or Defaults as would not,
individually or in the aggregate, result in a Material Adverse
Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included in the Registration Statement or the Prospectus or
any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware or the federal law of the United
States, to the extent they deem proper and specified in such opinion, upon the
opinion (which shall be dated the First Closing Date or the Second Closing Date,
as the case may be, shall be satisfactory in form and substance to the
Underwriters, shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them and shall be furnished to the
Representatives) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters; provided,
however, that such counsel shall further state that they believe that they and
the Underwriters are justified in relying upon such opinion of other counsel,
and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and public officials. Such counsel also
may assume that, for the purpose of the opinion in paragraph (vii), the laws of
the State of New York are identical to the laws of the State of Georgia.
<PAGE>
EXHIBIT B
LOCK UP AGREEMENT
[Date]
NationsBanc Montgomery Securities LLC
UBS Securities LLC
As Representatives of the Several Underwriters
600 Montgomery Street
San Francisco, California 94111
RE: SQL Financials International, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares
of Common Stock of the Company ("Common Stock") or securities convertible into
or exchangeable or exercisable for Common Stock. The Company proposes to carry
out a public offering of Common Stock (the "Offering") for which you will act as
the Representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not, without the prior written consent of NationsBanc
Montgomery Securities, Inc. (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or
otherwise dispose of any shares of Common Stock, options or warrants to acquire
shares of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned either of
record or beneficially (as defined in Rule 13d-3 under Exchange Act) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 180 days after the date of the Prospectus. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
With respect to the Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
<PAGE>
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.
- ------------------------------
Printed Name of Holder
By:
---------------------------
Signature
- ------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
<PAGE>
EXHIBIT 2.1
ACQUISITION AGREEMENT
---------------------
THIS AGREEMENT is made and entered into as of the 5th day of February, 1998
by and between SQL Financials International, Inc., a Delaware corporation (the
"Company"), and Technology Ventures, L.L.C., a Georgia limited liability company
("TV"), having a principal place of business located at Two Ravinia Drive, Suite
1090, Atlanta, Georgia 30346.
WHEREAS, the Company desires to acquire TV's membership interest in SQL
Financials Services, L.L.C. ("SQL Services"), a Georgia limited liability
company (the "Membership Interest"), in consideration for (i) 150,000 shares of
the common stock of the Company, par value $.0001 per share (the "Shares"); (ii)
a non-negotiable subordinated promissory note from the Company in the principal
amount of $1,100,000.00 in the form attached to this Agreement as Exhibit A (the
---------
"Note"); and (iii) a warrant to purchase 200,000 shares of the common stock of
the Company, par value $.0001 per share, at an exercise price of $5.50 per share
in the form attached to this Agreement as Exhibit B (the "Warrant"); and
---------
WHEREAS, as further consideration for the acquisition of the Membership
Interest, TV desires to receive cash equivalent to the Net Profits (as
hereinafter defined) for the Membership Interest until such time as the earlier
of (i) the closing of the Company's initial public offering of its common stock
registered pursuant to the Securities Act of 1933 (the "IPO") or (ii) a Sale of
the Company (as hereinafter defined).
WHEREAS, the Members of SQL Services (the "Members"), the Managers of SQL
Services (the "Managers") and Joseph S. McCall ("McCall") desire that the
transactions contemplated by this Agreement occur.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
1. Acquisition of Membership Interest.
----------------------------------
Subject to the terms and conditions of this Agreement and in reliance on
the representations, warranties and covenants contained herein, the Company
hereby agrees to issue and deliver to TV, and TV hereby agrees to acquire from
the Company, (i) the Shares, (ii) the Note, and (iii) the Warrant, all in
exchange for the transfer by TV to the Company of all of its right, title and
interest in the Membership Interest to the Company. The issuance and delivery
of the Shares, the Note and the Warrant, and the assignment of the Membership
Interest, shall be made at the Closing (as defined in Section 2 below).
2. The Closing.
-----------
The closing of the acquisition of the Membership Interest for the Shares,
the Note and the Warrant hereunder (the "Closing") shall be held at the offices
of the Company at 2:00 p.m. , on the date first above stated, or at such other
time and place to which the Company and TV may agree (the "Closing Date"). At
the Closing, and subject to the terms, conditions, representations, warranties
and covenants set forth in this Agreement, the Company will (i) issue to TV a
certificate for the Shares, (ii) make and deliver in favor of TV the Note, and
(iii) execute and deliver to TV the Warrant, in each case simultaneously with
the assignment of the Membership Interest by TV to the Company as provided
herein.
3. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to TV as follows:
-2-
<PAGE>
3.1 Corporate Power and Authority. The Company has now, and will
-----------------------------
have at the Closing Date, all requisite legal and corporate power to enter into
this Agreement, to issue the Shares hereunder, to make and deliver the Note
hereunder, to execute and deliver the Warrant hereunder and to carry out and
perform its obligations under the terms of this Agreement and the Note and the
Warrant. All corporate action on the part of the Company, its officers, board
of directors (the "Board") and shareholders necessary for the sale and issuance
of the Shares, the Note and the Warrant pursuant hereto and the performance of
the Company's obligations hereunder has been taken. This Agreement shall
constitute a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy, reorganization, insolvency or moratorium laws or other similar laws
affecting creditors' rights generally.
3.2 The Shares. The Shares, when issued in compliance with the
----------
provisions of this Agreement, will be validly issued and outstanding, fully paid
and non-assessable, free and clear of any security interests, pledges, liens,
charges, claims or other encumbrances or restrictions, except for the transfer
restrictions and rights of co-sale contained in a certain Restated Shareholders'
Agreement, dated as of September 1, 1995, as amended as of January 1, 1997, (the
"Shareholders' Agreement"), between the Company and its holders of common stock
(including TV), the voting restrictions contained in a certain Amended and
Restated Shareholders' Voting Agreement, dated as of September 1, 1995 (the
"Shareholders' Voting Agreement"), between the Company and its holders of common
stock (including TV), and, to the extent not waived, the transfer restrictions
and rights of co-sale contained in Section 11.3 of a certain Series F
Convertible Preferred Stock Purchase
-3-
<PAGE>
Agreement dated September 26, 1997 ("Series F Agreement"), to which the Company
and TV are parties.
3.3 The Note. The Note that is being made and delivered to TV
--------
hereunder, when made and delivered in accordance with the terms of this
Agreement, will be duly and validly made, free and clear of any security
interests, pledges, liens, charges, claims or other encumbrances or restrictions
except as set forth in the Note.
3.4 The Warrant. The Warrant that is being made and issued to TV
-----------
hereunder, when executed and delivered in accordance with the terms of this
Agreement, will be duly and validly issued, free and clear of any security
interests, pledges, liens, charges, claims or other encumbrances or restrictions
except as set forth in the Warrant. The 200,000 shares of the Company's common
stock issuable upon exercise of the Warrant have been duly and validly reserved
for issuance and, when issued in compliance with the provisions of the Warrant,
will be duly and validly issued, fully paid, and nonassessable and will be free
and clear of any security interests, pledges, liens, charges, claims or other
encumbrances or restrictions on transfer other than (i) transfer restrictions
under applicable state and federal securities laws, (ii) transfer restrictions
as specifically set forth in the Warrant, and (iii) any security interests,
pledges, liens, charges, claims or other encumbrances or restrictions on
transfer created by TV or other parties other than the Company.
4. Representations and Warranties of TV. TV hereby represents and
------------------------------------
warrants to the Company as follows:
4.1 Authority. TV is a limited liability company duly organized,
---------
validly existing and in good standing under the laws of Georgia. TV has full
legal power and authority to execute,
-4-
<PAGE>
deliver and perform its obligations hereunder, and such execution, delivery and
performance will not violate any agreement, contract, law, rule, decree or other
legal restriction by which TV is bound. Any corporate, partnership or similar
action on the part of TV's members or managers necessary under applicable law
and the organizational documents of TV for the purchase of the Shares and the
performance of TV's obligations hereunder has been taken. This Agreement, when
executed and delivered by TV, will constitute a valid and legally binding
obligation of TV, enforceable in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, reorganization, insolvency
or moratorium laws or other similar laws affecting creditors' rights generally.
4.2 The Membership Interest. The Membership Interest to be assigned
-----------------------
to the Company on the Closing Date consists of TV's entire twenty percent (20%)
membership interest in SQL Services, including TV's proportionate rights in all
distributions (liquidating or otherwise), except for such distribution as will
be made pursuant to Section 7.2 of this Agreement, and allocations of the
profits, losses, gains, deductions, and credits of SQL Services. TV has not
previously sold, assigned, transferred, encumbered or conveyed the Membership
Interest; such interest constitutes all of TV's right, title, and interest in
SQL Services; and the Membership Interest is free and clear of any security
interests, pledges, liens, charges, claims or other encumbrances or
restrictions, except for the transfer restrictions set forth in Article 12 of
the Operating Agreement of SQL Services, as amended in Section 6.3 of this
Agreement.
4.3 Investment Representations. This Agreement is made with TV upon
--------------------------
the understanding as a specific representation to the Company by TV that:
-5-
<PAGE>
(a) the Shares and Warrant (including the shares received upon
exercise of the Warrant) acquired hereunder will be acquired for TV's own
account and not with a view to the distribution of any part thereof, and TV has
no present intention of selling, granting participation in, or otherwise
distributing the same;
(b) TV acknowledges that TV has the knowledge and experience in
financial and business matters so as to be capable of evaluating the merit and
risk of and protecting TV's own interests in connection with TV's acquisition of
the Shares and the Warrant, has had the opportunity to ask such questions of the
Company and to review such documents as TV deemed necessary in connection with
its acquisition of the Shares and the Warrant, is able to fend for itself in the
transactions contemplated by this Agreement and has the ability to bear the
economic risk of the investment pursuant to this Agreement; and
(c) TV understands that the Shares and the Warrant are characterized
as "restricted securities" under the federal securities laws and certain state
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations the Shares and the Warrant may be resold without
registration under the Securities Act and those state securities laws only in
certain limited circumstances. In this connection, TV represents that it is
familiar with Rule 144 promulgated by the Securities and Exchange Commission, as
presently in effect, understands the resale limitations imposed thereby and by
the Securities Act, and is aware that the Company is under no obligation to
create a public market for its securities. (The "Securities Act" means the
Securities Act of 1933, as amended, or any similar federal statute, and the
rules and regulations of the Commission issued under such Act, as they each may,
from time to time, be in effect.)
-6-
<PAGE>
4.4 Shareholders' Agreement. Upon issuance to TV, the Shares will be
-----------------------
subject to all of the terms, conditions and limitations of the Shareholders'
Agreement. In the event that the Warrant is exercised at any time prior to the
Company's initial public offering under the Securities Act, the shares issued to
TV upon exercise of the Warrant shall also be subject to all of the terms,
conditions and limitations of the Shareholders' Agreement.
5. Transfer of Shares.
------------------
5.1 Transfer Restrictions. Upon issuance to TV, the Shares will be
---------------------
subject to all of the transfer restrictions contained in the Shareholders'
Agreement and the Series F Agreement, to the extent such restrictions are not
waived by the parties to the Series F Agreement, and shall only be transferred
or become transferable as provided therein. TV acknowledges that Section 11.3
of the Series F Agreement (rights of co-sale) continues to apply, as set forth
in the Series F Agreement, with respect to any sale of the Registrable
Securities (as hereinafter defined in Section 8.1) not made pursuant to or
following a Registration Statement (as hereinafter defined in Section 8.1) filed
in connection with an underwritten initial public offering of the Company's
Common Stock as set forth in Section 8.2 of this Agreement. TV and McCall
covenant that they will not agree to amend, modify or terminate Sections 1, 4,
5, 7, 8, 9 and 10 of the Shareholders' Agreement without the prior written
consent of the Company.
5.2 Restrictive Legends. The following legends, or words of similar
-------------------
effect, shall be stamped or otherwise imprinted on the certificate or
certificates evidencing the Shares:
TRANSFER RESTRICTED
-------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE FEDERAL AND STATE SECURITIES LAWS AND ARE BEING
OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE FEDERAL AND
-7-
<PAGE>
STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT IN A TRANSACTION WHICH
IS REGISTERED UNDER, EXEMPT FROM, OR OTHERWISE IN COMPLIANCE WITH THE
FEDERAL AND STATE SECURITIES LAWS, AS TO WHICH THE ISSUER HAS RECEIVED
SUCH ASSURANCES AS THE ISSUER MAY REQUEST, WHICH MAY INCLUDE A
SATISFACTORY OPINION OF ITS COUNSEL.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER CONTAINED IN (1) AN AGREEMENT DATED AS OF SEPTEMBER 1,
1995 (THE "SHAREHOLDERS' AGREEMENT") AMONG THE COMPANY AND THE
SHAREHOLDERS (AS DEFINED THEREIN), AS AMENDED, AND (2) A STOCK
PURCHASE AGREEMENT DATED AS OF SEPTEMBER 26, 1997 (THE "SERIES F
AGREEMENT"), AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE SHAREHOLDERS'
AGREEMENT AND THE SERIES F AGREEMENT. A COPY OF THESE AGREEMENTS IS ON
FILE AT THE OFFICES OF THE COMPANY AND MAY BE OBTAINED WITHOUT CHARGE
UPON WRITTEN REQUEST TO THE PRESIDENT OF THE COMPANY.
6. SQL Services. The Members and Managers of SQL Services hereby agree
------------
and warrant as follows:
6.1 Members. Prior to the Closing, the Members of SQL Services are
-------
the Company and TV. The Company and TV hereby execute this Agreement in their
own capacities and in their capacities as Members of SQL Services.
6.2 Written Consent. This Agreement, when signed by the Company, TV
---------------
and the Managers, shall constitute a written consent of the Members and Managers
in accordance with Articles 8.2 and 8.6 of the Operating Agreement of SQL
Services, as amended by Section 6.3 of this Agreement. An original copy of
this Agreement, duly executed by the Members and Managers of SQL Services, shall
be delivered to SQL Services for inclusion in the company records of SQL
Services.
-8-
<PAGE>
6.3 Amendment to Operating Agreement. Pursuant to Article 16.2 of
--------------------------------
the Operating Agreement of SQL Services, the Members and Managers hereby agree
to amend the Operating Agreement of SQL Services in the manner set forth in the
Amendment to Operating Agreement attached hereto as Exhibit C.
---------
6.4 Substitute Member. Pursuant to Article 14 of the Operating
-----------------
Agreement of SQL Services, as herein amended (the "Amended Operating
Agreement"), effective upon the assignment of the Membership Interest at the
Closing, the Company shall be admitted as a Substitute Member of SQL Services
with respect to the Membership Interest and shall be entitled to all of the
membership rights of TV with respect to the Membership Interest. Pursuant to
Article 13.1(a) of the Amended Operating Agreement, TV hereby withdraws as a
Member of SQL Services effective upon the admission of the Company as a
Substitute Member with respect to the Membership Interest assigned by TV.
6.5 Opinion of Counsel. In accordance with Article 12.1(b) of the
------------------
Amended Operating Agreement, the Managers hereby waive the requirement for an
opinion of counsel on applicable state and federal securities laws concerning
the assignment of the Membership Interest from TV to the Company.
6.6 Management Services Agreement. The Management Services Agreement
-----------------------------
dated March 9, 1995 between SQL Services and TV, attached hereto as Exhibit D,
---------
is hereby terminated. In full satisfaction of its obligations under the
Management Services Agreement, SQL Services shall pay $33,621.99 to TV at the
Closing.
6.7 TV's Promissory Note. TV is presently indebted to SQL Services
--------------------
under a promissory note, a copy of which is attached hereto as Exhibit E, dated
---------
March 9, 1995 in the
-9-
<PAGE>
principal amount of $75,000 (the "TV Note") for its Initial Capital Contribution
for the Membership Interest. As of February 5, 1998, the outstanding principal
and accrued interest owed under the TV Note is $33,621.99. TV shall satisfy its
obligations under the TV Note at the Closing by payment to SQL Services of all
outstanding principal and accrued interest due as of the Closing Date.
7. Distributions of Net Profits.
----------------------------
7.1 Payments by the Company. Notwithstanding anything in this
-----------------------
Agreement to the contrary, as further consideration for the assignment of the
Membership Interest, the Company agrees to pay to TV on a monthly basis cash
equivalent to twenty percent (20%) of the Net Profits (as defined in the Amended
Operating Agreement) allocable to the Membership Interest from January 1, 1998
until the earlier of (a) the closing of the Company's IPO or (b) a Sale of the
Company (as defined herein). As used herein, the term "Sale of the Company"
shall mean (a) any sale of all or substantially all of the assets or shares of
outstanding capital stock of the Company to one or more third parties that are
not affiliated with the Company prior to such sale; (b) any liquidation of the
Company; or (c) any merger, consolidation or similar transaction to which the
Company is a party and following which the persons who were shareholders of the
Company immediately prior to the transaction hold less than a majority of the
outstanding shares of voting capital stock of the surviving or resulting
corporation or other entity. Any payments to be made under this Section 7.1 are
wholly contingent upon the existence of Net Profits for SQL Services (determined
on a monthly basis) in accordance with the relevant provisions of the Amended
Operating Agreement and hereof and are otherwise subject to all of the terms,
conditions and limitations contained in the Amended Operating Agreement. The
Company, TV and the Managers agree that the process and accounting procedures
presently in use for allocating costs, expenses and
-10-
<PAGE>
revenues in determining Net Profits for SQL Services shall continue in effect
unmodified until the earlier of the closing of the Company's IPO or the Sale of
the Company. The payments due under this paragraph shall be made on the tenth
(10th) business day following the end of each month for which the Net Profits
are determined. Until the earlier of the closing of the Company's IPO or a Sale
of the Company, the Company hereby agrees to maintain SQL Services as a separate
limited liability company or as a distinct business unit of the Company, in
either case for the express purpose of maintaining the process and accounting
procedures presently in use for allocating costs, expenses and revenues in
determining Net Profits for SQL Services.
7.2 Reconciliation of Capital Account. The Company, TV and SQL
---------------------------------
Services hereby acknowledge that as of December 31, 1997, (a) TV's Capital
Account (as defined in the Amended Operating Agreement) contained accumulated
Net Profits allocable to the Membership Interest in the amount of $753,613.80
(the "Accumulated Net Profits") and (b) TV has received to date a total of
$638,600.00 in Distributions of Available Cash (as defined in the Amended
Operating Agreement) for the Membership Interest from its Capital Account (the
"Total Cash Distributions"). At the Closing, SQL Services shall distribute to TV
the difference between the Accumulated Net Profits and the Total Cash
Distributions, which amount equals $115,013.80.
8. Registration Rights.
-------------------
8.1 Certain Definitions. As used in this Section 8 and elsewhere in
-------------------
this Agreement, the following terms shall have the following respective
meanings:
"Affiliate" shall mean an officer or director of the Company or ten
---------
percent (10%) holder of the Company's outstanding shares of Common Stock;
-11-
<PAGE>
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Registrable Securities" shall mean (i) the 181,800 shares of Common
----------------------
Stock of the Company presently held by TV; (ii) the 150,000 shares of Common
Stock of the Company to be acquired by TV pursuant to this Agreement; and (iii)
any shares of Common Stock issuable, as stock dividends, subdivisions or
combinations with respect to any of the shares specified in (i)-(ii) of this
sentence.
"Registration Expenses" shall mean all expenses (except for "Selling
---------------------
Expenses" as defined below) incurred by the Company in complying with Sections
8.2 of this Agreement, including, without limitation, all registration and
filing fees, printing expenses, reasonable fees and disbursements of counsel for
the Company.
The terms "register", "registered" and "registration" shall refer to a
-------- ---------- ------------
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such Registration Statement.
"Registration Statement" shall mean a registration statement on Form
----------------------
S-1 or Form S-3 filed by the Company with the Commission for a public offering
and sale of securities of the Company.
-12-
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Selling Expenses" shall mean all underwriting discounts and selling
----------------
commissions pertaining to the sale of the Registrable Securities pursuant to
Section 8.2 and all fees and disbursements of counsel for TV.
8.2 Registration Right.
------------------
(a) If the Company shall determine to file a Registration
Statement in connection with an underwritten initial public offering of its
Common Stock (the "Initial Public Offering"), the Company shall include in such
registration, pursuant to Commission Rule 415 of the Securities Act (if
applicable), and either as a part of the Registration Statement for the Initial
Public Offering or pursuant to a separate Registration Statement filed
concurrently therewith, all of the Registrable Securities, subject to the
requirements and limitations set forth below. The Company shall use its best
efforts to cause the registration of the Registrable Securities registered
pursuant to this Section 8 to become effective.
(b) As a condition to TV's right to participate in the Company's
underwritten Initial Public Offering, TV must enter an underwriting agreement in
customary form with the underwriter or underwriters selected for such Initial
Public Offering by the Company. The rights of TV under this Section 8.2 shall
expire following completion of the first registered public offering of shares by
the Company in which TV shall have been permitted to include (giving effect to
any prior sales or transfers other than pursuant to a registration statement)
one hundred percent (100%) of the Registrable Securities.
-13-
<PAGE>
(c) The Company may at any time withdraw or abandon any
Registration Statement which triggers the provisions of this Section 8.2 without
any liability to TV.
8.3 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification and compliance pursuant to
subsection 8.2 shall be borne by the Company. All Selling Expenses with respect
to Registrable Securities sold to underwriters pursuant to any such registration
shall be borne by TV. If, notwithstanding this Agreement, applicable
authorities in any state wherein Registrable Securities are to be sold require
an allocation of Registration Expenses, TV agrees to pay its apportioned share
thereof.
8.4 Registration Procedures. In the case of the registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep TV advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense the Company will:
(a) prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities, and use its best efforts
in good faith to cause such Registration Statement to become and remain
effective as provided herein;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus included in such
Registration Statement as may be necessary or advisable to comply in all
material respects with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement or as may
be necessary to keep such Registration Statement effective and current, but for
no longer than two years subsequent to the effective date of the Registration
Statement;
-14-
<PAGE>
(c) furnish to TV such number of copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such Registration Statement
(including each preliminary prospectus), and such other documents as TV may
reasonably request in order to facilitate the disposition of the Registrable
Securities held by TV;
(d) enter into such customary agreements and take all such other
action in connection therewith as TV may reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities; and
(e) use its best efforts in good faith to register and qualify
the Registrable Securities covered by such Registration Statement under such
securities or Blue Sky laws of such jurisdictions as TV shall reasonably request
and do any and all such other acts and things as may be reasonably necessary or
advisable to enable TV to consummate the disposition in such jurisdictions of
the Registrable Securities held by TV; provided, however, that the Company
-------- -------
shall not be required in connection therewith to qualify to do business or file
a general consent to service of process in any such jurisdiction.
Notwithstanding the foregoing provisions of this Section 8.4, (1) TV will
not (until further notice) effect sales thereof after receipt of ten (10) days
prior written notice from the Company to suspend sales for a reasonable period
of up to 60 days to permit the Company to correct, update or supplement such
Registration Statement or prospectus; but the obligations of the Company with
respect to maintaining any Registration Statement current and effective shall be
extended by a period of days equal to the period such suspension is in effect;
and (2) at the end of any period during which the Company is obligated to keep
any Registration Statement current and effective as
-15-
<PAGE>
provided by this Section 8.4 (and any extensions thereof required by the
preceding paragraph (1) of this Section 8.4), TV shall discontinue sales of
shares pursuant to such Registration Statement upon notice from the Company of
its intention to remove from registration the shares covered by such
Registration Statement which remain unsold, and TV shall notify the Company of
the number of shares registered which remain unsold promptly after receipt of
such notice from the Company.
8.5 Indemnification.
---------------
(a) The Company will indemnify TV, its officers, managers and
members, and each person controlling TV, if Registrable Securities held by TV
are included in the securities with respect to which registration, qualification
or compliance has been effected pursuant to this Agreement, and each underwriter
of such Registrable Securities, if any, and each person who controls such
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other similar document (including any related Registration
Statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made, or (ii) any violation by the Company of any federal, state
or common law rule or regulation applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse TV, each of its
officers, managers and members, and each person controlling TV, such underwriter
and each person who controls such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss,
-16-
<PAGE>
damage, liability or action, provided that the Company will not be liable to TV
or underwriter in any such case to the extent that such claim, loss, damage,
liability or expense arises out of or is based on (i) any untrue statement or
omission made in reliance upon and in conformance with written information
furnished to the Company by or on behalf of TV or underwriter and which was
furnished specifically for the purpose of being used therein or (ii) a failure
by TV to deliver a final prospectus to its transferee if any material change has
been made to the preliminary prospectus.
(b) TV will, if Registrable Securities held by TV are included
in the securities as to which such registration, qualification or compliance is
being effected, indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such registration,
qualification or compliance, each person who controls the Company or such
underwriter within the meaning of the Securities Act, and each "Holder" as
defined in Section 8 of the Series F Convertible Preferred Stock Purchase
Agreement dated September 26, 1987, each of the officers, directors and partners
of each such Holder and each person controlling such Holder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any Registration Statement, prospectus, offering circular or
other similar document filed with respect to or relating to the Registrable
Securities, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made, and
will reimburse the Company, such Holders, such directors, officers, partners,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the
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<PAGE>
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such Registration Statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by or on behalf of TV and which was
furnished specifically for the purpose of being used therein.
(c) Each party entitled to indemnification under this Section
8.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party, at such party's expense, to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (except for the payment of fees, costs and
expenses provided for below), and provided further that the failure of any
--------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the extent
that such failure to give notice shall adversely affect the Indemnifying Party
in the defense of any such claim or any such litigation. No Indemnifying Party,
in the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Notwithstanding the election
of the Indemnifying Party to assume the defense of any such claim or litigation,
the Indemnified Party shall have the right to employ separate counsel and to
participate
-18-
<PAGE>
in the defense of such claim or litigation, and the Indemnifying Party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the
use of the counsel chosen by the Indemnifying Party to represent the Indemnified
Party would present such counsel with a conflict of interest; (ii) the
defendants in, or targets of, any such claim or litigation include both the
Indemnified Party and the Indemnifying Party and the Indemnified Party shall
have reasonably concluded that there may be legal defenses available to it or to
other Indemnified Parties which are different from or additional to those
available to the Indemnifying Party (in which case the Indemnifying Party shall
not have the right to direct the defense of such action on behalf of the
Indemnified Party); (iii) in the exercise of the Indemnified Party's reasonable
judgment, the Indemnifying Party shall not have employed satisfactory counsel to
represent the Indemnified Party within a reasonable time after notice of the
institution of such claim or litigation; or (iv) the Indemnifying Party shall
authorize the Indemnified Party to employ separate counsel at the expense of the
Indemnifying Party. The Indemnified Party shall not settle any such claim or
litigation without the consent of the Indemnifying Party.
8.6 Information by TV. TV shall furnish to the Company in writing
-----------------
such information regarding TV and the distribution proposed by TV for the
Registrable Securities as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Agreement.
8.7 Market "Stand-off" Agreement. TV, if requested by the Company
-----------------------------
and an underwriter of the Company's securities, shall agree not to sell or
otherwise transfer or dispose of the Registrable Securities in connection with
the Company's initial public offering during the 180-day period following the
effective date of the Company's first Registration Statement. The
-19-
<PAGE>
Company may impose stop-transfer instructions with respect to the shares (or
securities) subject to the foregoing restriction until the end of such 180-day
period.
9. Mutual Release.
--------------
Except as otherwise expressly provided herein and in any other written
agreements, as the same may have been amended or modified, between the Company
and SQL Services, on the one hand, and TV and McCall Consulting Group, Inc, on
the other hand, which have not been expressly terminated by this Agreement (the
"Surviving Agreements"), and except for any claims which arise because of breach
of this Agreement or the Surviving Agreements, the Company, SQL Services and TV
(for itself and its wholly-owned subsidiary, McCall Consulting Group, Inc.)
hereby waive, release and promise never to assert any and all claims that they
have or might have against each other or their subsidiaries (including without
limitation SQL Services, SQL Financials Europe, Inc. and McCall Consulting
Group, Inc.), affiliated persons or entities, officers, directors, stockholders,
agents, attorneys, employees, successors or assigns, from the beginning of the
world to the date of this Agreement. The foregoing release as it applies to
officers, directors and other individuals is intended to release such persons in
all capacities, including individual and official.
10. Miscellaneous.
-------------
10.1 Costs and Expenses. In connection with this Agreement and the
------------------
transactions described herein, the Company and TV agree to pay their own
expenses, costs and fees.
10.2 Successors and Assigns. This Agreement may not be assigned by
----------------------
either the Company or TV without the prior written consent of the other.
Subject to the foregoing, all covenants and agreements contained in this
Agreement made by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of such parties.
-20-
<PAGE>
10.3 Governing Law. The internal laws of the State of Delaware
-------------
(regardless of conflict of laws principles) shall govern all issues concerning
the construction, validity and interpretation of this Agreement.
10.4 Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
representations, warranties and covenants of the Company and TV contained in
Sections 3 and 4 of this Agreement shall survive the Closing for a period of two
years, and thereafter no action, suit or claim shall be brought alleging any
misrepresentation or untruthfulness based upon the subject matter of such
representations or warranties, and any such action, suit or claim shall be
forever barred; provided, however, that any action based upon fraud shall not be
-------- -------
barred and may be brought notwithstanding the provisions of this Section. The
covenants of McCall and TV contained in Section 5.1 shall continue until the
closing of the Company's IPO. Nothing contained herein, nor the Closing of
hereof, shall be construed to limit or otherwise restrict the parties'
respective obligations under this Agreement, the Note or the Warrant.
10.5 Entire Agreement; Amendment. This Agreement and the other
---------------------------
documents delivered pursuant hereto or contemplated hereby constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated except by a written instrument signed
by TV and the Company. Failure to comply with the terms of the Note or the
Warrant shall be deemed to be a breach of this Agreement.
10.6 Notices, etc.. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be made by hand delivery,
first-class mail (registered or certified, return receipt requested),
telecopier, or overnight air courier guaranteeing next day
-21-
<PAGE>
delivery, addressed as follows: (a) if to the Company, at SQL Financials
International, Inc., 3950 Johns Creek Court, Suwanee, Georgia 30024, Attention:
President, with a copy to Thomas C. Chase, Esq., Hill & Barlow, a Professional
Corporation, One International Place, Boston, Massachusetts 02110, (b) if to TV,
at Technology Ventures, L.L.C., Two Ravinia Drive, Suite 1090, Atlanta, Georgia
30346, with a copy to Roy M. Jones, Esq. Cushing, Morris, Armbruster & Jones,
2100 Peachtree Center, Cain Tower, 229 Peachtree Street, N.E., Atlanta, Georgia
30303, or to such other address as the party receiving such notice shall have
properly designated to the other party hereto in writing. Each such notice shall
be deemed given at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next day
delivery.
10.7 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to TV or the Company upon any breach or default of the
Company under this Agreement, shall impair any such right, power or remedy of TV
or the Company, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereunder occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. All remedies, either under this Agreement, or by law or otherwise
afforded to TV or the Company, shall be cumulative and not alternative.
10.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, some of which may have signature pages differing as to form, each
of which shall be
-22-
<PAGE>
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one instrument.
10.9 Severability. If any provision of this Agreement, or its
------------
application to any person or circumstances, is invalid or unenforceable, then
the remainder of this Agreement or the application of such provision to other
persons or circumstances, shall not be affected thereby. Further, if any
provision or application hereof is invalid or unenforceable then a suitable and
equitable provision shall be substituted therefor in order to carry out so far
as may be valid or enforceable the intent and purposes of the invalid and
unenforceable provision.
10.10 Captions. Captions and headings used herein are for
--------
convenience of reference only and shall not limit or control the meaning of any
provisions hereof.
The foregoing Acquisition Agreement is hereby executed under seal as of the
date first above written.
SQL FINANCIALS INTERNATIONAL, INC.
By: /s/ Stephen P. Jeffery
------------------------------------
STEPHEN P. JEFFERY, President
TECHNOLOGY VENTURES, L.L.C.
By: /s/ Joseph S. McCall
------------------------------------
JOSEPH S. McCALL, Sole Manager
-23-
<PAGE>
The undersigned Managers of SQL Financials Services, L.L.C. hereby join in
the foregoing Acquisition Agreement for the purposes of Sections 6, 7 and 9:
/s/ Joseph S. McCall
------------------------------------
Joseph S. McCall
/s/ Joseph E. Bibler
------------------------------------
Joseph E. Bibler
/s/ Stephen P. Jeffery
------------------------------------
Stephen P. Jeffery
The undersigned common stockholder of SQL Financials International, Inc.
hereby joins in the foregoing Acquisition Agreement for the purposes of Section
5.1.
/s/ Joseph S. McCall
------------------------------------
Joseph S. McCall
-24-
<PAGE>
EXHIBIT 2.2
SQL FINANCIALS INTERNATIONAL, INC.
NON-NEGOTIABLE SUBORDINATED PROMISSORY NOTE
$1,100,000.00 Suwanee, Georgia
February 5, 1998
SQL Financials International, Inc., a corporation duly organized and
existing under the laws of the State of Delaware (the "Company"), for value
received, hereby promises to pay to Technology Ventures, L.L.C., a Georgia
limited liability company (the "Holder"), the principal sum of One Million, One
Hundred Thousand Dollars and No Cents ($1,100,000.00) with no interest, and
otherwise upon the other terms as herein provided. This Note is made by the
Company pursuant to the Acquisition Agreement between the Company and the Holder
of even date herewith, as the same may from time to time be amended, modified or
supplemented (the "Acquisition Agreement"). This Note is the "Note" referenced
in the Acquisition Agreement.
1. Payment. The principal of this Note shall be due and payable in a
-------
single installment of $1,100,000.00 on the earlier of (i) that date on which
that certain Warrant to Purchase Common Stock of SQL Financials International,
Inc., issued by the Company to Holder as of even date herewith, as the same may
be amended and modified from time to time (the "Warrant"), is deemed to have
been exercised in accordance with Section 3(b) of the Warrant or (ii) February
5, 2000. Final payment in full of the principal of this Note will be made at
the principal office of the Company, upon presentation and surrender of this
Note. Until the principal is paid in full, the Company shall pay a per diem
late charge at the lesser of eighteen percent (18%) per annum or the maximum
rate allowed by law of any amount that is not paid within thirty (30) days of
presentment and surrender of this Note following the date on which this Note
becomes due.
2. Transfer of Note. This Note is non-negotiable. It may not be
----------------
assigned, offered, sold, pledged or otherwise transferred or disposed of by the
Holder without the written consent of the Company, which may be granted or
withheld at the sole discretion of the Company.
3. No Security; Subordination. The Note is not secured and no mortgage,
--------------------------
security or lien is or shall be granted by the Company upon its assets as
collateral security for the obligation of the Company under this Note. The
obligation of the Company evidenced by the Note, and the rights of the Holder to
receive the payments herein described, are expressly junior and subordinate to
the prior payment of all Senior Indebtedness of the Company.
"Senior Indebtedness" means the principal of, and premium, if any, and
interest on (i) all indebtedness of the Company for monies borrowed from banks,
trust companies, insurance companies and other financial institutions, including
commercial paper and accounts receivable sold or assigned by the Company to such
institutions, (ii) all indebtedness of the Company for monies borrowed by the
Company from any existing shareholder, (iii) obligations of the Company as
lessee under leases of real or personal property, (iv) principal of, and
premium, if
<PAGE>
any, and interest on any indebtedness or obligations of others of the kinds
described in (i), (ii) and (iii) above assumed or guaranteed in any manner by
the Company for the benefit of any of the Company's affiliates or subsidiaries,
(v) deferrals, renewals, extensions and refundings of any such indebtedness or
obligations described in (i), (ii), (iii) and (iv) above, and (vi) any other
indebtedness of the Company which the Company and the Holder hereafter from time
to time expressly and specifically agree in writing shall constitute Senior
Indebtedness.
The Holder agrees to execute any subordination agreement(s) the Company and
the holders of Senior Indebtedness referenced in subparagraphs (i), (iii) and
(iv) above (but only as subparagraph (iv) pertains to subparagraphs (i) and
(iii)) may request to better reflect the aforesaid subordination of the Note to
any such Senior Indebtedness incurred by the Company. Notwithstanding the
foregoing, the Company may make payments of the principal of, and any interest
on, this Note, if at the time of payment, and immediately after giving effect
thereto, (i) there exists no default in any payment with respect to any Senior
Indebtedness and (ii) there shall not have occurred an event of default with
respect to any Senior Indebtedness, as defined in the instrument under which the
same is outstanding, permitting the holders thereof to accelerate the maturity
thereof, other than an event of default which shall have been cured or waived or
shall have ceased to exist; provided, however, that in the event of any
insolvency or bankruptcy proceedings, or any receivership, liquidation,
reorganization or other similar proceedings in connection therewith, relative to
the Company or to its property, or, in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company or
distribution or marshaling of its assets or any composition with creditors of
the Company, whether or not involving insolvency or bankruptcy, then and in any
such event all Senior Indebtedness shall be paid in full before any payment or
distribution of any character shall be made on account of this Note.
The Holder, by accepting this Note, agrees that the subordination effected
hereby is for the benefit of the holders of Senior Indebtedness from time to
time, and that each holder of Senior Indebtedness, whether now outstanding or
hereafter created, incurred, assumed or guaranteed shall be deemed to have
acquired Senior Indebtedness in reliance upon the covenants and provisions
contained herein. The subordination effected hereby shall be enforceable by
each holder of Senior Indebtedness from time to time.
Notwithstanding anything in this Note or any subordination agreement
executed pursuant to this Paragraph 3 to the contrary, upon the exercise by
Holder of the Warrant pursuant to Section 3(b) of the Warrant, this Note shall
become due and payable in full, without set off, counterclaim, recoupment, or
any other claim, deduction, or withholding whatsoever. Furthermore, nothing in
this Note shall be construed as prohibiting the Holder from using this Note to
satisfy the purchase price upon exercise of the Warrant.
4. Default. If, (i) the Company shall fail to pay any principal of or
-------
interest on this Note when due and payable and such amount shall remain unpaid
for thirty (30) business days after the due date thereof; or (ii) the Company
shall admit in writing its inability to pay its debts; or suffer a receiver or
custodian (or other person performing a similar function) for it or
-2-
<PAGE>
substantially all of its property to be appointed and, if appointed without its
consent, not to be discharged within sixty (60) days; or make a general
assignment for the benefit of its creditors, or suffer proceedings under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors to be
instituted by or against it and if contested by it not to be dismissed or stayed
within sixty (60) days; or suffer any judgment, writ of attachment, or execution
of any similar process to be issued or levied against substantially all of its
property which is not released, stayed, bonded, or vacated within thirty (30)
days after its issue or levy, then, and in every such event, the Holder may
declare the Note to be in default and to be due and payable in full, subject to
Paragraph 3, and it shall thereupon forthwith become due and payable in full,
without presentment, demand, protest, or any notice of any kind (other than
notice of such election), all of which are hereby expressly waived, and, subject
to Paragraph 3, the Company shall pay all amounts due hereunder in full, without
setoff, counterclaim, recoupment or any other claim or deduction whatsoever.
5. Assignment. Subject to the restrictions on transfer described in
----------
Paragraph 2, the rights and obligations of the Company and the Holder of this
Note shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the Holder and the Company.
6. Waiver and Amendment. Any provision of this Note may be amended,
--------------------
waived or modified upon the written consent of the Company and the Holder of the
Note.
7. Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by facsimile, expedited courier
service, or electronic mail or mailed by registered or certified mail, postage
prepaid, in all cases at the following respective addresses of the parties: (a)
if to the Company, at SQL Financials International, Inc., 3950 Johns Creek
Court, Suwanee, Georgia 30024, Attention: President, with a copy to Thomas C.
Chase, Esq., Hill & Barlow, a Professional Corporation, One International Place,
Boston, Massachusetts 02110, (b) if to Holder, at Technology Ventures, L.L.C.,
Two Ravinia Drive, Suite 1090, Atlanta, Georgia 30346, with a copy to Roy M.
Jones, Esq. Cushing, Morris, Armbruster & Jones, 2100 Peachtree Center, Cain
Tower, 229 Peachtree Street, N.E., Atlanta, Georgia 30303. Any party hereto may
by notice so given change its address for future notice hereunder. Notice shall
conclusively be deemed to have been given when personally delivered or when
deposited in the mail or telegraphed in the manner set forth above and shall be
deemed to have been received when delivered.
8. Governing Law. This Note shall be governed by, and construed and
-------------
enforced in accordance with, the laws of the State of Georgia.
9. Headings. All headings used herein are used for convenience only and
--------
shall not be used to construe or interpret this Note.
-3-
<PAGE>
IN WITNESS WHEREOF, this Note has been duly made, sealed and delivered by
the Company as of the date first written above.
COMPANY:
SQL FINANCIALS INTERNATIONAL, INC.
By: /s/ Stephen P. Jeffery
--------------------------------------
Stephen P. Jeffery, President
Accepted and agreed to as of the date first written above.
HOLDER:
TECHNOLOGY VENTURES, L.L.C.
By: /s/ Joseph S. McCall
--------------------------------------
Joseph S. McCall, Sole Manager
-4-
<PAGE>
EXHIBIT 2.3
NO. W98-1
THIS WARRANT AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN.
WARRANT TO PURCHASE COMMON STOCK
OF
SQL FINANCIALS INTERNATIONAL, INC.
ISSUANCE DATE: February 5, 1998
This certifies that the following named Purchaser is entitled, and SQL
FINANCIALS INTERNATIONAL, INC. (the "Company"), a Delaware corporation, hereby
grants to Purchaser the option and right, subject to the terms set forth below,
to purchase from Company shares of fully paid and nonassessable Common Stock of
the Company (the "Shares") in the aggregate number (the "Number of Shares") and
at the purchase price (the "Purchase Price") set forth below at any time and
from time to time through the Termination Date, as defined below. Such Purchase
Price and number of Shares are subject to adjustment as provided in Section 2 of
this Warrant.
Name of Purchaser: Technology Ventures, L.L.C.
Address of Purchaser: Two Ravinia Drive
Suite 1090
Atlanta, Georgia 30346
Number of Shares: 200,000
Purchase Price: $5.50 per Share
1. Definitions.
-----------
As used in this Warrant, the following terms, unless the context otherwise
requires, have the following meanings:
a. "Termination Date" means 5:00 p.m. Atlanta, Georgia time on February
5, 2000.
b. "Company" includes the Company as defined above and any corporation
which shall succeed to or assume obligations of the Company under this Warrant.
c. "Note" means the promissory note dated February 5, 1998 from the
Company to the Purchaser in the principal amount of $1,100,000.00.
<PAGE>
d. "Stock," when used with reference to stock of the Company, means
shares of the Common Stock of the Company.
e. "Warrantholder," "holder of Warrant," "holder," or similar terms when
the context refers to a holder of this Warrant, mean any person who shall at the
time be the registered holder of this Warrant.
2. Adjustment of Purchase Price and Number of Shares.
-------------------------------------------------
The number and kind of securities purchasable upon the exercise of this Warrant
and the Purchase Price shall be subject to adjustment from time to time upon the
occurrence of certain events (except for such events as to which appropriate
adjustment has been made pursuant to relevant provisions of the Amended and
Restated Certificate of Incorporation of the Company, as amended from time to
time), as follows:
a. Reclassification. In case of any reclassification, merger,
----------------
consolidation, exchange of shares, recapitalization, reorganization, change of
outstanding securities of the class issuable upon exercise of this Warrant, or
other similar event (an "Adjustment Event"), the Company shall execute a new
Warrant providing that the holder of this Warrant shall have the right to
exercise such new Warrant and procure upon such exercise such shares of stock or
other securities as may be issued or payable with respect to or in exchange for
the number of shares of Stock issuable upon exercise of this Warrant had this
Warrant been exercised immediately prior to such Adjustment Event. The Company
will use its best efforts to cause the provisions of this Warrant, as nearly as
may be practicable, to continue in effect in the new Warrant, and such new
Warrant shall provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 2. The Company
shall not effect any transaction described in this Section 2(a) unless the
resulting successor or acquiring entity (if not the Company) agrees in writing
to assume the obligation of the Company to deliver the new Warrant. The
provisions of this subsection (a) shall similarly apply to successive Adjustment
Events.
b. Subdivision or Combination of Shares. If the Company at any time
------------------------------------
while this Warrant remains outstanding and unexpired shall subdivide or combine
its capital stock, the Purchase Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination.
c. Stock Dividends. If the Company at any time while this Warrant is
---------------
outstanding shall pay a dividend with respect to its capital stock payable in
shares of its capital stock, or make any other distribution of its capital stock
with respect to such capital stock (except any distribution specifically
provided for in the foregoing subsections (a) or (b)), then the Purchase Price
shall be adjusted, effective from and after the date of determination of
stockholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Purchase Price in effect immediately prior to such
date of determination by a fraction, (a) the numerator of which shall be the
total number of shares of its capital stock outstanding immediately prior to
such dividend or distribution (determined on a fully diluted, as converted
basis), and (b) the
-2-
<PAGE>
denominator of which shall be the total number of shares of such capital stock
outstanding immediately after such dividend or distribution (determined as
aforesaid).
d. Non-Cash Dividends. If the Company at any time while this Warrant is
------------------
outstanding shall pay a dividend with respect to its capital stock payable in
securities other than the Company's capital stock or other non-cash property, or
make any other distribution of such securities or property with respect to such
capital stock (except any distribution specifically provided for in the
foregoing subsections (a), (b) or (c)), then this Warrant shall represent the
right to acquire such securities or property which the holder of this Warrant
would have been entitled to receive upon exercise of this Warrant, without the
payment by the holder of this Warrant of any additional consideration for such
securities or property.
e. Adjustment of Number of Shares. Upon each adjustment in the Purchase
------------------------------
Price, the number of shares of Stock purchasable hereunder shall be adjusted to
the nearest whole share, to the product obtained by multiplying the number of
Shares purchasable immediately prior to such adjustment in the Purchase Price by
a fraction, the numerator of which shall be the Purchase Price immediately prior
to such adjustment and the denominator of which shall be the Purchase Price
immediately thereafter.
f. Notice of Adjustments. Whenever the Purchase Price or the number of
---------------------
shares of Stock purchasable hereunder shall be adjusted pursuant to Section 2
hereof, the Company shall issue a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was calculated
and the Purchase Price or number of shares purchasable after giving effect to
such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the holder of this Warrant.
3. Exercise Provisions.
-------------------
a. Manner of Exercise. This Warrant may be exercised in whole at any time
------------------
following its execution and delivery through the Termination Date only by the
holder of this Warrant surrendering to the Company, at its principal office in
Georgia, this Warrant, together with the exercise form attached to this Warrant
duly executed by the holder together with payment to the Company of
$1,100,000.00. The Purchase Price may be paid by the holder either by delivery
to the Company of the Note or by payment of the Purchase Price in cash.
b. Mandatory Exercise. If (i) one hundred eighty (180) days (or the next
------------------
following trading day) following the effective date of the registration
statement for the Company's initial public offering of equity securities
registered pursuant to the Securities Act of 1933, as amended (the "Six Month
IPO Date"), the Closing Price is equal to or greater than $5.50 per share, or
(ii) at any time after the Six Month IPO Date the average Closing Price on the
twenty trading days immediately preceding such date is equal to or exceeds $5.50
per share (provided that the Closing Price must have been equal or exceeded
$5.50 on at least three (3) days after the Six Month IPO Date), this Warrant
shall be deemed to have been exercised as to all 200,000 shares, and the
-3-
<PAGE>
holder of this Warrant shall surrender it to the Company, at its principal
office in Georgia, together with the exercise form attached to this Warrant duly
executed by the holder with payment to the Company of $1,100,000.00. Such
Purchase Price may be paid by either delivery to the Company of the Note or by
payment of the Purchase Price in cash. "Closing Price" on any trading day shall
mean the last reported sale price of the Stock on the NASDAQ National Market (or
such other principal quotation system or national securities exchange on which
the Stock is admitted to trading or quoted or listed), or, if not admitted to
trading or quoted or listed on any quotation system or national securities
exchange, the average of the closing bid and asked prices of the Stock on the
over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similarly generally accepted reporting
service.
c. No Fractional Shares. No fractional shares will be issued upon
--------------------
exercise of rights to purchase under this Warrant. If upon any exercise of this
Warrant a fraction of a share results, the Company will pay the cash value of
that fractional share.
4. Delivery of Stock Certificates.
------------------------------
Within five (5) business days after exercise of this Warrant, the Company at
its expense will cause to be issued in the name of and delivered to the holder
of this Warrant, a certificate or certificates for the number of fully paid and
nonassessable shares of Stock to which that holder shall be entitled upon such
exercise, together with any other securities and property to which that holder
is entitled upon such exercise under the terms of this Warrant.
5. Compliance with Securities Act; Notice of Proposed Transfers; Registration
--------------------------------------------------------------------------
Rights.
- ------
a. Compliance with Securities Act. The holder of this Warrant, by
------------------------------
acceptance hereof, agrees that this Warrant and the Stock to be issued upon
exercise hereof are being acquired for investment and that such holder will not
offer, sell or otherwise dispose of this Warrant or any Stock to be issued upon
exercise hereof except under circumstances which will not result in a violation
of the Securities Act of 1933, as amended (the "Act"). Upon exercise of this
Warrant, the holder hereof shall confirm in writing, in a form satisfactory to
the Company, that the Stock is being acquired for investment and not with a view
toward distribution or resale (unless sale of the Stock has been registered
under the Act or an exemption therefrom is available). Any proposed transferee
of this Warrant or the Stock (except a transferee of the Stock in a registered
public offering) will be required to agree in writing to the provisions of this
Section 5. Certificates representing all Stock (unless registered under the Act)
shall be stamped or imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM EVIDENCED BY
-4-
<PAGE>
AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO SQL
FINANCIALS INTERNATIONAL, INC. (THE "COMPANY").
TRANSFER OF SUCH SECURITIES IS SUBJECT TO RESTRICTIONS CONTAINED
IN A WARRANT PURSUANT TO WHICH THE SECURITIES WERE PURCHASED AND
THE BY-LAWS OF THE COMPANY, COPIES OF WHICH WILL BE FURNISHED ON
REQUEST WITHOUT CHARGE.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
RESTRICTIONS ON TRANSFER CONTAINED IN (1) AN AGREEMENT DATED AS
OF SEPTEMBER 1, 1995 (THE "SHAREHOLDERS' AGREEMENT") AMONG THE
COMPANY AND THE SHAREHOLDERS (AS DEFINED THEREIN) AND (2) A STOCK
PURCHASE AGREEMENT DATED AS OF SEPTEMBER 26, 1987 (THE "SERIES F
AGREEMENT"), AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED,
ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE
SHAREHOLDERS' AGREEMENT AND THE SERIES F AGREEMENT. A COPY OF
THESE AGREEMENTS IS ON FILE AT THE OFFICES OF THE COMPANY AND MAY
BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE PRESIDENT
OF THE COMPANY.
b. Notice of Proposed Transfers. Transfer of this Warrant is restricted
----------------------------
by Section 6(e) hereof, and transfer of the Stock is restricted by (i) the by-
laws of the Company, as amended from time to time (the "By-Laws"), (ii) the
Restated Shareholders' Agreement dated as of September 1, 1995, as amended from
time to time, among the Company and its holders of Common Stock (the "Restated
Shareholders' Agreement"), and (iii) a certain Series F Convertible Preferred
Stock Purchase Agreement dated September 26, 1997 (the "Series F Agreement"), to
which the Company and Purchaser are parties. With respect to any proposed
offer, sale or other distribution of this Warrant or any of the Stock prior to
its registration under the Act, the holder of this Warrant and the holder of any
shares of the Stock to be issued upon exercise hereof shall give written notice
to this Company of such holder's intention to effect such transfer. Each such
notice shall describe the manner and circumstances of the proposed transfer in
sufficient detail and shall be accompanied by a written opinion of legal counsel
who shall be reasonably satisfactory to the Company, addressed to the Company
and reasonably satisfactory in form and substance to the Company's counsel, to
the effect that the proposed transfer does not require registration under the
Act and is in compliance with the By-Laws, the Restated Shareholders' Agreement
and the Series F Agreement. The Company, within 30 days after receipt of the
notice either shall notify such holder that such holder may dispose of the
Warrant or Stock in the manner described in the notice and the opinion of
counsel, or shall notify such holder that the Company objects to the opinion of
counsel and shall set forth the grounds for such objection. Each new certificate
representing the Warrant or Stock (except Stock sold publicly) shall bear the
appropriate restrictive legend set forth in Section 5(a), unless in the opinion
of counsel for the Company such legend is not required or advisable in order to
assure compliance with the Act
-5-
<PAGE>
or other restrictions referred to therein, or the restrictions referred to
therein shall have been terminated, waived or otherwise ceased. The Company will
issue stop-transfer instructions with respect to any Warrant or Stock to which
the foregoing restrictions apply.
c. Registration Rights. The Stock to be issued upon exercise of this
-------------------
Warrant shall be subject to the Restated Shareholders' Agreement, and the holder
shall be entitled to the registration rights set forth in Section 7 of the
Restated Shareholders' Agreement; provided, however, that the holder shall not
-------- -------
be entitled to have any of the Stock issued upon exercise of this Warrant
included in a registration statement filed in connection with the Company's
initial public offering of its Common Stock under the Act.
6. Miscellaneous Provisions.
------------------------
a. Reservation of Stock; Issuance of Stock. The Company covenants that it
---------------------------------------
will at all times reserve and keep available, solely for issuance upon exercise
of this Warrant, all shares of Stock or other securities from time to time
issuable upon exercise of this Warrant. The Company covenants and agrees that
all Stock issued upon exercise of this Warrant shall, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, and free from all liens, claims and charges, except (i)
restrictions imposed by applicable securities laws, the Company's Amended and
Restated Certificate of Incorporation, the Company's By-Laws, the Restated
Shareholders' Agreement, the Series F Agreement and this Warrant and (ii) any
security interests, pledges, liens, charges, claims or other encumbrances or
restrictions on transfer created by holder or other parties other than the
Company.
b. Modification. This Warrant and any of its terms may be changed,
------------
waived, or terminated by a written instrument signed by the Company and the
holder of this Warrant.
c. Replacement. On receipt of evidence reasonably satisfactory to the
-----------
Company of the loss, theft, destruction, or mutilation of this Warrant and, in
the case of loss, theft, or destruction, on delivery of any indemnity agreement
or bond reasonably satisfactory in form and amount to the Company or, in the
case of mutilation, on surrender and cancellation of this Warrant, the Company
at its expense will execute and deliver, in lieu of this Warrant, a new Warrant
of like tenor.
d. No Rights as Stockholder. No holder of this Warrant, as such, shall be
------------------------
entitled to vote or receive dividends or be considered a stockholder of the
Company for any purpose, nor shall anything in this Warrant be construed to
confer on any holder of this Warrant as such, any rights of a stockholder of the
Company or any right to vote, to give or withhold consent to any corporate
action, to receive notice of meeting of stockholders, to receive dividends or
subscription rights or otherwise.
e. Nontransferability. This Warrant may not be transferred or assigned
------------------
without the prior written consent of the Company except (i) to a person or
entity which has purchased capital stock of the Company directly from the
Company, (ii) a member, former member or affiliate of
-6-
<PAGE>
the holder of this Warrant, or (iii) in the case of a transfer or assignment by
a stockholder of the Company who is an individual, to a member of the immediate
family (including for this purpose parents, grandparents, grandchildren,
brothers, sisters, nieces and nephews) of such stockholder, a person related by
marriage to such stockholder, or a trust for the benefit of any of the
foregoing.
f. Notices. Notices hereunder to the holder of this Warrant shall be sent
-------
by certified or registered mail to the address given to the Company by such
holder and shall be deemed given when so mailed, or if sent to a holder outside
the United States, by telecopy with a copy sent by air mail or courier.
g. Governing Law. This Warrant shall be governed by the laws of the State
-------------
of Delaware as applied to contracts entered into in Delaware between Delaware
residents.
Dated: February 5, 1998 SQL FINANCIALS INTERNATIONAL, INC.
By: /s/ Stephen P. Jeffery
----------------------------------------
Stephen P. Jeffery, President
-7-
<PAGE>
Form of Exercise
----------------
(To be signed only upon exercise of Warrant)
To: SQL FINANCIALS INTERNATIONAL, INC.
The undersigned holder of the attached Warrant hereby irrevocably elects to
exercise the right to purchase 200,000 shares of Common Stock of SQL FINANCIALS
INTERNATIONAL, INC. (the "Company") and herewith makes payment of $1,100,000.00
for those shares and requests that the certificate for those shares be issued in
the name of the undersigned and delivered to the address below the signature of
the undersigned. The undersigned hereby affirms the statements and covenants in
Sections 5(a) and 5(b) of the Warrant.
Dated: ____________________________________
Technology Ventures, L.L.C.
By: ____________________________________
Title: ____________________________________
Dated: ____________________________________
Technology Ventures, L.L.C.
By: ____________________________________
Signature
Address:
____________________________________
____________________________________
____________________________________
-8-
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SQL FINANCIALS INTERNATIONAL, INC.
The undersigned, being the President of SQL FINANCIALS INTERNATIONAL, INC.,
a Delaware corporation, hereby certifies that:
1.
(a) The name of the Corporation is SQL FINANCIALS INTERNATIONAL, INC. (the
"Corporation").
(b) The date of filing the original Certificate of Incorporation of the
Corporation with the Secretary of State of Delaware was November 20, 1991.
2.
This Amended and Restated Certificate of Incorporation amends and restates
the provisions of the Certificate of Incorporation, as amended, of the
Corporation and was duly adopted by written consent of the stockholders of the
Corporation in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware (the "Code"), and written
notice thereof was given to all non-participating stockholders in accordance
with Section 228(d) of the Code.
3.
The Certificate of Incorporation of the Corporation, as restated and
amended hereby, shall, upon its filing with the Secretary of State of the State
of Delaware, read in its entirety as follows:
ARTICLE 1: NAME
The name of this Corporation is:
SQL FINANCIALS INTERNATIONAL, INC.
ARTICLE 2: AGENT
The name and address in the State of Delaware of this Corporation's
registered office and initial agent for service of process (located in New
Castle County) are as follows:
THE CORPORATION TRUST COMPANY
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
<PAGE>
ARTICLE 3: PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
ARTICLE 4: SHARE STRUCTURE
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is 9,500,000
shares, of which 6,000,000 shares are Common Stock, $.0001 par value per share,
and 3,500,000 shares are Preferred Stock, $1.00 par value per share.
The Preferred Stock may be issued from time to time in one or more series
with distinctive serial designations, at such purchase prices and with such
relative rights, preferences, privileges and restrictions as are determined from
time to time by the Board of Directors. The shares of each series of Preferred
Stock may vary from the shares of any other series of Preferred Stock in the
Conversion Rate, Conversion Value, Conversion Price and any other factors which
are determined by the price per share paid for such Preferred Stock, and as to
redemption rights, if any, and voting rights, if any, but shall otherwise be
identical. The Board of Directors may create any such series of Preferred Stock
by resolution duly adopted pursuant to authority hereby granted.
On the date this document is filed with the Delaware Secretary of State,
(i) 262,500 shares of Preferred Stock issued and outstanding are known and
previously have been designated as Series A Convertible Preferred Stock ("Series
A Preferred Stock"), (ii) 454,888 shares of Preferred Stock, of which 454,888
shares are issued and outstanding, are known and previously have been designated
as Series B Convertible Preferred Stock ("Series B Preferred Stock"); (iii)
516,072 shares of Preferred Stock of which 428,572 shares are issued and
outstanding are known and designated as Series C Convertible Preferred Stock
("Series C Preferred Stock"); (iv) 727,500 shares of Preferred Stock, of which
701,755 shares are issued and outstanding, are known and designated as Series D
Convertible Preferred Stock ("Series D Preferred Stock"), and (v) 706,396 shares
of Preferred Stock, of which 697,675 are issued and outstanding, are known and
designated as Series E Convertible Preferred Stock ("Series E Preferred Stock").
A total of 675,630 shares of Preferred Stock shall be known and designated as
Series F Convertible Preferred Stock ("Series F Preferred Stock"). The Board of
Directors from time to time may increase or decrease the number of shares of any
series, but not, in the case of a decrease, to a number less than the number of
shares of such series then outstanding.
The rights, preferences, privileges and restrictions granted to or imposed
upon the Common Stock and the Preferred Stock are as follows:
1. DIVIDENDS. The holders of the Preferred Stock shall be entitled to
---------
participate with the holders of Common Stock in any dividends paid or set aside
for payment (other than dividends payable solely in shares of Common Stock) so
that holders of the Preferred
2
<PAGE>
Stock shall receive with respect to each share of Preferred Stock an amount
equal to (x) the dividend payable with respect to each share of Common Stock
multiplied by (y) the number of shares (and fraction of a share, if any) of
Common Stock into which such share of Preferred Stock is convertible as of the
record date for such dividend.
2. LIQUIDATION PREFERENCE.
----------------------
(a) Preference.
----------
(i) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntarily or involuntarily, the holders of the
Preferred Stock shall be entitled to receive prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to
the holders of Common Stock of the Corporation, an amount equal to (A) the
consideration per share paid for such Preferred Stock, which is equal to
$4.00 per share of Series A Preferred Stock, $6.65 per share of Series B
Preferred Stock, $7.00 per share of Series C Preferred Stock, $8.55 per
share of Series D Preferred Stock, $8.60 per share of Series E Preferred
Stock, and $9.60 per share of Series F Preferred Stock plus (B) a further
amount equal to any dividends declared or accrued but unpaid on such
shares, pari passu with the holders of all Additional Series (as
hereinafter defined) based on the relative liquidation preferences of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and such Additional Series. If, upon such liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to the shareholders of the Corporation are
insufficient to provide for the payment of the full aforesaid preferential
amount, such assets as are so available shall be distributed among the
holders of the Preferred Stock in proportion to the relative aggregate
liquidation preferences of the Preferred Stock so held.
(ii) After the payment or the setting apart for payment to the
holders of the Preferred Stock of the preferential amounts so payable to
them, if assets remain in the Corporation the holders of the Common Stock
of the Corporation shall receive all of the remaining assets of the
Corporation pro rata in accordance with the number of shares of Common
Stock held by them.
(iii) All amounts per share set forth in this subparagraph
2(a) shall be appropriately adjusted for any stock splits, stock
combinations, stock dividends or similar recapitalizations.
(b) Noncash Distributions. If any of the assets of the Corporation
---------------------
are to be distributed other than in cash under this paragraph 2 or for any
purpose, then the Board of Directors of the Corporation shall promptly engage
independent competent appraisers to determine the value of the assets to be
distributed to the holders of Preferred Stock or Common Stock. The Corporation
shall, upon receipt of such appraiser's valuation, give prompt written notice to
each holder of shares of Preferred Stock or Common Stock of the appraiser's
valuation.
3
<PAGE>
(c) Consolidation or Merger. A consolidation or merger of the
-----------------------
Corporation with or into any other corporation or corporations (other than a
consolidation or merger following which the holders of 51% or more of the
capital stock of the resulting or surviving entity, based on voting power in the
election of directors, are persons or entities who were shareholders of the
Corporation immediately prior to such consolidation or merger), or a sale of all
or substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this paragraph 2,
unless in any such particular event the holders of more than 80% of the then
outstanding shares of Preferred Stock, voting together as a single class,
determine that such particular event shall not, for purposes of this paragraph
2, be deemed a liquidation, dissolution or winding up.
3. VOTING RIGHTS. Except as otherwise provided in the series
-------------
resolution creating any Additional Series (as hereinafter defined), the holder
of each share of Preferred Stock shall be entitled to the number of votes equal
to the number of shares of Common Stock into which each share of Preferred Stock
could be converted on the record date for the vote or written consent of
shareholders and, except as otherwise required by law, shall have voting rights
and powers equal to the voting rights and powers of the Common Stock. Except as
otherwise provided in the series resolution creating any Additional Series (as
hereinafter defined), the holder of each share of Preferred Stock shall be
entitled to notice of any shareholders' meeting in accordance with the bylaws of
the Corporation and shall vote with holders of the Common Stock upon all other
matters submitted to a vote of shareholders, except those matters required to be
submitted to a class or series vote pursuant to paragraph 5 or by law.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares of Common
Stock into which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half rounded
upward to one).
4. CONVERSION. Preferred Stock shall be convertible into Common
----------
Stock, as follows:
(a) Right to Convert. Each share of 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 the Corporation. Each share of
Preferred Stock shall be convertible into the number of shares of Common Stock
which results from dividing the "Conversion Price" per share in effect at the
time of conversion into the "Conversion Value" per share. The number of shares
of Common Stock into which a share of Preferred Stock is convertible is
hereinafter referred to as the "Conversion Rate." Both the Conversion Price per
share of Preferred Stock (the "Conversion Price") and the Conversion Value per
share of Preferred Stock initially in effect shall be equal to the consideration
paid for such Preferred Stock, which is equal to $4.00 per share of Series A
Preferred Stock, $6.65 per share of Series B Preferred Stock, $7.00 per share of
Series C Preferred Stock, $8.55 per share of Series D Preferred Stock, $8.60 per
share of Series E Preferred Stock, and $9.60 per share of Series F Preferred
Stock. The initial Conversion Price of Preferred Stock shall be subject to
adjustment as hereinafter provided.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at its then effective
Conversion Rate
4
<PAGE>
immediately upon the closing of a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
any of the corporation's securities (as that term is defined under the
Securities Act of 1933, as then in effect) with aggregate gross proceeds to the
Corporation, at the public offering price, of at least $10,000,000 and an
equivalent public offering price per share of Common Stock of at least $18.00
(such amount to be appropriately adjusted in the event of stock splits, stock
combinations, stock dividends or similar recapitalizations).
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock as provided in
paragraph 4(a), he shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation and shall give written notice to
the Corporation at such office that he elects to convert the same. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock a certificate or certificates for the
number of shares of Common Stock to which he 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 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 on such date.
In the event of an automatic conversion pursuant to paragraph 4(b),
the outstanding shares of Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation;
provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless the certificates evidencing such shares of Preferred Stock are
either delivered to the Corporation as provided above, or the holder notifies
the Corporation that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such delivery, or such
agreement and indemnification in the case of a lost certificate, issue and
deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of closing of the offering, 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 on such date.
(d) Fractional Shares. No fractional shares of Common Stock shall
-----------------
be issued upon conversion of Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the Conversion Price.
(e) Adjustment of Conversion Price. The Conversion Price of each
------------------------------
series of Preferred Stock shall be subject to adjustment from time to time as
follows:
5
<PAGE>
(i) If the Corporation shall issue any Common Stock or other
securities of the Corporation convertible into or exchangeable for Common
Stock (other than "Excluded Stock," as defined below, or stock dividends,
subdivisions, split-ups, combinations or dividends, which such events are
covered by subparagraphs 4(e)(iii), (iv), and (v)), for a consideration per
share less than the Conversion Price for such series in effect immediately
prior to the issuance of such Common Stock (or other securities convertible
into or exchangeable for Common Stock), then the Conversion Price for such
series shall forthwith be decreased immediately after such issuance to a
price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of: (x) the total number of
shares of Common Stock outstanding (including any shares of Common
Stock deemed to have been issued pursuant to subdivision (3) of this
subparagraph (i)) immediately prior to such issuance multiplied by the
Conversion Price in effect immediately prior to such issuance plus (y)
the consideration received by the Corporation upon such issuance, by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued
pursuant to subdivision (3) of this subparagraph (i)) immediately
after the issuance of such Common Stock (or other securities
convertible into or exchangeable for Common Stock).
For purposes of making any such calculation pursuant to this
subparagraph (i), the shares of Common Stock issuable upon conversion
of the outstanding shares of Preferred Stock, together with any other
shares of Common Stock deemed issued and outstanding pursuant to
subdivision (3) of this subparagraph (i), shall be deemed issued and
outstanding at all times. For the purposes of this subparagraph (i),
the following provisions shall also be applicable:
(1) In the case of the issuance of Common Stock for
cash, the consideration received therefor shall be deemed to be
the amount of cash paid therefor without deducting any discounts
or commissions paid or incurred by the Corporation in connection
with the issuance and sale thereof.
(2) In the case of the issuance of 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 in good faith by the Board of
Directors of the Corporation.
(3) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (other than
Excluded Stock), (ii) securities by their terms convertible or
exchangeable for
6
<PAGE>
Common Stock (other than Excluded Stock), or (iii) options to
purchase or rights to subscribe for such convertible or
exchangeable securities:
(C) 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 be issuable for a
consideration equal to the consideration (determined in the manner
provided in subdivisions (1) and (2) above), if any, received by the
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;
(D) 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 be issuable for a consideration equal to the consideration
received by the Corporation for any such securities and related
options or rights, plus the additional consideration, if any, to be
received by the 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
subdivisions (1) and (2) above);
(E) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options or rights or upon conversion
of or in exchange for such convertible or exchangeable securities 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
options or rights or securities were issued, provided that the
consideration for which such Common Stock is deemed to be issuable
does not exceed the issuance price of securities issued in the latest
bona fide round of financing by the Corporation;
(F) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion
of or exchange for such convertible or exchangeable securities, or on
any change in the minimum purchase price of such options, rights or
securities, other than a change resulting from the antidilution
provisions of such options, rights or securities, the Conversion Price
shall forthwith be readjusted to such Conversion Price as would have
obtained had the adjustment (and any subsequent adjustments) made upon
(x) the issuance of such options, rights or securities not exercised,
converted or exchanged prior to such change, as the case may be, been
made upon the basis of such change or (y) the options or rights
related to such securities not converted or exchanged prior to such
change, as the case may be, been made upon the basis of such change;
and
7
<PAGE>
(G) on 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 shall forthwith be
readjusted to such Conversion Price as would have obtained had the
adjustment (and any subsequent adjustments) made upon the issuance of
such options, rights, convertible or exchangeable securities or
options or rights related to such convertible or exchangeable
securities, as the case may be, been made upon the basis of 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 convertible or exchangeable securities or upon the
exercise of the options or rights related to such convertible or
exchangeable securities, as the case may be.
(ii) "Excluded Stock" shall mean:
(A) all shares of Common Stock issued and outstanding on the
date this document is filed with the Delaware Secretary of State;
(B) all shares of Common Stock into which shares of
Preferred Stock are convertible;
(C) up to 839,292 shares of Common Stock issued or issuable
on or after the date referred to in (ii)(A) above upon exercise of
options or other purchase rights granted to employees, officers,
directors or consultants of the Corporation and approved by the Board
of Directors of the Corporation (and any reissuance of such shares
after repurchase thereof);
(D) up to 87,500 shares of Series C Preferred Stock and
25,745 shares of Series D Preferred Stock in each case issuable upon
exercise of warrants issued on or after February 21, 1995;
(E) up to 8,721 shares of Series E Preferred Stock issuable
upon exercise of warrants issued on or after March 28, 1997;
(F) up to 46,821 of Series F Preferred Stock issuable upon
exercise of warrants issued on or after June 5, 1997; and
(G) all shares of Common Stock or other securities
(including options, warrants and other purchase rights) issued or to
be issued to employees, officers, directors, consultants, affiliates
or lenders of the Corporation after receipt of written consent to such
issuance from the holders of 60% of the then outstanding Preferred
Stock and approval of such issuance by the Board of Directors of the
Corporation.
8
<PAGE>
Shares of Excluded Stock described in (C), (D), (E), (F) and
(G) of this subparagraph 4(e)(ii) shall not be deemed to be
outstanding for purposes of the computations of subparagraph 4(e)(i)
above until actually issued.
(iii) If the number of shares of Common Stock outstanding at any
time after the date hereof is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, on the date such payment is made or such change is
effective, the Conversion Price shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of
the Preferred Stock shall be increased in proportion to such increase
of outstanding shares.
(iv) If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination of the
outstanding shares of Common Stock, then, on the effective date of
such combination, the Conversion Price shall be appropriately
increased so that the number of shares of Common Stock issuable on
conversion of the Preferred Stock shall be decreased in proportion to
such decrease in outstanding shares.
(v) In case the Corporation shall declare a cash dividend upon its
Common Stock payable otherwise than out of retained earnings or shall
distribute to holders of its Common Stock shares of its capital stock
(other than Common Stock), stock or other securities of other persons,
evidences of indebtedness issued by the Corporation or other persons,
assets (excluding cash dividends) or options or rights (excluding
options to purchase and rights to subscribe for Common Stock or other
securities of the Corporation convertible into or exchangeable for
Common Stock), then, in such case, the holders of shares of Preferred
Stock shall, concurrent with the distribution to holders of Common
Stock, receive a like distribution based upon the number of shares of
Common Stock into which such Preferred Stock is then convertible.
(vi) in case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the stock of the
Corporation (other than a change in par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), or
the consolidation or merger of the Corporation with or into another
person (other than a consolidation or merger in which the Corporation
is the continuing entity and which does not result in any change in
the Common Stock), or of the sale or other disposition of all or
substantially all the properties and assets of the Corporation as an
entirety to any other person, the shares of Preferred Stock shall, if
such event is not deemed a liquidation for purposes of Subparagraph
2(c), after such reorganization, reclassification, consolidation,
merger, sale or other disposition, be convertible into the kind and
number of shares of stock or other securities or property of the
Corporation or of the entity resulting from such consolidation or
surviving such merger or to which such properties and assets shall
have been sold or otherwise disposed to which such holder would have
been entitled if immediately prior to such reorganization,
reclassification, consolidation, merger, sale or other disposition he
had converted his shares of Preferred Stock into Common Stock. The
provisions of this
9
<PAGE>
subparagraph (vi) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other
dispositions.
(vii) All calculations under this paragraph 4 shall be made
to the nearest cent or to the nearest one hundredth (1/100) of a
share, as the case may be.
(f) Minimal Adjustments. No adjustment in a Conversion Price need
-------------------
be made if such adjustment would result in a change in a Conversion Price of
less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price.
(g) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of a Conversion Price pursuant to this paragraph 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price and Rate at the time in effect for the Preferred Stock
held, and (iii) 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 the
Preferred Stock.
(h) Notices of Record Date. In the event of any taking by the
----------------------
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, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified herein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend or distribution.
(i) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the 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 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 Preferred Stock, the
Corporation will 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 purpose.
(j) Notices. Any notice required by the provisions of this
-------
paragraph 4 to be given to the holder of shares of the Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his latest address appearing on the books
of the Corporation.
10
<PAGE>
5. REDEMPTION OF SERIES A, SERIES B, SERIES C, SERIES D, SERIES E AND
------------------------------------------------------------------
SERIES F PREFERRED STOCK.
------------------------
(a) On the 75th day following any Preferred Redemption Date, as
defined below, and so long as any shares of Series A, Series B, Series C, Series
D, Series E or Series F Preferred Stock (for purposes of this Section 5
"Redeemable Preferred Stock") shall be outstanding, the Corporation shall at the
request of any holder of Redeemable Preferred Stock sent on or before the later
of the 30th day following such Preferred Redemption Date or the 10th day
following receipt of the notice specified in paragraph 5(d) (unless otherwise
prevented by law and, if so prevented, as soon thereafter as is permissible)
redeem, at an amount per share equal to the Conversion Value of such Redeemable
Preferred Stock as of such Preferred Redemption Date plus declared but unpaid
dividends, if any, payable with respect thereto, the portion of the shares of
each such series of Preferred Stock held by such holder set forth below. The
total sum payable for shares of Preferred Stock on the Preferred Redemption Date
is hereinafter referred to as the "Preferred Redemption Price." As used herein,
the term "Preferred Redemption Date" shall mean any of the following dates:
Percentage of
Outstanding Redeemable
Preferred Redemption Dates Preferred Stock
-------------------------- ----------------------
(i) The date of termination of
the employment of Joseph S.
McCall with the Corporation
for any reason other than
disability, as defined below 100.00%
(ii) September 30, 1998 33.33%
(iii) September 30, 1999 50.00%
(iv) September 30, 2000 100.00%
(b) If upon any redemption the assets of the Corporation legally
available for redemption shall be insufficient to pay the holders of Redeemable
Preferred Stock the full amounts to which they shall be entitled, the holders of
shares of Redeemable Preferred Stock shall share ratably in any such redemption
according to the respective amounts which would be payable in respect of shares
held by them upon such redemption if all amounts payable on or with respect to
said shares were paid in full. If less than all the shares of Redeemable
Preferred Stock then outstanding are to be redeemed, the redemption shall be pro
rata with respect to such shares based upon the relative aggregate liquidation
preferences of the outstanding shares of Redeemable Preferred Stock then owned
by each holder thereof. On and after the Preferred Redemption Date (unless
default shall be made by the Corporation in the payment of the applicable
Preferred Redemption Price as hereinafter provided, in which event such rights
shall be exercisable until such default is cured), all rights in respect of the
shares of Redeemable Preferred Stock, to be redeemed, except the right to
receive the applicable Preferred
11
<PAGE>
Redemption Price as hereinafter provided, shall cease and terminate; and such
shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation. As
used herein, the term "disability" shall mean the inability, for any medical
reason, to perform substantial duties as an executive officer of the
Corporation, as determined in good faith by the Board of Directors of the
Corporation (excluding for this purpose Joseph S. McCall, if a director, and any
representative of a holder of Redeemable Preferred Stock who is a director).
(c) Any request for redemption as herein provided shall be mailed by
first class certified mail, return receipt requested, postage prepaid, to the
Corporation at its then current address. At any time on or after the Preferred
Redemption Date, the holders of record of shares of Redeemable Preferred Stock
to be redeemed shall be entitled to receive the applicable Preferred Redemption
Price upon actual delivery to the Corporation or its agent of the certificates
representing the shares to be redeemed.
(d) Within five business days following receipt of any request for
redemption as herein provided, the Corporation shall notify each other holder of
record of shares of Redeemable Preferred Stock which has not made a similar
request with respect to the Preferred Redemption Date in question. Such notice
shall specify the name of the holder or holders requesting redemption, the
number of shares covered by such request or requests, and the Corporation's
estimate of funds available for such purposes.
(e) The Corporation will not, and will not permit any subsidiary of
the Corporation to, purchase or acquire any shares of Redeemable Preferred Stock
otherwise than pursuant to the terms of this paragraph 5 or pursuant to an offer
made on the equivalent terms to all holders of Redeemable Preferred Stock at the
time outstanding.
(f) Once redeemed pursuant to the provisions of this paragraph 5,
shares of Redeemable Preferred Stock shall be cancelled and not subject to
reissuance.
(g) No Redeemable Preferred Stock shall be entitled to the benefit of
a sinking fund or purchase fund.
(h) Notwithstanding anything contained herein to the contrary, the
redemption rights granted to the holders of Redeemable Preferred Stock pursuant
to the provisions of paragraph 5(a) above shall not be exercised by any holder
of Redeemable Preferred Stock if, in the sole discretion of such holder, the
exercise thereof would result in a violation of any statute or regulation
applicable to such holder.
6. PROTECTIVE PROVISIONS.
---------------------
(a) Approval of Preferred Stock. So long as any of the Preferred
---------------------------
Stock shall be outstanding the Corporation shall not without obtaining the
approval (by vote or written
12
<PAGE>
consent, as provided by law) of the holders of not less than a majority of the
outstanding shares of Preferred Stock:
(i) Change of Rights. Materially and adversely alter or change
----------------
the rights, preferences or privileges of the Preferred Stock; or
(ii) Create a New Class. Create any new class or series of
------------------
shares having preferences over any outstanding shares of Preferred Stock as
to dividends or assets, or authorize or issue shares of stock of any class
or series or any bonds, debentures, notes or other obligations convertible
into or exchangeable for, or having option rights to purchase, any shares
of stock of this Corporation having any preference or priority as to
dividends or assets superior to or, except as provided in paragraph 6(b),
on a parity with any such preference or priority of any outstanding shares
of Preferred Stock; or
(iii) Reclassification. Reclassify any class or series of any
----------------
Common Stock into shares having any preference or priority as to dividends
or assets superior to or, except as provided in paragraph 6(b), on a parity
with any such preference or priority of Preferred Stock; or
(iv) Merger, Consolidation, Sale, etc., of Assets. Merge or
--------------------------------------------
consolidate with, or permit any of its subsidiaries to merge or consolidate
with, any entity, except that any such subsidiary may be merged into the
Corporation or any other such subsidiary; sell, lease, license or otherwise
dispose of, or permit any such subsidiary to sell, lease, license or
otherwise dispose of, all or substantially all of the consolidated assets
of the Corporation in any twelve-month period; provided, that this
paragraph 6(a)(iv) shall not be applicable with respect to any merger,
consolidation, sale, lease, license or other disposition yielding net
proceeds per share of Preferred Stock of at least $18.00 (such amount to be
appropriately adjusted in the event of stock splits, stock combinations,
stock dividends or similar recapitalizations). A sale of substantially all
of the consolidated assets of the Corporation means the sale or other
disposition of more than 50% of the value of the consolidated assets of the
Corporation; or
(v) Payment of Dividends. Pay any dividend with respect to its
--------------------
capital stock, other than dividends payable solely in shares of such
capital stock.
(b) Additional Series. Notwithstanding any other provision of this
-----------------
Certificate of Incorporation to the contrary, the Corporation may, without
obtaining the consent of holders of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the
Series E Preferred Stock, the Series F Preferred Stock or any Additional Series
(as hereinafter defined), authorize by resolution of its Board of Directors (a
"series resolution") and issue one or more additional series of the
Corporation's Preferred Stock (each such series being referred to herein as an
"Additional Series"); provided, however, that (i) each such Additional Series
-------- -------
shall have substantially the same terms, powers, preferences and
13
<PAGE>
rights as the Series A Preferred Stock, the Series B Preferred Stock, the Series
C Preferred Stock, the Series D Preferred Stock, Series E Preferred Stock and
the Series F Preferred Stock except that the liquidation preference, the
Conversion Value and the initial Conversion Price for each such Additional
Series shall equal the purchase price per share paid for such stock, (ii) such
Additional Series need not have voting rights or redemption rights, and (iii) in
all other respects each share of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock and any such Additional Series shall be pari
----
passu (with the shares of Series A Preferred Stock, Series B Preferred Stock,
- -----
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock and each such Additional Series to share in liquidation
proceeds based on their relative liquidation preferences).
ARTICLE 5: LIABILITY OF DIRECTORS
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same now exists or may hereafter be amended in a manner
more favorable to directors, a director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
ARTICLE 6: INDEMNIFICATION OF DIRECTORS
The Corporation shall indemnify to the full extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor of the Corporation.
ARTICLE 7: BALLOTING AT ELECTIONS
Election of directors need not be by written ballot except and to the
extent provided in the bylaws of the Corporation.
ARTICLE 8: AMENDMENT OF BYLAWS
The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal bylaws of the Corporation, but the stockholders may make
additional bylaws and may alter or repeal any bylaw whether adopted by them or
otherwise.
ARTICLE 9: CORPORATE BOOKS
The books of the Corporation may be kept (subject to any provision of
law) outside the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the bylaws of the Corporation.
14
<PAGE>
ARTICLE 10: INCORPORATOR
The name and mailing address of the incorporator is as follows:
G. Donald Johnson, Esq.
Womble Carlyle Sandridge & Rice, PLLC
1275 Peachtree Street, N.E.
Suite 700
Atlanta, Georgia 30309
IN WITNESS WHEREOF, the undersigned has duly executed this Amended and
Restated Certificate of Incorporation on the 26th day of September, 1997.
SQL FINANCIALS INTERNATIONAL, INC.
ATTEST: BY: /s/ Stephen P. Jeffery
-------------------------------
STEPHEN P. JEFFERY
President
/s/ Arthur G. Walsh, Jr.
- -------------------------------
ARTHUR G. WALSH, JR., Secretary
[CORPORATE SEAL]
15
<PAGE>
EXHIBIT 3.2
Adopted: November 22, 1992
BYLAWS
OF
SQL FINANCIALS INTERNATIONAL, INC.
ARTICLE I. OFFICES
---------- -------
Section 1.01. Registered Office and Agent. The Corporation shall have and
------------- ----------------------------
continuously maintain a registered office and registered agent in accordance
with the provisions of Sections 131 through 136 of the General Corporation Law
of Delaware.
Section 1.02. Other Offices. The Corporation may have offices at such
------------- --------------
place or places within or without the State of Delaware as the Board of
Directors may from time to time appoint or the business of the Corporation may
require or make desirable.
ARTICLE II. STOCKHOLDERS MEETINGS
----------- ---------------------
Section 2.01. Place of Meetings. All meetings of the stockholders shall
------------- ------------------
be held at such place as may be fixed from time to time by the Board of
Directors.
Section 2.02. Annual Meetings. An annual meeting of the stockholders
------------- ----------------
shall be held on the last business day of the fifth month following the close of
each fiscal year or at such other time and date and following the close of the
fiscal year as shall be determined by the Board of Directors (and in any event
within thirteen (13) months of the last annual meeting of Stockholders), for the
purpose of electing Directors and transacting such other business as may
properly be brought before the meeting.
Section 2.03. Special Meetings. Special meetings of the stockholders, for
------------- -----------------
any purpose or purposes, unless otherwise prescribed by statute or the
Certificate of Incorporation, may be
<PAGE>
called by the Chairman of the Board or the President; and shall be called by the
Chairman of the Board, the President, or the Secretary: (i) when so directed by
the Board of Directors, (ii) at the request in writing of any two or more
Directors, or (iii) at the written request of stockholders owning a majority of
the capital stock of the Corporation issued, outstanding, and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Section 2.04. Notice of Meetings. Except as otherwise required by statute
------------- -------------------
or the Certificate of Incorporation, written notice of each meeting of the
stockholders, whether annual or special, shall be served either personally or by
mail, upon each Stockholder of record entitled to vote at such meeting, not less
than 10 nor more than 60 days before such meeting. If mailed, such notice shall
be directed to a Stockholder at his post office address last shown on the
records of the Corporation. Notice of any special meeting of stockholders shall
state the purpose or purposes for which the meeting is called. Notice of any
meeting of stockholders shall not be required to be given to any Stockholder
who, in person or by his attorney thereunto authorized, either before or after
such meeting, shall waive such notice by means of a signed writing. Attendance
of a Stockholder at a meeting, either in person or by proxy, shall of itself
constitute waiver of notice and waiver of any and all objections to the place of
the meeting, the time of the meeting, and the manner in which it has been called
or convened, except when a Stockholder attends a meeting solely for the purpose
of stating, at the beginning of the meeting, any such objection or objections to
the transaction of business. When a meeting is adjourned to another place, date
or time, written notice need not be given of the adjourned meeting if the place,
date and time thereof are announced at the meeting at which the adjournment is
taken; provided, however, that if the date of any adjourned meeting is more than
thirty (30) days after the date for which the meeting was originally noticed, or
if a new record date is fixed for the adjourned meeting, written notice of the
place, date, and time of the adjourned meeting shall be given in conformity
herewith.
2
<PAGE>
Section 2.05. Quorum. The holders of a majority of the stock issued,
------------- -------
outstanding, and entitled to vote, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by law, by the Certificate
of Incorporation, or by these Bylaws. If, however, such majority shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until the requisite amount of voting stock shall be present. At
such adjourned meeting at which a quorum shall be present in person or by proxy,
any business may be transacted that might have been transacted at the meeting as
originally called.
Section 2.06. Voting. At every meeting of the stockholders, including
------------- -------
meetings of stockholders for the election of Directors, any Stockholder having
the right to vote shall be entitled to vote in person or by proxy, but no proxy
shall be voted after three (3) years from its date, unless said proxy provides
for a longer period. Each Stockholder shall have one vote for each share of
stock having voting power, registered in his name on the books of the
Corporation. If a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the stock holders, except as to the election of Directors
or as otherwise provided by law, by the Certificate of Incorporation, or by
these Bylaws. Directors shall be elected by a plurality of the votes of the
Shares present in person or represented by proxy at the meeting and entitled to
vote on the election of Directors.
Section 2.07. Conduct of Meetings. The Chairman of the Board of
------------- --------------------
Directors, or in his absence the President, or in their absence a person
appointed by the Board of Directors, shall preside at meetings of the
stockholders. The Secretary of the Corporation, or in the Secretary's absence,
any person appointed by the presiding Officer shall act as Secretary for
meetings of the
3
<PAGE>
stockholders. Meetings shall be governed by the most recent edition of
Roberts Rules of Order, except to the extent that these Bylaws are inconsistent
- ----------------------
therewith.
Section 2.08. Written Consents. Any action required to be taken at any
------------- -----------------
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of the stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III. BOARD OF DIRECTORS
------------ ------------------
Section 3.01. Authority. Except as may be otherwise provided by any legal
------------- ----------
agreement among stockholders, the property and business of the Corporation shall
be managed by its Board of Directors. In addition to the powers and authority
expressly conferred by these Bylaws, the Board of Directors may exercise all
powers of the Corporation and do all such lawful acts and things as are not by
law, by any legal agreement among stockholders, by the Certificate of
Incorporation, or by these Bylaws directed or required to be exercised or done
by the stockholders.
Section 3.02. Number and Term. The Board of Directors shall consist of up
------------- ----------------
to seven (7) members to be fixed by resolution of the Board of Directors or
stockholders from time to
4
<PAGE>
time. Each Director (whether elected at an annual meeting of stockholders or
otherwise) shall hold office until the annual meeting of stockholders held next
after this election, and until a successor shall be elected and qualified, or
until his earlier death, resignation, incapacity to serve, or removal.
Directors need not be stockholders.
Section 3.03. Vacancies. A vacancy on the Board of Directors shall exist
------------- ----------
upon the death, resignation, removal, or incapacity to serve of any Director;
upon the increase in the number of Directors; and upon the failure of the
stockholders to elect the full number of Directors authorized. The remaining
Directors shall continue to act, and such vacancies may be filled by a majority
vote of the remaining Directors then in office, though less than a quorum, and,
if not filled by prior action of the Directors, may be filled by the
stockholders at any meeting held during the existence of such vacancy.
Section 3.04. Place of Meetings. The Board of Directors may hold its
------------- ------------------
meetings at such place or places within or without the State of Delaware as it
may from time to time determine.
Section 3.05. Compensation of Directors. Directors may be allowed such
------------- --------------------------
compensation for attendance at regular or special meetings of the Board of
Directors and of any special or standing committees thereof as may be from time
to time determined by resolution of the Board of Directors.
Section 3.06. Resignation. Any Director may resign by giving written
------------- ------------
notice to the Board of Directors. The resignation shall be effective on
receipt, unless the notice specifies a later time for the effective date of such
resignation, in which event the resignation shall be effective upon the election
and qualification of a successor. If the resignation is effective at a
5
<PAGE>
future time, a successor may be elected before that time to take office when the
resignation becomes effective.
Section 3.07. Time of Meetings. Each newly elected Board of Directors
------------- -----------------
shall meet (i) at the place and time which shall have been determined, in
accordance with the provisions of these Bylaws, for the holding of the regular
meeting of the Board of Directors scheduled to be held first following the
annual meeting of the stockholders at which the newly elected Board of Directors
shall have been elected, or (ii) if no place and time shall have been fixed for
the holding of such meeting of the Board of Directors, then immediately
following the close of such annual meeting of stockholders and at the place
thereof, or (iii) at such time and place as shall be fixed by the written
consent of all the Directors of such newly elected Board of Directors. In any
event no notice of such meeting to the newly elected Directors shall be
necessary in order legally to constitute the meeting.
Section 3.08. Notice of Meetings. Regular meetings of the Board of
------------- -------------------
Directors may be held at such time and place within or without the State of
Delaware as shall from time to time be determined by the Board of Directors by
resolution, and such resolution shall constitute notice thereof. No further
notice shall be required in order legally to constitute such regular meeting.
Section 3.09. Special Meetings. Special meetings of the Board of
------------- -----------------
Directors may be called by the Chairman of the Board or the President on not
less than two days' notice by mail, telegram, cablegram, or personal delivery to
each Director and shall be called by the Chairman of the Board, the President,
or the Secretary in like manner and on like notice on the written request of any
two or more Directors delivered to such Officer of the Corporation. Any such
6
<PAGE>
special meeting shall be held at such time and place within or without the State
of Delaware as shall be stated in the notice of meeting.
Section 3.10. Notice - Purpose of Meeting. No notice of any special
------------- ----------------------------
meeting of the Board of Directors need state the purposes thereof, and such
notice shall be sufficient if it states the time and place of such meeting and
the person or persons calling such meeting.
Section 3.11. Quorum; Voting. At all meetings of the Board of Directors,
------------- --------------
the presence of a majority of the authorized number of Directors shall be
necessary and sufficient to constitute a quorum for the transaction of business.
The act of a majority of the Directors present at any meeting at which there is
a quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law, by the Certificate of Incorporation or by these
Bylaws. In the absence of a quorum, a majority of the Directors present at any
meeting may adjourn the meeting from time to time until a quorum be had. Notice
of any adjourned meeting need only be given by announcement at the meeting at
which the adjournment is taken.
Section 3.12. Telephonic Participation. Directors may participate in
------------- -------------------------
meetings of the Board of Directors through use of conference telephone or
similar communications equipment, provided all Directors participating in the
meeting can hear one another. Such participation shall constitute personal
presence at the meeting, and consequently shall be counted toward the required
quorum and in any vote.
Section 3.13. Conduct of Meetings. The Chairman of the Board, or in his
------------- --------------------
absence the President, and in their absence the Vice President, if any, named by
the Board of Directors, shall preside at meetings of the Board of Directors.
The Secretary of the Corporation, or in the Secretary's absence any person
appointed by the presiding Officer, shall act as Secretary for
7
<PAGE>
meetings of the Board of Directors. Meetings shall be governed by the most
recent edition of Robert's Rules of Order, except to the extent that these
-----------------------
Bylaws are inconsistent therewith.
Section 3.14. Action by Written Consent. Any action required or permitted
------------- --------------------------
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of the proceedings of the Board or committee.
Section 3.15. Removal. Any Director or the entire Board of Directors may
------------- --------
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of Directors.
ARTICLE IV. COMMITTEES
----------- ----------
Section 4.01. Executive Committee. The Board of Directors may by
------------- --------------------
resolution adopted by a majority of the entire Board, designate an Executive
Committee of two or more Directors. Each member of the Executive Committee shall
hold office until the first meeting of the Board of Directors after the annual
meeting of the stockholders next following his election and until his successor
member of the Executive Committee is elected, or until his death, resignation,
removal, or until he shall cease to be a Director.
Section 4.02. Executive Committee - Powers. During the intervals between
------------- -----------------------------
the meetings of the Board of Directors, the Executive Committee may exercise all
the powers of the Board of Directors in the management of the business affairs
of the Corporation, including all powers specifically granted to the Board of
Directors by these Bylaws or by the Certificate of
8
<PAGE>
Incorporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it; provided, however, that the Executive Committee
shall not have the power to amend or repeal any resolution of the Board of
Directors that by its terms shall not be subject to amendment or repeal by the
Executive Committee, and the Executive Committee shall not have the authority of
the Board of Directors in reference to (1) amending the Certificate of
Incorporation; (2) adopting a plan of merger or consolidation; (3) the sale,
lease, exchange or other disposition of all or substantially all the property
and assets of the Corporation; (4) removal of any or all of the Officers of the
Corporation; (5) a voluntary dissolution of the Corporation or a revocation of
any such voluntary dissolution; or (6) certain other matters described in
Section 141(d) of the General Corporation Law of Delaware.
Section 4.03. Executive Committee - Meetings. The Executive Committee
------------- -------------------------------
shall meet from time to time on call of the Chairman of the Board, the
President, or of any one or more members of the Executive Committee. Meetings
of the Executive Committee may be held at such place or places, within or
without the State of Delaware, as the Executive Committee shall determine or as
may be specified or fixed in the respective notices of such meetings. The
Executive Committee may fix its own rules of procedure, including provision for
notice of its meetings, shall keep a record of its proceedings, and shall report
these proceedings to the Board of Directors at the meeting thereof held next
after such meeting of the Executive Committee. All such proceedings shall be
subject to revision or alteration by the Board of Directors except to the extent
that action shall have been taken pursuant to or in reliance upon such
proceedings prior to any such revision or alteration. The Executive Committee
shall act by majority vote of its members.
9
<PAGE>
Section 4.04. Executive Committee - Alternate Members. The Board of
------------- ----------------------------------------
Directors, by resolution adopted in accordance with Section 4.01, may designate
one or more Directors as alternate members of any such committee, who may act in
the place and stead of any absent member or members at any meeting of such
committee.
Section 4.05. Other Committees. The Board of Directors, by resolution
------------- -----------------
adopted by a majority of the entire Board, may designate one or more additional
committees, each committee to consist of three or more of the Directors of the
Corporation (other than the Stock Option Committee, which shall consist of two
or more members), which shall have such name or names and shall have and may
exercise such powers of the Board of Directors in the management of the business
and affairs of the Corporation, except the powers denied to the Executive
Committee, as may be determined from time to time by the Board of Directors.
Section 4.06. Removal of Committee Members. The Board of Directors shall
------------- -----------------------------
have power at any time to remove any or all of the members of any committee,
with or without cause, and to fill vacancies in and to dissolve any such
committee.
ARTICLE V. OFFICERS
---------- --------
Section 5.01. Election of Officers. The Board of Directors at its first
------------- ---------------------
meeting after each annual meeting of stockholders shall elect a President and a
Secretary and may elect such other of the following Officers: a Chairman of the
Board, Chief Executive Officer, Chief Operating Officer, one or more Vice
Presidents (one of whom may be designated Executive Vice President), and a
Treasurer. The Board of Directors at any time and from time to time may appoint
such other Officers as it shall deem necessary, including one or more Assistant
10
<PAGE>
Treasurers, and one or more Assistant Secretaries, who shall hold their offices
for such terms as shall be determined by the Board of Directors, and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors or the Chairman of the Board.
Section 5.02. Compensation. The salaries of the Officers of the
------------- -------------
Corporation shall be fixed by the Board of Directors, except that the Board of
Directors may delegate to any Officer or Officers the power to fix the
compensation of any Officer appointed in accordance herewith.
Section 5.03. Term, Removal, Resignation. Each Officer of the Corporation
------------- ---------------------------
shall hold office until his successor is chosen or until his earlier
resignation, death, removal, or termination of his office. Any Officer may be
removed with or without cause by a majority vote of the Board of Directors
whenever in its judgment the best interests of the Corporation will be served
thereby. Any Officer may resign by giving written notice to the Board of
Directors. The resignation shall be effective upon receipt, or at such time as
may be specified in such notice.
Section 5.04. Chairman of the Board. The Chairman of the Board shall see
------------- ---------------------
that all orders and resolutions of the Board of Directors are carried into
effect. The Chairman of the Board shall be ex officio a member of all standing
-- -------
committees, unless otherwise provided in the resolution appointing the same.
The Chairman of the Board shall call meetings of the stockholders, the Board of
Directors, and the Executive Committee to order and shall act as chairman of
such meetings.
Section 5.05. Chief Executive Officer. The Chief Executive Officer shall
------------- -----------------------
have general and active management of the business of the Corporation and shall
have final decision-making authority in the conduct of all business affairs of
the Corporation. The Chief Executive Officer
11
<PAGE>
shall be ex officio a member of all standing committees, unless otherwise
-- -------
provided in the resolutions appointing the same and in the absence of a Chairman
of the Board shall have all of the powers and perform the duties of Chairman of
the Board. If no Treasurer is elected, the Chief Executive Officer shall also
have all of the powers and perform the duties of Treasurer.
Section 5.06. President. The President shall have such powers and perform
------------- ----------
such duties as are specifically imposed upon him by law and as may be assigned
to him by the Board of Directors or the Chairman of the Board. The President
shall be ex officio a member of all standing committees, unless otherwise
-- -------
provided in the resolution appointing such committees. In the absence of a
Chairman of the Board and a Chief Executive Officer, the President shall call
meetings of the stockholders, the Board of Directors, and the Executive
Committee to order and shall act as chairman of such meetings.
Section 5.07. Chief Operating Officer. The Chief Operating Officer shall
------------- -----------------------
perform such administrative, operational, managerial and other duties as the
Board of Directors, the Chairman of the Board or the Chief Executive Officer
shall request or delegate.
Section 5.08. Vice Presidents. The Vice Presidents shall perform such
------------- ----------------
duties as are generally performed by vice presidents. The Vice Presidents shall
perform such other duties and exercise such other powers as the Board of
Directors, the Chairman of the Board, or the Chief Executive Officer shall
request or delegate.
Section 5.09. Secretary. The Secretary shall attend all meetings of the
------------- ----------
Board of Directors, all meetings of the stockholders, and record all votes and
the minutes of all proceed ings in books to be kept for that purpose, and shall
perform like duties for the standing committees when required. He shall give,
or cause to be given, any notice required to be given
12
<PAGE>
of any meetings of the stockholders and of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors, the
Chairman of the Board, or the President, under whose supervision he shall be.
The Assistant Secretary or Assistant Secretaries shall, in the absence or
disability of the Secretary, or at the Secretary's request, perform the duties
and exercise the powers and authority herein granted to the Secretary.
Section 5.10. Treasurer. The Treasurer shall have charge of and be
------------- ----------
responsible for all funds, securities, receipts, and disbursements of the
Corporation, and shall deposit or cause to be deposited, in the name of the
Corporation, all monies or other valuable effects in such banks, trust
companies, or other depositories as shall from time to time be selected by the
Board of Directors; he shall render to the Chairman of the Board, the Chief
Executive Officer, and to the Board of Directors, whenever requested, an account
of the financial condition of the Corporation, and in general, he shall perform
all the duties incident to the office of a treasurer of a Corporation, and such
other duties as may be assigned to him by the Board of Directors, the Chairman
of the Board, or the Chief Executive Officer.
Section 5.11. Vacancy in Office. In case of the absence of any Officer of
------------- ------------------
the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may delegate, for the time being, any or all
of the powers or duties of such Officer to any Officer or to any Director.
ARTICLE VI. CAPITAL STOCK
----------- -------------
Section 6.01. Share Certificates. The interest of each Stockholder shall
------------- -------------------
be evidenced by a certificate or certificates representing shares of stock of
the Corporation which shall be in
13
<PAGE>
such form as the Board of Directors may from time to time adopt. The
certificates shall be consecutively numbered, and the issuance of shares shall
be duly recorded in the books of the Corporation as they are issued. Each
certificate shall indicate the holder's name, the number of shares, the class of
shares and series, if any, represented thereby, a statement that the Corporation
is organized under the laws of the State of Delaware, and a statement of the par
value per share or that the shares are without par value. Each certificate
shall be signed by (i) the Chairman of the Board or the President, and (ii) the
Secretary, or Assistant Secretary, if such officer or officers have been elected
or appointed by the Corporation, and shall be sealed with the seal of the
Corporation; provided, however, that if such certificate is signed by a transfer
agent, or by a transfer clerk acting on behalf of the Corporation, and a
registrar, the signature of any such Officer and such seal, may be a facsimile.
In the event that any Officer who has signed, or whose facsimile signature has
been used on any such certificate, shall cease to be an Officer of the
Corporation, whether because of death, resignation, or otherwise, prior to the
delivery of such certificate by the Corporation, such certificate may
nevertheless be delivered as though the person who signed whose facsimile
signatures shall have been used thereon had not ceased to be such Officer or
Officers.
Section 6.02. Stockholder Records. The Corporation shall keep a record of
------------- --------------------
the stockholders of the Corporation which readily indicates in alphabetical
order or by alphabetical index, and by classes of stock, the names of the
stockholders entitled to vote, the addresses of such stockholders, and the
number of shares held by such Stockholder. Said record shall be presented at
all meetings of the stockholders.
14
<PAGE>
Section 6.03. Stock Transfer Books. Transfers of stock shall be made on
------------- ---------------------
the books of the Corporation only by the person named in the certificate, or by
attorney lawfully constituted in writing, and upon surrender of the certificate
therefor, or in the case of a certificate alleged to have been lost, stolen or
destroyed, upon compliance with the provisions of Section 6.07 of these Bylaws.
Section 6.04. Determination of Stockholders. In order that the
------------- ------------------------------
Corporation may determine the stockholders entitled to notice of, or to vote at,
any meeting of stockholders, or to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date on which the resolution fixing the record date is
adopted, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of any meeting of stockholders, nor more than
sixty (60) days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date for determining
stockholders shall be fixed, such date shall be deemed to be the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held, and, for determining stockholders entitled to receive
payment of any dividend or other distribution or allotment of rights or to
exercise any rights of change, conversion or exchange of stock or for any other
purpose, the record date shall be at the close of business on the day on which
the Board of Directors adopts a resolution relating thereto.
15
<PAGE>
A determination of stockholders of record entitled to notice of, or to vote
at, a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall be not more than ten (10) days after the date upon which
the resolution fixing the record date is adopted. If no record date has been
fixed by the Board of Directors and no prior action by the Board of Directors is
required by the General Corporation Law of Delaware, the record date shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by the General Corporation Law of Delaware with respect to the
proposed action by written consent of the stockholders, the record date for
determining stockholders entitled to consent to corporate action in writing
shall be at the close of business on the day on which the Board of Directors
adopts the resolution taking such prior action.
Section 6.05. Stockholder Rights. The Corporation shall be entitled to
------------- -------------------
treat the holder of any share of stock of the Corporation as the person entitled
to vote such share and to receive any dividend or other distribution with
respect to such share, and for all other purposes and accordingly shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
16
<PAGE>
Section 6.06. Transfer Agent. The Board of Directors may appoint one or
------------- ---------------
more transfer agents and one or more registrars and may require each stock
certificate to bear the signature or signatures of a transfer agent or a
registrar or both.
Section 6.07. Replacement Certificates. Any person claiming a certificate
------------- -------------------------
of stock to be lost, stolen, or destroyed shall make an affidavit or affirmation
of the fact in such manner as the Board of Directors may require and shall, if
the Directors so require, give the Corporation a bond of indemnity. Such bond
shall be in form and amount satisfactory to the Board of Directors, and shall be
with one or more sureties, whereupon an appropriate new certificate may be
issued in lieu of the one alleged to have been lost, stolen or destroyed.
ARTICLE VII. MISCELLANEOUS
------------ -------------
Section 7.01. Inspection of Books. The Board of Directors shall have
------------- --------------------
power to determine which accounts and books of the Corporation, if any, shall be
open to the inspection of stockholders, except with respect to such accounts,
books, and records as may by law be specifically open to inspection by the
stockholders, and shall have power to fix reasonable rules and regulations not
in conflict with the applicable law, if any, for the inspection of records,
accounts, and books which by law or by determination of the Board of Directors
shall be open to inspection, and the stockholders' rights in this respect are
and shall be restricted and limited accordingly.
Section 7.02. Fiscal Year. The fiscal year of the Corporation shall be
------------- -----------
fixed from time to time by resolution of the Board of Directors.
17
<PAGE>
Section 7.03. Seal. The corporate seal shall be in such form as the Board
------------- -----
of Directors may from time to time determine. In the event it is inconvenient
to use such seal at any time, the signature of the Corporation followed by the
word "SEAL" or "CORPORATE SEAL" enclosed in parenthesis or scroll, shall be
deemed to be the seal of the Corporation.
Section 7.04. Appointment of Agents. The Chairman of the Board and Chief
------------- ----------------------
Executive Officer shall be authorized and empowered in the name of and as the
act and deed of the Corporation to name and appoint general and special agents,
representatives, and attorneys to represent the Corporation in the United States
or in any foreign country or countries; to name and appoint attorneys and
proxies to vote any shares of stock in any other Corporation at any time owned
or held of record by the Corporation; to prescribe, limit, and define the powers
and duties of such agents, representatives, attorneys, and proxies; and to make
substitution, revocation, or cancellation in whole or in part of any power or
authority conferred on any such agent, representative, attorney, or proxy. All
powers of attorney or other instruments under which such agents,
representatives, attorneys, or proxies shall be so named and appointed shall be
signed and executed by the Chairman of the Board or Chief Executive Officer, and
the corporate seal shall be affixed thereto. Any substitution, revocation, or
cancellation shall be signed in like manner, provided always that any agent,
representative, attorney, or proxy, when so authorized by the instrument
appointing him, may substitute or delegate his powers in whole or in part and
revoke and cancel such substitutions or delegations. No special authorization
by the Board of Directors shall be necessary in connection with the foregoing,
but this Bylaw shall be deemed to constitute full and complete authority to the
Officers above designated to do all the acts and things as they deem necessary
or incidental thereto or in connection therewith.
18
<PAGE>
Section 7.05. Indemnification.
------------- ----------------
(a) Under the circumstances prescribed in this Section 7.05, the
Corporation shall indemnify and hold harmless any person who was or is a party
or is threatened to be made a party of any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, and whether formal or informal (a "Proceeding"), by reason of the
fact that he is or was a Director or Officer of the Corporation, or, while a
Director or Officer, is or was serving at the request of the Corporation as an
officer, director, partner, joint venturer, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against the obligation to pay a
judgment, settlement, penalty, fine or reasonable expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with such
Proceeding, but only if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation, and
his conduct is not determined by the Board to be fraudulent or wilful
misconduct, and, with respect to any criminal Proceeding, if he had no
reasonable cause to believe his conduct was unlawful. Notwithstanding the
above, the indemnification permitted hereunder in connection with a Proceeding
by or in the right of the Corporation is limited to reasonable expenses
(including attorneys' fees) incurred in connection with the Proceeding.
(b) The termination of any Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
---- ----------
itself, create a presumption that the person did not meet the standard of
conduct set forth in Section 7.05(a).
(c) Notwithstanding the foregoing, the Corporation shall not indemnify any
Director or Officer in connection with any Proceeding by or in the right of the
Corporation in
19
<PAGE>
which said person was adjudged liable to the Corporation, unless and only to the
extent that the court in which the Proceeding was brought shall determine that,
despite such adjudication, such person is entitled to indemnity for such
expenses which said court shall deem proper.
(d) To the extent that a Director or Officer has been successful, on the
merits or otherwise, in the defense of any Proceeding to which he was a party
because he is or was a Director or Officer, or in the defense of any claim,
issue or matter therein, the Corporation shall indemnify him against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(e) Except as provided in paragraph (d) of this Section 7.05 and except as
may be ordered by a court, the Corporation shall not indemnify any Director or
Officer unless authorized hereunder and a determination has been made that
indemnification of the Director or Officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section
7.05(a). Such determination shall be made in accordance with Section 145(d) of
the General Corporation Law of Delaware, as amended.
(f) Reasonable expenses (including attorneys' fees) incurred by a Director
or Officer who is a party to a Proceeding shall be paid by the Corporation in
advance of the final disposition of such Proceeding if the Director or Officer
furnishes the Corporation a written undertaking to repay any advances if it is
ultimately determined that he is not entitled to indemnification.
(g) The indemnification provided by this Section 7.05 shall not be deemed
exclusive of any other right to which the persons indemnified hereunder shall be
entitled and shall inure to the benefit of the heirs, executors, or
administrators of such persons.
20
<PAGE>
(h) The Corporation may purchase and maintain insurance on behalf of any
person who is or was a Director or Officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, partner, joint
venturer, trustee, employee, or agent of another foreign or domestic
Corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Section 7.05.
Section 7.06. Reimbursement of Personal Expenses. Each Officer and
------------- -----------------------------------
Director of the Corporation shall be required from time to time to bear
personally incidental expenses related to his responsibilities as an officer and
director which expenses unless specifically authorized shall not be subject to
reimbursement by the Company.
Section 7.07. Interested Directors; Quorum. No contract or transaction
------------- -----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its Directors or Officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or Officer is present at or
participates in the meeting of the Board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purpose, if: (1) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the
21
<PAGE>
materials facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (3) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof, or the stockholders. Interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
22
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
--------------------
SHAREHOLDERS' VOTING AGREEMENT
------------------------------
THIS AMENDED AND RESTATED SHAREHOLDERS' VOTING AGREEMENT (the "Agreement")
is made and entered into as of the 1st day of September, 1995, by and between
Joseph S. McCall, a Georgia resident (hereinafter referred to as "McCall" or the
"Trustee"); and those holders of the common stock of SQL Financials
International, Inc. (the "Corporation") as shown on the signature page hereto
(the "Shareholder" or "Shareholders"), and amends and restates the Shareholders'
Voting Agreement among the Shareholders dated December 4, 1991, as amended.
W I T N E S S E T H :
WHEREAS, the Corporation is a Delaware corporation; and
WHEREAS, as of the date hereof the Shareholders own all of the outstanding
common stock of the Corporation (the "Common Stock" which term shall be deemed
to include all shares of Common Stock hereafter issued to the Shareholders by
the Corporation during the term hereof); and
WHEREAS, the Shareholders have entered into a Shareholders' Voting
Agreement as of December 4, 1991, in order to provide for restrictions on the
voting of the Shareholders' Common Stock and desire to amend such agreement and
deem it to be in the best interest of the Shareholders and the Corporation to
have the Common Stock voted during the term of this Agreement by the Trustee.
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein and other valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the parties hereto, the parties do hereby agree as
follows:
1. TERM OF AGREEMENT. This Agreement shall terminate on the earlier of
-----------------
(i) ten (10) years from the date first above written and (ii) the closing of the
Corporation's initial public offering pursuant to a registration statement filed
with the Securities and Exchange Commission.
2. VOTING OF SHARES. For the term of this Agreement, the Shareholders
----------------
hereby irrevocably appoint McCall as their attorney-in-fact and the Trustee to
vote all of the shares of Common Stock owned by each of them at all meetings of
the Shareholders of the Corporation, and at any other time or occasion
(including Shareholder votes by consent) in which a vote of the Common Stock of
the Corporation is necessary, convenient, or appropriate (hereinafter
"Shareholder Meetings").
<PAGE>
3. AUTHORITY OF TRUSTEE. The Shareholders hereby agree that during the
--------------------
term of this Agreement the Trustee shall have their irrevocable proxy and the
full power and authority to act for the Shareholders at any Shareholder
Meetings, or other occasion or occasions, in voting upon any business of the
Corporation, and in the transaction of any business necessary or incidental to
the carrying on of any corporate activities, including matters affecting
shareholder rights, privileges and powers.
4. ENDORSEMENT OF STOCK CERTIFICATES. All certificates representing
---------------------------------
shares of Common Stock subject to this Agreement shall bear the conspicuous
legend in substantially the following form:
The shares represented by this Certificate are subject to
restrictions on voting contained in that certain Shareholders' Voting
Agreement dated December 4, 1991, as amended (the "Agree ment"),
among the Shareholders (as defined therein) and may not be voted
except in accordance therewith. Copies of the Agreement are on file
at the offices of the Corporation and may be obtained without charge
upon written request to the President of the Corporation.
5. NOTICE PROVISION. All notices, waivers and other acts and
----------------
communications under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered in person, delivered by overnight courier
service, or mailed by first class mail, postage prepaid, and addressed as
follows:
If to a Shareholder:
To the address shown on the books and records of the
Corporation
If to Joseph S. McCall:
Joseph S. McCall
c/o SQL Financials International, Inc.
Two Ravinia Drive
Suite 1000
Atlanta, Georgia 30346
Except as otherwise provided in this Agreement, notice shall be deemed given on
the date of hand delivery, delivery to an overnight courier service, or mailing.
2
<PAGE>
6. MISCELLANEOUS PROVISIONS.
------------------------
(a) This instrument contains the entire agreement among the parties
and supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein, and no
modification shall be binding upon a party affected unless set forth in writing
and duly executed by the party affected.
(b) Each of the Shareholders represents and warrants that he is the
sole owner of the number of shares of Common Stock set forth opposite his name
on Exhibit "A" hereto, evidenced by the certificate number or numbers shown
immediately after such number of shares (which Exhibit "A" shall be replaced by
the Trustee upon receipt of written notification of any change in ownership of
the Common Stock), that all of such shares are free and clear of all liens,
claims, charges, security interests or encumbrances of any kind, except for the
restrictions set forth in the Corporation's Shareholders' Agreement, and that he
has the right and lawful authority to enter into this Agreement. In addition,
each of the Shareholders covenants and agrees that he shall not sell, transfer,
pledge, assign, hypothecate or in any way encumber any shares of Common Stock
owned by him, except as permitted by the Shareholders' Agreement, and that any
additional shares issued to such Shareholders shall be subject to this
Agreement.
(c) All of the covenants and agreements in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of their
respective heirs, guardians, personal and legal representatives, successors and
assigns.
(d) This Agreement shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the State of
Delaware.
(e) In the event that one or more of the provisions of this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
(f) The descriptive headings of the several sections and paragraphs of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
(g) Unless the context otherwise requires, whenever used in this
Agreement, the singular shall include the plural, the plural shall include the
singular, and the masculine gender shall include the neuter and feminine gender,
and vice versa.
(h) This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall together constitute one document.
3
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals and acknowledged this Agreement as of the date first above written.
SHAREHOLDERS:
/s/ Scott J. Brady /s/ Kathleen Kochis Williamson
- ------------------------ --------------------------------
SCOTT J. BRADY KATHLEEN KOCHIS WILLIAMSON
/s/ David M. Funderburke /s/ Joseph S. McCall
- ------------------------ --------------------------------
DAVID M. FUNDERBURKE JOSEPH S. McCALL
/s/ Jon K. Hauck /s/ John G. McKimmey
- ------------------------ --------------------------------
JON K. HAUCK JOHN G. McKIMMEY
/s/ Robert C. Holler /s/ Robert M. McKimmey
- ------------------------ ---------------------------------
ROBERT C. HOLLER ROBERT M. McKIMMEY
/s/ Donald L. House /s/ Paul Constantine Sioros, Jr.
- ------------------------ ---------------------------------
DONALD L. HOUSE PAUL CONSTANTINE SIOROS, JR.
/s/ Stephen P. Jeffery /s/ Arthur G. Walsh, Jr.
- ------------------------ ---------------------------------
STEPHEN P. JEFFERY ARTHUR G. WALSH, JR.
TECHNOLOGY VENTURES, L.L.C.
BY: /s/ Joseph S. McCall
---------------------------------
JOSEPH S. McCALL, Manager
4
<PAGE>
As of September 1, 1995
EXHIBIT "A"
-----------
Name Number of Shares
---- ----------------
Scott J. Brady 10,167
David M. Funderburke 24,400
Jon K. Hauck 1,200
Robert C. Holler 1,200
Donald L. House 50,833
Stephen P. Jeffery 1,200
Kathleen Kochis Williamson 24,400
Joseph S. McCall 216,000
John G. McKimmey 107,767
Robert M. McKimmey 107,767
Paul Constantine Sioros, Jr. 24,400
Arthur G. Walsh, Jr. 40,666
Technology Ventures, L.L.C. 300,000
5
<PAGE>
EXHIBIT 10.2
RESTATED SHAREHOLDERS' AGREEMENT
--------------------------------
THIS RESTATED SHAREHOLDERS' AGREEMENT ("Agreement") is made as of the 1st
day of September, 1995, by and among the holders of the common capital stock of
the Company (as defined below) as shown on the signature page hereto
(hereinafter referred to collectively as the "Shareholders" and individually as
a "Shareholder" together with any person who shall hereafter become a
Shareholder of the Company); and SQL FINANCIALS INTERNATIONAL, INC., a Delaware
corporation (referred to herein as the "Company"). With respect to the parties
hereto, this Restated Shareholders' Agreement supersedes in full the existing
Shareholders' Agreement dated December 3, 1991, as previously amended.
R E C I T A L S :
WHEREAS, the Shareholders have entered into a Shareholders' Agreement dated
as of December 3, 1991, as amended, and desire to restate and supersede said
agreement hereby; and
WHEREAS, the Shareholders desire to enter into this Agreement for the
purposes of defining their respective rights and obligations respecting the
common capital stock of the Company (the "Common Stock");
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged by all parties, it is agreed as follows:
1. RESTRICTIONS ON TRANSFERS.
-------------------------
1.1 REQUIRED OFFER PRIOR TO SALE. No Shareholder may sell, give,
----------------------------
bequeath, pledge, assign, transfer or encumber in any manner whatsoever (all
such dispositions shall be deemed included in the verb "to dispose") any share
of Common Stock of the Company to any person or entity whatsoever, except for
dispositions permitted under Section 1.2, unless the Shareholder seeking to make
the transfer (the "Transferor") shall have first made the written offer to sell
described below (the "Offer"), and that Offer has not been accepted pursuant to
the terms of this Agreement.
1.2 PERMITTED TRANSFERS. The restrictions on transfer provided in this
-------------------
Section 1 shall be inapplicable to:
(a) Transfers involving public sales pursuant to a
registration statement filed under the Securities Act of 1933 (the
"Act");
<PAGE>
(b) Transfers of shares of Common Stock between a
Shareholder and the trustees of a trust revocable by him alone;
(c) Transfers of shares of Common Stock by gift between a
spouse or children;
(d) Transfers of shares of Common Stock between a
Shareholder and his guardian or conservator;
(e) Transfers of shares of Common Stock of a deceased
Shareholder to his heirs or legal representatives (subject to the
requirements of Section 5); or
(f) Transfers of shares of Common Stock from one Shareholder
to another Shareholder;
provided, however, that in the case of any such transfer described in
subparagraph (b), (c), (d), (e), or (f), the shares of Common Stock in the hands
of such transferees shall remain subject to the terms of this Agreement and, as
a condition precedent to such transfer, such transferee shall sign a counterpart
to this Agreement.
1.3 OFFER BY TRANSFEROR. If any Shareholder desires to dispose of any
-------------------
Common Stock, he shall first submit the Offer referred to in Section 1.1 to the
Company. The Offer shall consist of a written offer to sell all the shares of
Common Stock which the Transferor then intends to dispose of (the "Offered
Shares"), to which Offer shall be attached (i) a statement of intention to
dispose of the Offered Shares pursuant to a bona fide offer from a prospective
purchaser or purchasers (the "Transferee"), (ii) a description of the
contemplated disposition, (iii) the name and address of each Transferee, (iv)
the number of shares of Common Stock to be disposed of and (v) the other terms
(the "Terms") of the proposed disposition. The Terms shall include, without
limitation, the purchase price per Offered Share offered by each Transferee and
the manner in which such purchase price shall be paid to the Transferor. Such
Offer shall be signed by the Transferor and shall remain irrevocable until the
earlier of (a) the time at which all of the Offered Shares are accepted by the
Company or the Non-Offering Shareholders (as defined below), as provided in
Sections 1.4 and 1.5; or (b) the expiration of the period in which the Company
and the Non-Offering Shareholders may elect to purchase the Offered Shares. The
date on which the Offer becomes revocable is referred to herein as the
"Expiration Date."
1.4 ACCEPTANCE OF OFFER BY THE COMPANY. Within forty-five (45) days
----------------------------------
after receipt of the Offer, the Company may elect to purchase all or any portion
of the Offered Shares. If the Company makes such election, it shall do so by
giving written notice of its intent to purchase the Offered Shares on the Terms,
specifying the number of Offered Shares the Company desires to purchase (an
"Exercise Notice"). To the extent the Company does not accept
2
<PAGE>
the Offer with respect to all of the Offered Shares, the remaining Offered
Shares shall be offered to the Shareholders in accordance with Section 1.5.
1.5 ACCEPTANCE OF OFFER BY THE SHAREHOLDERS. If and to the extent
---------------------------------------
the Company does not accept the Offer with respect to all of the Offered Shares,
the remaining Offered Shares shall be offered to each of the other Shareholders
(the "Non-Offering Shareholders"). Immediately upon expiration of the Company's
forty-five (45) day election period, the Transferor shall send the Non-Offering
Shareholders the Offer to sell the Offered Shares not purchased by the Company
at the same price and on the same Terms as offered to the Company. Said notice
shall be sent to all Non-Offering Shareholders on the same date and in the same
manner in accordance with Section 10(b) hereof. The Non-Offering Shareholders
may, at their option, elect to purchase, within forty-five (45) days after the
date on which the Offer is deemed to be received by the Non-Offering
Shareholders in accordance with Section 10(b) hereof, all or any portion of the
Offered Shares not purchased by the Company. Each of the Non-Offering
Shareholders shall have the right to purchase on the Terms a portion of the
remaining Offered Shares equal to the proportion which the total number of
shares of Common Stock owned by such Shareholder bears to the total number of
shares of Common Stock of all Shareholders entitled to purchase the Offered
Shares. Each Non-Offering Shareholder who exercises his option to purchase his
proportion of the remaining Offered Shares shall do so by giving an Exercise
Notice to the Transferor.
In the event that any such Non-Offering Shareholder purchases less
than the number of the Offered Shares which he is entitled to purchase pursuant
to this Section 1.5 (such shares not purchased being referred to as the
"Balance"), the Transferor shall notify each of the purchasing Shareholders who
shall be entitled to purchase a portion of the Balance of the Offered Shares
determined by multiplying the Balance by a fraction, the numerator of which
shall be the number of Offered Shares such Non-Offering Shareholder has elected
to purchase pursuant to this Section 1.5, and the denominator of which shall be
the total number of Offered Shares which all Non-Offering Shareholders elected
to purchase pursuant to this Section 1.5. Each purchasing Shareholder shall
have five (5) calendar days from the date of receipt of such notice to deliver
an Exercise Notice to the Transferor, electing to purchase his portion of the
Balance. Said procedure shall be repeated until all Offered Shares shall have
been made eligible for purchase by any Non-Offering Shareholder who wishes to
purchase them. The Non-Offering Shareholders and the Company must collectively
purchase all Offered Shares if they purchase any Offered Shares.
1.6 SALE OF SHARES TO TRANSFEREE. If the Non-Offering Shareholders and
----------------------------
the Company do not elect to purchase all of the Offered Shares in accordance
with the terms of Sections 1.4 and 1.5, the Transferor shall not be obligated to
sell any of the Offered Shares to the Non-Offering Shareholders or the Company,
and shall be entitled to dispose of all of the Offered Shares to the Transferee
on the Terms; provided that such disposition is consummated
3
<PAGE>
within sixty (60) days after the Expiration Date, and provided further that the
Transferee executes a counterpart of this Agreement and agrees to remain bound
by all terms of this Agreement.
2. PARALLEL EXIT OFFER. No Shareholder or Shareholders who own or
-------------------
control a majority of the Common Stock (herein the "Majority Shareholder(s)")
shall enter into any agreement to dispose of any shares to a Transferee in a
transaction in which a majority of the outstanding stock of all classes of the
Company's stock will be sold, even though the proposed disposition has complied
with the provisions of Section 1 hereof, unless such third party agrees to
purchase from each of the Shareholders a pro rata number of shares on the same
--- ----
terms, including price, as the shares of Common Stock are proposed to be
purchased from the Majority Shareholder(s). For purposes of this Section 2, a
Shareholder's pro rata share shall be determined by multiplying the total number
--- ----
of shares of Common Stock owned by him by a percentage equal to the percentage
of the total number of shares of Common Stock owned by the Majority Share
holder(s) which will be sold to the Buyer. Any Shareholder to whom an offer is
made to purchase a portion of his shares in accordance with this Section 2 may
accept such offer by so notifying the proposed Transferee in writing within
fifteen (15) days after receipt of such offer, and no disposition to a proposed
Transferee shall be valid unless such Transferee simultaneously acquires all
shares of Common Stock with respect to which such offer was accepted.
3. RIGHT TO COMPEL SALE. Each of the Shareholders agrees that in the
--------------------
event the Majority Shareholder(s) negotiate a disposition of a majority in
number of the shares of Common Stock then owned by all Shareholders to a
Transferee in a transaction in which a majority of the outstanding stock of all
classes of the Company's stock will be sold, and which disposition has complied
with the procedures of Section 1 hereof, each Shareholder shall, upon request of
such Transferee, sell a pro rata number of shares of Common Stock to such party
--- ----
on the same terms and conditions on which the shares of Common Stock were
negotiated to be sold to such party by the Majority Shareholder(s). For the
purposes of this Section 3, a pro rata number of shares of any Shareholder shall
--- ----
be determined by multiplying the total number of shares owned by such
Shareholder by a percentage equal to the percentage of the total number of
shares of Common Stock owned by the Majority Shareholder(s) which will be sold
to such party.
4. LEGEND. Upon execution of this Agreement, each Shareholder shall
------
deliver to the Secretary of the Company all certificates evidencing shares of
Common Stock then owned by him or it, which certificates shall be stamped or
endorsed with a legend in substantially the following form:
TRANSFER RESTRICTED
-------------------
The shares represented by this certificate are subject to restrictions
on transfer contained in an Agreement dated as of September 1, 1995 (the
"Agreement") among SQL Financials International, Inc. (the "Company") and the
Shareholders (as defined therein) and may
4
<PAGE>
not be sold, pledged, transferred, encumbered or otherwise disposed of except in
accordance therewith. A copy of the Agreement is on file at the offices of the
Company and may be obtained without charge upon written request to the President
of the Company.
In addition, the shares represented by this certificate have not been
registered under the Securities Act of 1933. These shares have been acquired
for investment and may not be sold or offered for sale and no transfer of them
will be made by the Company or its transfer agent in the absence of such
registration or an opinion of counsel satisfactory to the Company that such
registration is not required.
5. PURCHASE OF SHARES UPON DEATH OR TERMINATION OF EMPLOYMENT OF A
---------------------------------------------------------------
SHAREHOLDER.
-----------
(a) In the event any Shareholder (i) dies; (ii) terminates his
employment with the Company or is terminated for "cause" (as defined herein);
(iii) has any voluntary or involuntary bankruptcy or insolvency proceeding filed
against him; or (iv) desires to offer his Common Stock for sale other than
pursuant to a bona fide offer (each of the above events herein called a
"Triggering Event"), then the Company shall have the option, exercisable at any
time within ninety (90) days after the occurrence of such Triggering Event, to
purchase all or any part of the Shareholder's Common Stock for a price and on
the terms set forth in this Section 5. If the Company makes such election, it
shall do so by giving an Exercise Notice.
(b) If and to the extent the Company does not purchase all of the
Shareholder's Common Stock in accordance with the provisions of Section 5(a),
the Company may elect to offer the Common Stock to the other Shareholders. In
such event, the Company shall so notify the remaining Shareholders, who may
elect within ninety (90) days thereafter to purchase all or any portion of the
Common Stock not purchased by the Company pursuant to Section 5(a). Each
remaining Shareholder shall have the right to purchase the remaining shares in
accordance with the procedures outlined in Section 1.5 above.
(c) In order to exercise the options discussed in Section 5(a) and
5(b), the Shareholders and/or the Company shall notify the Shareholder involved
in the Triggering Event, or the estate of such Shareholder, that they intend to
exercise their options set forth above, which notice shall set forth the fair
market value of the shares held by such Shareholder or his estate as determined
by the Board of Directors of the Company in good faith. If, within thirty (30)
days after the date of such notice, the Shareholder or his estate has disputed
in writing the fair market value determined by the Board, the Company's
independent accountant shall appoint an independent certified appraiser to
determine the fair market value, which determination and appraisal shall govern.
Any appraisal report shall be rendered in writing and shall be signed by the
appraiser. The appraised fair market value of such shares, determined as herein
provided, shall be conclusive and final on the parties and shall be enforceable
in any court having jurisdiction over a proceeding brought to seek such
enforcement. The costs of the appraisal shall
5
<PAGE>
be paid fifty percent (50%) by the purchasers (shared ratably based upon the
amount purchased) and fifty percent (50%) by the Selling Shareholder or his
estate.
(d) For purposes of this Agreement, termination for "cause" shall be
defined as termination arising out of the occurrence of any of the following
events:
(i) If the employee has been convicted of, or pleads guilty or
nolo contendere to, a felony or any crime involving moral turpitude;
(ii) If the employee has engaged in willful misconduct, fraud,
larceny or conversion with respect to the Company, its business or
properties; or
(iii) If the employee has (A) neglected his duties to the
Company; or (B) failed to perform his duties to the Company in a
manner satisfactory to the Board and, after written notice of the same
specifying in reasonable detail the alleged neglect or unsatisfactory
performance, if the employee fails to correct his performance to the
satisfaction of the Company within thirty (30) days after such notice.
(e) Notwithstanding the foregoing, the Shareholders agree that the
Common Stock owned by Robert McKimmey, John McKimmey and Joseph McCall, as
founders of the Company, shall not be subject to repurchase as provided above in
the event of the termination of their employment with the Company.
6. SHAREHOLDERS' VOTING AGREEMENT. Notwithstanding anything
------------------------------
contained herein which may prohibit such transactions, each of the Shareholders
is a party to or agrees to become a party to that certain Amended and Restated
Shareholders' Voting Agreement of even date herewith.
7. REGISTRATION RIGHTS.
-------------------
7.1 CERTAIN DEFINITIONS. As used in this Section 7, the
-------------------
following terms shall have the following respective meanings:
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and applicable rules and regulations thereunder, and the
declaration or ordering of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in fulfilling its obligations under this Section 7, including, without
limitation, all registration and
6
<PAGE>
filing fees, printing expenses, fees and disbursements of counsel for the
Company, accounting fees, blue sky fees and expenses.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and transfer taxes applicable to the sale of Registrable Securities.
7.2 "PIGGY BACK" REGISTRATIONS.
--------------------------
(a) If the Company shall determine to register any of its
securities for its own account, other than a registration relating solely to
employee benefit plans or a registration on any registration form which does not
permit secondary sales or does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Common Stock, the Company will:
(i) promptly give to each Shareholder written notice
thereof (which shall include the number of shares the
Company proposes to register and, if known, the name of the
proposed underwriter); and
(ii) use its best efforts to include in such
registration all the Common Stock specified in a written
request or requests, made by any Shareholder within twenty
(20) days after receipt of the written notice from the
Company described in clause 7.2(i) above. If the underwriter
advises the Company that marketing considerations require a
limitation on the number of shares offered pursuant to any
registration statement filed under this Section 7.2, such
limitation will be imposed pro rata among all Shareholders
--- ----
who were entitled to include shares in such registration
statement according to the number of shares which are owned
by each.
7.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to this
Section 7 shall be borne by the Company, and all Selling Expenses shall be borne
by the Shareholders pro rata on the basis of the number of their shares so
--- ----
registered.
7.4 INFORMATION BY HOLDER. Each Shareholder participating in any
---------------------
registration shall furnish to the Company such information regarding such
Shareholder and the distribution proposed by such Shareholder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this Section
7.
7
<PAGE>
7.5 INDEMNIFICATION FOR INFORMATION PROVIDED. Each Shareholder will,
----------------------------------------
if Common Stock held by him is included in the securities as to which such
registration is being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities covered by
such registration statement, each person who controls the Company or such
underwriter within the meaning of the Act and the rules and regulations
thereunder, each other such Shareholder and each of its officers, directors and
partners, and each person controlling such Shareholder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Shareholder's
directors, officers, partners, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, whether or not
resulting in liability, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Shareholder and stated to be specifically for
use therein; provided, however, that the obligations of each Shareholder
hereunder shall be limited to an amount equal to the net proceeds received by
such Shareholder upon sale of his securities.
7.6 LOCKUP AGREEMENT. In consideration for the Company agreeing to its
----------------
obligations under this Section 7, each Shareholder agrees in connection with the
registration of the initial public offering of the Company's securities, upon
the request of the Company or the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Common Stock
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time from the effective date of such registration as the Company or the
underwriters may specify.
8. SPECIFIC PERFORMANCE. The Shareholders and the Company acknowledge
--------------------
and agree that the recovery of money damages will not constitute an adequate
remedy for breach of the provisions of this Agreement. Accordingly, the parties
agree that the provisions of this Agreement may be specifically enforced against
them and transferees of securities of the Company which are subject to this
Agreement (in addition to any other remedies available for breach of this
Agreement), and the parties (for themselves and, in the case of the
Shareholders, transferees of their securities of the Company), hereby waive the
defense in any equitable proceeding that there is an adequate remedy at law for
any such breach.
9. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
-------------------------
contrary contained herein, and notwithstanding compliance with the terms and
conditions of this
8
<PAGE>
Agreement, no shares of Common Stock may be disposed of under any circumstances
unless such disposition complies with applicable federal and state securities
laws, and the Company may require a Transferor to deliver an acceptable opinion
of counsel to the Company stating that the proposed disposition is in such
compliance.
10. MISCELLANEOUS.
-------------
(a) TERM. This Agreement shall continue until the first to occur of
----
(i) the twentieth (20th) anniversary of this Agreement, (ii) the closing of the
initial public offering of the Company's Common Stock pursuant to a registration
statement filed with the Securities and Exchange Commission, or (iii) upon
written consent of termination by Shareholders owning fifty-one percent (51%) of
the outstanding Common Stock subject to this Agreement, whichever shall first
occur. The provisions of Section 7 hereof shall survive termination resulting
under subsection 10(a)(ii) above.
(b) NOTICES. All notices, requests, demands and other communications
-------
required or permitted hereunder shall be in writing and, if mailed by prepaid
first class mail or certified mail, return receipt requested, at any time other
than during a general discontinuance of postal service due to strike, lockout or
otherwise, shall be deemed to have been received on the earlier of the date
shown on the receipt or three (3) business days after the postmarked date
thereof and, if telexed or telecopied, shall be followed forthwith by letter and
shall be deemed to have been received on the next business day following
dispatch and acknowledgement of receipt by the recipient's telex or telecopy
machine. In addition, notices hereunder may be delivered by hand, in which
event the notice shall be deemed effective when delivered, or by overnight
courier, in which event the notice shall be deemed to have been received on the
next business day following delivery to such courier. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(i) If to the Company:
SQL Financials International, Inc.
Two Ravinia Drive, Suite 1000
Atlanta, Georgia 30346
Attention: Joseph S. McCall
with a copy to:
Parker, Johnson, Cook & Dunlevie
1275 Peachtree Street, N.E., Suite 700
Atlanta, Georgia 30309
Attn: G. Donald Johnson, Esq.
9
<PAGE>
(ii) If to the Shareholders:
To the address shown on the
books and records of the
Company.
Any party hereto may change its address specified for notices herein by
designating a new address by notice in accordance with this Section 10(b),
(c) GOVERNING LAW. This Agreement shall be construed and enforced in
-------------
accordance with, and shall be governed by, the laws of the State of Georgia.
This Agreement may be amended or modified only by the written consent of the
Shareholders owning at least fifty-one percent (51%) of the then outstanding
Common Stock.
(d) BINDING EFFECT. This Agreement shall inure to the benefit of and
--------------
shall be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns, including, without limitation, direct or
remote transferees of securities of the Company from time to time owned by the
Shareholders.
(e) SEVERABILITY. If any term or provision of this Agreement, or the
------------
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application
thereof to other persons and circumstances shall not be affected thereby, and
each term and provision hereof shall be enforced to the fullest extent permitted
by law.
(f) COUNTERPARTS. This Agreement may be executed in several
------------
counterparts which, when executed and delivered by all parties hereto, shall be
binding on all parties hereto and shall constitute one Agreement,
notwithstanding that all parties have not signed the same counterpart.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first above written.
"SHAREHOLDERS":
/s/ Scott J. Brady /s/ David M. Funderburke
- ---------------------------- ---------------------------------
SCOTT J. BRADY DAVID M. FUNDERBURKE
[EXECUTION CONTINUED ON THE FOLLOWING PAGE]
10
<PAGE>
/s/ Jon K. Hauck /s/ Robert C. Holler
- -------------------------------- --------------------------------
JON K. HAUCK ROBERT C. HOLLER
/s/ Donald L. House /s/ Stephen P. Jeffery
- -------------------------------- --------------------------------
DONALD L. HOUSE STEPHEN P. JEFFERY
/s/ Joseph S. McCall /s/ Kathleen Kochis Williamson
- -------------------------------- --------------------------------
JOSEPH S. MCCALL KATHLEEN KOCHIS WILLIAMSON
/s/ John G. McKimmey /s/ Robert M. McKimmey
- -------------------------------- --------------------------------
JOHN G. MCKIMMEY ROBERT M. MCKIMMEY
/s/ Arthur G. Walsh, Jr. /s/ Paul Constantine Sioros, Jr.
- -------------------------------- --------------------------------
ARTHUR G. WALSH, JR. PAUL CONSTANTINE SIOROS, JR.
TECHNOLOGY VENTURES, L.L.C.
BY: /s/ Joseph S. McCall
- -------------------------------------
JOSEPH S. MCCALL, Manager
THE "COMPANY":
SQL FINANCIALS INTERNATIONAL, INC.
ATTEST: BY: /s/ Joseph S. McCall
------------------------------
JOSEPH S. McCALL, President
11
<PAGE>
/s/ Arthur G. Walsh, Jr.
- -----------------------------------------
Arthur G. Walsh, Jr.,
Secretary
[CORPORATE SEAL]
12
<PAGE>
AMENDMENT TO SHAREHOLDERS' AGREEMENT
THIS AMENDMENT TO SHAREHOLDERS AGREEMENT ("Amendment") is made as of
January 1, 1997, by and among SQL FINANCIALS INTERNATIONAL, INC. (the "Company")
and the holders of the common capital stock of the Company and amends that
certain Restated Shareholders' Agreement dated as of September 1, 1995 (the
"Shareholders Agreement").
R E C I T A L S
A. The holders of the common stock of the Company have entered into
the Shareholders Agreement and desire to amend such agreement as set forth
herein; and
B. Pursuant to Section 10(c) of the Shareholders Agreement, the
holders of fifty-one percent (51%) of the outstanding common stock of the
Company may amend the Shareholders Agreement.
Therefore, for and in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged by all parties, it is agreed as follows:
A G R E E M E N T
1. Amendment to Section 1. Section 1.2 of the Shareholders Agreement
-----------------------
is hereby amended by deleting subsection (c) in its entirety and replacing it
with the following:
"(c) Transfers of shares of Common Stock by gift from a Shareholder
to its spouse, children, parents, parents-in-law, nephews, nieces, brothers,
brothers-in-law, sisters, sisters-in-law, children-in-law, grandchildren and
grandchildren-in-law or a trust set up for the benefit of one or more of the
persons set forth above."
2. Continued Effect of Shareholders Agreement. Except as
-------------------------------------------
specifically modified herein, the Shareholders Agreement remains in full force
and effect in accordance with the terms thereof. The provisions of Section 10
of the Shareholders Agreement shall apply to this Amendment.
IN WITNESS WHEREOF, THE UNDERSIGNED HAVE SET FORTH THEIR HANDS AND
SEALS AS OF THE FIRST DAY OF JANUARY, 1997.
13
<PAGE>
/s/ Joseph S. McCall /s/ David M. Funderburke
- ------------------------------- ---------------------------------
Joseph S. McCall David M. Funderburke
TECHNOLOGY VENTURES, LLC
/s/ Scott J. Brady By: /s/ Joseph S. McCall
- ------------------------------- ------------------------------
Scott J. Brady Joseph S. McCall, Manager
SQL FINANCIALS INTERNATIONAL, INC.
By: /s/ Stephen P. Jeffery
-----------------------------
Stephen P. Jeffery, President
14
<PAGE>
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
------------------------
THIS AGREEMENT is made and entered into as of the 15th day of February,
1996 by and between SQL Financials International, Inc., a Delaware corporation
(the "Company"), and the individuals and entities listed in Schedule A hereto
----------
(individually, a "Purchaser", collectively, the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto agree as follows:
1. Purchase of Shares.
------------------
The Company will sell to each Purchaser, and each Purchaser will purchase
from the Company, the number of shares of the Company's Series E convertible
preferred stock, $1.00 par value per share (the "Series E Preferred Stock") set
forth opposite such Purchaser's name on Schedule A. The shares of Series E
----------
Preferred Stock to be purchased from the Company by the Purchasers are sometimes
herein referred to as the "Shares", and the price per Share so purchased shall
be $8.60. Such purchase and sale shall be made on the Closing Date (as defined
in Section 2 below) and shall be subject to the terms and conditions hereof and
in reliance upon the representations, warranties and agreements contained
herein. The purchase price for the Shares shall be paid at the Closing (by
check payable to the Company, by wire transfer of funds to the account of the
Company or by delivery of promissory notes of the Company held by the Purchaser
in question, with authorization to mark "paid in full" upon completion of the
Closing, or any combination of the foregoing) against delivery of certificates
evidencing the Shares and registered in the names of the respective Purchasers
or their nominees. If such payment is made by delivery of a promissory note of
the Company, the Company will remit any amount of principal due in excess of the
purchase price for the Shares, plus unpaid interest, within 15 days following
the Closing.
2. Closing Date. The closing of the purchase and sale of the Shares
------------
hereunder (the "Closing") shall be held at the offices of counsel to the
Company, Parker, Johnson, Cook & Dunlevie, 1275 Peachtree Street, N.E., Atlanta,
Georgia 30309, at 10:00 a.m., on the date first above stated or at such other
time and place to which the Company and the Purchasers may agree (the "Closing
Date").
<PAGE>
3. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Purchasers that, except as set forth in the
schedule of exceptions attached as Schedule B hereto (the "Schedule of
----------
Exceptions"):
3.1 Organization and Standing. 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 requisite corporate power to own and operate its
properties and assets, and to carry on its business as presently conducted and
as proposed to be conducted. The Company is licensed or qualified as a foreign
corporation and is in good standing in every state or other jurisdiction wherein
the character of its property or the nature of its activities makes such
licensing or qualification necessary and wherein the failure to be so licensed
or qualified would have a material adverse effect on the Company. Attached as
Exhibits A and B hereto are copies of the amended and restated certificate of
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incorporation (the "Certificate of Incorporation") and by-laws (the "By-Laws")
of the Company. Said copies are true, correct and complete and contain all
amendments through the date of this Agreement.
3.2 Corporate Power. The Company has now, and will have at the
---------------
Closing Date, all requisite legal and corporate power to enter into this
Agreement, to sell the Shares hereunder, and to carry out and perform its
obligations under the terms of this Agreement.
3.3 Subsidiaries. The Company does not own or control, directly or
------------
indirectly, any interest or investment in any other corporation, association,
partnership or other business entity, other than SQL Financials Europe, Inc., a
Delaware corporation, which is owned 100% by the Company. The Company has a
subsidiary, SQL Financials Services, L.L.C., a Georgia limited liability company
(the "Service Subsidiary"). The Service Subsidiary is owned 80% by the
Company and 20% by Technology Ventures, L.L.C. ("Tech Ventures"), an affiliate
of the Company, and provides implementation services for the Company's
products.
3.4 Capitalization. The Company's entire authorized capital stock
--------------
consists of 7,500,000 shares, of which 4,500,000 shares are common stock, $.0001
par value per share ("Common Stock"), 914,000 shares of which are issued and
presently outstanding , and 3,000,000 shares are preferred stock, of which
262,500 shares are designated as Series A preferred stock ("Series A Preferred
Stock"), all of which were outstanding prior to the Closing Date, of which
454,888 shares are designated as Series B preferred stock ("Series B Preferred
Stock"), all shares
2
<PAGE>
of which were outstanding prior to the Closing Date, of which 516,072 shares are
designated as Series C preferred stock ("Series C Preferred Stock"), 428,572 of
which were outstanding prior to the Closing Date, of which 727,500 are
designated as Series D preferred stock ("Series D Preferred Stock"), 701,755 of
which were outstanding prior to the Closing Date, and of which 697,675 shares
are designated as Series E Preferred Stock, none of which were outstanding prior
to the Closing Date. All such issued and outstanding shares are duly authorized
and validly issued, fully paid and nonassessable and have been issued in
compliance with all applicable state and federal laws concerning the issuance of
securities. Subject to the terms and conditions hereof, the Company has
authorized the issuance on the Closing Date of 697,675 shares of Series E
Preferred Stock and has authorized the reservation of the number of shares of
Common Stock issuable from time to time on conversion of such shares of Series E
Preferred Stock (said reserved shares, when issued, being referred to herein as
the "Purchaser Reserved Shares"), the Series E Preferred Stock having the terms
and provisions set forth in Exhibit A hereto. There are presently reserved for
---------
issuance 451,800 shares of Common Stock pursuant to options or purchase rights
granted or to be granted to employees, officers, directors or consultants of the
Company ("Employee Reserved Shares") and 87,500 shares of Series C Preferred
Stock pursuant to warrants held by Tech Ventures, 17,544 shares of Series D
Preferred Stock pursuant to warrants held by certain holders of Series D
Preferred Stock and up to 8,201 shares of Series D Preferred Stock pursuant to
warrants to be issued to Silicon Valley Bank( such shares reserved with respect
to warrants being herein referred to as "Warrant Shares"). There are presently
reserved for issuance pursuant to conversion rights of holders of Series A
Preferred Stock 262,500 shares of Common Stock ("Series A Reserved Shares"),
there are presently reserved for issuance pursuant to conversion rights of
holders of Series B Preferred Stock 454,888 shares of Common Stock ("Series B
Reserved Shares"), there are presently reserved for issuance pursuant to
conversion rights of holders of Series C Preferred Stock 516,072 shares of
Common Stock ("Series C Reserved Shares"), there are presently reserved for
issuance pursuant to conversion rights of holders of Series D Preferred Stock or
holders or prospective holders of warrants 727,500 shares of Common Stock
("Series D Reserved Shares") and there are presently reserved for issuance
pursuant to conversion rights of holders of Series E Preferred Stock 697,675
shares of Common Stock ("Series E Reserved Shares"). Except for the foregoing,
(i) no subscription,
3
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warrant, option, convertible security or other right (contingent or otherwise)
permitting any party other than the Company to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, except as provided in
the September 1995 Shareholders' Agreement (as hereinafter defined), and (ii)
the Company has no commitment to issue any such subscription, warrant, option,
convertible security or other right, or to issue or distribute to holders of any
shares of its capital stock (by reason of their holding such capital stock) any
evidences of indebtedness or assets. Other than as provided in the Certificate
of Incorporation, the Company has no obligation, contingent or otherwise, to
purchase, redeem or otherwise acquire any shares of its capital stock (other
than the Shares) or any interest therein or to pay any dividend or make any
other distribution in respect thereof. Upon the effectiveness of this Agreement,
no person or entity will be entitled to any preemptive right, right of first
refusal or similar right with respect to the issuance, sale, redemption or
transfer of any capital stock of the Company or any rights with respect to the
registration of any capital stock of the Company under federal or state
securities laws, except for the rights of first refusal and registration rights
contained in the Restated Shareholders' Agreement, dated as of September 1,
1995, between the Company and its common stockholders (the "September 1995
Shareholders' Agreement") and in this Agreement. Other than the Amended and
Restated Shareholders' Voting Agreement, dated as of September 1, 1995, between
the Company and its common stockholders (the "Shareholders' Voting Agreement"),
the September 1995 Shareholders' Agreement, the Stock Purchase Agreement dated
November 24, 1992, between the Company and Greylock Limited Partnership
("Greylock"), as amended (the "Greylock Agreement"), the Stock Purchase
Agreement dated September 21, 1993 among the Company and twelve other
individuals or entities and the Stock Purchase Agreement dated December 10, 1993
between the Company and Stanford University (collectively, the "Series B
Agreement"), the Stock Purchase Agreement dated as of April 1, 1994 among the
Company and fifteen other individuals or entities and the Subscription and
Investment Letter, dated August 1, 1994, between the Company and Tech Ventures
(collectively, the "Series C Agreement"), the Company's standard form of stock
subscription agreement, the Stock Purchase Agreement dated as of February 21,
1995 (the "Series D Agreement") and this Agreement, there are no existing voting
or stock restriction agreements or similar agreements between the Company and
any of its shareholders, nor, to the best knowledge of the Company,
4
<PAGE>
are there any such agreements among any of the Company's shareholders.
Immediately after the Closing, the capital stock of the Company issued and
outstanding and the Employee Reserved Shares and Warrant Shares will be as
stated in Schedule C hereto. The Greylock Agreement, Series B Agreement, Series
----------
C Agreement and Series D Agreement are herein sometimes collectively referred to
as the "Prior Stock Purchase Agreements."
3.5 Authorization. All corporate action on the part of the Company,
-------------
its officers, board of directors (the "Board") and shareholders necessary for
the sale and issuance of the Shares pursuant hereto and the performance of the
Company's obligations hereunder has been taken or will be taken prior to the
Closing Date. This Agreement shall constitute a valid and binding obligation of
the Company, enforceable in accordance with its terms, except as enforcement may
be limited by applicable bankruptcy, reorganization, insolvency or moratorium
laws or other similar laws affecting creditors' rights generally or general
principles of equity whether asserted in a proceeding at law or in equity. The
Shares, when issued in compliance with the provisions of this Agreement, will be
validly issued, fully paid and nonassessable, free of any liens or encumbrances,
with all original issuance taxes paid thereon.
3.6 Financial Statements. The Company has furnished the Purchasers
--------------------
with copies of (a) its audited balance sheet as of December 31, 1994 and its
audited statement of operations for the year then ended (collectively, the
"Audited Financial Statements") and (b) its unaudited balance sheet as of
December 31, 1995 (the "Balance Sheet Date") and its unaudited statement of
operations for the year ended December 31, 1995 (collectively, the "Unaudited
Financial Statements"). The Audited Financial Statements and the Unaudited
Financial Statements were prepared in accordance with the Company's books and
records and in accordance with generally accepted accounting principles and
fairly present the financial position and results of operation of the Company as
of the dates and for the periods indicated, subject, however, in the case of the
Unaudited Financial Statements to normal year end audit adjustments not
anticipated to be material in amount. The Company has no material liabilities,
whether or not of a type required to be reflected on a balance sheet prepared in
accordance with generally accepted accounting principles (whether accrued,
absolute, contingent or otherwise) which are not shown or provided for in the
Unaudited Financial Statements, except those arising since the
5
<PAGE>
Balance Sheet Date in the ordinary course of the Company's business and except
as shown on the Schedule of Exceptions.
3.7 Changes. Since the Balance Sheet Date, there has not been any
-------
event or condition of any type known to the Company that has materially and
adversely affected the Company's business, prospects, condition, affairs,
operation, properties or assets. Since the Balance Sheet Date, the physical
properties owned or leased by the Company have not suffered any material
destruction or damage, regardless of whether or not any such loss was insured
against.
3.8 Title to Properties and Assets; Liens. The Company has good and
-------------------------------------
marketable title to all its properties and assets and has good title to all its
leasehold estates in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than minor liens and encumbrances which do not in
any case materially detract from the value of the property subject thereto or
materially impair the operations of the Company and which have not arisen
otherwise than in the ordinary course of business.
3.9 Commitments. Attached hereto as Exhibit C is a list of all
----------- ---------
agreements, contracts, indebtedness, liabilities and other obligations
(collectively, "Commitments") to which the Company is a party or by which it is
bound and which are material to the conduct and operations of its business. For
purposes of this Section 3.9, a Commitment occurring in the ordinary course of
the Company's business shall not be considered material unless it, together with
other Commitments with the same party, involve more than $50,000, except that,
where a Commitment consists of an agreement to license the Company's product to
a third party in the ordinary course of the Company's business, such Commitment
shall not be considered material unless it, together with other Commitments with
the same party, involve more than $200,000. Copies of the documentation
evidencing such Commitments have been made available for inspection by the
Purchasers and their counsel.
3.10 Intellectual Properties. The Company has sufficient and valid
-----------------------
right, title and ownership of all patents, trademarks, service marks, trade
names, copyrights, licenses, trade secrets, inventions, and proprietary rights
(collectively, "Intellectual Properties"), including without limitation those
relating to SQL Windows, or licenses, rights or purchase options with respect to
the foregoing, necessary for its business as now conducted and as currently
proposed
6
<PAGE>
to be conducted, or will be able to obtain on terms which will not materially
and adversely affect its business all such necessary permits, licenses and other
authority with respect thereto without any conflict with or infringement of the
known or asserted rights of others. Exhibit C contains a complete list of
---------
Intellectual Properties owned or used by the Company. Neither the Company nor,
to the Company's knowledge, any officer or management, technical or professional
employee of the Company is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
conflict with the Company's business as conducted (or as currently proposed to
be conducted, as evidenced by the Business Documents described in Section 3.15)
or, in the case of any such employee, such employee's right to be employed by
the Company. The Company does not believe it is utilizing any inventions or
proprietary ideas of any of its employees (or persons it currently intends to
hire) made prior to their employment by the Company and which are known by the
Company to be inventions of such employees or persons. All of the officers and
management, technical or professional employees of the Company have executed an
agreement containing assignment of invention and confidentiality covenants
substantially in the form contained in the agreements attached hereto as
Exhibits D1 or D2; such agreements remain in full force and effect; and, to the
- -----------------
Company's knowledge, none of such officers or management, technical or
professional employees is in violation thereof. The Company has obtained all
governmental permits, authorizations, approvals and licenses known by the
Company to be necessary for its business as now conducted and as currently
proposed to be conducted (as evidenced by such Business Documents) and the
absence of which would have a material adverse effect on the Company.
3.11 Compliance With Other Instruments. The Company is not in
---------------------------------
violation in any material respect of any term of its Certificate of
Incorporation, By-laws, or any Commitment, judgment, decree, order or, to its
knowledge, any statute, rule or regulation applicable to the Company. The
execution, delivery and performance of and compliance with this Agreement, and
the issuance of the Shares pursuant hereto, will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, a material default under any such term, or result in
the creation of any pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company pursuant to any such terms.
7
<PAGE>
3.12 Litigation. There is no action, suit, proceeding or
----------
investigation pending and known to the Company or known and currently threatened
against the Company which questions the validity of this Agreement or the right
of the Company to enter into it or to consummate the transactions contemplated
hereby, or which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor does the Company know of any basis for the foregoing. The
foregoing includes, without limitation, actions which to the Company's knowledge
are pending or threatened (or any basis therefor known to the Company) involving
the prior employment of any of the Company's officers or employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
3.13 Insurance. The insurable properties of the Company are insured
---------
for the benefit of the Company with the coverages shown on Schedule B. The key
----------
person insurance coverage referred to in Section 7.5 is currently in effect.
3.14 Governmental Consent. Based in part on the representations and
--------------------
warranties of the Purchasers in Section 4, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority on the part of the Company is required
in connection with the consummation of the transactions contemplated by this
Agreement.
3.15 Disclosure. To its knowledge, the Company has fully provided the
----------
Purchasers with all the written information which the Purchasers have requested
for the purpose of deciding whether to purchase the Shares. Neither this
Agreement nor any other written statements, information or certificates made or
delivered in connection herewith, including the Company's 1996 Budget as of
1/25/96 and the Company's 1996 Business Plan--First Draft (such Business Plan
and Budget being herein referred to as the "Business Documents"), contain any
untrue statement of a material fact or, to the knowledge of the Company, omits
to state a material fact known to the Company necessary to make the statements
herein or therein not misleading. The projections contained in the Business
Documents were based on assumptions believed to be
8
<PAGE>
reasonable at such time and on the best judgment of management of the Company,
which assumptions its management continues to believe to be reasonable on the
whole, but otherwise no representation or warranty is made with respect to such
projections.
3.16 Agreements; Changes.
-------------------
(a) Except for this Agreement, the agreements referred to in this
Agreement, the Schedules hereto or the Business Documents, or employment
relationships between the Company and certain shareholders, there are no
agreements, understandings or proposed transactions between the Company and any
person or entity which is a shareholder, officer or director of the Company, a
relative by blood or marriage of, a trust or estate for the benefit of, or a
person or entity which directly or indirectly controls, is controlled by, or is
under common control with, any such person or entity (hereinafter referred to as
a "person or entity associated with the Company").
(b) Since the Balance Sheet Date, the Company has not (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
presently in excess of $25,000 or in excess of $50,000 in the aggregate, other
than in the ordinary course of business, (iii) made any loans or advances to any
person, other than in the ordinary course of business, or (iv) sold, exchanged
or otherwise disposed of any of its assets or rights, other than in the ordinary
course of business.
3.17 Taxes. The Company has accurately prepared and timely filed all
-----
income tax returns and other tax returns which are required to be filed by it,
true and complete copies of which have been furnished to the Purchasers, and has
paid, or made provision for the payment of, all taxes which have or may have
become due pursuant to said returns or pursuant to any assessment which has been
received by it. No controversy in respect of taxes of any type is pending, or
to the best knowledge of the Company, threatened. The income tax returns of the
Company have never been audited by any federal or state governmental authority.
3.18 Employees. There are no material controversies pending or, to
---------
the knowledge of the Company, currently threatened between it and its employees.
To the Company's knowledge and except as disclosed to the Purchasers, no officer
or key employee has any present intention of terminating his employment with the
Company and the Company has no
9
<PAGE>
present intention of terminating any such employment. The Company is not a party
to any collective bargaining agreement and, to its knowledge, no organizational
efforts are presently being made with respect to any of its employees. The
Company has complied in all material respects with all applicable state and
federal laws and regulations respecting employment and employment practices,
terms and conditions of employment, wages and hours and other laws related to
employment, and there are no arrears in the payments of wages, withholding or
social security taxes, unemployment insurance premiums or other similar
obligations.
3.19 Retirement Obligations. The Company has no pension, retirement
----------------------
or similar plan or obligation, whether of a legally binding nature or in the
nature of informal understandings.
3.20 Books and Records. The minute books of the Company contain
-----------------
accurate summary records of all meetings and written consents to action of the
Company's shareholders, the Board and all committees, if any, appointed by the
Board. The Company's stock ledger is complete and reflects all issuances,
transfers, repurchases and cancellations of shares of capital stock of the
Company. The books of account and other financial records and the order books,
if any, of the Company accurately and completely reflect all material
information purported to be shown therein in all material respects.
3.21 Brokers. The Company has no contract, arrangement or
-------
understanding with any broker, finder, or similar agent with respect to the
transactions contemplated by this Agreement.
3.22 Environmental Liabilities.
-------------------------
(a) To its knowledge, the Company has no obligations or
liabilities, matured or not matured, absolute or contingent, assessed or
unassessed, which could reasonably be expected to have a material and adverse
effect, and no pending claims have been made against it and no currently
outstanding citations or notices including, without limitation, notice letters,
information requests or notices of potential responsibility, have been issued
against it, which could reasonably be expected to have a material and adverse
effect, and which, in the case of any of the foregoing, have been or are imposed
by reason of or based upon any provision of any Environmental Laws.
10
<PAGE>
(b) As used herein, the term "Environmental Laws" shall mean any
and all federal, state, local, or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees, or requirements of any federal, state,
municipal, or other governmental department, commission, board, bureau, agency,
or instrumentality, or other court or arbitrator, in each case whether of the
United States or foreign, regulating, relating to, or imposing liability or
standards of conduct concerning any hazardous materials or petroleum products or
environmental protection, as now in effect.
3.23 Qualified Small Business. The Shares are "qualified small
------------------------
business stock," as defined in Section 1202 of the Internal Revenue Code of
1986, as amended (the "Code").
3.24 Knowledge Qualification. As used in this Section 3, all
-----------------------
references to information known to the Company shall mean information actually
(and not constructively or impliedly) known to Joseph S. McCall ("McCall") or
any other executive officer of the Company.
4. Representations and Warranties of the Purchaser. Each of the
-----------------------------------------------
Purchasers severally represents and warrants to the Company as follows:
4.1 Authority. Such Purchaser is an individual or is a limited
---------
partnership or retirement benefit trust or corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction shown on
Schedule A. Any corporate, partnership or similar action on the part of such
Purchaser necessary for the purchase of such Shares and the performance of its
obligations hereunder has been taken or will be taken prior to the Closing Date.
This Agreement, when executed and delivered by such Purchaser, will constitute a
valid and legally binding obligation of such Purchaser, enforceable in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy laws or other similar laws affecting creditors' rights generally.
4.2 Investment Representations. This Agreement is made with each
--------------------------
Purchaser upon the understanding as a specific representation to the Company by
such Purchaser that:
(a) the Shares purchased hereunder will be acquired for such
Purchaser's own account and not with a view to the distribution of any part
thereof, and such Purchaser has no present intention of selling, granting
participation in, or otherwise distributing the same;
11
<PAGE>
(b) such Purchaser acknowledges that such Purchaser has the knowledge
and experience in financial and business matters so as to be capable of
evaluating the merit and risk of and protecting such Purchaser's own
interests in connection with such Purchaser's purchase of such Shares, has
had the opportunity to ask such questions of the Company and to review such
documents as such Purchaser deemed necessary in connection with its
purchase of Shares, is able to fend for such Purchaser in the transactions
contemplated by this Agreement and has the ability to bear the economic
risk of such Purchaser's investment pursuant to this Agreement;
(c) unless such Purchaser otherwise advises the Company in writing
prior to the Closing, such Purchaser is an accredited investor, as defined
in Rule 501 promulgated by the Commission; and
(d) such Purchaser understands that such Shares are characterized as
"restricted securities" under the federal securities laws and certain state
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such Shares may be resold without registration under
the Securities Act and those state securities laws only in certain limited
circumstances. In this connection, such Purchaser represents that such
Purchaser is familiar with Rule 144 promulgated by the Commission, as
presently in effect, understands the resale limitations imposed thereby and
by the Securities Act, and is aware that the Company is under no obligation
to create a public market for its securities.
4.3 Brokers. Such Purchaser has no contract, arrangement or
-------
understanding with any broker, finder, or similar agent with respect to the
transactions contemplated by this Agreement.
5. Conditions to the Purchasers' Obligations at Closing. The obligation
----------------------------------------------------
of the Purchasers to purchase Shares at the Closing is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions:
5.1 Representations and Warranties Correct; Performance of
------------------------------------------------------
Obligations. The representations and warranties made by the Company in Section
- -----------
3 hereof shall be true and correct when made, and shall be true and correct on
the Closing Date with the same force and effect as if they had been made on and
as of said date, subject to changes contemplated by this Agreement;
12
<PAGE>
and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing Date.
5.2 Opinion of Counsel. The Purchasers shall have received from
------------------
Parker, Johnson, Cook & Dunlevie, counsel to the Company, an opinion, dated as
of the Closing Date, in the form attached as Exhibit E hereto.
5.3 Qualifications. All authorizations, approvals or permits of any
--------------
governmental authority that are required in connection with the lawful issuance
and sale of the Shares under this Agreement shall have been duly obtained and
shall be effective.
5.4 Directors. On the Closing Date, the directors shall consist of
---------
McCall, Donald L. House, Sr., William S. Kaiser, William H. Mills and Tench
Coxe.
5.5 McCall Certificate. McCall shall have executed and delivered to
------------------
the Purchasers a certificate in the form of Exhibit F.
---------
5.6 Management Rights Agreements. The Company shall have executed
-----------------------------
and delivered to each of Technology Crossover Ventures, L.P. ("Technology
Crossover") and Noro-Moseley Partners III, L.P. ("Noro-Moseley") a management
rights agreement in the form of Exhibits G1 or G2 hereto, as the case may be.
-----------------
5.7 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchasers and counsel to the Purchasers, and the
Purchasers shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
6. Conditions to Obligations of the Company. The obligations of the
----------------------------------------
Company to sell and issue the Shares at the Closing are subject to the
fulfillment on or prior to the Closing Date of the following conditions:
6.1 Representations and Warranties Correct; Performance of
------------------------------------------------------
Obligations. The representations and warranties made by the Purchasers in
- -----------
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date with the same force and effect as if they had been
made on and as of said date, and the Purchasers shall have performed all
obligations and conditions herein required to be performed by them on or prior
to the Closing Date.
13
<PAGE>
6.2 Qualifications. All authorizations, approvals or permits of any
--------------
governmental authority that are required in connection with the lawful issuance
and sale of the Shares under this Agreement shall have been duly obtained and
shall be effective.
7. Covenants of the Company or the Purchasers. The Company and the
------------------------------------------
Purchasers, in the case of Section 7.3, hereby covenant and agree as follows:
7.1 Financial Information. The Company will furnish the following
---------------------
reports to the persons indicated:
(a) Annual Financial Statements. As soon as practicable, but in
---------------------------
any event within 90 days after the end of each fiscal year of the Company, a
consolidated statement of earnings for such fiscal year, a consolidated balance
sheet of the Company as of the end of such year, and a consolidated statement of
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles,
and audited and certified by an independent public accounting firm of nationally
recognized standing selected by the Company and reasonably acceptable to the
Purchasers, shall be furnished to the Purchasers and to their transferees.
(b) Audit Reports. As soon as available, copies of all other
-------------
financial reports submitted to the Company or any Subsidiary (as defined in
Section 7.16) by independent public accountants, relating to any annual or
interim audit of the books of the Company or any Subsidiary, shall be furnished
to the Purchasers and to their transferees.
(c) Monthly Financial Statements. Within 30 days of the end of
----------------------------
each month, an unaudited statement of earnings, balance sheet and statement of
cash flow and current operating plan of the Company for or as of the end of such
month, in reasonable detail, shall be furnished to the Purchasers.
(d) Regulatory Filings. Within 10 days after filing, copies of
------------------
all reports filed by the Company pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 shall be furnished to the Purchasers and their
transferees and, promptly upon request by any Purchaser, the Company shall
furnish copies of press releases and other documents that the Company shall have
released to the press during the preceding 90 days.
(e) Litigation. Promptly upon the Company's learning thereof,
----------
notice shall be furnished to the Purchasers of (i) any litigation filed against
or affecting the Company
14
<PAGE>
or any Subsidiary, whether or not covered by insurance, which litigation
involves an amount in controversy in excess of $10,000 or which litigation is
requesting a specific equitable remedy including, without limitation, an
injunction or restraining order, and (ii) the institution of any suit or
administrative proceeding which is reasonably expected materially and adversely
to affect the business, assets, operations, prospects, employee relations or
condition (financial or otherwise) of the Company or any Subsidiary.
(f) Unbudgeted Costs. Promptly upon the occurrence thereof, notice of
----------------
any event which has resulted in, or could reasonably be expected to result in,
an unanticipated cost to the Company or any Subsidiary in excess of $50,000,
including, without limitation, disputes with customers, employees, consultants
or creditors or disputes relating to contractual obligations and amendments,
modifications or waivers of any such obligation, shall be furnished to the
Purchasers.
(g) Other Information. The Company shall furnish to each Purchaser,
-----------------
and to each transferee or prospective transferee of any Purchaser, such other
information relating to the financial condition, business, prospects or
corporate affairs of the Company as such Purchaser may from time to time
request; provided, however, that the Company shall not be obligated to provide
information which it deems in good faith to be proprietary. Notwithstanding the
foregoing provisions of this Section 7.1 or Section 7.2, the Company shall not
be obligated to furnish information to any Purchaser or a transferee or
prospective transferee of such Purchaser unless such Purchaser or such
transferee or prospective transferee holds (or will hold immediately following
such transfer) no less than 25% of the Shares purchased by such Purchaser
pursuant to this Agreement and unless, in the case of a transferee or
prospective transferee, such transferee or prospective transferee shall have
agreed in writing to be bound by the provisions of Section 7.3.
(h) The Company will promptly notify each Purchaser if and when the
status of the Shares as qualified small business stock, as now or hereafter
defined in the Code, shall have changed, will submit on a timely basis the
reports and other information required to be submitted pursuant to Section
1202(d)(1)(C) of the Code, as in effect from time to time, and will promptly
provide to each Purchaser such other information pertaining to such status as
such Purchaser may reasonably request. On or before March 1, 1997, the Company
will take no
15
<PAGE>
actions described in Section 1202(c)(3)(B) or (C) without the consent of the
holders of 75% or more of the Shares then held by the Purchasers.
(i) Notwithstanding the foregoing provisions of this Section 7.1, the
Company may satisfy its obligations to furnish information to the Purchasers
pursuant to paragraphs (a) through (f) of Section 7.1 by furnishing copies
thereof to Greylock, Sutter Hill Ventures, a California Limited Partnership
("Sutter Hill"), Highland Capital Partners II Limited Partnership ("Highland"),
Hancock Venture Partners IV Direct Fund L.P. ("Hancock"), Wakefield Group
Limited Partnership ("Wakefield"), Technology Crossover and Noro-Moseley
Partners III, L.P. ("Noro-Moseley") (it being understood that any such recipient
may in turn furnish such information to other Purchasers).
7.2 Inspection. The Company shall permit each Purchaser, at such
----------
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by such Purchaser upon reasonable notice to the Company; provided, however, that
the Company shall not be obligated pursuant to this Section 7.2 to provide
access to any information which it reasonably considers to constitute a trade
secret or to contain similarly confidential information.
7.3 Confidentiality of Information. Each Purchaser agrees to
------------------------------
maintain the confidentiality of any information obtained by such Purchaser
pursuant to Sections 7.1 or 7.2 which may be proprietary to the Company or
otherwise confidential and which has not been made available by the Company to
the public or to any other third party on a non-confidential basis. Each
Purchaser further agrees to use such proprietary and confidential information
only to benefit the Company or to monitor such Purchaser's investment in the
Company and to make no disclosure thereof to a third party (other than his or
its general or limited partners, staff and legal and other professional advisers
or in connection with furnishing of sample reports to prospective general or
limited partners or other sources of capital) without the Company's prior
written consent (which may be conditioned upon receipt of a similar undertaking
by the third party but otherwise shall not be unreasonably withheld).
7.4 Use of Proceeds. The Company will use the proceeds from the sale
---------------
of Shares hereunder (whether such proceeds are received by check, by wire
transfer of funds or by
16
<PAGE>
delivery of promissory notes of the Company, as set forth in Section 1) in part
to repay $2,000,000 in principal, plus accrued interest, on the promissory notes
issued October 26, 1995. The balance of said proceeds will be used for working
capital purposes and other transactions approved by the Board.
7.5 Key Person Life Insurance. At all times after the Closing Date,
-------------------------
the Company shall use its best efforts to maintain in force the policies of life
insurance, naming the Company as beneficiary, which are presently in force on
the life of Joseph S. McCall in the face amount of $1,000,000 (or policies
containing terms and conditions substantially similar to those policies).
7.6 Certain Transactions. The Company agrees that it will not enter
--------------------
into any transaction or agreement (other than normal compensation arrangements,
which are subject to Section 7.11), including without limitation any lease or
other rental or purchase agreement or any agreement providing for loans or
extensions of credit by or to the Company, or any modification of any of the
foregoing, ("contract") with any "person or entity associated with the Company"
as defined in Section 3.16, or with respect to which any such person or entity
has or is to have a direct or indirect material interest, unless such contract
has been approved by no less than a majority of the number of directors
constituting the whole Board (excluding, if a director, any such person
associated with the Company and having such an interest in the contract in
question) or unless such contract was in effect or contemplated on the date
hereof and disclosed to the Purchasers in this Agreement (including the
Schedules and Exhibits hereto) or in the Business Documents referred to in
Section 3.15 or unless such contract is non-material and in the ordinary course
of business. For purposes hereof, a contract shall be deemed to be non-material
if it and all other contracts (excluding, for this purpose, compensation under
employment contracts and other compensation arrangements) between the Company
and the person or entity in question do not involve payment by or to the Company
during any fiscal year of more than $25,000.
7.7 Assignment of Invention/Confidentiality Agreements. Except as
--------------------------------------------------
otherwise provided by the Board in a particular case, the Company will use its
best efforts to enter into an assignment of invention/confidentiality agreement
in substantially the form of Exhibit D1 hereto with each of its current and
future officers and management, technical or professional employees.
17
<PAGE>
7.8 Director's Fees. Commencing on the Closing Date, if annual
---------------
directors' fees are paid to any other member of the Board, the Company will pay
to any Purchaser-affiliated director or such director's designee an annual
director's fee in an amount equal to the highest annual fee so paid. The
Company will also promptly reimburse all reasonable out-of-pocket expenses
consistent with Company policy and incurred by any such Purchaser-affiliated
director in connection with attending meetings of the Board.
7.9 Negative Covenants. So long as the Purchasers own in aggregate
------------------
at least 174,419 Shares (with appropriate adjustments for stock dividends,
splits or combinations and similar actions), the Company shall not, without the
prior consent or approval of the holders of at least 60% of the Registrable
Securities (as defined in Section 8) then outstanding:
(i) engage in any business other than the software business and
related services; or
(ii) grant any registration rights to any other holders or
prospective holders of its securities which are superior in any material way to
the registration rights under Section 8 hereof; provided, that nothing herein
shall prohibit the Company's grant of registration rights on a pari passu basis
with those granted the Purchasers; or
(iii) purchase, redeem or otherwise acquire any shares of capital
stock of the Company, other than pursuant to (a) the September 1995
Shareholders' Agreement, (b) the Certificate of Incorporation, or (c) upon the
exercise, approved by the Board (excluding the seller, if a director), of
repurchase rights with respect to shares owned by any employee, director, or
consultant of the Company; or
(iv) amend the Certificate of Incorporation or the By-Laws in a
manner which materially and adversely affects the Preferred Stock.
7.10 Non-Competition of Certain Key Employees. Unless otherwise
----------------------------------------
determined in a particular case by the Board, the Company will use its best
efforts to cause each present and future officer or management, technical,
sales, marketing, or professional employee of the Company or any subsidiary of
the Company, including without limitation the Company's chairman of the board,
chief executive officer, president, chief operating officer, chief financial
officer, treasurer, vice president of sales and marketing, vice president (or
similar position) of research and development, and regional sales managers,
(referred to herein as "Key Employees")
18
<PAGE>
to enter into an agreement with the Company containing covenants substantially
similar to those contained in Exhibit D2, subject to any modifications deemed
----------
appropriate by the Company's counsel to comply with local law.
7.11 Management Compensation; Options. Compensation (including
--------------------------------
salary, bonuses, fringe benefits and stock awards) paid by the Company to its
officers shall be established by the Company's Board of Directors or by a
compensation committee of the Board. Except as otherwise agreed by a majority of
the Board or of a committee of the Board, any stock options or other stock
awards to employees, officers, directors or consultants or similar persons
furnishing services to the Company will be made pursuant to the form of option
agreement attached as Exhibit H hereto.
---------
7.12 Indemnification. The Certificate of Incorporation or By-laws of
---------------
the Company shall at all times during which any affiliate of any Purchaser
serves as a member of the Board provide for limitations on the liability of the
directors and indemnification of the directors to the fullest extent permitted
under applicable law. To the extent not prohibited by law, in the event that
any Holder who is a director of the Company or any affiliate of a Holder who is
a director of the Company shall be made or threatened to be made a party to any
action, suit or proceeding with respect to which such Holder or director may be
entitled to indemnification by the Company pursuant to this Agreement or the By-
Laws, or otherwise, all such directors, as a group, shall be entitled to be
represented in such action, suit or proceeding by one counsel of their choice
and the expenses of such representation shall be reimbursed by the Company as
provided in or authorized under this Agreement or the By-Laws or other
provision, as presently in effect (whether or not the By-Laws or other provision
is hereafter amended).
7.13 Capital Expenditures. The Company will not, without the approval
--------------------
of the Board, make any expenditures for software or software licenses from third
parties or for fixed or capital assets, or make any commitments for such
expenditures, exceeding an amount of $100,000 for any one such expenditure or
series of related expenditures.
19
<PAGE>
7.14 Indebtedness. The Company will not become indebted or create,
------------
incur, assume or be liable in any manner in respect of, or suffer to exist,
without the prior approval of the Board, any new or additional long-term
indebtedness, standby letter of credit or similar loan which, for any one such
borrowing or series of related borrowings, is in excess of $100,000.
7.15 Future Financings.
-----------------
(a) Right of First Refusal. The Company grants to each
----------------------
Stockholder as defined in subsection (d) below the right of first refusal to
purchase such Stockholder's pro-rata share, as defined below, of any equity
securities of the Company, including shares of the Common Stock or securities of
any type convertible into, or entitling the holder thereof to purchase shares
of, Common Stock, proposed to be issued by the Company subsequent to the date
hereof (such securities being hereafter referred to in this Section 7.15 as the
"Securities"). Such Stockholder's "pro-rata share" shall be that portion of the
Securities proposed to be issued which bears the same relation to all of the
Securities proposed to be issued as the shares of Common Stock held by the
Stockholder bear to all outstanding shares of the Common Stock (assuming the
conversion of all outstanding securities which are convertible into Common
Stock), all determined immediately prior to the offering of the Securities.
(b) Notice. In the event that the Company proposes to undertake
------
an issue of Securities, it shall deliver to each Stockholder written notice of
its intention, describing such Securities, specifying such Stockholder's pro-
rata share and stating the purchase price and other terms upon which it proposes
to issue the same (the "Option Notice"). For a period of 20 days from the
receipt of the Option Notice, each Stockholder shall have the right to elect, by
written notice to the Company, to purchase all or any portion of such
Stockholder's pro-rata share of the Securities described in the Option Notice.
In the event a Stockholder fails to exercise such Stockholder's rights of first
refusal within the specified period, or such Stockholder elects to acquire less
than such Stockholder's aggregate pro-rata shares pursuant to the exercise of
such right, then, during the 90 day period following the expiration of such 20
day period, the Company may sell, free of any right of first refusal on such
Stockholder's part, the portion of such Stockholder's pro-rata shares not
purchased pursuant to such right of first refusal, upon the same terms specified
in the Option Notice.
20
<PAGE>
(c) Exceptions. The right of first refusal granted under this
----------
Section 7.15 shall not apply to (i) the issuance of Employee Reserved Shares or
the Warrant Shares; (ii) the issuance of Series A Reserved Shares, Series B
Reserved Shares, Series C Reserved Shares, Series D Reserved Shares or Series E
Reserved Shares; (iii) any Securities offered in a registered public offering;
(iv) sales of Common Stock to the Company's employees, directors, consultants
and advisors if such issuance has been approved by at least two-thirds of the
number of directors constituting the Company's whole Board; (v) Securities
issued for non-cash consideration, or as a so-called "equity feature" (such as a
warrant) of a transaction primarily involving debt securities or indebtedness
for borrowed money, or pursuant to a merger or acquisition transaction; and (vi)
the issuance of Securities upon a stock split or stock dividend with respect to
the Company's Common Stock.
(d) Satisfaction of Existing Rights. By executing this
-------------------------------
Agreement, each of the Purchasers and the other stockholders of the Company
(other than the stockholders designated Principal Common Stockholders;
hereinafter, the "Principal Common Stockholders") whose names appear on the
signature pages below (the "Stockholders") acknowledges full satisfaction of
their respective subscription rights, if any, pursuant to any and all of the
Prior Stock Purchase Agreements to which such Stockholder is a party and hereby
waives any such rights with respect to the Shares to the extent not fully
satisfied.
7.16 Subsidiaries. As used herein, the term "Subsidiary" shall mean
------------
any corporation, association or other business entity of which securities or
other ownership interests representing more than 50% of the ordinary voting
power are at the time in question owned by the Company or any other Subsidiary.
Except as otherwise approved by the Board, which approval has been obtained as
to the Service Subsidiary, the Company shall have no Subsidiary other than a
wholly owned Subsidiary. The provisions of this Section 7 (other than Sections
7.5 and 7.15) shall, unless the context requires otherwise, apply equally to any
Subsidiary.
7.17 Termination of Covenants. The covenants set forth in this
------------------------
Section 7 (other than those in Sections 7.1(g), 7.10 and 7.12) shall terminate
upon the consummation of an underwritten public offering pursuant to an
effective registration statement under the Securities Act, as amended, covering
the offer and sale by the Company of common stock to the public which results in
aggregate gross proceeds to the Company of at least $10,000,000 and an
21
<PAGE>
equivalent public offering price per share of Common Stock of at least $18.00
(such amount to be appropriately adjusted in the event of stock splits, stock
combinations, stock dividends or similar recapitalizations) (a "Qualified
Offering").
8. Registration Rights.
-------------------
8.1 Certain Definitions. As used in this Section 8 and elsewhere in
-------------------
this Agreement, the following terms shall have the following respective
meanings:
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Holder" shall mean any Stockholder as defined in Section 7.15(d) so
------
long as such Stockholder holds at least 25% of the Shares purchased by such
Stockholder (including for purposes of such computation shares purchased
pursuant to any of the Prior Stock Purchase Agreements and the Warrant Shares)
and any transferee of such Stockholder so long as such transferee holds at least
1% of the outstanding capital stock of the Company and provided such transferee
agrees in writing with the Company to hold such stock subject to all the
restrictions of this Agreement.
"Registrable Securities" shall mean (i) the shares of Common Stock
----------------------
issued or issuable upon conversion of the Shares or the shares of Preferred
Stock purchased pursuant to any of the Prior Stock Purchase Agreements or the
Warrant Shares, in each case as provided in the Certificate of Incorporation, as
hereafter amended, and (ii) any securities issued as a dividend or other
distribution with respect to, or in exchange or in replacement of, the
securities referred to in subsection (i).
"Registration Expenses" shall mean all expenses (except for "Selling
---------------------
Expenses" as defined below) incurred by the Company in complying with Sections
8.2 or 8.3 of this Agreement, including, without limitation, all registration
and filing fees, printing expenses, reasonable fees and disbursements of counsel
for the Company and, subject to 8.4, in the case of a registration referred to
in subsection 8.2(a) or Section 8.3, the reasonable fees and disbursements of
one counsel for the selling shareholders.
22
<PAGE>
The terms "register", "registered" and "registration" shall refer to a
-------- ---------- ------------
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such Registration Statement.
"Registration Statement" shall mean a registration statement on Form
----------------------
S-1 or Form S-3 filed by the Company with the Commission for a public offering
and sale of securities of the Company.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Selling Expenses" shall mean all underwriting discounts and selling
----------------
commissions applicable to the sale of Shares pursuant to Sections 8.2 or 8.3 and
all fees and disbursements of counsel for the Holders not included in
Registration Expenses.
8.2 Required Registrations.
----------------------
(a) If at any time at least six months after the effective date
of its initial public offering (the "Initial Public Offering") and prior to five
years following such effective date, the Company shall be requested in writing
by the Holder(s) of at least 50% of the outstanding shares of Registrable
Securities to effect the registration under the Securities Act of outstanding
shares of Registrable Securities having an anticipated selling price of no less
than $2,000,000, the Company shall promptly give written notice of such proposed
registration to all record Holders of Registrable Securities. Such Holders shall
have the right, by giving written notice to the Company within 30 days from
receipt of the Company's notice, to elect to have included in such registration
such of their Registrable Securities as such Holders may request in such notice
of election. Thereupon, the Company shall, as expeditiously as practicable, use
its best efforts to effect the registration, on a form of general use under the
Securities Act, of all shares of Registrable Securities which the Company has
been requested to register. The Company shall not be obligated to cause to
become effective more than two registration statements pursuant to which
Registrable Securities are sold under this Section 8.2(a).
Notwithstanding the foregoing, if the Company shall furnish to the
Holders of Registrable Securities requesting registration pursuant to this
Section 8.2(a) a certificate signed by the President of the Company stating that
the Board has made the good faith judgment that
23
<PAGE>
it would be detrimental to the Company and its shareholders for such
registration statement to be filed in the near future, then the Company's
obligation to use its best efforts to file and cause to become effective such
registration statement may be deferred for a period which shall not exceed 180
days. This deferral right may not be exercised by the Company on more than one
occasion for each registration pursuant to this Section 8.2(a).
(b) At such time as the Company shall have qualified for the use
of Form S-3 (but in no event after the expiration of five years from the
effective date of the Initial Public Offering), as the case may be (or any
similar form or forms promulgated by the Commission), the Holders of Registrable
Securities shall each have the right to request an unlimited number of
registrations on Form S-3 or such similar form, as the case may be
(collectively, "Form S-3"). The Company shall give prompt written notice of each
such proposed registration to all other record Holders of Registrable
Securities. Such Holders shall have the right, by giving written notice to the
Company within 30 days from receipt of the Company's notice, to elect to have
included in such registration such of their Registrable Securities as such
Holders may request in such notice of election. Thereupon, the Company shall, as
expeditiously as practicable, use its best efforts to effect the registration,
on Form S-3, of all shares of Registrable Securities which the Company has been
requested to register; provided, however, that the Company shall not be
obligated to file and cause to become effective (i) more than one registration
under Section 8.2(a) or Section 8.2(b) in any one twelve-month period or (ii)
any Registration Statement on Form S-3 where the proposed aggregate offering
price of the Registrable Securities to be sold thereunder is less than
$1,000,000. Registrations effected pursuant to this Section 8.2(b) shall not be
counted as required registrations pursuant to Section 8.2(a) hereof.
(c) The Company may include in a registration requested under
this Section 8.2 (i) any authorized but unissued shares of Common Stock for sale
by the Company, and (ii) any shares of its Common Stock held by employees,
consultants, directors or other advisers of the Company and with respect to
which registration rights have been granted by the Company ("Management Stock");
provided, however, that such shares shall not be included to the extent that the
underwriter of the shares so proposed to be registered (if the offering is
underwritten) or, if the offering is not underwritten, the Holders of a majority
of the shares of
24
<PAGE>
Registrable Securities included therein determine in good faith that the
inclusion of such shares will interfere with the successful marketing of the
shares of Registrable Securities to be included therein. If the offering to
which a registration statement under this Section 8.2 relates is an underwritten
offering, and if, after all shares of Common Stock proposed to be offered by the
Company and all such shares of Management Stock have been excluded from such
registration, a greater number of shares of Registrable Securities is offered
for participation in such underwriting than in the opinion of the managing
underwriter can be accommodated without adversely affecting the underwriting,
the amount of Registrable Securities proposed to be offered in the underwriting
shall be reduced, pro-rata (based upon the amount of Registrable Securities
owned) among all Holders participating in such registration, to a number deemed
satisfactory by the managing underwriter; provided, however, that for purposes
-------- -------
of making any such reduction, with respect to each Purchaser, the partners and
retired partners of such Purchaser, the estates and family members of any such
partners and retired partners and their spouses, and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "Holder" of
Registrable Securities, and any pro-rata reduction with respect to such "Holder"
shall be based upon the aggregate amount of shares of Registrable Securities
owned by all entities and individuals included in such "Holder", as defined in
this provision.
8.3 Incidental Registrations.
------------------------
(a) If at any time or from time to time (but prior to the
expiration of five years from the effective date of the Initial Public Offering)
the Company shall determine to register any of its Common Stock, for its own
account or for the account of any of its shareholders (other than the Holders),
other than a registration relating solely to employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction or any Rule
adopted by the Commission in substitution therefor or in amendment thereto, or a
registration on any registration form which does not include substantially the
same information as would be required to be included in a Registration Statement
covering the sale of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to
25
<PAGE>
qualify such securities under the applicable Blue Sky or other state
securities laws); and
(ii) include in such registration (and any related qualification
under Blue Sky laws or other compliance), and in any underwriting involved
therein, all of the Registrable Securities and Management Stock specified
in a written request or requests received by the Company within twenty (20)
days after the giving of such written notice by the Company, by any Holder
or Holders, subject to the limitations set forth in Section 8.3(b).
(b) If the registration of which the Company gives notice is for
a registered public offering involving an underwritten public offering, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 8.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 8.3 shall be conditioned upon such
Holder's participation in such underwritten public offering and the inclusion of
such Holder's Registrable Securities in the underwritten public offering to the
extent provided herein. All Holders proposing to distribute their securities
through such underwritten public offering shall (together with the Company and
the other Holders distributing their securities through such underwritten public
offering) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwritten public offering by
the Company. Notwithstanding any other provision of this Section 8.3, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, all shares to be sold by the Company shall be
included in such offering before any Registrable Securities are so included, and
further, the underwriter otherwise may limit the number of Registrable
Securities to be included in the registration and underwritten public offering.
The Company shall so advise all Holders (except those Holders who have not
elected to distribute any of their Registrable Securities through such
underwritten public offering), and the number of shares of Registrable
Securities and shares of Management Stock that may be included in the
registration and underwritten public offering shall be allocated among such
Holders and holders of Management Stock in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities and shares of Management
Stock owned by such Holders and holders of Management Stock at the time of
filing the Registration Statement. No Registrable Securities or shares of
Management
26
<PAGE>
Stock excluded from the underwritten public offering by reason of the
underwriter's marketing limitation shall be included in such registration. If
the terms of any such underwritten public offering differ materially from the
terms (including range of offering price) previously communicated to any Holder,
such Holder may elect to withdraw therefrom by written notice to the Company and
the underwriter, which notice, to be effective, must be received by the Company
at least two (2) business days before the anticipated effective date of the
Registration Statement. The Registrable Securities and/or other securities so
withdrawn from such underwritten public offering shall also be withdrawn from
such registration; provided, however, that if by the withdrawal of such
--------
Registrable Securities a greater number of Registrable Securities held by other
selling Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters) then the Company shall include in such
registration in place of such withdrawn Registrable Securities such additional
Registrable Securities held by other selling Holders whose Registrable
Securities were excluded pursuant to limitation by the underwriter pursuant to
this Section 8.3(b) in the same proportion as such Registrable Securities were
excluded pursuant to such underwriter limitation (with no more Registrable
Securities being so included than were withdrawn). In the event that the
contemplated sale does not involve an underwritten public offering and a
determination that the inclusion of the Registrable Securities adversely affects
the marketing of the shares shall be made by the Board of Directors of the
Company in its good faith discretion, then no Registrable Securities are
required hereby to be included in the contemplated sale.
(c) The Company may at any time withdraw or abandon any
Registration Statement which triggers the provisions of this Section 8.3 without
any liability to the Holders.
8.4 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification and compliance pursuant to
subsection 8.2(b) and Section 8.3 and the first registration, qualification and
compliance pursuant to subsection 8.2(a) shall be borne by the Company. All
Selling Expenses incurred in connection with any such registration and the
Registration Expenses incurred in connection with the second registration,
qualification and compliance pursuant to subsection 8.2 (a) shall be borne by
the selling Holders on a pro rata basis. If, notwithstanding this Agreement,
applicable authorities in any state wherein Registrable
27
<PAGE>
Securities are to be sold require an allocation of Registration Expenses, each
Holder agrees to pay its apportioned share thereof.
8.5 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) prepare and file with the Commission a Registration Statement
with respect to such Registrable Securities, and use its best efforts in good
faith to cause such Registration Statement to become and remain effective as
provided herein;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus included in such
Registration Statement as may be necessary or advisable to comply in all
material respects with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement or as may
be necessary to keep such Registration Statement effective and current, but for
no longer than nine (9) months subsequent to the effective date of such
registration;
(c) furnish to each seller of Registrable Securities such number
of copies of such Registration Statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary prospectus), and such other
documents as any such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities held by such seller;
(d) enter into such customary agreements and take all such other
action in connection therewith as any Holder may reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities;
(e) use its best efforts in good faith to register and qualify
the Registrable Securities covered by such Registration Statement under such
securities or Blue Sky laws of such jurisdictions as any selling Holder on
behalf of itself or any other selling Holder shall reasonably request and do any
and all such other acts and things as may be reasonably necessary or advisable
to enable such selling Holder to consummate the disposition in such
jurisdictions of the Registrable Securities held by such selling Holder;
provided, however that the
28
<PAGE>
Company shall not be required in connection therewith to qualify to do business
or file a general consent to service of process in any such jurisdiction; and
(f) furnish to each prospective selling Holder a signed
counterpart, addressed to the prospective selling Holders, of (i) an opinion of
counsel for the Company, dated the effective date of the Registration Statement,
and, to the extent available to selling stockholders from the independent
auditors of the Company, (ii) a "comfort" letter signed by the independent
public accountants who have certified the Company's financial statements
included in the Registration Statement, covering substantially the same matters
with respect to the Registration Statement (and the prospectus included therein)
and (in the case of the "comfort" letter) with respect to events subsequent to
the date of the financial statements, as are customarily covered (at the time of
such registration) in opinions of issuer's counsel and in "comfort" letters
delivered to the underwriters in underwritten public offerings of securities;
provided, that the requirements of this paragraph (f) shall apply only to
Holders which are including at least 50,000 shares (such number to be
appropriately adjusted in the event of stock splits, stock combinations, stock
dividends or similar recapitalizations) of Registrable Securities in such
registration.
Notwithstanding the foregoing provisions of this Section 8.5, (1) the
Holders of Registrable Securities included in any Registration Statement will
not (until further notice) effect sales thereof after receipt of telegraphic or
written notice from the Company to suspend sales to permit the Company to
correct or update such Registration Statement or prospectus; but the obligations
of the Company with respect to maintaining any Registration Statement current
and effective shall be extended by a period of days equal to the period such
suspension is in effect; and (2) at the end of any period during which the
Company is obligated to keep any Registration Statement current and effective as
provided by this Section 8.5 (and any extensions thereof required by the
preceding paragraph (1) of this Section 8.5), the Holders of Registrable
Securities included in such Registration Statement shall discontinue sales of
shares pursuant to such Registration Statement upon notice from the Company of
its intention to remove from registration the shares covered by such
Registration Statement which remain unsold, and such Holders shall notify the
Company of the number of shares registered which remain unsold promptly after
receipt of such notice from the Company.
8.6 Indemnification.
---------------
29
<PAGE>
(a) The Company will indemnify each Holder, each of the officers,
directors and partners of such Holder, and each person controlling such Holder,
if Registrable Securities held by such Holder are included in the securities
with respect to which registration, qualification or compliance has been
effected pursuant to this Agreement, and each underwriter of such Registrable
Securities, if any, and each person who controls such underwriter, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other similar
document (including any related Registration Statement, notification or the
like) incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made, or (ii) any
violation by the Company of any federal, state or common law rule or regulation
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse such Holder, each of the officers, directors and partners of
such Holder, and each person controlling such Holder, such underwriter and each
person who controls such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable to a Holder or underwriter in any such case to the extent that such
claim, loss, damage, liability or expense arises out of or is based on (i) any
untrue statement or omission made in reliance upon and in conformance with
written information furnished to the Company by or on behalf of such Holder or
underwriter and which was furnished specifically for the purpose of being used
therein or (ii) a failure by any Holder to deliver a final prospectus to its
transferee if any material change has been made to the preliminary prospectus.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
registration, qualification or compliance, each person who controls the Company
or such underwriter within the meaning of the Securities Act, and each other
Holder, each of the officers, directors and partners of each such other Holder
and each
30
<PAGE>
person controlling such other Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such Registration Statement, prospectus, offering circular or other similar
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made, and
will reimburse the Company, such other Holders, such directors, officers,
partners, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such Registration Statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such Holder and which was furnished specifically for the purpose of being used
therein; provided, however, that the liability of such Holder under this Section
--------
8.6 shall be limited to an amount equal to the proceeds to such Holder of
Registrable Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 8.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party, at such party's expense, to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (except for the payment of fees, costs and
expenses provided for below), and provided further that the failure of any
--------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
to give notice shall materially adversely affect the Indemnifying Party in the
defense of any such claim or any such litigation. No Indemnifying Party, in the
defense of any such claim or litigation shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff
31
<PAGE>
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Notwithstanding the election of the Indemnifying Party to
assume the defense of any such claim or litigation, the Indemnified Party shall
have the right to employ separate counsel and to participate in the defense of
such claim or litigation, and the Indemnifying Party shall bear the reasonable
fees, costs and expenses of such separate counsel if (i) the use of the counsel
chosen by the Indemnifying Party to represent the Indemnified Party would
present such counsel with a conflict of interest; (ii) the defendants in, or
targets of, any such claim or litigation include both the Indemnified Party and
the Indemnifying Party and the Indemnified Party shall have reasonably concluded
that there may be legal defenses available to it or to other Indemnified Parties
which are different from or additional to those available to the Indemnifying
Party (in which case the Indemnifying Party shall not have the right to direct
the defense of such action on behalf of the Indemnified Party); (iii) in the
exercise of the Indemnified Party's reasonable judgment, the Indemnifying Party
shall not have employed satisfactory counsel to represent the Indemnified Party
within a reasonable time after notice of the institution of such claim or
litigation; or (iv) the Indemnifying Party shall authorize the Indemnified Party
to employ separate counsel at the expense of the Indemnifying Party. The
Indemnified Party shall not settle any such claim or litigation without the
consent of the Indemnifying Party.
(d) Notwithstanding the foregoing provisions of this Section 8.6,
if a registration is subject to a firm commitment underwriting, neither the
Company nor a Holder including Registrable Securities in the registration shall
be required to indemnify any other party to a greater extent than the obligation
of the Company or such Holder to the underwriters pursuant to the underwriting
agreement pertaining to such registration.
8.7 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company in writing
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may reasonably request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to in this Agreement.
8.8 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Company's capital stock to the public without registration, at
all times after 90 days after the
32
<PAGE>
effective date of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public, the Company
agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act; and
(c) furnish to each Holder forthwith upon request a written
statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents so filed by the
Company as a Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing that Holder to sell any
such securities without registration.
8.9 Market "Stand-off" Agreement. The Holders, if requested by the
-----------------------------
Company and an underwriter of the Company's securities, shall agree not to sell
or otherwise transfer or dispose of any common stock (or other securities) of
the Company (other than securities of the Company acquired in the open market on
or after a public offering) held by Holders during the 90-day period following
the effective date of the first Registration Statement and the 30-day periods
following the effective date of the second and third Registration Statements of
the Company filed under the Securities Act; provided, that all Holders holding
--------
more than two percent of the outstanding common stock and all officers and
directors of the Company enter into similar agreements. Such agreement shall be
in writing in form satisfactory to the Company and such underwriter. The
Company may impose stop-transfer instructions with respect to the shares (or
securities) subject to the foregoing restriction until the end of such 90-day or
30-day periods.
9. Transfer of Shares.
------------------
9.1 Procedures. Transfer of the Shares issued pursuant to this
----------
Agreement shall be made only on the books of the Company, respectively, by the
holders of record thereof or by their legal representatives who shall furnish
proper evidence of authority to transfer, or by their attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
33
<PAGE>
the Company, subject to the restrictions, if any, set forth in the By-Laws and
Section 9.2 hereof. The Holder in whose name the Shares stands on the books of
the Company shall be deemed by the Company to be owner thereof for all purposes.
9.2 Restrictive Legends. Each certificate evidencing Shares issued
-------------------
or sold under this Agreement shall contain or otherwise be imprinted with
suitable legends in substantially the following form:
"This security has not been registered under the Securities Act of
1933 or any state securities act, and has been acquired for investment
and not with view to, or for sale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933, as amended.
This security is subject to transfer restrictions contained in a
certain Stock Purchase Agreement dated as of February 15, 1996, and no
transfer of the security shall be made unless the conditions specified
in said Agreement have been fulfilled. A copy of said Agreement is on
file and available for inspection at the principal offices of the
Company."
The Company is hereby authorized to place "stop transfer" instructions on
its records or to instruct any transfer agent to prevent the transfer of Shares
except in conformity with this Agreement.
9.3 Securities Law Compliance. No Holder shall transfer any Shares
-------------------------
until such Holder has first given written notice to the Company describing
briefly the manner of any such proposed transfer and until (i) the Company has
received from the Holder's counsel an opinion (reasonably satisfactory in form
and substance to the Company's counsel) that such transfer can be made without
compliance with the registration provisions of the Securities Act or any state
securities act and without the necessity of perfection of an exemption pursuant
to Regulation A adopted pursuant to said Securities Act; or (ii) the Company and
the Holder shall have complied with Commission Rule 144 and applicable state
securities act requirements, or (iii) a registration statement filed by the
Company is declared effective by the Commission and governing state securities
act authorities or steps necessary to perfect exemptions from such registration
are completed.
10. Election of Directors; Board Attendance Rights. The Company, the
----------------------------------------------
Purchasers, McCall and the other Principal Common Stockholders hereby agree as
follows. The Purchasers,
34
<PAGE>
McCall and the Principal Common Stockholders are sometimes collectively referred
to in this Section 10 as the "Parties".
Each of the Parties agrees to use such Party's best efforts (including
without limitation the voting of a sufficient number of shares of capital stock
of the Company, if any, held by such Party) to cause McCall and three other
persons designated from time to time by McCall, one person designated from time
to time by Greylock and one person designated from time to time by Sutter Hill
to be elected to serve on the Company's board of directors (the "Board") at all
times from the date of this Agreement until the provisions of this Section 10
terminate as provided below. Until further notice from Greylock or Sutter Hill,
it is understood and agreed that the person so designated by Greylock is William
S. Kaiser and the person so designated by Sutter Hill is Tench Coxe.
The Parties also agree that Hancock, Wakefield, Technology Crossover and
Noro-Moseley each may designate from time to time one person (who is reasonably
acceptable to a majority of the members of the Board) who shall be entitled to
notice of each meeting of the Board and to attend each such meeting. The
Company will furnish such persons with all materials furnished to members of the
Board and will reimburse their expenses of attendance at meetings of the Board
to the extent that it so reimburses the representatives of Greylock and Sutter
Hill in connection with their attendance. Until further notice from Hancock,
Wakefield, Technology Crossover or Noro-Moseley, as the case may be, it is
understood and agreed that the person so designated by Hancock is Ofer
Nemirovsky, the person so designated by Wakefield is Thomas C. Nelson, the
person so designated by Technology Crossover is Jay C. Hoag (or his designee)
and the person so designated by Noro-Moseley is Charles A. Johnson.
Each of McCall and the Principal Common Stockholders further agrees as
follows: (a) to take no action, as stockholder or otherwise, to cause the number
of members of the Board to exceed seven (7) or to cause the Company to be
managed by an executive or similar committee of the Board without the consent of
Greylock and Sutter Hill; and (b) to use such Party's best efforts to cause
meetings of the Board to be held no less often than quarterly (it being
contemplated that initially such meetings will be held monthly).
To the extent that this Section 10 is inconsistent with any other agreement
to which a Party is subject, the provisions of this Section 10 shall govern as
to that Party.
35
<PAGE>
The provisions of this Section 10 shall terminate on the earlier to occur
of (i) the completion of a Qualified Offering, or (ii) September 14, 2003.
Each Party agrees not to transfer any shares of capital stock of the
Company other than to the Company unless such Party's transferee agrees in
writing to be bound by the provisions of this Section 10 applicable to such
Party.
11. Certain Agreements of McCall and Tech Ventures.
----------------------------------------------
11.1 Commitment to the Company. So long as McCall is employed by the
-------------------------
Company, McCall agrees to devote a major portion of his time which is spent on
work or other business related activities to activities which are for the
account of the Company. For purposes of this Section 11.1, activities relating
to McCall Consulting Group, Inc. ("McCall Consulting"), Tech Ventures, the
Service Subsidiary and any other subsidiary of the Company shall be deemed "for
the account of the Company" if they are in furtherance of the operations of the
Company.
11.2 Stipulated Activities. McCall shall, within 10 days of the
---------------------
occurrence thereof, provide the Board with a list and description of each
Stipulated Activity (as hereinafter defined) in which McCall is engaged or
otherwise involved which has commenced, expired or been modified since McCall
delivered the last such list and description to the Board. As used herein, the
term "Stipulated Activity" shall mean any of the following as to McCall:
(a) being the beneficial owner of (i) more than 5% of the
outstanding equity securities of any entity other than the Company or
(ii) securities (including debt securities and guarantees of
indebtedness, but excluding securities traded on a national securities
exchange or in the over-the-counter market and securities issued by
money market or similar funds) of any entity other than the Company
with an original cost, fair market value and/or obligation on the part
of McCall, contingent or otherwise (even if the obligation is
evidenced by non-recourse debt or guaranty), in excess of $100,000; or
(b) being an employee, officer, director, consultant or general
partner of any person other than the Company (other than charitable,
civic or similar positions).
36
<PAGE>
For purposes of determining Stipulated Activities, any actions taken by the
spouse or children or any entities controlled by McCall will be imputed to be
activities engaged in by McCall. McCall hereby represents (a) that, except for
his ownership interest in, and for spending portions of his work or other
business related activities for the account of, McCall Consulting, and McCall
Asset Leasing, Inc. ("McCall Leasing"), Tech Ventures, the Service Subsidiary
and any other subsidiary of the Company, McCall is not presently engaged in, or
contemplating the imminent engagement in, any Stipulated Activity and (b) that
McCall Leasing is a corporation wholly owned by McCall, that McCall Consulting
is a corporation wholly owned by Tech Ventures, and that Tech Ventures is a
limited liability company of which McCall is the majority owner and of which
employees of Tech Ventures or its subsidiaries own the balance of the membership
interest.
11.3 Right of Co-Sale. Each of McCall and Tech Ventures agrees that
----------------
he or it (and their respective donees, transferees or assignees referred to in
the last sentence of this Section 11.3) will not, prior to the date specified in
Section 11.4 for the expiration of these covenants, sell, or agree to sell, for
value any shares of the Company's capital stock owned by him or it either
jointly or individually to any third party (except for such sales or agreements
during the twelve-month period immediately following the date of this Agreement,
and each twelve-month period thereafter, of not more than 5% of the number of
shares of capital stock owned by McCall or Tech Ventures, as the case may be, on
the date of this Agreement, the unused portion of which shall be usable in later
periods, and except that McCall may, in addition to the number of shares so
determined on the basis of 5% per annum, sell or agree to sell up to an
aggregate of 16.25% of the number of such shares owned by McCall on the date of
this Agreement, all such computations to be on an as-converted to Common Stock
basis in the case of capital stock which is not Common Stock) without first
giving written notice in reasonable detail to each Purchaser at least 20 days
prior to such sale or agreement to sell and affording each Purchaser the
opportunity to elect, within 20 days of such notice, to participate in such
sale, or agreement to sell, on a pro rata basis and on the same terms and
conditions as those applicable to McCall and Tech Ventures.
For purposes of this Section 11.3, the term "pro rata basis" shall mean
that each Purchaser shall in the aggregate, be entitled to participate in such
sale or agreement to sell in the proportion that the number of the shares of
Common Stock issued or issuable upon conversion of the shares
37
<PAGE>
of Series A, Series B, Series C, Series D or Series E Preferred Stock or Warrant
Shares and any securities issued as a dividend or other distribution with
respect to, or in exchange or in replacement thereof (the "Purchaser Shares")
then held by such Purchaser bears to the sum of such number of the Purchaser
Shares, all other Purchaser Shares held by other Purchasers and the number of
shares of Common Stock then owned (either jointly or individually) by McCall or
Tech Ventures, or both of them (in the case of a sale participated in by each of
McCall and Tech Ventures), or issuable upon conversion of other shares of the
Company's capital stock so owned by McCall or Tech Ventures.
Each of McCall and Tech Ventures agrees that conspicuous reference to the
provisions of this Section 11.3 shall be made on all certificates evidencing
shares of Common Stock owned by McCall or Tech Ventures, either jointly or
individually, and that he or it will make no transfer, gift or other assignment
of such shares unless the transferee, donee or assignee agrees in writing with
the Purchasers to be bound by the provisions of this Section 11.3 as if it were
McCall or Tech Ventures, as the case may be. Nothing contained in this Section
11.3 shall alter any restrictions on the transfer of shares of Common Stock held
by McCall or Tech Ventures created or imposed by any provisions contained in any
other agreement.
Notwithstanding anything to the contrary set forth in this Section 11.3,
the rights of the Purchasers provided for in this Section 11.3 shall not apply
to sales or other dispositions by McCall to (i) a member of McCall's immediate
family, including for this purpose his spouse, parents, parents-in-law, issue,
nephews, nieces, brothers, brothers-in-law, sisters, sisters-in-law, children-
in-law and grandchildren-in-law; (ii) a trust or partnership set up for the
benefit of one or more of the persons set forth in (i); or (iii) an heir,
legatee or legal representative of McCall; provided, however, that any such
person referred to in clause (i), (ii) or (iii) shall agree in writing prior to
the transfer that such person is acquiring such shares subject to the provisions
of this Section 11.3. Such sales or other dispositions shall not be included
for purposes of calculating the percentage exemption during the twelve-month
periods provided for above in this Section 11.3.
11.4 Term. The provisions of Sections 11.1 and 11.2 shall continue in
----
effect until the earlier of (a) termination of the employment of McCall with the
Company or (b) cessation by the Purchasers to own in the aggregate at least 50%
of the Shares purchased by
38
<PAGE>
them on the date hereof. The Purchasers agree promptly to notify McCall, c/o the
Company, if the event specified in (b) of the preceding sentence occurs. The
provisions of Section 11.3 shall continue in effect until the earliest to occur
of (i) a Qualified Offering, as defined in Section 7.17 of this Agreement, (ii)
the involuntary termination without cause of the employment of McCall with the
Company; or (iii) the sale or other transfer by the Purchasers (other than a
sale or transfer to an affiliated entity) of more than 50% of the Shares
purchased in the aggregate pursuant to this Agreement.
12. Modification of the Series B, Series C and Series D Agreements. By
--------------------------------------------------------------
executing this Agreement, (a) the Company and the Stockholders (with the
exception of Technology Crossover, Technology Crossover Ventures, C.V. and Noro-
Moseley), hereby agree that Sections 7.1 through 7.17, 8.1 through 8.9, 10 and
11 of each of the Prior Stock Purchase Agreements to which they are parties
(other than the Greylock Agreement, as to which such Sections have been
terminated) are superseded respectively by Sections 7.1 through 7.17, 8.1
through 8.9, 10 and 11 of this Agreement, provided that, for purposes of these
Sections, the term "Purchaser" shall include any "Purchaser" as defined in any
of the Prior Stock Purchase Agreements, as well as any "Purchaser" as defined in
this Agreement, and (b) the Principal Common Stockholders consent to the
amendment of Sections 10 and 11 of each of the Prior Stock Purchase Agreements
(other than the Greylock Agreement, as to which such Section 10 and 11 have been
terminated) to read as provided in Sections 10 and 11 of this Agreement.
13. Miscellaneous.
-------------
13.1 Costs and Expenses. In connection with this Agreement and the
------------------
transactions described herein, the Company agrees to pay the fees and costs of
Hill & Barlow, a Professional Corporation, special counsel to the Purchasers
with respect to this transaction.
13.2 Successors and Assigns. All covenants and agreements contained
----------------------
in this Agreement made by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of such
parties, except as otherwise provided in Sections 7.1 and 8.
13.3 Governing Law. The internal laws of the State of Delaware
-------------
(regardless of conflict of laws principles) shall govern all issues concerning
the construction, validity and interpretation of this Agreement.
39
<PAGE>
13.4 Survival. The representations and warranties of the Company
--------
contained in Section 3 of this Agreement shall survive the Closing for a period
of one year, and thereafter no action, suit or claim shall be brought by any
Purchaser alleging any misrepresentation or untruthfulness based upon the
subject matter of such representations or warranties, and any such action, suit
or claim shall be forever barred; provided, however, that any action based upon
-------- -------
fraud shall not be barred and may be brought notwithstanding the provisions of
this Section. The Purchasers agree that action against McCall under the
certificate attached as Exhibit F shall be the sole recourse of the Purchasers
against McCall for matters relating to their purchase of Shares (including,
without limitation, claims under the federal or state securities laws or
antifraud statutes or common law).
13.5 Entire Agreement; Amendment. This Agreement and the other
---------------------------
documents delivered pursuant hereto or contemplated hereby constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated except by a written instrument signed
(a) in the case of an amendment, waiver, discharge or termination (a
"Modification") to Section 10, by McCall and the holders of at least 75% of the
outstanding shares of capital stock of the Company held in aggregate by the
Stockholders as defined in Section 7.15(d); (b) in the case of a Modification to
Section 11, by McCall and holders of at least 75% of the Shares; and (c) in the
case of a Modification not governed by subsection 13.5(a) or 13.5(b) above, by
the Company and the holders of at least 75% of the Shares.
13.6 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be made by hand delivery,
first-class mail (registered or certified, return receipt requested),
telecopier, or overnight air courier guaranteeing next day delivery, addressed
as follows: (a) if to a Purchaser, at such Purchaser's address shown on Schedule
A hereto, with a copy to Thomas C. Chase, Esq., Hill & Barlow, a Professional
Corporation, One International Place, Boston, Massachusetts 02110, (b) if to any
other Holder, at such address as such Holder shall have furnished to the Company
in writing, or, until any such Holder so furnishes an address to the Company,
then to and at the address of the last Holder of such Shares who has so
furnished an address to the Company, and (c) if to the Company, at SQL
Financials International, Inc., Suite 1000, Two Ravinia Drive, Atlanta, Georgia
30346, Attention:
40
<PAGE>
President, with a copy to G. Donald Johnson, Esq., Parker, Johnson, Cook &
Dunlevie, Suite 700, 1275 Peachtree Street, N.E., Atlanta, Georgia 30309, or to
such other address as the party receiving such notice shall have properly
designated to the other party hereto in writing. Each such notice shall be
deemed given at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next day
delivery.
13.7 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of the Shares upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereunder occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. All remedies, either under this Agreement, or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.
13.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, some of which may have signature pages differing as to form, each
of which shall be enforceable against the parties actually executing such
counterparts and all of which together shall constitute one instrument.
13.9 Severability. If any provision of this Agreement, or its
------------
application to any person or circumstances, is invalid or unenforceable, then
the remainder of this Agreement or the application of such provision to other
persons or circumstances, shall not be affected thereby. Further, if any
provision or application hereof is invalid or unenforceable then a suitable and
equitable provision shall be substituted therefor in order to carry out so far
as may be valid or enforceable the intent and purposes of the invalid and
unenforceable provision.
13.10 Captions. Captions and headings used herein are for
--------
convenience of reference only and shall not limit or control the meaning of any
provisions hereof.
41
<PAGE>
The foregoing Agreement is hereby executed under seal as of the date first
above written.
SQL FINANCIALS INTERNATIONAL, INC.
By: /s/ Stephen P. Jeffery
-------------------------------
President
PURCHASERS:
GREYLOCK LIMITED PARTNERSHIP
By: /s/
-------------------------------
General Partner
SUTTER HILL VENTURES, a CALIFORNIA
LIMITED PARTNERSHIP
By: /s/
-------------------------------
General Partner
TOW PARTNERS, a CALIFORNIA
LIMITED PARTNERSHIP
By: /s/
-------------------------------
General Partner
/s/ David L. Anderson
--------------------------------------
David L. Anderson
Paul M. Wythes and Marsha R. Wythes,
Trustees of the Wythes Living Trust
42
<PAGE>
By: /s/
-------------------------------
Trustee
/s/ G. Leonard Baker, Jr.
-------------------------------------
G. Leonard Baker, Jr.
WILLIAM H. YOUNGER, JR., TRUSTEE
OF THE YOUNGER LIVING TRUST
By: /s/
-------------------------------
Trustee
/s/ Tench Coxe
-------------------------------------
Tench Coxe
/s/ Ronald L. Perkins
-------------------------------------
Ronald L. Perkins
/s/ James G. Gaither
-------------------------------------
James G. Gaither
GENSTAR INVESTMENT CORPORATION
By: /s/
-------------------------------
Its:
---------------------------
HIGHLAND CAPITAL PARTNERS II
LIMITED PARTNERSHIP
43
<PAGE>
By: /s/
-------------------------------
General Partner
HANCOCK VENTURE PARTNERS IV -
DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
By: /s/
-------------------------------
authorized officer
FALCON VENTURES II L.P.
By: Back Bay Partners XIII L.P.
By: Hancock Venture Partners, Inc.
By: /s/
-------------------------------
authorized officer
WAKEFIELD GROUP LIMITED
PARTNERSHIP
By: Thomas C. Nelson, Inc., General Partner
By: /s/ Thomas C. Nelson
-------------------------------
Thomas C. Nelson, President
TECHNOLOGY CROSSOVER VENTURES, C.V.
By: Technology Crossover Management, L.L.C.,
Investment General Partner
By: /s/
---------------------
Name:
---------------------
Title:
---------------------
44
<PAGE>
TECHNOLOGY CROSSOVER VENTURES, L.P.
By: Technology Crossover Management, L.L.C.,
General Partner
By: /s/
---------------------
Name:
---------------------
Title:
---------------------
NORO-MOSELEY PARTNERS III, L.P.
By: Moseley & Company III, L.L.C.,
General Partner
By: /s/
-------------------------------
Member
The undersigned Principal Common Stockholders (a) hereby join in the
foregoing Stock Purchase Agreement for the purposes of Sections 10, 11 (in the
case of Joseph S. McCall), 11.3 and 11.4 (in the case of the Principal Common
Stockholders other than Joseph S. McCall) and clause (b) of Section 12 thereof
and (b) being parties to the certain Amended and Restated Shareholders' Voting
Agreement, dated as of September 1, 1995, (the "Shareholders' Voting
Agreement") and the certain Restated Shareholders' Agreement, dated as of
September 1, 1995 (the "September 1995 Shareholders' Agreement"), hereby agree
that, to the extent of any conflict or inconsistency between the terms of the
foregoing Stock Purchase Agreement or any Prior Stock Purchase Agreement (as
defined in Section 3.4 of the foregoing Stock Purchase Agreement), those of the
Stock Purchase Agreement or such Prior Stock Purchase Agreement, as the case may
be, shall govern:
/s/ Joseph S. McCall
----------------------------
Joseph S. McCall
/s/ Donald L. House, Sr.
----------------------------
Donald L. House, Sr.
45
<PAGE>
/s/ David M. Funderburke
-----------------------------------
David M. Funderburke
/s/ Paul Constantine Sioros, Jr.
-----------------------------------
Paul Constantine Sioros, Jr.
/s/ Arthur G. Walsh, Jr.
-----------------------------------
Arthur G. Walsh, Jr.
/s/ Kathleen Kochis Williamson
-----------------------------------
Kathleen Kochis Williamson
TECHNOLOGY VENTURES, L.L.C.
By: /s/
------------------------------
Its:
------------------------------
The undersigned Stockholders hereby join in the foregoing Stock Purchase
Agreement for the purposes of Sections 7.15, 8.1 through 8.9, 10, 11 and 12
thereof:
WELLS FARGO BANK, TRUSTEE FOR
SHV M/P/T FBO DAVID L. ANDERSON
By: /s/ Christopher M. Peterson
------------------------------
Christopher M. Peterson, AVP
SAUNDERS HOLDINGS, L.P.
By: /s/
------------------------------
General Partner
/s/ Thomas H. Layton
------------------------------
Thomas H. Layton
46
<PAGE>
STANFORD UNIVERSITY
By: /s/
------------------------------
Its:
------------------------------
ANVEST, L.P.
By: /s/
------------------------------
WELLS FARGO BANK, TRUSTEE FOR
M/P/T FBO WILLIAM H. YOUNGER, JR.
By: /s/
------------------------------
47
<PAGE>
SCHEDULE A
----------
Purchasers
----------
Number of Shares
Name and Address Type of Entity to be Purchased Purchase Price
---------------- -------------- ---------- --------------
Greylock Limited Delaware limited 67,696 $ 582,185.60
Partnership partnership
One Federal Street
Boston, MA 02110
Attn: William S. Kaiser
Telecopier: (617) 482-0059
Sutter Hill Ventures, a California limited 33,505 $ 288,143.00
California Limited partnership
Partnership
755 Page Mill Road,
Suite A-200
Palo Alto, CA 94304
Telephone: (415) 493-5600
Telecopier: (415) 858-1854
1
<PAGE>
Schedule A (Continued)
TOW Partners, a California California 3,218 $ 27,674.80
Limited Partnership limited
755 Page Mill Road, partnership
Suite A-200
Palo Alto, CA 94304
Telephone: (415) 493-5600
Telecopier: (415) 858-1854
David L. Anderson individual 4,163 $ 35,801.80
755 Page Mill Road,
Suite A-200
Palo Alto, CA 94304
Telephone: (415) 493-5600
Telecopier: (415) 858-1854
2
<PAGE>
Schedule A (Continued)
Paul M. and Marsha R. trust 770 $ 6,622.00
Wythes, Trustees of the
Wythes Living Trust
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Telephone: (415-493-5600
Telecopier: (415)858-1854
G. Leonard Baker, Jr. individual 4,163 $ 35,801.80
755 Page Mill Road,
Suite A-200
Palo Alto, CA 94304
Telephone: (415) 493-5600
Telecopier: (415) 858-1854
William H. Younger, Jr., trust 2,633 $ 22,643.80
Trustee of the Younger
Living Trust
755 Page Mill Road
Suite A-200
Palo Alto, CA 94304
Telephone: (415) 493-5600
Telecopier: (415) 858-1854
3
<PAGE>
Schedule A (Continued)
Tench Coxe individual 1,514 $ 13,020.40
755 Page Mill Road,
Suite A-200
Palo Alto, CA 94304
Telephone: (415) 493-5600
Telecopier: (415) 858-1854
Ronald L. Perkins individual 385 $ 3,311.00
755 Page Mill Road,
Suite A-200
Palo Alto, CA 94304
Telephone: (415) 493-5600
Telecopier: (415) 858-1854
James G. Gaither individual 123 $ 1,057.80
755 Page Mill Road
Suite A-200
Palo Alto, CA 94303
Telephone: (415) 493-5600
Telecopier: (415) 858-1854
4
<PAGE>
Schedule A (Continued)
Genstar Investment Delaware 852 $ 7,327.20
Corporation corporation
Metro Tower, Suite 1170 (principal place
Foster City, CA 94404 of business in
Attn: Mr. R.D. Paterson California)
Telephone: (415) 286-2366
Telecopier: (415) 286-2383
Highland Capital Partners II Delaware limited 40,132 $ 345,135.20
Limited Partnership partnership
Two International Place
Boston, MA 02110
Attn: James L. McLean
Telephone: (617) 330-8765
Telecopier: (617) 330-8768
Hancock Venture Partners Delaware limited 55,787 $ 479,768.20
IV-Direct Fund L.P. partnership
One Financial Center
Boston, MA 02111
Attn: Ofer Nemirovsky
Telephone: (617) 348-3708
Telecopier: (617) 350-0305
5
<PAGE>
Schedule A (Continued)
Falcon Ventures II L.P. Delaware limited 2,936 $ 25,249.60
One Financial Center partnership
Boston, MA 02111
Attn: Ofer Nemirovsky
Telephone: (617) 348-3708
Telecopier: (617) 350-0305
Wakefield Group Limited North Carolina 14,681 $ 126,256.60
Partnership limited
1110 East Morehead Street partnership
P.O. Box 36329
Charlotte, NC 28204
Attn: Thomas C. Nelson
Telephone: (704) 372-0355
Telecopier: (704) 372-8978
Technology Crossover Netherlands 25,598 $ 220,142.80
Ventures, C.V. Antilles limited
575 High Street, Suite 400 partnership
Palo Alto, CA 94301
Attn: Jay C. Hoag
Telephone: (415) 614-8210
Telecopier: (415) 614-8222
6
<PAGE>
Schedule A (Continued)
cc: Technology Crossover
Ventures, C.V.
101 Eisenhower Parkway
Roseland, NJ 07068
Attn: Robert C. Bensky
Telephone: (201) 228-2234
Telecopier: (201) 228-2206
Technology Crossover Delaware limited 323,240 $2,779,864.00
Ventures, L.P. partnership
575 High Street, Suite 400
Palo Alto, CA 94301
Attn: Jay C. Hoag
Telephone: (415) 614-8210
Telecopier: (415) 614-8222
cc: Technology Crossover
Ventures, L.P.
101 Eisenhower Parkway
Roseland, NJ 07068
Attn: Robert C. Bensky
Telephone: (201) 228-2234
Telecopier: (201) 228-2206
7
<PAGE>
Schedule A (Continued)
Noro-Moseley Partners III, Delaware limited 116,279 $ 999,999.40
L.P. partnership
4200 Northside Parkway
Building Nine
Atlanta, GA 30327
Attn: Charles A. Johnson
Telephone: (404)-233-1966
Telecopier: (404)-239-9280
--------- -------------
Totals 697,675 $6,000,005.00
8
<PAGE>
SCHEDULE C
SQL Financials International, Inc.
Post-Closing Share Holdings,
Employee Reserve and Warrant Shares
<TABLE>
<CAPTION>
Current Holdings Holdings after $6M @ $8.60/Share
Diluted Voting Diluted Voting
Shares % % Shares % %
<S> <C> <C> <C> <C> <C> <C>
Common Stock
Scott J. Brady 10,167 0.31% 0.37% 10,167 0.25% 0.29%
David M. Funderburke 24,400 0.75% 0.88% 24,400 0.61% 0.71%
Jon K. Hauck 5,200 0.16% 0.19% 5,200 0.13% 0.15%
Robert C. Holler 1,200 0.04% 0.04% 1,200 0.03% 0.03%
Donald L. House 50,833 1.57% 1.84% 50,833 1.26% 1.47%
Stephen P. Jeffery 1,200 0.04% 0.04% 1,200 0.03% 0.03%
Kathleen Kochis Williamson 24,400 0.75% 0.88% 24,400 0.61% 0.71%
Joseph S. McCall 216,000 6.67% 7.82% 216,000 5.37% 6.24%
John G. McKimmey 107,767 3.33% 3.90% 107,767 2.68% 3.12%
Robert M. McKimmey 107,767 3.33% 3.90% 107,767 2.68% 3.12%
Paul Constantine Sioros, Jr. 24,400 0.75% 0.88% 24,400 0.61% 0.71%
Arthur G. Walsh, Jr. 40,666 1.26% 1.47% 40,666 1.01% 1.18%
Technology Ventures LLC 300,000 9.27% 10.86% 300,000 7.45% 8.67%
----------------------------- ------------------------------
914,000 28.23% 33.10% 914,000 22.71% 26.42%
----------------------------- ------------------------------
Preferred Stock (Series A @ $4/share)
Greylock Limited Partnership 250,000 7.72% 9.05% 250,000 6.21% 7.23%
Dennis Crumpler 12,500 0.39% 0.45% 12,500 0.31% 0.36%
----------------------------- ------------------------------
262,500 8.11% 9.50% 262,500 6.52% 7.59%
----------------------------- ------------------------------
Preferred Stock (Series B @ $6.65/share)
Greylock Limited Partnership 150,376 4.64% 5.45% 150,376 3.74% 4.35%
Sutter Hill Ventures and: 195,840 6.05% 7.09% 195,840 4.87% 5.66%
Tow Partners 18,797 0.58% 0.68% 18,797 0.47% 0.54%
Wells Fargo Bank (David L. Anderson) 13,534 0.42% 0.49% 13,534 0.34% 0.39%
Anvest L.P. 1,504 0.05% 0.05% 1,504 0.04% 0.04%
G. Leonard Baker 18,322 0.57% 0.66% 18,322 0.46% 0.53%
Saunders Holdings, L.P. 6,015 0.19% 0.22% 6,015 0.15% 0.17%
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Wells Fargo Bank (William H. Younger) 7,519 0.23% 0.27% 7,519 0.19% 0.22%
Tench Coxe 8,833 0.27% 0.32% 8,833 0.22% 0.26%
Ronald L. Perkins 2,256 0.07% 0.08% 2,256 0.06% 0.07%
Genstar Investment Corporation 4,993 0.15% 0.18% 4,993 0.12% 0.14%
Thomas H. Layton 752 0.02% 0.03% 752 0.02% 0.02%
Wythes Living Trust 4,484 0.14% 0.16% 4,484 0.11% 0.13%
David L. Anderson 9,299 0.29% 0.34% 9,299 0.23% 0.27%
Younger LivingTrust 7,869 0.24% 0.28% 7,869 0.20% 0.23%
James C. Gaither 735 0.02% 0.03% 735 0.02% 0.02%
Stanford University 3,760 0.12% 0.14% 3,760 0.09% 0.11%
----------------------------- ------------------------------
454,888 14.05% 16.47% 454,888 11.30% 13.15%
----------------------------- ------------------------------
Preferred Stock (Series C @ $7/share)
Greylock Limited Partnership 81,571 2.52% 2.95% 81,571 2.03% 2.36%
Sutter Hill Ventures and: 40,007 1.24% 1.45% 40,007 0.99% 1.16%
Tow Partners 3,840 0.12% 0.14% 3,840 0.10% 0.11%
Wells Fargo Bank (David L. Anderson) 3,072 0.09% 0.11% 3,072 0.08% 0.09%
G. Leonard Baker 4,972 0.15% 0.18% 4,972 0.12% 0.14%
Wells Fargo Bank (William H. Younger) 1,536 0.05% 0.06% 1,536 0.04% 0.04%
Tench Coxe 1,804 0.06% 0.07% 1,804 0.04% 0.05%
Ronald L. Perkins 461 0.01% 0.02% 461 0.01% 0.01%
Genstar Investment Corporation 1,020 0.03% 0.04% 1,020 0.03% 0.03%
Wythes Livng Trust 916 0.03% 0.03% 916 0.02% 0.03%
David L. Anderson 1,900 0.06% 0.07% 1,900 0.05% 0.05%
Younger Livjng Trust 1,608 0.05% 0.06% 1,608 0.04% 0.05%
James C. Gaither 150 0.00% 0.01% 150 0.00% 0.00%
Highland Capital Partners II 285,715 8.82% 10.35% 285,715 7.10% 8.26%
----------------------------- ------------------------------
428,572 13.24% 15.52% 428,572 10.65% 12.39%
----------------------------- ------------------------------
Preferred Stock (Series D @ $8.55/share)
Greylock Limited Partnership 49,895 1.54% 1.81% 49,895 1.24% 1.44%
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sutter Hill Ventures and: 24,472 0.76% 0.89% 24,472 0.61% 0.71%
Tow Partners 2,350 0.07% 0.09% 2,350 0.06% 0.07%
Anvest L.P. 1,878 0.06% 0.07% 1,878 0.05% 0.05%
G. Leonard Baker 3,040 0.09% 0.11% 3,040 0.08% 0.09%
Wells Fargo Bank (Wm. H. Younger) 941 0.03% 0.03% 941 0.02% 0.03%
Tench Coxe 1,103 0.03% 0.04% 1,103 0.03% 0.03%
Ronald L. Perkins 281 0.01% 0.01% 281 0.01% 0.01%
Genstar Investment Corporation 622 0.02% 0.02% 622 0.02% 0.02%
Wythes Living Trust 560 0.02% 0.02% 560 0.01% 0.02%
David L. Anderson 1,162 0.04% 0.04% 1,162 0.03% 0.03%
Younger Living Trust 984 0.03% 0.04% 984 0.02% 0.03%
James C. Gaither 92 0.00% 0.00% 92 0.00% 0.00%
Highland Capital Partners II 29,579 0.91% 1.07% 29,579 0.73% 0.86%
Wakefield Group 116,959 3.61% 4.24% 116,959 2.91% 3.38%
Hancock Venture Partners IV and: 444,445 13.73% 16.09% 444,445 11.04% 12.85%
Falcon Ventures II, L.P. 23,392 0.72% 0.85% 23,392 0.58% 0.68%
----------------------------- ------------------------------
701,755 21.67% 25.41% 701,755 17.44% 20.29%
----------------------------- ------------------------------
Preferred Stock (Series E @ $8.60/Share)
Greylock Limited Partnership 67,696 1.68% 1.96%
Sutter Hill Ventures and: 33,505 0.83% 0.97%
Tow Partners 3,218 0.08% 0.09%
David L. Anderson 4,163 0.10% 0.12%
Wythes Living Trust 770 0.02% 0.02%
G. Leonard Baker 4,163 0.10% 0.12%
Tench Coxe 1,514 0.04% 0.04%
Younger Living Trust 2,633 0.07% 0.08%
Ronald L. Perkins 385 0.01% 0.01%
James G. Gaither 123 0.00% 0.00%
Genstar Investment Corporation 852 0.02% 0.02%
Highland Capital Partners II 40,132 1.00% 1.16%
Hancock Venture Partners and: 55,787 1.39% 1.61%
Falcon Ventures II, L.P. 2,936 0.07% 0.08%
Wakefield Group 14,681 0.36% 0.42%
Technology Crossover Ventures 348,838 8.67% 10.08%
Noro-Moseley Partners 116,279 2.89% 3.36%
------------------------------
697,675 17.34% 20.17%
------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
ISO Shares issued due to stock buyback 50,000 1.54% 50,000 1.24%
Employee ISO Shares Reserved 312,774 9.66% 401,800 9.98%
-------------------- ---------------------
362,774 11.20% 451,800 11.23%
-------------------- ---------------------
Warrants (Series C @ $7/share)
Technology Ventures LLC 87,500 2.70% 87,500 2.17%
Warrants (Series D @ $8.55/share)
Greylock Limited Partnership 7,484 0.23% 7,484 0.19%
Sutter Hill Ventures including: 3,671 0.11% 3,671 0.09%
Tow Partners 353 0.01% 353 0.01%
Anvest L.P. 282 0.01% 282 0.01%
G. Leonard Baker 457 0.01% 457 0.01%
Wells Fargo Bank (William H. Younger) 141 0.00% 141 0.00%
Tench Coxe 165 0.01% 165 0.00%
Ronald L. Perkins 42 0.00% 42 0.00%
Genstar Investment Corporation 93 0.00% 93 0.00%
Wythes Living Trust 84 0.00% 84 0.00%
David L. Anderson 175 0.01% 175 0.00%
Younger Living Trust 147 0.00% 147 0.00%
James C. Gaither 13 0.00% 13 0.00%
Highland Capital Partners II 4,437 0.14% 4,437 0.11%
Silicon Valley Bank (reserve) 8,201 0.25% 8,201 0.20%
-------------------- ---------------------
25,745 0.80% 25,745 0.64%
-------------------- ---------------------
TOTAL 3,237,734 100.00% 100.00% 4,024,435 100.00% 100.00%
============================= ==============================
Total Holdings (Fully Diluted)
Greylock Limited Partnership 16.66% 15.08%
Sutter Hill Ventures, et al 12.51% 11.34%
Highland Capital Partners II 9.88% 8.94%
Hancock Venture Partners, et al 14.45% 13.08%
Wakefield Group 3.61% 3.27%
Technology Crossover Partners 8.67%
Noro-Moseley Partners 2.89%
--------- ---------
Total 57.11% 63.28%
========= =========
</TABLE>
4
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SQL FINANCIALS INTERNATIONAL, INC.
The undersigned, being the President and Chief Executive Officer of
SQL FINANCIALS INTERNATIONAL, INC., a Delaware corporation, hereby certifies
that:
1.
(a) The name of the Corporation is SQL FINANCIALS INTERNATIONAL, INC.
(the "Corporation").
(b) The date of filing the original Certificate of Incorporation of
the Corporation with the Secretary of State of Delaware was November 20, 1991.
2.
This Amended and Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation, as amended, of the
Corporation and was duly adopted by written consent of the stockholders of the
Corporation in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware (the "Code"), and written
notice thereof was given to all non-participating stockholders in accordance
with Section 228(d) of the Code.
3.
The Certificate of Incorporation of the Corporation, as restated and
amended hereby, shall, upon its filing with the Secretary of State of the State
of Delaware, read in its entirety as follows:
Article 1: Name
The name of this Corporation is:
SQL FINANCIALS INTERNATIONAL, INC.
Article 2: Agent
The name and address in the State of Delaware of this Corporation's
registered office and initial agent for service of process (located in New
Castle County) are as follows:
1
<PAGE>
THE CORPORATION TRUST COMPANY
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
Article 3: Purpose
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
Article 4: Share Structure
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is 7,500,000
shares, of which 4,500,000 shares are Common Stock, $.0001 par value per share,
and 3,000,000 shares are Preferred Stock, $1.00 par value per share.
The Preferred Stock may be issued from time to time in one or more
series with distinctive serial designations, at such purchase prices and with
such relative rights, preferences, privileges and restrictions as are determined
from time to time by the Board of Directors. The shares of each series of
Preferred Stock may vary from the shares of any other series of Preferred Stock
in the Conversion Rate, Conversion Value, Conversion Price and any other factors
which are determined by the price per share paid for such Preferred Stock, and
as to redemption rights, if any, and voting rights, if any, but shall otherwise
be identical. The Board of Directors may create any such series of Preferred
Stock by resolution duly adopted pursuant to authority hereby granted.
On the date this document is filed with the Delaware Secretary of
State, (i) 262,500 shares of Preferred Stock issued and outstanding are known
and previously have been designated as Series A Convertible Preferred Stock
("Series A Preferred Stock"), (ii) 454,888 shares of Preferred Stock, of which
454,888 shares are issued and outstanding, are known and previously have been
designated as Series B Convertible Preferred Stock ("Series B Preferred Stock"),
(iii) 516,072 shares of Preferred Stock, of which 428,572 shares are issued and
outstanding, are known and designated as Series C Convertible Preferred Stock
("Series C Preferred Stock"), and (iv) 727,500 shares of Preferred Stock, of
which 701,755 shares are issued and outstanding, are known and designated as
Series D Convertible Preferred Stock ("Series D Preferred Stock"). A total of
697,675 shares of Preferred Stock shall be known and designated as Series E
Convertible Preferred Stock ("Series E Preferred Stock"). The Board of
Directors from time to time may increase or decrease the number of shares of any
series, but not, in the case of a decrease, to a number less than the number of
shares of such series then outstanding.
The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and the Preferred Stock are as follows:
1. Dividends. The holders of the Preferred Stock shall be entitled
---------
to participate with the holders of Common Stock in any dividends paid or set
aside for payment (other than dividends payable solely in shares of Common
Stock) so that holders of the Preferred Stock shall receive with respect to each
share of Preferred Stock an amount equal to (x) the dividend payable with
2
<PAGE>
respect to each share of Common Stock multiplied by (y) the number of shares
(and fraction of a share, if any) of Common Stock into which such share of
Preferred Stock is convertible as of the record date for such dividend.
2. Liquidation Preference.
----------------------
(a) Preference.
----------
(i) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntarily or involuntarily, the
holders of the Preferred Stock shall be entitled to receive prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of Common Stock of the Corporation, an amount
equal to (A) the consideration per share paid for such Preferred Stock,
which is equal to $4.00 per share of Series A Preferred Stock, $6.65 per
share of Series B Preferred Stock, $7.00 per share of Series C Preferred
Stock, $8.55 per share of Series D Preferred Stock, and $8.60 per share of
Series E Preferred Stock plus (B) a further amount equal to any dividends
declared or accrued but unpaid on such shares, pari passu with the holders
of all Additional Series (as hereinafter defined) based on the relative
liquidation preferences of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and such Additional Series. If, upon such liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to the shareholders of the Corporation are
insufficient to provide for the payment of the full aforesaid preferential
amount, such assets as are so available shall be distributed among the
holders of the Preferred Stock in proportion to the relative aggregate
liquidation preferences of the Preferred Stock so held.
(ii) After the payment or the setting apart for payment to
the holders of the Preferred Stock of the preferential amounts so payable
to them, if assets remain in the Corporation the holders of the Common
Stock of the Corporation shall receive all of the remaining assets of the
Corporation pro rata in accordance with the number of shares of Common
Stock held by them.
(iii) All amounts per share set forth in this subparagraph
2(a) shall be appropriately adjusted for any stock splits, stock
combinations, stock dividends or similar recapitalizations.
(b) Noncash Distributions. If any of the assets of the Corporation
---------------------
are to be distributed other than in cash under this paragraph 2 or for any
purpose, then the Board of Directors of the Corporation shall promptly engage
independent competent appraisers to determine the value of the assets to be
distributed to the holders of Preferred Stock or Common Stock. The Corporation
shall, upon receipt of such appraiser's valuation, give prompt written notice to
each holder of shares of Preferred Stock or Common Stock of the appraiser's
valuation.
(c) Consolidation or Merger. A consolidation or merger of the
-----------------------
Corporation with or into any other corporation or corporations (other than a
consolidation or merger following which the holders of 51% or more of the
capital stock of the resulting or surviving entity, based on voting power in the
election of directors, are persons or entities who were shareholders of the
Corporation immediately prior to such consolidation or merger), or a sale of all
or substantially all of
3
<PAGE>
the assets of the Corporation, shall be deemed to be a liquidation, dissolution
or winding up within the meaning of this paragraph 2, unless in any such
particular event the holders of more than 80% of the then outstanding shares of
Preferred Stock, voting together as a single class, determine that such
particular event shall not, for purposes of this paragraph 2, be deemed a
liquidation, dissolution or winding up.
3. Voting Rights. Except as otherwise provided in the series
-------------
resolution creating any Additional Series (as hereinafter defined), the holder
of each share of Preferred Stock shall be entitled to the number of votes equal
to the number of shares of Common Stock into which each share of Preferred Stock
could be converted on the record date for the vote or written consent of
shareholders and, except as otherwise required by law, shall have voting rights
and powers equal to the voting rights and powers of the Common Stock. Except as
otherwise provided in the series resolution creating any Additional Series (as
hereinafter defined), the holder of each share of Preferred Stock shall be
entitled to notice of any shareholders' meeting in accordance with the bylaws of
the Corporation and shall vote with holders of the Common Stock upon all other
matters submitted to a vote of shareholders, except those matters required to be
submitted to a class or series vote pursuant to paragraph 5 or by law.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares of Common
Stock into which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half rounded
upward to one).
4. Conversion. Preferred Stock shall be convertible into Common
----------
Stock, as follows:
(a) Right to Convert. Each share of 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 the Corporation. Each share of
Preferred Stock shall be convertible into the number of shares of Common Stock
which results from dividing the "Conversion Price" per share in effect at the
time of conversion into the "Conversion Value" per share. The number of shares
of Common Stock into which a share of Preferred Stock is convertible is
hereinafter referred to as the "Conversion Rate." Both the Conversion Price per
share of Preferred Stock (the "Conversion Price") and the Conversion Value per
share of Preferred Stock initially in effect shall be equal to the consideration
paid for such Preferred Stock, which is equal to $4.00 per share of Series A
Preferred Stock, $6.65 per share of Series B Preferred Stock, $7.00 per share of
Series C Preferred Stock; $8.55 per share of Series D Preferred Stock, and
$8.60 per share of Series E Preferred Stock. The initial Conversion Price of
Preferred Stock shall be subject to adjustment as hereinafter provided.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at its then effective
Conversion Rate immediately upon the closing of a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering any of the corporation's securities (as that term is defined under the
Securities Act of 1933, as then in effect) with aggregate gross proceeds to the
Corporation, at the public offering price, of at least $10,000,000 and an
equivalent public offering price per share of Common Stock of at least $18.00
(such amount to be appropriately adjusted in the event of stock splits, stock
combinations, stock dividends or similar recapitalizations).
(c) Mechanics of Conversion. Before any holder of Preferred
-----------------------
Stock shall be entitled to convert the same into shares of Common Stock as
provided in paragraph 4(a), he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation and
4
<PAGE>
shall give written notice to the Corporation at such office that he elects to
convert the same. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Preferred Stock a certificate
or certificates for the number of shares of Common Stock to which he 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 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 on such date.
In the event of an automatic conversion pursuant to paragraph 4(b),
the outstanding shares of Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation;
provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless the certificates evidencing such shares of Preferred Stock are
either delivered to the Corporation as provided above, or the holder notifies
the Corporation that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such delivery, or such
agreement and indemnification in the case of a lost certificate, issue and
deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of closing of the offering, 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 on such date.
(d) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the Conversion Price.
(e) Adjustment of Conversion Price. The Conversion Price of each
------------------------------
series of Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) If the Corporation shall issue any Common Stock or other
securities of the Corporation convertible into or exchangeable for Common
Stock (other than "Excluded Stock," as defined below, or stock dividends,
subdivisions, split-ups, combinations or dividends, which such events are
covered by subparagraphs 4(e)(iii), (iv), and (v)), for a consideration per
share less than the Conversion Price for such series in effect immediately
prior to the issuance of such Common Stock (or other securities convertible
into or exchangeable for Common Stock), then the Conversion Price for such
series shall forthwith be decreased immediately after such issuance to a
price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of: (x) the total number of
shares of Common Stock outstanding (including any shares of Common
Stock deemed to have been issued pursuant to subdivision (3) of this
subparagraph (i))
5
<PAGE>
immediately prior to such issuance multiplied by the Conversion Price
in effect immediately prior to such issuance plus (y) the
consideration received by the Corporation upon such issuance, by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued
pursuant to subdivision (3) of this subparagraph (i)) immediately
after the issuance of such Common Stock (or other securities
convertible into or exchangeable for Common Stock).
For purposes of making any such calculation pursuant to
this subparagraph (i), the shares of Common Stock issuable upon
conversion of the outstanding shares of Preferred Stock, together with
any other shares of Common Stock deemed issued and outstanding
pursuant to subdivision (3) of this subparagraph (i), shall be deemed
issued and outstanding at all times. For the purposes of this
subparagraph (i), the following provisions shall also be applicable:
(1) In the case of the issuance of Common Stock
for cash, the consideration received therefor shall be deemed to
be the amount of cash paid therefor without deducting any
discounts or commissions paid or incurred by the Corporation in
connection with the issuance and sale thereof.
(2) In the case of the issuance of 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 in good faith by the Board of
Directors of the Corporation.
(3) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (other than
Excluded Stock), (ii) securities by their terms convertible or
exchangeable for Common Stock (other than Excluded Stock), or
(iii) options to purchase or rights to subscribe for such
convertible or exchangeable securities:
(C) 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 be issuable for a
consideration equal to the consideration (determined in the manner
provided in subdivisions (1) and (2) above), if any, received by the
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;
(D) 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 be issuable for a consideration equal to the consideration
received by the Corporation for any such securities and related
options or rights, plus the additional consideration, if any, to be
received by the Corporation
6
<PAGE>
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 subdivisions (1) and (2) above);
(E) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options or rights or upon conversion
of or in exchange for such convertible or exchangeable securities 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
options or rights or securities were issued, provided that the
consideration for which such Common Stock is deemed to be issuable
does not exceed the issuance price of securities issued in the latest
bona fide round of financing by the Corporation;
(F) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion
of or exchange for such convertible or exchangeable securities, or on
any change in the minimum purchase price of such options, rights or
securities, other than a change resulting from the antidilution
provisions of such options, rights or securities, the Conversion Price
shall forthwith be readjusted to such Conversion Price as would have
obtained had the adjustment (and any subsequent adjustments) made upon
(x) the issuance of such options, rights or securities not exercised,
converted or exchanged prior to such change, as the case may be, been
made upon the basis of such change or (y) the options or rights
related to such securities not converted or exchanged prior to such
change, as the case may be, been made upon the basis of such change;
and
(G) on 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 shall forthwith be
readjusted to such Conversion Price as would have obtained had the
adjustment (and any subsequent adjustments) made upon the issuance of
such options, rights, convertible or exchangeable securities or
options or rights related to such convertible or exchangeable
securities, as the case may be, been made upon the basis of 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 convertible or exchangeable securities or upon the
exercise of the options or rights related to such convertible or
exchangeable securities, as the case may be.
(ii) "Excluded Stock" shall mean:
(A) all shares of Common Stock issued and outstanding on
the date this document is filed with the Delaware Secretary of State;
(B) all shares of Common Stock into which shares of
Preferred Stock are convertible;
(C) up to 451,800 shares of Common Stock issued or
issuable on or after the date referred to in (ii)(A) above upon
exercise of options or other purchase rights granted to employees,
officers, directors or consultants of the
7
<PAGE>
Corporation and approved by the Board of Directors of the Corporation
(and any reissuance of such shares after repurchase thereof);
(D) up to 87,500 shares of Series C Preferred Stock and up
to 25,745 shares of Series D Preferred Stock, in each case issuable
upon exercise of warrants issued on or after February 21, 1995; and
(E) all shares of Common Stock or other securities
(including options, warrants and other purchase rights) issued or to
be issued to employees, officers, directors, consultants, affiliates
or lenders of the Corporation after receipt of written consent to such
issuance from the holders of 60% of the then outstanding Preferred
Stock and approval of such issuance by the Board of Directors of the
Corporation.
Shares of Excluded Stock described in (C), (D) and (E) of
this subparagraph 4(e)(ii) shall not be deemed to be outstanding for
purposes of the computations of subparagraph 4(e)(i) above until
actually issued.
(iii) If the number of shares of Common Stock outstanding at
any time after the date hereof is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective,
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of the Preferred Stock shall
be increased in proportion to such increase of outstanding shares.
(iv) If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, on the effective date of such combination,
the Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of the Preferred Stock shall
be decreased in proportion to such decrease in outstanding shares.
(v) In case the Corporation shall declare a cash dividend upon
its Common Stock payable otherwise than out of retained earnings or shall
distribute to holders of its Common Stock shares of its capital stock
(other than Common Stock), stock or other securities of other persons,
evidences of indebtedness issued by the Corporation or other persons,
assets (excluding cash dividends) or options or rights (excluding options
to purchase and rights to subscribe for Common Stock or other securities of
the Corporation convertible into or exchangeable for Common Stock), then,
in such case, the holders of shares of Preferred Stock shall, concurrent
with the distribution to holders of Common Stock, receive a like
distribution based upon the number of shares of Common Stock into which
such Preferred Stock is then convertible.
(vi) in case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the stock of the Corporation
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or
merger of the Corporation with or into another person (other than a
consolidation or merger in which the Corporation is the continuing entity
and which does not result in any change in the Common Stock), or of the
sale or other disposition of all or
8
<PAGE>
substantially all the properties and assets of the Corporation as an
entirety to any other person, the shares of Preferred Stock shall, if such
event is not deemed a liquidation for purposes of Subparagraph 2(c), after
such reorganization, reclassification, consolidation, merger, sale or other
disposition, be convertible into the kind and number of shares of stock or
other securities or property of the Corporation or of the entity resulting
from such consolidation or surviving such merger or to which such
properties and assets shall have been sold or otherwise disposed to which
such holder would have been entitled if immediately prior to such
reorganization, reclassification, consolidation, merger, sale or other
disposition he had converted his shares of Preferred Stock into Common
Stock. The provisions of this subparagraph (vi) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers,
sales or other dispositions.
(vii) All calculations under this paragraph 4 shall be made to
the nearest cent or to the nearest one hundredth (1/100) of a share, as the
case may be.
(f) Minimal Adjustments. No adjustment in a Conversion Price need
-------------------
be made if such adjustment would result in a change in a Conversion Price of
less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price.
(g) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of a Conversion Price pursuant to this paragraph 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price and Rate at the time in effect for the Preferred Stock
held, and (iii) 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 the
Preferred Stock.
(h) Notices of Record Date. In the event of any taking by the
----------------------
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, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified herein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend or distribution.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the 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 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 Preferred Stock, the Corporation will 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 purpose.
9
<PAGE>
(j) Notices. Any notice required by the provisions of this
-------
paragraph 4 to be given to the holder of shares of the Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his latest address appearing on the books
of the Corporation.
5. Redemption of Series A, Series B, Series C, Series D and Series
---------------------------------------------------------------
E Preferred Stock.
-----------------
(a) On the 75th day following any Preferred Redemption Date, as
defined below, and so long as any shares of Series A, Series B, Series C, Series
D or Series E Preferred Stock (for purposes of this Section 5 "Redeemable
Preferred Stock") shall be outstanding, the Corporation shall at the request of
any holder of Redeemable Preferred Stock sent on or before the later of the 30th
day following such Preferred Redemption Date or the 10th day following receipt
of the notice specified in paragraph 5(d) (unless otherwise prevented by law
and, if so prevented, as soon thereafter as is permissible) redeem, at an amount
per share equal to the Conversion Value of such Redeemable Preferred Stock as of
such Preferred Redemption Date plus declared but unpaid dividends, if any,
payable with respect thereto, the portion of the shares of each such series of
Preferred Stock held by such holder set forth below. The total sum payable for
shares of Preferred Stock on the Preferred Redemption Date is hereinafter
referred to as the "Preferred Redemption Price." As used herein, the term
"Preferred Redemption Date" shall mean any of the following dates:
Percentage of
Outstanding Redeemable
Preferred Redemption Dates Preferred Stock
-------------------------- -------------------------
(i) The date of termination of
the employment of Joseph S.
McCall with the Corporation
for any reason other than
disability, as defined below 100.00%
(ii) September 30, 1997 33.33%
(iii) September 30, 1998 50.00%
(iv) September 30, 1999 100.00%
(b) If upon any redemption the assets of the Corporation legally
available for redemption shall be insufficient to pay the holders of Redeemable
Preferred Stock the full amounts to which they shall be entitled, the holders of
shares of Redeemable Preferred Stock shall share ratably in any such redemption
according to the respective amounts which would be payable in respect of shares
held by them upon such redemption if all amounts payable on or with respect to
said shares were paid in full. If less than all the shares of Redeemable
Preferred Stock then outstanding are to be redeemed, the redemption shall be pro
rata with respect to such shares based upon the relative aggregate liquidation
preferences of the outstanding shares of Redeemable Preferred Stock then owned
by each holder thereof. On and after the Preferred Redemption Date (unless
default shall be made
10
<PAGE>
by the Corporation in the payment of the applicable Preferred Redemption Price
as hereinafter provided, in which event such rights shall be exercisable until
such default is cured), all rights in respect of the shares of Redeemable
Preferred Stock, to be redeemed, except the right to receive the applicable
Preferred Redemption Price as hereinafter provided, shall cease and terminate;
and such shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation. As
used herein, the term "disability" shall mean the inability, for any medical
reason, to perform substantial duties as an executive officer of the
Corporation, as determined in good faith by the Board of Directors of the
Corporation (excluding for this purpose Joseph S. McCall, if a director, and any
representative of a holder of Redeemable Preferred Stock who is a director).
(c) Any request for redemption as herein provided shall be mailed by
first class certified mail, return receipt requested, postage prepaid, to the
Corporation at its then current address. At any time on or after the Preferred
Redemption Date, the holders of record of shares of Redeemable Preferred Stock
to be redeemed shall be entitled to receive the applicable Preferred Redemption
Price upon actual delivery to the Corporation or its agent of the certificates
representing the shares to be redeemed.
(d) Within five business days following receipt of any request for
redemption as herein provided, the Corporation shall notify each other holder of
record of shares of Redeemable Preferred Stock which has not made a similar
request with respect to the Preferred Redemption Date in question. Such notice
shall specify the name of the holder or holders requesting redemption, the
number of shares covered by such request or requests, and the Corporation's
estimate of funds available for such purposes.
(e) The Corporation will not, and will not permit any subsidiary of
the Corporation to, purchase or acquire any shares of Redeemable Preferred Stock
otherwise than pursuant to the terms of this paragraph 5 or pursuant to an offer
made on the equivalent terms to all holders of Redeemable Preferred Stock at the
time outstanding.
(f) Once redeemed pursuant to the provisions of this paragraph 5,
shares of Redeemable Preferred Stock shall be canceled and not subject to
reissuance.
(g) No Redeemable Preferred Stock shall be entitled to the benefit
of a sinking fund or purchase fund.
6. Protective Provisions.
---------------------
(a) Approval of Preferred Stock. So long as any of the Preferred
---------------------------
Stock shall be outstanding the Corporation shall not without obtaining the
approval (by vote or written consent, as provided by law) of the holders of not
less than a majority of the outstanding shares of Preferred Stock:
11
<PAGE>
(i) Change of Rights. Materially and adversely alter or
----------------
change the rights, preferences or privileges of the Preferred Stock; or
(ii) Create a New Class. Create any new class or series of
------------------
shares having preferences over any outstanding shares of Preferred Stock as
to dividends or assets, or authorize or issue shares of stock of any class
or series or any bonds, debentures, notes or other obligations convertible
into or exchangeable for, or having option rights to purchase, any shares
of stock of this Corporation having any preference or priority as to
dividends or assets superior to or, except as provided in paragraph 6(b),
on a parity with any such preference or priority of any outstanding shares
of Preferred Stock; or
(iii) Reclassification. Reclassify any class or series of
----------------
any Common Stock into shares having any preference or priority as to
dividends or assets superior to or, except as provided in paragraph 6(b),
on a parity with any such preference or priority of Preferred Stock; or
(iv) Merger, Consolidation, Sale, etc., of Assets. Merge or
--------------------------------------------
consolidate with, or permit any of its subsidiaries to merge or
consolidate with, any entity, except that any such subsidiary may be merged
into the Corporation or any other such subsidiary; sell, lease, license or
otherwise dispose of, or permit any such subsidiary to sell, lease, license
or otherwise dispose of, all or substantially all of the consolidated
assets of the Corporation in any twelve-month period; provided, that this
paragraph 6(a)(iv) shall not be applicable with respect to any merger,
consolidation, sale, lease, license or other disposition yielding net
proceeds per share of Preferred Stock of at least $18.00 (such amount to be
appropriately adjusted in the event of stock splits, stock combinations,
stock dividends or similar recapitalizations). A sale of substantially all
of the consolidated assets of the Corporation means the sale or other
disposition of more than 50% of the value of the consolidated assets of the
Corporation; or
(v) Payment of Dividends. Pay any dividend with respect to
--------------------
its capital stock, other than dividends payable solely in shares of such
capital stock.
(b) Additional Series. Notwithstanding any other provision of this
-----------------
Certificate of Incorporation to the contrary, the Corporation may, without
obtaining the consent of holders of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the
Series E Preferred Stock or any Additional Series (as hereinafter defined),
authorize by resolution of its Board of Directors (a "series resolution") and
issue one or more additional series of the Corporation's Preferred Stock (each
such series being referred to herein as an "Additional Series"); provided,
--------
however, that (i) each such Additional Series shall have substantially the same
- -------
terms, powers, preferences and rights as the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock, except that the liquidation preference,
the Conversion Value and the initial Conversion Price for each such Additional
Series shall equal the purchase price per share paid for such stock, (ii) such
Additional Series need not have voting rights or redemption rights, and (iii) in
all other respects each share of
12
<PAGE>
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and any such Additional
Series shall be pari passu (with the shares of Series A Preferred Stock, Series
---- -----
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and each such Additional Series to share in liquidation proceeds
based on their relative liquidation preferences).
Article 5: Liability of Directors
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same now exists or may hereafter be amended in a manner
more favorable to directors, a director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
Article 6: Indemnification of Directors
The Corporation shall indemnify to the full extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor of the Corporation.
Article 7: Balloting at Elections
Election of directors need not be by written ballot except and to the
extent provided in the bylaws of the Corporation.
Article 8: Amendment of Bylaws
The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal bylaws of the Corporation, but the stockholders may make
additional bylaws and may alter or repeal any bylaw whether adopted by them or
otherwise.
Article 9: Corporate Books
13
<PAGE>
The books of the Corporation may be kept (subject to any provision of
law) outside the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the bylaws of the Corporation.
Article 10: Incorporator
The name and mailing address of the incorporator is as follows:
G. Donald Johnson, Esq.
Parker, Johnson, Cook & Dunlevie
1275 Peachtree Street, N.E.
Suite 700
Atlanta, Georgia 30309
IN WITNESS WHEREOF, the undersigned has duly executed this Amended and
Restated Certificate of Incorporation on the ______ day of February, 1996.
SQL FINANCIALS INTERNATIONAL, INC.
ATTEST: BY:
----------------------------------
STEPHEN P. JEFFERY,
President
- -------------------------------
ARTHUR G. WALSH, Secretary
[CORPORATE SEAL]
14
<PAGE>
EXHIBIT G1
Management Rights Agreement
This Management Rights Agreement ("Agreement") is entered into as of February
__, 1996 by and between SQL Financials International, Inc., a Delaware
corporation (the "Company") and Technology Crossover Ventures, L.P., a Delaware
limited partnership ("Technology Crossover").
Recitals
--------
1. Technology Crossover's organizational documents require that Technology
Crossover have and maintain the status of a "venture capital operating company"
as defined in the Department of Labor Regulations, Section 25101.3-101(d) (the
"Regulations").
2. The Regulations require that a venture capital operating company must have
direct contractual rights to participate substantially in or substantially
influence the conduct of the management of its portfolio companies.
3. In order to induce Technology Crossover to invest in the Company, the
Company has agreed to provide such rights to Technology Crossover.
NOW, THEREFORE, the parties hereto agree that upon Technology Crossover's
purchase of shares of Series E Preferred Stock of the Company, Technology
Crossover will be entitled to the following contractual management rights, in
addition to rights to non-public financial information, inspection rights, and
other rights specifically provided to all investors in connection with the
current financing:
(a) Technology Crossover shall be entitled to consult with and advise
management of the Company on significant business issues, including management's
proposed annual and quarterly operating plans, and management will meet with
Technology Crossover within thirty days after the end of each fiscal quarter at
the Company's facilities at mutually agreeable times for such consultation and
advice and to review progress in achieving said plans;
(b) Technology Crossover may examine the books and records of the
Company and inspect its facilities and may request information at reasonable
times and intervals concerning the general status of the Company's financial
condition and operations.
(c) If Technology Crossover is not represented on the Company's Board of
Directors, the Company shall invite a representative of Technology Crossover to
attend all meetings of its Board of Directors in a nonvoting observer capacity
and, in this respect, shall give such
1
<PAGE>
representative copies of all notices, minutes, consents and other material that
it provides to its directors. Such representative may participate in discussions
of matters brought to the Board.
The rights described herein shall terminate and be of no further force or
effect upon the consummation of the earlier to occur of (a) the sale of the
Company's securities pursuant to a registration statement filed by the Company
under the Securities Act of 1933, as amended, in connection with the firm
commitment underwritten offering of it securities to the general public or (b)
the sale of all or substantially all of the assets of the Company or the
consolidation or merger of the Company with or into any other corporation or
corporations (other than a consolidation or merger following which the holders
of 51% or more of the capital stock of the resulting or surviving entity, based
on voting power in the election of directors, are persons or entities who were
shareholders of the Company immediately prior to such consolidation or merger).
This Agreement may be signed in one or more counterparts, each of which shall
be deemed an original and all of which shall constitute one instrument.
IN WITNESS WHEREOF the parties hereto have hereby executed this Agreement as
of the date first above written.
SQL FINANCIALS INTERNATIONAL, INC.
By:
-----------------------------------
Authorized Officer
TECHNOLOGY CROSSOVER VENTURES,
L.P.
By: Technology Crossover Management, L.L.C.,
General Partner
By:
------------------------------------
Robert C. Bensky, Chief Financial Officer
2
<PAGE>
EXHIBIT G2
Management Rights Agreement
This Management Rights Agreement ("Agreement") is entered into as of February
__, 1996 by and between SQL Financials International, Inc., a Delaware
corporation (the "Company") and Noro-Moseley Partners III, L.P., a Delaware
limited partnership ("Noro-Moseley").
Recitals
--------
1. Noro-Moseley's organizational documents require that Noro-Moseley have and
maintain the status of a "venture capital operating company" as defined in the
Department of Labor Regulations, Section 25101.3-101(d) (the "Regulations").
2. The Regulations require that a venture capital operating company must have
direct contractual rights to participate substantially in or substantially
influence the conduct of the management of its portfolio companies.
3. In order to induce Noro-Moseley to invest in the Company, the Company has
agreed to provide such rights to Noro-Moseley.
NOW, THEREFORE, the parties hereto agree that upon Noro-Moseley's
purchase of shares of Series E Preferred Stock of the Company, Noro-Moseley will
be entitled to the following contractual management rights, in addition to
rights to non-public financial information, inspection rights, and other rights
specifically provided to all investors in connection with the current financing:
(a) Noro-Moseley shall be entitled to consult with and advise management
of the Company on significant business issues, including management's proposed
annual and quarterly operating plans, and management will meet with Noro-Moseley
within thirty days after the end of each fiscal quarter at the Company's
facilities at mutually agreeable times for such consultation and advice and to
review progress in achieving said plans;
(b) Noro-Moseley may examine the books and records of the Company and
inspect its facilities and may request information at reasonable times and
intervals concerning the general status of the Company's financial condition and
operations.
1
<PAGE>
(c) If Noro-Moseley is not represented on the Company's Board of
Directors, the Company shall invite a representative of Noro-Moseley to attend
all meetings of its Board of Directors in a nonvoting observer capacity and, in
this respect, shall give such representative copies of all notices, minutes,
consents and other material that it provides to its directors. Such
representative may participate in discussions of matters brought to the Board.
The rights described herein shall terminate and be of no further force or
effect upon the consummation of the earlier to occur of (a) the sale of the
Company's securities pursuant to a registration statement filed by the Company
under the Securities Act of 1933, as amended, in connection with the firm
commitment underwritten offering of it securities to the general public or (b)
the sale of all or substantially all of the assets of the Company or the
consolidation or merger of the Company with or into any other corporation or
corporations (other than a consolidation or merger following which the holders
of 51% or more of the capital stock of the resulting or surviving entity, based
on voting power in the election of directors, are persons or entities who were
shareholders of the Company immediately prior to such consolidation or merger).
This Agreement may be signed in one or more counterparts, each of which shall
be deemed an original and all of which shall constitute one instrument.
IN WITNESS WHEREOF the parties hereto have hereby executed this Agreement as
of the date first above written.
SQL FINANCIALS INTERNATIONAL, INC.
By:
-----------------------------------
Authorized Officer
NORO-MOSELEY PARTNERS III, L.P.
By: Moseley & Company III, L.L.C.,
General Partner
By:
------------------------------
Member
2
<PAGE>
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
------------------------
THIS AGREEMENT is made and entered into as of the 26th day of September,
1997 by and between SQL Financials International, Inc., a Delaware corporation
(the "Company"), and the individuals and entities listed in Schedule A hereto
----------
(individually, a "Purchaser", collectively, the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto agree as follows:
1. Purchase of Shares.
------------------
The Company will sell to each Purchaser, and each Purchaser will purchase
from the Company, the number of shares of the Company's Series F convertible
preferred stock, $1.00 par value per share (the "Series F Preferred Stock") set
forth opposite such Purchaser's name on Schedule A. The shares of Series F
----------
Preferred Stock to be purchased from the Company by the Purchasers are sometimes
herein referred to as the "Shares", and the price per Share so purchased shall
be $9.60. Such purchase and sale shall be made on the Closing Date (as defined
in Section 2 below) and shall be subject to the terms and conditions hereof and
in reliance upon the representations, warranties and agreements contained
herein. The purchase price for the Shares shall be paid at the Closing (by
check payable to the Company, by wire transfer of funds to the account of the
Company or by delivery of promissory notes of the Company held by the Purchaser
in question, with authorization to mark "paid in full" upon completion of the
Closing, or any combination of the foregoing) against delivery of certificates
evidencing the Shares and registered in the names of the respective Purchasers
or their nominees. If such payment is made
<PAGE>
by delivery of a promissory note of the Company, the Company will remit any
amount of principal due in excess of the purchase price for the Shares, plus
unpaid interest, within 15 days following the Closing.
2. Closing Date.
------------
The closing of the purchase and sale of the Shares hereunder (the
"Closing") shall be held at the offices of counsel to the Company, Womble
Carlyle Sandridge & Rice, a Professional Limited Liability Company,
1275 Peachtree Street, N.E., Atlanta, Georgia 30309, at 10:00 a.m., on the date
first above stated or at such other time and place to which the Company and the
Purchasers may agree (the "Closing Date").
3. Representations and Warranties of the Company.
---------------------------------------------
The Company hereby represents and warrants to the Purchasers that, except
as set forth in the schedule of exceptions attached as Schedule B hereto (the
----------
"Schedule of Exceptions"):
3.1 Organization and Standing. 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 requisite corporate power to own and operate its
properties and assets, and to carry on its business as presently conducted and
as proposed to be conducted. The Company is licensed or qualified as a foreign
corporation and is in good standing in every state or other jurisdiction wherein
the character of its property or the nature of its activities makes such
licensing or qualification necessary and wherein the failure to be so licensed
or qualified would have a material adverse effect on the Company. Attached as
Exhibits A and B hereto are copies of the amended and restated certificate of
- ----------------
incorporation (the "Certificate of Incorporation") and by-laws (the "By-Laws")
of the Company. Said copies are true, correct and complete and contain all
amendments through the date of this Agreement.
2
<PAGE>
3.2 Corporate Power. The Company has now, and will have at the
---------------
Closing Date, all requisite legal and corporate power to enter into this
Agreement, to sell the Shares hereunder, and to carry out and perform its
obligations under the terms of this Agreement.
3.3 Subsidiaries. The Company does not own or control, directly or
------------
indirectly, any interest or investment in any other corporation, association,
partnership or other business entity, other than SQL Financials Europe, Inc., a
Delaware corporation, which is owned 100% by the Company. The Company has a
subsidiary, SQL Financials Services, L.L.C., a Georgia limited liability company
(the "Service Subsidiary"). The Service Subsidiary is owned 80% by the
Company and 20% by Technology Ventures, L.L.C. ("Tech Ventures"), an affiliate
of the Company, and provides implementation services for the Company's products.
3.4 Capitalization. The Company's entire authorized capital stock
--------------
consists of 9,500,000 shares, of which 6,000,000 shares are common stock,
$.0001 par value per share ("Common Stock"), 926,508 shares of which are issued
and presently outstanding , and 3,500,000 shares are preferred stock, of which
262,500 shares are designated as Series A preferred stock ("Series A Preferred
Stock"), all of which were outstanding prior to the Closing Date, of which
454,888 shares are designated as Series B preferred stock ("Series B Preferred
Stock"), all shares of which were outstanding prior to the Closing Date, of
which 516,072 shares are designated as Series C preferred stock ("Series C
Preferred Stock"), 428,572 of which were outstanding prior to the Closing Date,
of which 727,500 are designated as Series D preferred stock ("Series D Preferred
Stock"), 701,755 of which were outstanding prior to the Closing Date, of which
706,396 shares are designated as Series E preferred stock ("Series E Preferred
Stock"), 697,675 of which were outstanding prior to the Closing Date, and of
which 675,630 are designated as Series F Preferred Stock, none of which were
outstanding prior to the Closing Date. All such issued and outstanding shares
are duly authorized and validly issued, fully paid
3
<PAGE>
and nonassessable and have been issued in compliance with all applicable state
and federal laws concerning the issuance of securities. Subject to the terms and
conditions hereof, the Company has authorized the issuance on the Closing Date
of 628,809 shares of Series F Preferred Stock and has authorized the reservation
of the number of shares of Common Stock issuable from time to time on conversion
of such shares of Series F Preferred Stock (said reserved shares, when issued,
being referred to herein as the "Purchaser Reserved Shares"), the Series F
Preferred Stock having the terms and provisions set forth in Exhibit A hereto.
---------
There are presently reserved for issuance 839,292 shares of Common Stock
pursuant to options or purchase rights granted or to be granted to employees,
officers, directors or consultants of the Company ("Employee Reserved Shares")
and 87,500 shares of Series C Preferred Stock pursuant to warrants held by Tech
Ventures, 17,544 shares of Series D Preferred Stock pursuant to warrants held by
certain holders of Series D Preferred Stock, up to 8,201 shares of Series D
Preferred Stock pursuant to warrants reserved for Silicon Valley Bank, 8,721
shares of Series E Preferred Stock pursuant to warrants held by Silicon Valley
Bank, and 46,821 shares of Series F Preferred Stock pursuant to warrants held by
certain holders of Series E Preferred Stock (such shares reserved with respect
to warrants being herein referred to as "Warrant Shares"). There are presently
reserved for issuance pursuant to conversion rights of holders of Series A
Preferred Stock 262,500 shares of Common Stock ("Series A Reserved Shares"),
there are presently reserved for issuance pursuant to conversion rights of
holders of Series B Preferred Stock 454,888 shares of Common Stock ("Series B
Reserved Shares"), there are presently reserved for issuance pursuant to
conversion rights of holders of Series C Preferred Stock 516,072 shares of
Common Stock ("Series C Reserved Shares"), there are presently reserved for
issuance pursuant to conversion rights of holders of Series D Preferred Stock or
holders or prospective holders of warrants 727,500 shares of Common Stock
("Series D Reserved Shares"), there are
4
<PAGE>
presently reserved for issuance pursuant to conversion rights of holders of
Series E Preferred Stock 697,675 shares of Common Stock ("Series E Reserved
Shares"), and there are presently reserved for issuance pursuant to conversion
rights of holders of Series F Preferred Stock 675,630 shares of Common Stock
("Series F Reserved Shares"). Except for the foregoing, (i) no subscription,
warrant, option, convertible security or other right (contingent or otherwise)
permitting any party other than the Company to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, except as provided in
the September 1995 Shareholders' Agreement (as hereinafter defined) and
Sections 7.15 and 11.3 of this Agreement, and (ii) the Company has no commitment
to issue any such subscription, warrant, option, convertible security or other
right, or to issue or distribute to holders of any shares of its capital stock
(by reason of their holding such capital stock) any evidences of indebtedness or
assets. Other than as provided in the Certificate of Incorporation, the Company
has no obligation, contingent or otherwise, to purchase, redeem or otherwise
acquire any shares of its capital stock (other than the Shares) or any interest
therein or to pay any dividend or make any other distribution in respect
thereof. Upon the effectiveness of this Agreement, no person or entity will be
entitled to any preemptive right, right of first refusal or similar right with
respect to the issuance, sale, redemption or transfer of any capital stock of
the Company or any rights with respect to the registration of any capital stock
of the Company under federal or state securities laws, except for the rights of
first refusal and registration rights contained in the Restated Shareholders'
Agreement, dated as of September 1, 1995, between the Company and its common
stockholders, as amended as of January 1, 1997 (the "September 1995
Shareholders' Agreement") and in this Agreement. Other than the Amended and
Restated Shareholders' Voting Agreement, dated as of September 1, 1995, between
the Company and its common stockholders (the "Shareholders' Voting Agreement"),
the September 1995 Shareholders'
5
<PAGE>
Agreement, the Stock Purchase Agreement dated November 24, 1992, between the
Company and Greylock Limited Partnership ("Greylock"), as amended (the "Greylock
Agreement"), the Stock Purchase Agreement dated September 21, 1993 among the
Company and twelve other individuals or entities and the Stock Purchase
Agreement dated December 10, 1993 between the Company and Stanford University
(collectively, the "Series B Agreement"), the Stock Purchase Agreement dated as
of April 1, 1994 among the Company and fifteen other individuals or entities and
the Subscription and Investment Letter, dated August 1, 1994, between the
Company and Tech Ventures (collectively, the "Series C Agreement"), the
Company's standard form of stock subscription agreement, the Stock Purchase
Agreement dated as of February 21, 1995 (the "Series D Agreement"), the Stock
Purchase Agreement dated February 15, 1996 among the Company and twenty other
individuals and entities (the "Series E Agreement") and this Agreement, there
are no existing voting or stock restriction agreements or similar agreements
between the Company and any of its shareholders, nor, to the best knowledge of
the Company, are there any such agreements among any of the Company's
shareholders. Immediately after the Closing, the capital stock of the Company
issued and outstanding and the Employee Reserved Shares and Warrant Shares will
be as stated in Schedule C hereto. The Greylock Agreement, Series B Agreement,
----------
Series C Agreement, Series D Agreement, and Series E Agreement are herein
sometimes collectively referred to as the "Prior Stock Purchase Agreements."
3.5 Authorization. All corporate action on the part of the Company,
-------------
its officers, board of directors (the "Board") and shareholders necessary for
the sale and issuance of the Shares pursuant hereto and the performance of the
Company's obligations hereunder has been taken or will be taken prior to the
Closing Date. This Agreement shall constitute a valid and binding obligation of
the Company, enforceable in accordance with its terms, except as enforcement may
be limited by applicable bankruptcy, reorganization, insolvency or moratorium
6
<PAGE>
laws or other similar laws affecting creditors' rights generally or general
principles of equity whether asserted in a proceeding at law or in equity. The
Shares, when issued in compliance with the provisions of this Agreement, will be
validly issued, fully paid and nonassessable, free of any liens or encumbrances,
with all original issuance taxes paid thereon.
3.6 Financial Statements. The Company has furnished the Purchasers
--------------------
with copies of (a) its audited balance sheet as of December 31, 1996 and its
audited statement of operations for the year then ended (collectively, the
"Audited Financial Statements") and (b) its unaudited balance sheet as of
August 31, 1997 (the "Balance Sheet Date") and its year-to-date profit and loss
statement as of August 31, 1997 (collectively, the "Unaudited Financial
Statements"). The Audited Financial Statements and the Unaudited Financial
Statements were prepared in accordance with the Company's books and records and
in accordance with generally accepted accounting principles and fairly present
the financial position and results of operation of the Company as of the dates
and for the periods indicated, subject, however, in the case of the Unaudited
Financial Statements to normal year end audit adjustments not anticipated to be
material in amount. The Company has no material liabilities, whether or not of a
type required to be reflected on a balance sheet prepared in accordance with
generally accepted accounting principles (whether accrued, absolute, contingent
or otherwise) which are not shown or provided for in the Unaudited Financial
Statements, except those arising since the Balance Sheet Date in the ordinary
course of the Company's business and except as shown on the Schedule of
Exceptions.
3.7 Changes. Since the Balance Sheet Date, there has not been any
-------
event or condition of any type known to the Company that has materially and
adversely affected the Company's business, prospects, condition, affairs,
operation, properties or assets. Since the Balance Sheet Date, the physical
properties owned or leased by the Company have not suffered
7
<PAGE>
any material destruction or damage, regardless of whether or not any such loss
was insured against.
3.8 Title to Properties and Assets; Liens. The Company has good and
-------------------------------------
marketable title to all its properties and assets and has good title to all its
leasehold estates in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than minor liens and encumbrances which do not in
any case materially detract from the value of the property subject thereto or
materially impair the operations of the Company and which have not arisen
otherwise than in the ordinary course of business.
3.9 Commitments. Attached hereto as Exhibit C is a list of all
----------- ---------
agreements, contracts, indebtedness, liabilities and other obligations
(collectively, "Commitments") to which the Company is a party or by which it is
bound and which are material to the conduct and operations of its business. For
purposes of this Section 3.9, a Commitment occurring in the ordinary course of
the Company's business shall not be considered material unless it, together with
other Commitments with the same party, involve more than $100,000, except that,
where a Commitment consists of an agreement to license the Company's product to
a third party in the ordinary course of the Company's business, such Commitment
shall not be considered material unless it, together with other Commitments with
the same party, involve more than $200,000. Copies of the documentation
evidencing such Commitments have been made available for inspection by the
Purchasers and their counsel.
3.10 Intellectual Properties. The Company has sufficient and valid
-----------------------
right, title and ownership of all patents, trademarks, service marks, trade
names, copyrights, licenses, trade secrets, inventions, and proprietary rights
(collectively, "Intellectual Properties"), including without limitation those
relating to SQL Windows, or licenses, rights or purchase options with respect to
the foregoing, necessary for its business as now conducted and as currently
proposed
8
<PAGE>
to be conducted, or will be able to obtain on terms which will not materially
and adversely affect its business all such necessary permits, licenses and other
authority with respect thereto without any conflict with or infringement of the
known or asserted rights of others. Exhibit C contains a complete list of
---------
Intellectual Properties owned or used by the Company. Neither the Company nor,
to the Company's knowledge, any officer or management, technical or professional
employee of the Company is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
conflict with the Company's business as conducted (or as currently proposed to
be conducted, as evidenced by the Business Documents described in Section 3.15)
or, in the case of any such employee, such employee's right to be employed by
the Company. The Company does not believe it is utilizing any inventions or
proprietary ideas of any of its employees (or persons it currently intends to
hire) made prior to their employment by the Company and which are known by the
Company to be inventions of such employees or persons. All of the officers and
management, technical or professional employees of the Company have executed an
agreement containing assignment of invention and confidentiality covenants
substantially in the form contained in the agreements attached hereto as
Exhibits D1 or D2; such agreements remain in full force and effect; and, to the
- -----------------
Company's knowledge, none of such officers or management, technical or
professional employees is in violation thereof. The Company has obtained all
governmental permits, authorizations, approvals and licenses known by the
Company to be necessary for its business as now conducted and as currently
proposed to be conducted (as evidenced by such Business Documents) and the
absence of which would have a material adverse effect on the Company.
3.11 Compliance With Other Instruments. The Company is not in
---------------------------------
violation in any material respect of any term of its Certificate of
Incorporation, By-laws, or any
9
<PAGE>
Commitment, judgment, decree, order or, to its knowledge, any statute, rule or
regulation applicable to the Company. The execution, delivery and performance of
and compliance with this Agreement, and the issuance of the Shares pursuant
hereto, will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, a material
default under any such term, or result in the creation of any pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such terms.
3.12 Litigation. There is no action, suit, proceeding or
----------
investigation pending and known to the Company or known and currently threatened
against the Company which questions the validity of this Agreement or the right
of the Company to enter into it or to consummate the transactions contemplated
hereby, or which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor does the Company know of any basis for the foregoing. The
foregoing includes, without limitation, actions which to the Company's knowledge
are pending or threatened (or any basis therefor known to the Company) involving
the prior employment of any of the Company's officers or employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
3.13 Insurance. The insurable properties of the Company are insured
---------
for the benefit of the Company with the coverages shown on Schedule B. The key
----------
person insurance coverage referred to in Section 7.5 is currently in effect.
10
<PAGE>
3.14 Governmental Consent. Based in part on the representations and
--------------------
warranties of the Purchasers in Section 4, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority on the part of the Company is required
in connection with the consummation of the transactions contemplated by this
Agreement.
3.15 Disclosure. To its knowledge, the Company has fully provided
----------
the Purchasers with all the written information which the Purchasers have
requested for the purpose of deciding whether to purchase the Shares. Neither
this Agreement nor any other written statements, information or certificates
made or delivered in connection herewith, including the Company's projected 1997
Income Statements as of August 31, 1997 and projected 1997 Balance Sheet as of
August 31, 1997 (such Income Statements and Balance Sheet being herein referred
to as the "Business Documents"), contain any untrue statement of a material fact
or, to the knowledge of the Company, omits to state a material fact known to the
Company necessary to make the statements herein or therein not misleading. The
projections contained in the Business Documents were based on assumptions
believed to be reasonable at such time and on the best judgment of management of
the Company, which assumptions its management continues to believe to be
reasonable on the whole, but otherwise no representation or warranty is made
with respect to such projections.
3.16 Agreements; Changes.
-------------------
(a) Except for this Agreement, the agreements referred to in
this Agreement, the Schedules hereto or the Business Documents, or employment
relationships between the Company and certain shareholders, there are no
agreements, understandings or proposed transactions between the Company and any
person or entity which is a shareholder, officer or director of the Company, a
relative by blood or marriage of, a trust or estate for the
11
<PAGE>
benefit of, or a person or entity which directly or indirectly controls, is
controlled by, or is under common control with, any such person or entity
(hereinafter referred to as a "person or entity associated with the Company").
(b) Since the Balance Sheet Date, the Company has not (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
presently in excess of $25,000 or in excess of $50,000 in the aggregate, other
than in the ordinary course of business, (iii) made any loans or advances to any
person, other than in the ordinary course of business, or (iv) sold, exchanged
or otherwise disposed of any of its assets or rights, other than in the ordinary
course of business.
3.17 Taxes. The Company has accurately prepared and timely filed all
-----
income tax returns and other tax returns which are required to be filed by it,
true and complete copies of which have been furnished to the Purchasers, and has
paid, or made provision for the payment of, all taxes which have or may have
become due pursuant to said returns or pursuant to any assessment which has been
received by it. No controversy in respect of taxes of any type is pending, or
to the best knowledge of the Company, threatened. The income tax returns of the
Company have never been audited by any federal or state governmental authority.
3.18 Employees. There are no material controversies pending or, to
---------
the knowledge of the Company, currently threatened between it and its employees.
To the Company's knowledge and except as disclosed to the Purchasers, no officer
or key employee has any present intention of terminating his employment with the
Company and the Company has no present intention of terminating any such
employment. The Company is not a party to any collective bargaining agreement
and, to its knowledge, no organizational efforts are presently being made with
respect to any of its employees. The Company has complied in all
12
<PAGE>
material respects with all applicable state and federal laws and regulations
respecting employment and employment practices, terms and conditions of
employment, wages and hours and other laws related to employment, and there are
no arrears in the payments of wages, withholding or social security taxes,
unemployment insurance premiums or other similar obligations.
3.19 Retirement Obligations. The Company has no pension, retirement
----------------------
or similar plan or obligation, whether of a legally binding nature or in the
nature of informal understandings.
3.20 Books and Records. The minute books of the Company contain
-----------------
accurate summary records of all meetings and written consents to action of the
Company's shareholders, the Board and all committees, if any, appointed by the
Board. The Company's stock ledger is complete and reflects all issuances,
transfers, repurchases and cancellations of shares of capital stock of the
Company. The books of account and other financial records and the order books,
if any, of the Company accurately and completely reflect all material
information purported to be shown therein in all material respects.
3.21 Brokers. The Company has no contract, arrangement or
-------
understanding with any broker, finder, or similar agent with respect to the
transactions contemplated by this Agreement.
3.22 Environmental Liabilities.
-------------------------
(a) To its knowledge, the Company has no obligations or
liabilities, matured or not matured, absolute or contingent, assessed or
unassessed, which could reasonably be expected to have a material and adverse
effect, and no pending claims have been made against it and no currently
outstanding citations or notices including, without limitation, notice letters,
information requests or notices of potential responsibility, have been issued
against it,
13
<PAGE>
which could reasonably be expected to have a material and adverse effect, and
which, in the case of any of the foregoing, have been or are imposed by reason
of or based upon any provision of any Environmental Laws.
(b) As used herein, the term "Environmental Laws" shall mean
any and all federal, state, local, or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decrees, or requirements of any
federal, state, municipal, or other governmental department, commission, board,
bureau, agency, or instrumentality, or other court or arbitrator, in each case
whether of the United States or foreign, regulating, relating to, or imposing
liability or standards of conduct concerning any hazardous materials or
petroleum products or environmental protection, as now in effect.
3.23 Qualified Small Business. The Shares are "qualified small
------------------------
business stock," as defined in Section 1202 of the Internal Revenue Code of
1986, as amended (the "Code").
3.24 Small Business Concern . The Company is a "small business
-----------------------
concern" within the meaning of the Small Business Investment Act of 1958, as
amended, and a concern meeting the standard set forth in 13 CFR Ch. I (S)
121.301(c). The information provided by the Company on any Small Business
Administration forms delivered in connection with the sale of Shares under this
Agreement is true and correct.
3.25 Knowledge Qualification. As used in this Section 3, all
-----------------------
references to information known to the Company shall mean information actually
(and not constructively or impliedly) known to Joseph S. McCall ("McCall") or
any other executive officer of the Company.
4. Representations and Warranties of the Purchaser. Each of the
-----------------------------------------------
Purchasers severally represents and warrants to the Company as follows:
14
<PAGE>
4.1 Authority. Such Purchaser is an individual or is a limited
---------
partnership or retirement benefit trust or corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction shown on
Schedule A. Any corporate, partnership or similar action on the part of such
Purchaser necessary for the purchase of such Shares and the performance of its
obligations hereunder has been taken or will be taken prior to the Closing Date.
This Agreement, when executed and delivered by such Purchaser, will constitute a
valid and legally binding obligation of such Purchaser, enforceable in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy laws or other similar laws affecting creditors' rights generally.
4.2 Investment Representations. This Agreement is made with each
--------------------------
Purchaser upon the understanding as a specific representation to the Company by
such Purchaser that:
(a) the Shares purchased hereunder will be acquired for such
Purchaser's own account and not with a view to the distribution of any part
thereof, and such Purchaser has no present intention of selling, granting
participation in, or otherwise distributing the same;
(b) such Purchaser acknowledges that such Purchaser has the
knowledge and experience in financial and business matters so as to be capable
of evaluating the merit and risk of and protecting such Purchaser's own
interests in connection with such Purchaser's purchase of such Shares, has had
the opportunity to ask such questions of the Company and to review such
documents as such Purchaser deemed necessary in connection with its purchase of
Shares, is able to fend for such Purchaser in the transactions contemplated by
this Agreement and has the ability to bear the economic risk of such Purchaser's
investment pursuant to this Agreement;
15
<PAGE>
(c) unless such Purchaser otherwise advises the Company in
writing prior to the Closing, such Purchaser is an accredited investor, as
defined in Rule 501 promulgated by the Commission; and
(d) such Purchaser understands that such Shares are
characterized as "restricted securities" under the federal securities laws and
certain state securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such Shares may be resold without registration
under the Securities Act and those state securities laws only in certain limited
circumstances. In this connection, such Purchaser represents that such Purchaser
is familiar with Rule 144 promulgated by the Commission, as presently in effect,
understands the resale limitations imposed thereby and by the Securities Act,
and is aware that the Company is under no obligation to create a public market
for its securities.
4.3 Brokers. Such Purchaser has no contract, arrangement or
-------
understanding with any broker, finder, or similar agent with respect to the
transactions contemplated by this Agreement.
5. Conditions to the Purchasers' Obligations at Closing. The obligation
----------------------------------------------------
of the Purchasers to purchase Shares at the Closing is subject to the
fulfillment on or prior to the Closing Date of each of the following conditions:
5.1 Representations and Warranties Correct; Performance of
------------------------------------------------------
Obligations. The representations and warranties made by the Company in
- -----------
Section 3 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date with the same force and effect as if they had been
made on and as of said date, subject to changes contemplated by this Agreement;
and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing Date.
16
<PAGE>
5.2 Opinion of Counsel. The Purchasers shall have received from
------------------
Womble Carlyle Sandridge & Rice, a Professional Limited Liability Company,
counsel to the Company, an opinion, dated as of the Closing Date, in the form
attached as Exhibit E hereto.
---------
5.3 Qualifications. All authorizations, approvals or permits of any
--------------
governmental authority that are required in connection with the lawful issuance
and sale of the Shares under this Agreement shall have been duly obtained and
shall be effective.
5.4 Directors. On the Closing Date, the directors shall consist of
---------
McCall, Donald L. House, Sr., William S. Kaiser, William H. Mills and Tench
Coxe.
5.5 McCall Certificate. McCall shall have executed and delivered to
------------------
the Purchasers a certificate in the form of Exhibit F.
---------
5.6 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchasers and counsel to the Purchasers, and the
Purchasers shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
6. Conditions to Obligations of the Company. The obligations of the
----------------------------------------
Company to sell and issue the Shares at the Closing are subject to the
fulfillment on or prior to the Closing Date of the following conditions:
6.1 Representations and Warranties Correct; Performance of
------------------------------------------------------
Obligations. The representations and warranties made by the Purchasers in
- -----------
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date with the same force and effect as if they had been
made on and as of said date, and the Purchasers shall have performed all
obligations and conditions herein required to be performed by them on or prior
to the Closing Date.
17
<PAGE>
6.2 Qualifications. All authorizations, approvals or permits of any
--------------
governmental authority that are required in connection with the lawful issuance
and sale of the Shares under this Agreement shall have been duly obtained and
shall be effective.
7. Covenants of the Company or the Purchasers. The Company and the
------------------------------------------
Purchasers, in the case of Section 7.3, hereby covenant and agree as follows:
7.1 Financial Information. The Company will furnish the following
---------------------
reports to the persons indicated:
(a) Annual Financial Statements. As soon as practicable, but
---------------------------
in any event within 90 days after the end of each fiscal year of the Company, a
consolidated statement of earnings for such fiscal year, a consolidated balance
sheet of the Company as of the end of such year, and a consolidated statement of
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles,
and audited and certified by an independent public accounting firm of nationally
recognized standing selected by the Company and reasonably acceptable to the
Purchasers, shall be furnished to the Purchasers and to their transferees.
(b) Audit Reports. As soon as available, copies of all other
-------------
financial reports submitted to the Company or any Subsidiary (as defined in
Section 7.16) by independent public accountants, relating to any annual or
interim audit of the books of the Company or any Subsidiary, shall be furnished
to the Purchasers and to their transferees.
(c) Monthly Financial Statements. Within 30 days of the end
----------------------------
of each month, an unaudited statement of earnings, balance sheet and statement
of cash flow and current operating plan of the Company for or as of the end of
such month, in reasonable detail, shall be furnished to the Purchasers.
18
<PAGE>
(d) Regulatory Filings. Within 10 days after filing, copies
------------------
of all reports filed by the Company pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 shall be furnished to the Purchasers and
their transferees and, promptly upon request by any Purchaser, the Company shall
furnish copies of press releases and other documents that the Company shall have
released to the press during the preceding 90 days.
(e) Litigation. Promptly upon the Company's learning thereof,
----------
notice shall be furnished to the Purchasers of (i) any litigation filed against
or affecting the Company or any Subsidiary, whether or not covered by insurance,
which litigation involves an amount in controversy in excess of $10,000 or which
litigation is requesting a specific equitable remedy including, without
limitation, an injunction or restraining order, and (ii) the institution of any
suit or administrative proceeding which is reasonably expected materially and
adversely to affect the business, assets, operations, prospects, employee
relations or condition (financial or otherwise) of the Company or any
Subsidiary.
(f) Unbudgeted Costs. Promptly upon the occurrence thereof,
----------------
notice of any event which has resulted in, or could reasonably be expected to
result in, an unanticipated cost to the Company or any Subsidiary in excess of
$50,000, including, without limitation, disputes with customers, employees,
consultants or creditors or disputes relating to contractual obligations and
amendments, modifications or waivers of any such obligation, shall be furnished
to the Purchasers.
(g) Other Information. The Company shall furnish to each
-----------------
Purchaser, and to each transferee or prospective transferee of any Purchaser,
such other information relating to the financial condition, business, prospects
or corporate affairs of the Company as such Purchaser may from time to time
request; provided, however, that the Company shall not be obligated to provide
information which it deems in good faith to be proprietary.
19
<PAGE>
Notwithstanding the foregoing provisions of this Section 7.1 or Section 7.2, the
Company shall not be obligated to furnish information to any Purchaser or a
transferee or prospective transferee of such Purchaser unless such Purchaser or
such transferee or prospective transferee holds (or will hold immediately
following such transfer) no less than 25% of the Shares purchased by such
Purchaser pursuant to this Agreement and unless, in the case of a transferee or
prospective transferee, such transferee or prospective transferee shall have
agreed in writing to be bound by the provisions of Section 7.3.
(h) The Company will promptly notify each Purchaser if and
when the status of the Shares as qualified small business stock, as now or
hereafter defined in the Code, shall have changed, will submit on a timely basis
the reports and other information required to be submitted pursuant to
Section 1202(d)(1)(C) of the Code, as in effect from time to time, and will
promptly provide to each Purchaser such other information pertaining to such
status as such Purchaser may reasonably request. On or before March 1, 1998, the
Company will take no actions described in Section 1202(c)(3)(B) or (C) without
the consent of the holders of 75% or more of the Shares then held by the
Purchasers.
(i) Notwithstanding the foregoing provisions of this
Section 7.1, the Company may satisfy its obligations to furnish information to
the Purchasers pursuant to paragraphs (a) through (f) of Section 7.1 by
furnishing copies thereof to Chase Venture Capital Associates, L.P. ("Chase"),
Spitfire Capital Partners, L.P. ("Spitfire"), Greylock Limited Partnership
("Greylock"), Sutter Hill Ventures, a California Limited Partnership ("Sutter
Hill"), Highland Capital Partners II Limited Partnership ("Highland"), Hancock
Venture Partners IV Direct Fund L.P. ("Hancock"), Wakefield Group Limited
Partnership ("Wakefield"), Technology Crossover and Noro-Moseley Partners III,
L.P. ("Noro-Moseley") (it being understood that any such recipient may in turn
furnish such information to other Purchasers).
20
<PAGE>
7.2 Inspection. The Company shall permit each Purchaser, at such
----------
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by such Purchaser upon reasonable notice to the Company; provided, however, that
the Company shall not be obligated pursuant to this Section 7.2 to provide
access to any information which it reasonably considers to constitute a trade
secret or to contain similarly confidential information.
7.3 Confidentiality of Information. Each Purchaser agrees to
------------------------------
maintain the confidentiality of any information obtained by such Purchaser
pursuant to Sections 7.1 or 7.2 which may be proprietary to the Company or
otherwise confidential and which has not been made available by the Company to
the public or to any other third party on a non-confidential basis. Each
Purchaser further agrees to use such proprietary and confidential information
only to benefit the Company or to monitor such Purchaser's investment in the
Company and to make no disclosure thereof to a third party (other than his or
its general or limited partners, staff and legal and other professional advisers
or in connection with furnishing of sample reports to prospective general or
limited partners or other sources of capital) without the Company's prior
written consent (which may be conditioned upon receipt of a similar undertaking
by the third party but otherwise shall not be unreasonably withheld).
7.4 Use of Proceeds. The Company will use the proceeds from the
---------------
sale of Shares hereunder (whether such proceeds are received by check, by wire
transfer of funds or by delivery of promissory notes of the Company, as set
forth in Section 1) for working capital purposes and other transactions approved
by the Board.
7.5 Key Person Life Insurance. At all times after the Closing Date,
-------------------------
the Company shall use its best efforts to maintain in force the policies of life
insurance, naming the
21
<PAGE>
Company as beneficiary, which are presently in force on the life of Joseph S.
McCall in the face amount of $1,000,000 (or policies containing terms and
conditions substantially similar to those policies).
7.6 Certain Transactions. The Company agrees that it will not enter
--------------------
into any transaction or agreement (other than normal compensation arrangements,
which are subject to Section 7.11), including without limitation any lease or
other rental or purchase agreement or any agreement providing for loans or
extensions of credit by or to the Company, or any modification of any of the
foregoing, ("contract") with any "person or entity associated with the Company"
as defined in Section 3.16, or with respect to which any such person or entity
has or is to have a direct or indirect material interest, unless such contract
has been approved by no less than a majority of the number of directors
constituting the whole Board (excluding, if a director, any such person
associated with the Company and having such an interest in the contract in
question) or unless such contract was in effect or contemplated on the date
hereof and disclosed to the Purchasers in this Agreement (including the
Schedules and Exhibits hereto) or in the Business Documents referred to in
Section 3.15 or unless such contract is non-material and in the ordinary course
of business. For purposes hereof, a contract shall be deemed to be non-material
if it and all other contracts (excluding, for this purpose, compensation under
employment contracts and other compensation arrangements) between the Company
and the person or entity in question do not involve payment by or to the Company
during any fiscal year of more than $25,000.
7.7 Assignment of Invention/Confidentiality Agreements. Except as
--------------------------------------------------
otherwise provided by the Board in a particular case, the Company will use its
best efforts to enter into an assignment of invention/confidentiality agreement
in substantially the form of Exhibit D1
----------
22
<PAGE>
hereto with each of its current and future officers and management, technical or
professional employees.
7.8 Director's Fees. Commencing on the Closing Date, if annual
---------------
directors' fees are paid to any other member of the Board, the Company will pay
to any Purchaser-affiliated director or such director's designee an annual
director's fee in an amount equal to the highest annual fee so paid. The
Company will also promptly reimburse all reasonable out-of-pocket expenses
consistent with Company policy and incurred by any such Purchaser-affiliated
director in connection with attending meetings of the Board.
7.9 Negative Covenants. So long as the Purchasers own in aggregate
------------------
at least 157,202 Shares (with appropriate adjustments for stock dividends,
splits or combinations and similar actions), the Company shall not, without the
prior consent or approval of the holders of at least 60% of the Registrable
Securities (as defined in Section 8) then outstanding:
(i) engage in any business other than the software business
and related services; or
(ii) grant any registration rights to any other holders or
prospective holders of its securities which are superior in any material way to
the registration rights under Section 8 hereof; provided, that nothing herein
shall prohibit the Company's grant of registration rights on a pari passu basis
with those granted the Purchasers; or
(iii) purchase, redeem or otherwise acquire any shares of
capital stock of the Company, other than pursuant to (a) the September 1995
Shareholders' Agreement, (b) the Certificate of Incorporation, or (c) upon the
exercise, approved by the Board (excluding the seller, if a director), of
repurchase rights with respect to shares owned by any employee, director, or
consultant of the Company; or
23
<PAGE>
(iv) amend the Certificate of Incorporation or the By-Laws in a
manner which materially and adversely affects the Preferred Stock.
7.10 Non-Competition of Certain Key Employees. Unless otherwise
----------------------------------------
determined in a particular case by the Board, the Company will use its best
efforts to cause each present and future officer or management, technical,
sales, marketing, or professional employee of the Company or any subsidiary of
the Company, including without limitation the Company's chairman of the board,
chief executive officer, president, chief operating officer, chief financial
officer, treasurer, vice president of sales and marketing, vice president (or
similar position) of research and development, and regional sales managers,
(referred to herein as "Key Employees") to enter into an agreement with the
Company containing covenants substantially similar to those contained in
Exhibit D1, subject to any modifications deemed appropriate by the Company's
- ----------
counsel to comply with local law.
7.11 Management Compensation; Options. Compensation (including
--------------------------------
salary, bonuses, fringe benefits and stock awards) paid by the Company to its
officers shall be established by the Company's Board of Directors or by a
compensation committee of the Board. Except as otherwise agreed by a majority of
the Board or of a committee of the Board, any stock options or other stock
awards to employees, officers, directors or consultants or similar persons
furnishing services to the Company will be made pursuant to the form of option
agreement attached as Exhibit G hereto.
---------
7.12 Indemnification. The Certificate of Incorporation or By-laws of
---------------
the Company shall at all times during which any affiliate of any Purchaser
serves as a member of the Board provide for limitations on the liability of the
directors and indemnification of the directors to the fullest extent permitted
under applicable law. To the extent not prohibited by law, in the event that
any Holder who is a director of the Company or any affiliate of a Holder
24
<PAGE>
who is a director of the Company shall be made or threatened to be made a party
to any action, suit or proceeding with respect to which such Holder or director
may be entitled to indemnification by the Company pursuant to this Agreement or
the By-Laws, or otherwise, all such directors, as a group, shall be entitled to
be represented in such action, suit or proceeding by one counsel of their choice
and the expenses of such representation shall be reimbursed by the Company as
provided in or authorized under this Agreement or the By-Laws or other
provision, as presently in effect (whether or not the By-Laws or other provision
is hereafter amended).
7.13 Capital Expenditures. The Company will not, without the
--------------------
approval of the Board, make any expenditures for software or software licenses
from third parties or for fixed or capital assets, or make any commitments for
such expenditures, exceeding an amount of $100,000 for any one such expenditure
or series of related expenditures.
7.14 Indebtedness. The Company will not become indebted or create,
------------
incur, assume or be liable in any manner in respect of, or suffer to exist,
without the prior approval of the Board, any new or additional long-term
indebtedness, standby letter of credit or similar loan which, for any one such
borrowing or series of related borrowings, is in excess of $100,000.
7.15 Future Financings.
-----------------
(a) Right of First Refusal. The Company grants to each
----------------------
Stockholder as defined in subsection (d) below the right of first refusal to
purchase such Stockholder's pro-rata share, as defined below, of any equity
securities of the Company, including shares of the Common Stock or securities of
any type convertible into, or entitling the holder thereof to purchase shares
of, Common Stock, proposed to be issued by the Company subsequent to the date
hereof (such securities being hereafter referred to in this Section 7.15 as the
"Securities").
25
<PAGE>
Such Stockholder's "pro-rata share" shall be that portion of the Securities
proposed to be issued which bears the same relation to all of the Securities
proposed to be issued as the shares of Common Stock held by the Stockholder bear
to all outstanding shares of the Common Stock (assuming for the purposes of such
calculation the conversion of all outstanding securities which are convertible
into Common Stock), all determined immediately prior to the offering of the
Securities.
(b) Notice. In the event that the Company proposes to
------
undertake an issue of Securities, it shall deliver to each Stockholder written
notice of its intention, describing such Securities, specifying such
Stockholder's pro-rata share and stating the purchase price and other terms upon
which it proposes to issue the same (the "Option Notice"). For a period of
20 days from the receipt of the Option Notice, each Stockholder shall have the
right to elect, by written notice to the Company, to purchase all or any portion
of such Stockholder's pro-rata share of the Securities described in the Option
Notice. In the event a Stockholder fails to exercise such Stockholder's rights
of first refusal within the specified period, or such Stockholder elects to
acquire less than such Stockholder's aggregate pro-rata shares pursuant to the
exercise of such right, then, during the 90 day period following the expiration
of such 20 day period, the Company may sell, free of any right of first refusal
on such Stockholder's part, the portion of such Stockholder's pro-rata shares
not purchased pursuant to such right of first refusal, upon the same terms
specified in the Option Notice.
(c) Exceptions. The right of first refusal granted under this
----------
Section 7.15 shall not apply to (i) the issuance of Employee Reserved Shares or
the Warrant Shares; (ii) the issuance of Series A Reserved Shares, Series B
Reserved Shares, Series C Reserved Shares, Series D Reserved Shares, Series E
Reserved Shares or Series F Reserved Shares; (iii) any Securities offered in a
registered public offering; (iv) sales of Common Stock
26
<PAGE>
to the Company's employees, directors, consultants and advisors if such issuance
has been approved by at least two-thirds of the number of directors constituting
the Company's whole Board; (v) Securities issued for non-cash consideration, or
as a so-called "equity feature" (such as a warrant) of a transaction primarily
involving debt securities or indebtedness for borrowed money, or pursuant to a
merger or acquisition transaction; and (vi) the issuance of Securities upon a
stock split or stock dividend with respect to the Company's Common Stock.
(d) Satisfaction of Existing Rights. By executing this
-------------------------------
Agreement, each of the Purchasers and the other stockholders of the Company
(other than the stockholders designated Principal Common Stockholders;
hereinafter, the "Principal Common Stockholders") whose names appear on the
signature pages below (the "Stockholders") acknowledges full satisfaction of
their respective subscription rights, if any, pursuant to any and all of the
Prior Stock Purchase Agreements to which such Stockholder is a party and hereby
waives any such rights with respect to the Shares to the extent not fully
satisfied.
7.16 Subsidiaries. As used herein, the term "Subsidiary" shall mean
------------
any corporation, association or other business entity of which securities or
other ownership interests representing more than 50% of the ordinary voting
power are at the time in question owned by the Company or any other Subsidiary.
Except as otherwise approved by the Board, which approval has been obtained as
to the Service Subsidiary, the Company shall have no Subsidiary other than a
wholly owned Subsidiary. The provisions of this Section 7 (other than
Sections 7.5 and 7.15) shall, unless the context requires otherwise, apply
equally to any Subsidiary.
7.17 Termination of Covenants. The covenants set forth in this
------------------------
Section 7 (other than those in Sections 7.1(g), 7.3, 7.10 and 7.12) shall
terminate upon the consummation of an underwritten public offering pursuant to
an effective registration statement under the Securities Act, as amended,
covering the offer and sale by the Company of common stock to the public
27
<PAGE>
which results in aggregate gross proceeds to the Company of at least $10,000,000
and an equivalent public offering price per share of Common Stock of at least
$18.00 (such amount to be appropriately adjusted in the event of stock splits,
stock combinations, stock dividends or similar recapitalizations) (a "Qualified
Offering").
8. Registration Rights.
-------------------
8.1 Certain Definitions. As used in this Section 8 and elsewhere in
-------------------
this Agreement, the following terms shall have the following respective
meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
or any similar federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Holder" shall mean any Stockholder as defined in Section 7.15(d) so long
------
as such Stockholder holds at least 25% of the Shares purchased by such
Stockholder (including for purposes of such computation shares purchased
pursuant to any of the Prior Stock Purchase Agreements and the Warrant Shares)
and any transferee of such Stockholder so long as such transferee holds at least
1% of the outstanding capital stock of the Company and provided such transferee
agrees in writing with the Company to hold such stock subject to all the
restrictions of this Agreement.
"Registrable Securities" shall mean (i) the shares of Common Stock issued
----------------------
or issuable upon conversion of the Shares or the shares of Preferred Stock
purchased pursuant to any of the Prior Stock Purchase Agreements or the Warrant
Shares, in each case as provided in the Certificate of Incorporation, as
hereafter amended, and (ii) any securities issued as a dividend
28
<PAGE>
or other distribution with respect to, or in exchange or in replacement of, the
securities referred to in subsection (i).
"Registration Expenses" shall mean all expenses (except for "Selling
---------------------
Expenses" as defined below) incurred by the Company in complying with
Sections 8.2 or 8.3 of this Agreement, including, without limitation, all
registration and filing fees, printing expenses, reasonable fees and
disbursements of counsel for the Company and, subject to 8.4, in the case of a
registration referred to in subsection 8.2(a) or Section 8.3, the reasonable
fees and disbursements of one counsel for the selling shareholders.
The terms "register", "registered" and "registration" shall refer to a
-------- ---------- ------------
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such Registration Statement.
"Registration Statement" shall mean a registration statement on Form S-1 or
----------------------
Form S-3 filed by the Company with the Commission for a public offering and sale
of securities of the Company.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"Selling Expenses" shall mean all underwriting discounts and selling
----------------
commissions applicable to the sale of Shares pursuant to Sections 8.2 or 8.3 and
all fees and disbursements of counsel for the Holders not included in
Registration Expenses.
8.2 Required Registrations.
----------------------
(a) If at any time at least six months after the effective
date of its initial public offering (the "Initial Public Offering") and prior to
five years following such effective date, the Company shall be requested in
writing by the Holder(s) of at least 50% of the
29
<PAGE>
outstanding shares of Registrable Securities to effect the registration under
the Securities Act of outstanding shares of Registrable Securities having an
anticipated selling price of no less than $2,000,000, the Company shall promptly
give written notice of such proposed registration to all record Holders of
Registrable Securities. Such Holders shall have the right, by giving written
notice to the Company within 30 days from receipt of the Company's notice, to
elect to have included in such registration such of their Registrable Securities
as such Holders may request in such notice of election. Thereupon, the Company
shall, as expeditiously as practicable, use its best efforts to effect the
registration, on a form of general use under the Securities Act, of all shares
of Registrable Securities which the Company has been requested to register. The
Company shall not be obligated to cause to become effective more than two
registration statements pursuant to which Registrable Securities are sold under
this Section 8.2(a).
Notwithstanding the foregoing, if the Company shall furnish to the
Holders of Registrable Securities requesting registration pursuant to this
Section 8.2(a) a certificate signed by the President of the Company stating that
the Board has made the good faith judgment that it would be detrimental to the
Company and its shareholders for such registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to file and
cause to become effective such registration statement may be deferred for a
period which shall not exceed 180 days. This deferral right may not be
exercised by the Company on more than one occasion for each registration
pursuant to this Section 8.2(a).
(b) At such time as the Company shall have qualified for the use of
Form S-3 (but in no event after the expiration of five years from the effective
date of the Initial Public Offering), as the case may be (or any similar form or
forms promulgated by the Commission), the Holders of Registrable Securities
shall each have the right to request an unlimited number of registrations on
Form S-3 or such similar form, as the case may be
30
<PAGE>
(collectively, "Form S-3"). The Company shall give prompt written notice of each
such proposed registration to all other record Holders of Registrable
Securities. Such Holders shall have the right, by giving written notice to the
Company within 30 days from receipt of the Company's notice, to elect to have
included in such registration such of their Registrable Securities as such
Holders may request in such notice of election. Thereupon, the Company shall, as
expeditiously as practicable, use its best efforts to effect the registration,
on Form S-3, of all shares of Registrable Securities which the Company has been
requested to register; provided, however, that the Company shall not be
obligated to file and cause to become effective (i) more than one registration
under Section 8.2(a) or Section 8.2(b) in any one twelve-month period or (ii)
any Registration Statement on Form S-3 where the proposed aggregate offering
price of the Registrable Securities to be sold thereunder is less than
$1,000,000. Registrations effected pursuant to this Section 8.2(b) shall not be
counted as required registrations pursuant to Section 8.2(a) hereof.
(c) The Company may include in a registration requested under this
Section 8.2 (i) any authorized but unissued shares of Common Stock for sale by
the Company, and (ii) any shares of its Common Stock held by employees,
consultants, directors or other advisers of the Company and with respect to
which registration rights have been granted by the Company ("Management Stock");
provided, however, that such shares shall not be included to the extent that the
underwriter of the shares so proposed to be registered (if the offering is
underwritten) or, if the offering is not underwritten, the Holders of a majority
of the shares of Registrable Securities included therein determine in good faith
that the inclusion of such shares will interfere with the successful marketing
of the shares of Registrable Securities to be included therein. If the offering
to which a registration statement under this Section 8.2 relates is an
underwritten offering, and if, after all shares of Common Stock proposed to be
offered by the
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Company and all such shares of Management Stock have been excluded from such
registration, a greater number of shares of Registrable Securities is offered
for participation in such underwriting than in the opinion of the managing
underwriter can be accommodated without adversely affecting the underwriting,
the amount of Registrable Securities proposed to be offered in the underwriting
shall be reduced, pro-rata (based upon the amount of Registrable Securities
owned) among all Holders participating in such registration, to a number deemed
satisfactory by the managing underwriter; provided, however, that for purposes
of making any such reduction, with respect to each Purchaser, the partners and
retired partners of such Purchaser, the estates and family members of any such
partners and retired partners and their spouses, and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "Holder" of
Registrable Securities, and any pro-rata reduction with respect to such "Holder"
shall be based upon the aggregate amount of shares of Registrable Securities
owned by all entities and individuals included in such "Holder", as defined in
this provision.
8.3 Incidental Registrations.
------------------------
(a) If at any time or from time to time (but prior to the
expiration of five years from the effective date of the Initial Public Offering)
the Company shall determine to register any of its Common Stock, for its own
account or for the account of any of its shareholders (other than the Holders),
other than a registration relating solely to employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction or any Rule
adopted by the Commission in substitution therefor or in amendment thereto, or a
registration on any registration form which does not include substantially the
same information as would be required to be included in a Registration Statement
covering the sale of Registrable Securities, or a registration relating to an
Initial Public Offering for which the Company has filed a Registration Statement
by January 31, 1998, the Company will:
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(i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable Blue Sky or other state
securities laws); and
(ii) include in such registration (and any related qualification
under Blue Sky laws or other compliance), and in any underwriting involved
therein, all of the Registrable Securities and Management Stock specified in a
written request or requests received by the Company within twenty (20) days
after the giving of such written notice by the Company, by any Holder or
Holders, subject to the limitations set forth in Section 8.3(b).
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwritten public offering, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 8.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 8.3 shall be conditioned upon such
Holder's participation in such underwritten public offering and the inclusion of
such Holder's Registrable Securities in the underwritten public offering to the
extent provided herein. All Holders proposing to distribute their securities
through such underwritten public offering shall (together with the Company and
the other Holders distributing their securities through such underwritten public
offering) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwritten public offering by
the Company. Notwithstanding any other provision of this Section 8.3, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, all shares to be sold by the Company shall be
included in such offering before any Registrable Securities are so included, and
further, the underwriter otherwise may limit the number of Registrable
Securities to be included in the registration and underwritten public offering.
The Company shall so advise all Holders (except those Holders who have not
elected to distribute any of their
33
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Registrable Securities through such underwritten public offering), and the
number of shares of Registrable Securities and shares of Management Stock that
may be included in the registration and underwritten public offering shall be
allocated among such Holders and holders of Management Stock in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities and
shares of Management Stock owned by such Holders and holders of Management Stock
at the time of filing the Registration Statement. No Registrable Securities or
shares of Management Stock excluded from the underwritten public offering by
reason of the underwriter's marketing limitation shall be included in such
registration. If the terms of any such underwritten public offering differ
materially from the terms (including range of offering price) previously
communicated to any Holder, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter, which notice, to be
effective, must be received by the Company at least two (2) business days before
the anticipated effective date of the Registration Statement. The Registrable
Securities and/or other securities so withdrawn from such underwritten public
offering shall also be withdrawn from such registration; provided, however, that
if by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other selling Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters)
then the Company shall include in such registration in place of such withdrawn
Registrable Securities such additional Registrable Securities held by other
selling Holders whose Registrable Securities were excluded pursuant to
limitation by the underwriter pursuant to this Section 8.3(b) in the same
proportion as such Registrable Securities were excluded pursuant to such
underwriter limitation (with no more Registrable Securities being so included
than were withdrawn). In the event that the contemplated sale does not involve
an underwritten public offering and a determination that the inclusion of the
Registrable Securities adversely affects the marketing of the shares shall be
made
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by the Board of Directors of the Company in its good faith discretion, then no
Registrable Securities are required hereby to be included in the contemplated
sale.
(c) The Company may at any time withdraw or abandon any Registration
Statement which triggers the provisions of this Section 8.3 without any
liability to the Holders.
8.4 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification and compliance pursuant to
subsection 8.2(b) and Section 8.3 and the first registration, qualification and
compliance pursuant to subsection 8.2(a) shall be borne by the Company. All
Selling Expenses incurred in connection with any such registration and the
Registration Expenses incurred in connection with the second registration,
qualification and compliance pursuant to subsection 8.2 (a) shall be borne by
the selling Holders on a pro rata basis. If, notwithstanding this Agreement,
applicable authorities in any state wherein Registrable Securities are to be
sold require an allocation of Registration Expenses, each Holder agrees to pay
its apportioned share thereof.
8.5 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities, and use its best efforts
in good faith to cause such Registration Statement to become and remain
effective as provided herein;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus included in such
Registration Statement as may be necessary or advisable to comply in all
material respects with the provisions
35
<PAGE>
of the Securities Act with respect to the disposition of all securities covered
by such Registration Statement or as may be necessary to keep such Registration
Statement effective and current, but for no longer than nine (9) months
subsequent to the effective date of such registration;
(c) furnish to each seller of Registrable Securities such number of
copies of such Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary prospectus), and such other
documents as any such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities held by such seller;
(d) enter into such customary agreements and take all such other
action in connection therewith as any Holder may reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities;
(e) use its best efforts in good faith to register and qualify the
Registrable Securities covered by such Registration Statement under such
securities or Blue Sky laws of such jurisdictions as any selling Holder on
behalf of itself or any other selling Holder shall reasonably request and do any
and all such other acts and things as may be reasonably necessary or advisable
to enable such selling Holder to consummate the disposition in such
jurisdictions of the Registrable Securities held by such selling Holder;
provided, however that the Company shall not be required in connection therewith
to qualify to do business or file a general consent to service of process in any
such jurisdiction; and
(f) furnish to each prospective selling Holder a signed counterpart,
addressed to the prospective selling Holders, of (i) an opinion of counsel for
the Company, dated the effective date of the Registration Statement, and, to the
extent available to selling stockholders from the independent auditors of the
Company, (ii) a "comfort" letter signed by the independent public accountants
who have certified the Company's financial statements included
36
<PAGE>
in the Registration Statement, covering substantially the same matters with
respect to the Registration Statement (and the prospectus included therein) and
(in the case of the "comfort" letter) with respect to events subsequent to the
date of the financial statements, as are customarily covered (at the time of
such registration) in opinions of issuer's counsel and in "comfort" letters
delivered to the underwriters in underwritten public offerings of securities;
provided, that the requirements of this paragraph (f) shall apply only to
Holders which are including at least 50,000 shares (such number to be
appropriately adjusted in the event of stock splits, stock combinations, stock
dividends or similar recapitalizations) of Registrable Securities in such
registration.
Notwithstanding the foregoing provisions of this Section 8.5, (1) the
Holders of Registrable Securities included in any Registration Statement will
not (until further notice) effect sales thereof after receipt of telegraphic or
written notice from the Company to suspend sales to permit the Company to
correct or update such Registration Statement or prospectus; but the obligations
of the Company with respect to maintaining any Registration Statement current
and effective shall be extended by a period of days equal to the period such
suspension is in effect; and (2) at the end of any period during which the
Company is obligated to keep any Registration Statement current and effective as
provided by this Section 8.5 (and any extensions thereof required by the
preceding paragraph (1) of this Section 8.5), the Holders of Registrable
Securities included in such Registration Statement shall discontinue sales of
shares pursuant to such Registration Statement upon notice from the Company of
its intention to remove from registration the shares covered by such
Registration Statement which remain unsold, and such Holders shall notify the
Company of the number of shares registered which remain unsold promptly after
receipt of such notice from the Company.
8.6 Indemnification.
---------------
37
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(a) The Company will indemnify each Holder, each of the officers,
directors and partners of such Holder, and each person controlling such Holder,
if Registrable Securities held by such Holder are included in the securities
with respect to which registration, qualification or compliance has been
effected pursuant to this Agreement, and each underwriter of such Registrable
Securities, if any, and each person who controls such underwriter, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other similar
document (including any related Registration Statement, notification or the
like) incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made, or (ii) any
violation by the Company of any federal, state or common law rule or regulation
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse such Holder, each of the officers, directors and partners of
such Holder, and each person controlling such Holder, such underwriter and each
person who controls such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable to a Holder or underwriter in any such case to the extent that such
claim, loss, damage, liability or expense arises out of or is based on (i) any
untrue statement or omission made in reliance upon and in conformance with
written information furnished to the Company by or on behalf of such Holder or
underwriter and which was furnished specifically for the purpose of being used
therein or (ii) a failure by any Holder to
38
<PAGE>
deliver a final prospectus to its transferee if any material change has been
made to the preliminary prospectus.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
registration, qualification or compliance, each person who controls the Company
or such underwriter within the meaning of the Securities Act, and each other
Holder, each of the officers, directors and partners of each such other Holder
and each person controlling such other Holder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such Registration Statement, prospectus, offering circular or
other similar document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, and will reimburse the Company, such other Holders, such directors,
officers, partners, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such Registration
Statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such Holder and which was furnished specifically for the purpose of being
used therein; provided, however, that the liability of such Holder under this
Section 8.6 shall be limited to an amount equal to the proceeds to such Holder
of Registrable Securities sold as contemplated herein.
39
<PAGE>
(c) Each party entitled to indemnification under this Section 8.6
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party, at such party's expense, to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (except for the payment of fees, costs and
expenses provided for below), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
to give notice shall materially adversely affect the Indemnifying Party in the
defense of any such claim or any such litigation. No Indemnifying Party, in the
defense of any such claim or litigation shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Notwithstanding the election of the
Indemnifying Party to assume the defense of any such claim or litigation, the
Indemnified Party shall have the right to employ separate counsel and to
participate in the defense of such claim or litigation, and the Indemnifying
Party shall bear the reasonable fees, costs and expenses of such separate
counsel if (i) the use of the counsel chosen by the Indemnifying Party to
represent the Indemnified Party would present such counsel with a conflict of
interest; (ii) the defendants in, or targets of, any such claim or litigation
include both the Indemnified Party and the Indemnifying Party and the
Indemnified Party shall have reasonably concluded that there may be legal
defenses available to
40
<PAGE>
it or to other Indemnified Parties which are different from or additional to
those available to the Indemnifying Party (in which case the Indemnifying Party
shall not have the right to direct the defense of such action on behalf of the
Indemnified Party); (iii) in the exercise of the Indemnified Party's reasonable
judgment, the Indemnifying Party shall not have employed satisfactory counsel to
represent the Indemnified Party within a reasonable time after notice of the
institution of such claim or litigation; or (iv) the Indemnifying Party shall
authorize the Indemnified Party to employ separate counsel at the expense of the
Indemnifying Party. The Indemnified Party shall not settle any such claim or
litigation without the consent of the Indemnifying Party.
(d) Notwithstanding the foregoing provisions of this Section 8.6, if
a registration is subject to a firm commitment underwriting, neither the Company
nor a Holder including Registrable Securities in the registration shall be
required to indemnify any other party to a greater extent than the obligation of
the Company or such Holder to the underwriters pursuant to the underwriting
agreement pertaining to such registration.
8.7 Information by Holder. The Holder or Holders of Registrable Securities
included in any registration shall furnish to the Company in writing such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Agreement.
8.8 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Company's capital stock to the public without registration, at all
times after 90 days after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public, the Company agrees to:
41
<PAGE>
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of such Rule
144 and of the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed by the Company as a Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing that Holder to sell any such
securities without registration.
8.9 Market "Stand-off" Agreement. The Holders, if requested by the Company
and an underwriter of the Company's securities, shall agree not to sell or
otherwise transfer or dispose of any common stock (or other securities) of the
Company (other than securities of the Company acquired in the open market on or
after a public offering) held by Holders during the 180-day period following the
effective date of the first Registration Statement and the 30-day periods
following the effective date of the second and third Registration Statements of
the Company filed under the Securities Act; provided, that such 30-day periods
shall only apply to a Registration Statement filed with respect to an
underwritten public offering by the Company; and provided, further, that all
Holders holding more than two percent of the outstanding common stock and all
officers and directors of the Company enter into similar agreements. Such
agreement shall be in writing in form satisfactory to the Company and such
underwriter. The Company may impose stop-transfer instructions with respect to
the shares (or
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<PAGE>
securities) subject to the foregoing restriction until the end of such 180-day
or 30-day periods. With respect to any Registration Statement, the Company
9. Transfer of Shares.
------------------
9.1 Procedures. Transfer of the Shares issued pursuant to this
----------
Agreement shall be made only on the books of the Company, respectively, by the
holders of record thereof or by their legal representatives who shall furnish
proper evidence of authority to transfer, or by their attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
the Company, subject to the restrictions, if any, set forth in the By-Laws and
Section 9.2 hereof. The Holder in whose name the Shares stands on the books of
the Company shall be deemed by the Company to be owner thereof for all purposes.
9.2 Restrictive Legends. Each certificate evidencing Shares issued
-------------------
or sold under this Agreement shall contain or otherwise be imprinted with
suitable legends in substantially the following form:
"This security has not been registered under the Securities Act of 1933 or
any state securities act, and has been acquired for investment and not with
view to, or for sale in connection with, any distribution thereof within
the meaning of the Securities Act of 1933, as amended.
This security is subject to transfer restrictions contained in a certain
Stock Purchase Agreement dated as of February 15, 1996, and no transfer of
the security shall be made unless the conditions specified in said
Agreement have been fulfilled. A copy of said Agreement is on file and
available for inspection at the principal offices of the Company."
The Company is hereby authorized to place "stop transfer" instructions on
its records or to instruct any transfer agent to prevent the transfer of Shares
except in conformity with this Agreement.
9.3 Securities Law Compliance. No Holder shall transfer any Shares
-------------------------
until such Holder has first given written notice to the Company describing
briefly the manner of any
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such proposed transfer and until (i) the Company has received from the Holder's
counsel an opinion (reasonably satisfactory in form and substance to the
Company's counsel) that such transfer can be made without compliance with the
registration provisions of the Securities Act or any state securities act and
without the necessity of perfection of an exemption pursuant to Regulation A
adopted pursuant to said Securities Act; or (ii) the Company and the Holder
shall have complied with Commission Rule 144 and applicable state securities act
requirements, or (iii) a registration statement filed by the Company is declared
effective by the Commission and governing state securities act authorities or
steps necessary to perfect exemptions from such registration are completed.
10. Election of Directors; Board Attendance Rights. The Company, the
----------------------------------------------
Purchasers, McCall and the other Principal Common Stockholders hereby agree as
follows. The Purchasers, McCall and the Principal Common Stockholders are
sometimes collectively referred to in this Section 10 as the "Parties".
Each of the Parties agrees to use such Party's best efforts (including
without limitation the voting of a sufficient number of shares of capital stock
of the Company, if any, held by such Party) to cause McCall and three other
persons designated from time to time by McCall, one person designated from time
to time by Greylock and one person designated from time to time by Sutter Hill
to be elected to serve on the Company's board of directors (the "Board") at all
times from the date of this Agreement until the provisions of this Section 10
terminate as provided below. Until further notice from Greylock or Sutter Hill,
it is understood and agreed that the person so designated by Greylock is William
S. Kaiser and the person so designated by Sutter Hill is Tench Coxe.
The Parties also agree that Chase, Spitfire, Hancock, Wakefield, Technology
Crossover and Noro-Moseley each may designate from time to time one person (who
is reasonably
44
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acceptable to a majority of the members of the Board) who shall be entitled to
notice of each meeting of the Board and to attend each such meeting. The Company
will furnish such persons with all materials furnished to members of the Board
and will reimburse their expenses of attendance at meetings of the Board to the
extent that it so reimburses the representatives of Greylock and Sutter Hill in
connection with their attendance. Until further notice from Chase, Spitfire,
Hancock, Wakefield, Technology Crossover or Noro-Moseley, as the case may be, it
is understood and agreed that the person so designated by Chase is Robert
Greene, the person so designated by Spitfire is Derek Lemke-von Ammon, the
person so designated by Hancock is Ofer Nemirovsky, the person so designated by
Wakefield is Thomas C. Nelson, the person so designated by Technology Crossover
is Jay C. Hoag (or his designee) and the person so designated by Noro-Moseley is
Charles A. Johnson.
Each of McCall and the Principal Common Stockholders further agrees as
follows: (a) to take no action, as stockholder or otherwise, to cause the number
of members of the Board to exceed seven (7) or to cause the Company to be
managed by an executive or similar committee of the Board without the consent of
Greylock and Sutter Hill; and (b) to use such Party's best efforts to cause
meetings of the Board to be held no less often than quarterly (it being
contemplated that initially such meetings will be held monthly).
To the extent that this Section 10 is inconsistent with any other agreement
to which a Party is subject, the provisions of this Section 10 shall govern as
to that Party.
The provisions of this Section 10 shall terminate on the earlier to occur
of (i) the completion of a Qualified Offering, or (ii) September 14, 2003.
Each Party agrees not to transfer any shares of capital stock of the
Company other than to the Company unless such Party's transferee agrees in
writing to be bound by the provisions of this Section 10 applicable to such
Party.
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11. Certain Agreements of McCall and Tech Ventures.
----------------------------------------------
11.1 Commitment to the Company. So long as McCall is employed by the
-------------------------
Company, McCall agrees to devote a major portion of his time which is spent on
work or other business related activities to activities which are for the
account of the Company. For purposes of this Section 11.1, activities relating
to McCall Consulting Group, Inc. ("McCall Consulting"), Tech Ventures, the
Service Subsidiary and any other subsidiary of the Company shall be deemed "for
the account of the Company" if they are in furtherance of the operations of the
Company.
11.2 Stipulated Activities. McCall shall, within 10 days of the
---------------------
occurrence thereof, provide the Board with a list and description of each
Stipulated Activity (as hereinafter defined) in which McCall is engaged or
otherwise involved which has commenced, expired or been modified since McCall
delivered the last such list and description to the Board. As used herein, the
term "Stipulated Activity" shall mean any of the following as to McCall:
(a) being the beneficial owner of (i) more than 5% of the
outstanding equity securities of any entity other than the
Company or (ii) securities (including debt securities and
guarantees of indebtedness, but excluding securities traded
on a national securities exchange or in the over-the-counter
market and securities issued by money market or similar
funds) of any entity other than the Company with an original
cost, fair market value and/or obligation on the part of
McCall, contingent or otherwise (even if the obligation is
evidenced by non-recourse debt or guaranty), in excess of
$100,000; or
(b) being an employee, officer, director, consultant or general
partner of any person other than the Company (other than
charitable, civic or similar positions).
For purposes of determining Stipulated Activities, any actions taken
by the spouse or children or any entities controlled by McCall will be imputed
to be activities engaged in by
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McCall. McCall hereby represents (a) that, except for his ownership interest in,
and for spending portions of his work or other business related activities for
the account of, McCall Consulting, and McCall Asset Leasing, Inc. ("McCall
Leasing"), Tech Ventures, the Service Subsidiary and any other subsidiary of the
Company, McCall is not presently engaged in, or contemplating the imminent
engagement in, any Stipulated Activity and (b) that McCall Leasing is a
corporation wholly owned by McCall, that McCall Consulting is a corporation
wholly owned by Tech Ventures, and that Tech Ventures is a limited liability
company of which McCall is the majority owner and of which employees of Tech
Ventures or its subsidiaries own the balance of the membership interest.
11.3 Right of Co-Sale. Each of McCall and Tech Ventures agrees that
----------------
he or it (and their respective donees, transferees or assignees referred to in
the last sentence of this Section 11.3) will not, prior to the date specified in
Section 11.4 for the expiration of these covenants, sell, or agree to sell, for
value any shares of the Company's capital stock owned by him or it either
jointly or individually to any third party (except for such sales or agreements
during the twelve-month period immediately following the date of this Agreement,
and each twelve-month period thereafter, of not more than 5% of the number of
shares of capital stock owned by McCall or Tech Ventures, as the case may be, on
the date of this Agreement, the unused portion of which shall be usable in later
periods, and except that McCall may, in addition to the number of shares so
determined on the basis of 5% per annum, sell or agree to sell up to an
aggregate of 23.50% of the number of such shares owned by McCall on the date of
this Agreement, all such computations to be on an as-converted to Common Stock
basis in the case of capital stock which is not Common Stock) without first
giving written notice in reasonable detail to each Purchaser at least 20 days
prior to such sale or agreement to sell and affording each Purchaser the
opportunity to elect, within 20 days of such notice, to participate in such
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sale, or agreement to sell, on a pro rata basis and on the same terms and
conditions as those applicable to McCall and Tech Ventures.
For purposes of this Section 11.3, the term "pro rata basis" shall
mean that each Purchaser shall in the aggregate, be entitled to participate in
such sale or agreement to sell in the proportion that the number of the shares
of Common Stock issued or issuable upon conversion of the shares of Series A,
Series B, Series C, Series D or Series E Preferred Stock or Warrant Shares and
any securities issued as a dividend or other distribution with respect to, or in
exchange or in replacement thereof (the "Purchaser Shares") then held by such
Purchaser bears to the sum of such number of the Purchaser Shares, all other
Purchaser Shares held by other Purchasers and the number of shares of Common
Stock then owned (either jointly or individually) by McCall or Tech Ventures, or
both of them (in the case of a sale participated in by each of McCall and Tech
Ventures), or issuable upon conversion of other shares of the Company's capital
stock so owned by McCall or Tech Ventures.
Each of McCall and Tech Ventures agrees that conspicuous reference to
the provisions of this Section 11.3 shall be made on all certificates evidencing
shares of Common Stock owned by McCall or Tech Ventures, either jointly or
individually, and that he or it will make no transfer, gift or other assignment
of such shares unless the transferee, donee or assignee agrees in writing with
the Purchasers to be bound by the provisions of this Section 11.3 as if it were
McCall or Tech Ventures, as the case may be. Nothing contained in this Section
11.3 shall alter any restrictions on the transfer of shares of Common Stock held
by McCall or Tech Ventures created or imposed by any provisions contained in any
other agreement.
Notwithstanding anything to the contrary set forth in this Section
11.3, the rights of the Purchasers provided for in this Section 11.3 shall not
apply to sales or other dispositions by McCall to (i) a member of McCall's
immediate family, including for this purpose his spouse,
48
<PAGE>
parents, parents-in-law, issue, nephews, nieces, brothers, brothers-in-law,
sisters, sisters-in-law, children-in-law and grandchildren-in-law; (ii) a trust
or partnership set up for the benefit of one or more of the persons set forth in
(i); or (iii) an heir, legatee or legal representative of McCall; provided,
however, that any such person referred to in clause (i), (ii) or (iii) shall
agree in writing prior to the transfer that such person is acquiring such shares
subject to the provisions of this Section 11.3. Such sales or other dispositions
shall not be included for purposes of calculating the percentage exemption
during the twelve-month periods provided for above in this Section 11.3.
11.4 Term. The provisions of Sections 11.1 and 11.2 shall continue in
----
effect until the earlier of (a) termination of the employment of McCall with the
Company or (b) cessation by the Purchasers to own in the aggregate at least 50%
of the Shares purchased by them on the date hereof. The Purchasers agree
promptly to notify McCall, c/o the Company, if the event specified in (b) of the
preceding sentence occurs. The provisions of Section 11.3 shall continue in
effect until the earliest to occur of (i) a Qualified Offering, as defined in
Section 7.17 of this Agreement, (ii) the involuntary termination without cause
of the employment of McCall with the Company; or (iii) the sale or other
transfer by the Purchasers (other than a sale or transfer to an affiliated
entity) of more than 50% of the Shares purchased in the aggregate pursuant to
this Agreement.
12. Modification of the Series B, Series C, Series D, and Series E
--------------------------------------------------------------
Agreements. By executing this Agreement, (a) the Company and the Stockholders
- ----------
(with the exception of Chase and Spitfire , hereby agree that Sections 7.1
through 7.17, 8.1 through 8.9, 10 and 11 of each of the Prior Stock Purchase
Agreements to which they are parties (other than the Greylock Agreement, as to
which such Sections have been terminated) are superseded respectively by
Sections 7.1 through 7.17, 8.1 through 8.9, 10 and 11 of this Agreement,
provided that, for
49
<PAGE>
purposes of these Sections, the term "Purchaser" shall include any "Purchaser"
as defined in any of the Prior Stock Purchase Agreements, as well as any
"Purchaser" as defined in this Agreement, and (b) the Principal Common
Stockholders consent to the amendment of Sections 10 and 11 of each of the Prior
Stock Purchase Agreements (other than the Greylock Agreement, as to which such
Section 10 and 11 have been terminated) to read as provided in Sections 10 and
11 of this Agreement.
13. Miscellaneous.
-------------
13.1 Costs and Expenses. In connection with this Agreement and the
------------------
transactions described herein, the Company agrees to pay the fees and costs of
Hill & Barlow, a Professional Corporation, special counsel to the Purchasers
with respect to this transaction.
13.2 Successors and Assigns. All covenants and agreements contained
----------------------
in this Agreement made by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of such
parties, except as otherwise provided in Sections 7.1 and 8.
13.3 Governing Law. The internal laws of the State of Delaware
-------------
(regardless of conflict of laws principles) shall govern all issues concerning
the construction, validity and interpretation of this Agreement.
13.4 Survival. The representations and warranties of the Company
--------
contained in Section 3 of this Agreement shall survive the Closing for a period
of one year, and thereafter no action, suit or claim shall be brought by any
Purchaser alleging any misrepresentation or untruthfulness based upon the
subject matter of such representations or warranties, and any such action, suit
or claim shall be forever barred; provided, however, that any action based upon
-------- -------
fraud shall not be barred and may be brought notwithstanding the provisions of
this Section. The Purchasers agree that action against McCall under the
certificate attached as Exhibit F shall
50
<PAGE>
be the sole recourse of the Purchasers against McCall for matters relating
to their purchase of Shares (including, without limitation, claims under the
federal or state securities laws or antifraud statutes or common law).
13.5 Entire Agreement; Amendment. This Agreement and the other
---------------------------
documents delivered pursuant hereto or contemplated hereby constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated except by a written instrument signed
(a) in the case of an amendment, waiver, discharge or termination (a
"Modification") to Section 10, by McCall and the holders of at least 75% of the
outstanding shares of capital stock of the Company held in aggregate by the
Stockholders as defined in Section 7.15(d); (b) in the case of a Modification to
Section 11, by McCall and holders of at least 75% of the Shares; and (c) in the
case of a Modification not governed by subsection 13.5(a) or 13.5(b) above, by
the Company and the holders of at least 75% of the Shares.
13.6 Notices, etc.. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be made by hand delivery,
first-class mail (registered or certified, return receipt requested),
telecopier, or overnight air courier guaranteeing next day delivery, addressed
as follows: (a) if to a Purchaser, at such Purchaser's address shown on Schedule
A hereto, with a copy to Thomas C. Chase, Esq., Hill & Barlow, a Professional
Corporation, One International Place, Boston, Massachusetts 02110, (b) if to any
other Holder, at such address as such Holder shall have furnished to the Company
in writing, or, until any such Holder so furnishes an address to the Company,
then to and at the address of the last Holder of such Shares who has so
furnished an address to the Company, and (c) if to the Company, at SQL
Financials International, Inc., 3950 Johns Creek Court, Suwannee, Georgia 30024,
Attention: President, with a copy to G. Donald Johnson, Esq., , Womble Carlyle
51
<PAGE>
Sandridge & Rice, a Professional Limited Liability Company Suite 700, 1275
Peachtree Street, N.E., Atlanta, Georgia 30309, or to such other address as the
party receiving such notice shall have properly designated to the other party
hereto in writing. Each such notice shall be deemed given at the time delivered
by hand, if personally delivered; five business days after being deposited in
the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied;
and the next business day after timely delivery to the courier, if sent by
overnight air courier guaranteeing next day delivery.
13.7 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any holder of the Shares upon any breach or default
of the Company under this Agreement, shall impair any such right, power or
remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereunder occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. All remedies, either under this Agreement, or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.
13.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, some of which may have signature pages differing as to form, each
of which shall be enforceable against the parties actually executing such
counterparts and all of which together shall constitute one instrument.
13.9 Severability. If any provision of this Agreement, or its
------------
application to any person or circumstances, is invalid or unenforceable, then
the remainder of this Agreement or the application of such provision to other
persons or circumstances, shall not be affected thereby. Further, if any
provision or application hereof is invalid or unenforceable then a suitable and
52
<PAGE>
equitable provision shall be substituted therefor in order to carry out so far
as may be valid or enforceable the intent and purposes of the invalid and
unenforceable provision.
13.10 Captions. Captions and headings used herein are for
--------
convenience of reference only and shall not limit or control the meaning of any
provisions hereof.
53
<PAGE>
The foregoing Agreement is hereby executed under seal as of the date first
above written.
SQL FINANCIALS INTERNATIONAL, INC.
By: /s/ Stephen P. Jeffery
--------------------------------------------------
President
Purchasers:
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners, its General Partner
By: /s/
---------------------------------------------
General Partner
SPITFIRE CAPITAL PARTNERS, L.P.
By: MS Spitfire LLC,
Its General Partner
By: /s/ Derek Lemke-von Ammon
----------------------------------------------
Derek Lemke-von Ammon,
Chairman
GREYLOCK LIMITED PARTNERSHIP
By: /s/ William S. Kaiser
---------------------------------------------
General Partner
SUTTER HILL VENTURES, a CALIFORNIA
LIMITED PARTNERSHIP
By: /s/ Tench Coxe
---------------------------------------------
General Partner
54
<PAGE>
SUTTER HILL ASSOCIATES, L.P.
By: /s/ Tench Coxe
----------------------------------------------
General Partner
GENSTAR INVESTMENT CORPORATION
By: /s/
----------------------------------------------
Its
HIGHLAND CAPITAL PARTNERS II
LIMITED PARTNERSHIP
By: /s/
----------------------------------------------
General Partner
HANCOCK VENTURE PARTNERS IV -
DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
By: /s/
---------------------------------------------
Authorized Officer
FALCON VENTURES II L.P.
By: Back Bay Partners XIII L.P.
By: Hancock Venture Partners, Inc.
By: /s/
---------------------------------------------
Authorized Officer
55
<PAGE>
WAKEFIELD GROUP LIMITED
PARTNERSHIP
By: Thomas C. Nelson, Inc., General Partner
By: /s/ Thomas C. Nelson
----------------------------------------------
Thomas C. Nelson, President
TECHNOLOGY CROSSOVER VENTURES,
C.V.
By: Technology Crossover Management, L.L.C.,
Investment General Partner
By: /s/ Robert C. Bensky
---------------------------------------------
Name:
Title:
TECHNOLOGY CROSSOVER VENTURES,
L.P.
By: Technology Crossover Management, L.L.C.,
General Partner
By: /s/ Robert C. Bensky
---------------------------------------------
Name:
Title:
NORO-MOSELEY PARTNERS III, L.P.
By: Moseley & Company III, L.L.C.,
General Partner
By: /s/
----------------------------------------------
Member
56
<PAGE>
The undersigned Principal Common Stockholders (a) hereby join in the
foregoing Stock Purchase Agreement for the purposes of Sections 10, 11 (in the
case of Joseph S. McCall), 11.3 and 11.4 (in the case of the Principal Common
Stockholders other than Joseph S. McCall) and clause (b) of Section 12 thereof
and (b) being parties to the certain Amended and Restated Shareholders' Voting
Agreement, dated as of September 1, 1995, (the "Shareholders' Voting
Agreement") and the certain Restated Shareholders' Agreement, dated as of
September 1, 1995, as amended as of January 1, 1997, (the "September 1995
Shareholders' Agreement"), hereby agree that, to the extent of any conflict or
inconsistency between the terms of the Shareholders' Voting Agreement or
September 1995 Shareholders' Voting Agreement and the foregoing Stock Purchase
Agreement or any Prior Stock Purchase Agreement (as defined in Section 3.4 of
the foregoing Stock Purchase Agreement), those of the Stock Purchase Agreement
or such Prior Stock Purchase Agreement, as the case may be, shall govern:
/s/ Joseph S. McCall
-----------------------------------------
Joseph S. McCall
/s/ Donald L. House, Sr.
-----------------------------------------
Donald L. House, Sr.
/s/ David M. Funderburke
-----------------------------------------
David M. Funderburke
/s/ Scott J. Brady
-----------------------------------------
Scott J. Brady
/s/ Arthur G. Walsh, Jr.
-----------------------------------------
Arthur G. Walsh, Jr.
TECHNOLOGY VENTURES, L.L.C.
By /s/ Joseph S. McCall
-----------------------------------------
Its
57
<PAGE>
The undersigned Stockholders hereby join in the foregoing Stock Purchase
Agreement for the purposes of Sections 7.15, 8.1 through 8.9, 10, 11 and 12
thereof:
WELLS FARGO BANK, TRUSTEE FOR
SHV M/P/T FBO DAVID L. ANDERSON
By: /s/
----------------------------------------------
SAUNDERS HOLDINGS, L.P.
By: /s/ Sherryl W. Hossack
----------------------------------------------
Under Power of Attorney for G. Leonard
Baker, General Partner
/s/ Sherryl W. Hossack
-------------------------------------------------
Under Power of Attorney for Thomas H. Layton
STANFORD UNIVERSITY
By: /s/ Carol Gilmer
-----------------------------------------------
Assistant Secretary of the Board of Trustees
of the Leland Stanford Junior University
ANVEST, L.P.
By: /s/
-----------------------------------------------
WELLS FARGO BANK, TRUSTEE FOR
M/P/T FBO WILLIAM H. YOUNGER, JR.
By: /s/
-----------------------------------------------
58
<PAGE>
TOW PARTNERS, a CALIFORNIA
LIMITED PARTNERSHIP
By: /s/ David L. Anderson
-----------------------------------------------
Under Power of Attorney for Paul M. Wythes,
General Partner
/s/ David L. Anderson
------------------------------------------------
David L. Anderson
Paul M. Wythes and Marsha R. Wythes,
Trustees of the Wythes Living Trust
By: /s/ David L. Anderson
-----------------------------------------------
Under Power of Attorney for Paul M. Wythes,
Trustee
/s/ Sherryl W. Hossack
-------------------------------------------------
Under Power of Attorney for G. Leonard Baker, Jr.,
General Partner
WILLIAM H. YOUNGER, JR.,
TRUSTEE OF THE YOUNGER LIVING
TRUST
By: /s/
-----------------------------------------------
Trustee
/s/ Tench Coxe
------------------------------------------------
Tench Coxe
/s/ Sherryl W. Hossack
-------------------------------------------------
Under Power of Attorney for Ronald L. Perkins
/s/ Sherryl W. Hossack
-------------------------------------------------
Under Power of Attorney for James G. Gaither
59
<PAGE>
SCHEDULE A
----------
Purchasers
----------
<TABLE>
<CAPTION>
Name and Address Type of Entity Number of Purchase Price
---------------- -------------- Shares to be --------------
Purchased
---------
<S> <C> <C> <C>
Chase Venture Capital California limited 208,334 $2,000,006.40
Associates, L.P. Partnership
380 Park Avenue
New York, NY 10017
Telephone: (212) 622-3100
Telecopier: (212) 622-3101
Spitfire Capital Partners, L.P. Delaware limited 208,334 $2,000,006.40
c/o Montgomery Securities Partnership
600 Montgomery Street
San Francisco, CA 94111
Attn: Derek Lemke-von Ammon
Greylock Limited Partnership Delaware limited 50,566 $ 485,433.60
One Federal Street partnership
Boston, MA 02110
Attn: William S. Kaiser
Telecopier: (617) 482-0059
Sutter Hill Ventures, a California limited 24,822 $ 238,291.20
California Limited partnership
Partnership
755 Page Mill Road,
Suite A-200
Palo Alto, CA 94304
Telephone: (415) 493-5600
Telecopier: (415) 858-1854
</TABLE>
1
<PAGE>
Schedule A (Continued)
<TABLE>
<CAPTION>
Name and Address Type of Entity Number of Purchase Price
---------------- -------------- Shares to be --------------
Purchased
---------
<S> <C> <C> <C>
Sutter Hill Associates, L.P. California limited 12,570 $ 120,672.00
c/o Sutter Hill Ventures partnership
755 Page Mill Road,
Suite A-200
Palo Alto, CA 94304
Telephone: (415) 493-5600
Telecopier: (415) 858-1854
Genstar Investment Delaware 632 $ 6,067.20
Corporation corporation
Metro Tower, Suite 1170 (principal place of
Foster City, CA 94404 business in
Attn: Mr. R.D. Paterson California)
Telephone: (415) 286-2366
Telecopier: (415) 286-2383
Highland Capital Partners II Delaware limited 29,977 $ 287,779.20
Limited Partnership partnership
Two International Place
Boston, MA 02110
Attn: James L. McLean
Telephone: (617) 531-1500
Telecopier: (617) 330-8768
Hancock Venture Partners Delaware limited 41,670 $ 400,032.00
IV-Direct Fund L.P. partnership
One Financial Center
Boston, MA 02111
Attn: Ofer Nemirovsky
Telephone: (617) 348-3708
Telecopier: (617) 350-0305
Falcon Ventures II L.P. Delaware limited 2,193 $ 21,052.80
One Financial Center partnership
Boston, MA 02111
Attn: Ofer Nemirovsky
Telephone: (617) 348-3708
Telecopier: (617) 350-0305
</TABLE>
2
<PAGE>
Schedule A (Continued)
<TABLE>
<CAPTION>
Name and Address Type of Entity Number of Purchase Price
---------------- -------------- Shares to be --------------
Purchased
---------
<S> <C> <C> <C>
Wakefield Group Limited North Carolina 10,965 $ 105,264.00
Partnership limited partnership
1110 East Morehead Street
P.O. Box 36329
Charlotte, NC 28204
Attn: Thomas C. Nelson
Telephone: (704) 372-0355
Telecopier: (704) 372-8978
Technology Crossover Netherlands 2,133 $ 20,476.80
Ventures, C.V. Antilles limited
575 High Street, Suite 400 partnership
Palo Alto, CA 94301
Attn: Jay C. Hoag
Telephone: (415) 614-8210
Telecopier: (415) 614-8222
cc: Technology Crossover
Ventures, C.V.
56 Main Street, Suite 210
Millburn, NJ 07041
Attn: Robert C. Bensky
Telephone: (973) 467-5320
Telecopier: (973) 467-5323
Technology Crossover Delaware limited 26,926 $ 258,489.60
Ventures, L.P. partnership
575 High Street, Suite 400
Palo Alto, CA 94301
Attn: Jay C. Hoag
Telephone: (415) 614-8210
Telecopier: (415) 614-8222
</TABLE>
3
<PAGE>
Schedule A (Continued)
<TABLE>
<CAPTION>
Name and Address Type of Entity Number of Purchase Price
---------------- -------------- Shares to be --------------
Purchased
---------
<S> <C> <C> <C>
cc: Technology Crossover
Ventures, L.P.
56 Main Street, Suite 210
Millburn, NJ 07041
Attn: Robert C. Bensky
Telephone: (973) 467-5320
Telecopier: (973) 467-5323
Noro-Moseley Partners III, Delaware limited 9,687 $ 92,995.20
L.P. partnership
4200 Northside Parkway
Building Nine
Atlanta, GA 30327
Attn: Charles A. Johnson
Telephone: (404)-233-1966
Telecopier: (404)-239-9280
--------- -------------
Totals 628,809 $6,036,566.40
</TABLE>
4
<PAGE>
SCHEDULE C
SQL Financials International, Inc.
Post-Closing Share Holdings,
Employee Reserve and Warrant Shares
<TABLE>
<CAPTION>
Holdings After $6M @ $9.60/share
Diluted Voting
Shares % %
<S> <C> <C> <C>
Common Stock
Scott J. Brady 69,567 1.36% 1.70%
Gregory M. Corley 260 0.01% 0.01%
Jon Ezrine 1,460 0.03% 0.04%
Mary Flock 50 0.00% 0.00%
Robert J. Fousch 30 0.00% 0.00%
David M. Funderburke 83,200 1.63% 2.03%
Gregg Giddes 18 0.00% 0.00%
Jon K. Hauck 5,200 0.10% 0.13%
Jennifer Hewitt 50 0.00% 0.00%
Robert C. Holler 1,200 0.02% 0.03%
Laurie Hood 100 0.00% 0.00%
Donald L. House 50,833 1.00% 1.24%
Stephen P. Jeffery 1,200 0.02% 0.03%
Joseph S. McCall 171,000 3.35% 4.17%
Laura McCall 10,000 0.20% 0.24%
Megan McCall 10,000 0.20% 0.24%
Joseph Parrish McCall 10,000 0.20% 0.24%
John Marable McCall 5,000 0.10% 0.12%
Rudolph Russell McCall 5,000 0.10% 0.12%
William Russell McCall 5,000 0.10% 0.12%
John G. McKimmey 107,767 2.11% 2.63%
Robert M. McKimmey 107,767 2.11% 2.63%
Patrick McVey 200 0.00% 0.00%
Paul Migacz 460 0.01% 0.01%
Ravi Nyalakonda 100 0.00% 0.00%
Mitchell V. Pelavin 6,800 0.13% 0.17%
Daniel R. Schmidt 1,200 0.02% 0.03%
Paul Constantine Sioros, Jr. 24,400 0.48% 0.60%
Janet V. Smith 260 0.01% 0.01%
Noreen Snellman 1,200 0.02% 0.03%
Technology Ventures LLC 181,800 3.56% 4.43%
Charlyn Thompson 160 0.00% 0.00%
Michael Tuttle 160 0.00% 0.00%
Arthur G. Walsh, Jr. 40,666 0.80% 0.99%
Kathleen Kochis Williamson 24,400 0.48% 0.60%
-----------------------------------
926,508 18.14% 22.59%
-----------------------------------
Preferred Stock (Series A @ $4/share)
Greylock Limited Partnership 250,000 4.89% 6.10%
Dennis Crumpler 12,500 0.24% 0.30%
-----------------------------------
262,500 5.14% 6.40%
-----------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Holdings After $6M @ $9.60/share
Diluted Voting
Shares % %
<S> <C> <C> <C>
Preferred Stock (Series B @ $6.65/share)
Greylock Limited Partnership 150,376 2.94% 3.67%
Sutter Hill Ventures and: 195,840 3.83% 4.78%
Tow Partners 18,797 0.37% 0.46%
Wells Fargo Bank (David L. Anderson) 13,534 0.26% 0.33%
Anvest L.P. 1,504 0.03% 0.04%
G. Leonard Baker 18,322 0.36% 0.45%
Saunders Holdings, L.P. 6,015 0.12% 0.15%
Wells Fargo Bank (William H. Younger) 7,519 0.15% 0.18%
Tench Coxe 8,833 0.17% 0.22%
Ronald L. Perkins 2,256 0.04% 0.06%
Genstar Investment Corporation 4,993 0.10% 0.12%
Thomas H. Layton 752 0.01% 0.02%
Wythes Living Trust 4,484 0.09% 0.11%
David L. Anderson 9,299 0.18% 0.23%
Younger Living Trust 7,869 0.15% 0.19%
James C. Gaither 735 0.01% 0.02%
Stanford University 3,760 0.07% 0.09%
-----------------------------------
454,888 8.90% 11.09%
-----------------------------------
Preferred Stock (Series C @ $7/share)
Greylock Limited Partnership 81,571 1.60% 1.99%
Sutter Hill Ventures and: 40,007 0.78% 0.98%
Tow Partners 3,840 0.08% 0.09%
Wells Fargo Bank (David L. Anderson) 3,072 0.06% 0.07%
G. Leonard Baker 4,972 0.10% 0.12%
Wells Fargo Bank (William H. Younger) 1,536 0.03% 0.04%
Tench Coxe 1,804 0.04% 0.04%
Ronald L. Perkins 461 0.01% 0.01%
Genstar Investment Corporation 1,020 0.02% 0.02%
Wythes Living Trust 916 0.02% 0.02%
David L. Anderson 1,900 0.04% 0.05%
Younger Living Trust 1,608 0.03% 0.04%
James C. Gaither 150 0.00% 0.00%
Highland Capital Partners II 285,715 5.59% 6.97%
-----------------------------------
428,572 8.39% 10.45%
-----------------------------------
Preferred Stock (Series D @ $8.55/share)
Greylock Limited Partnership 49,895 0.98% 1.22%
Sutter Hill Ventures and: 24,472 0.48% 0.60%
Tow Partners 2,350 0.05% 0.06%
Anvest L.P. 1,878 0.04% 0.05%
G. Leonard Baker 3,040 0.06% 0.07%
Wells Fargo Bank (William H. Younger) 941 0.02% 0.02%
Tench Coxe 1,103 0.02% 0.03%
Ronald L. Perkins 281 0.01% 0.01%
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Holdings After $6M @ $9.60/share
Diluted Voting
Shares % %
<S> <C> <C> <C>
Genstar Investment Corporation 622 0.01% 0.02%
Wythes Living Trust 560 0.01% 0.01%
David L. Anderson 1,162 0.02% 0.03%
Younger Living Trust 984 0.02% 0.02%
James C. Gaither 92 0.00% 0.00%
Highland Capital Partners II 29,579 0.58% 0.72%
Wakefield Group 116,959 2.29% 2.85%
Hancock Venture Partners IV and: 444,445 8.70% 10.84%
Falcon Ventures II, L.P. 23,392 0.46% 0.57%
------------------------------------
701,755 13.74% 17.11%
------------------------------------
Preferred Stock (Series E @ $8.60/Share)
Greylock Limited Partnership 67,696 1.33% 1.65%
Sutter Hill Ventures and: 33,505 0.66% 0.82%
Tow Partners 3,218 0.06% 0.08%
David L. Anderson 4,163 0.08% 0.10%
Wythes Living Trust 770 0.02% 0.02%
G. Leonard Baker 4,163 0.08% 0.10%
Tench Coxe 1,514 0.03% 0.04%
Younger Living Trust 2,633 0.05% 0.06%
Ronald L. Perkins 385 0.01% 0.01%
James G. Gaither 123 0.00% 0.00%
Genstar Investment Corporation 852 0.02% 0.02%
Highland Capital Partners II 40,132 0.79% 0.98%
Hancock Venture Partners and: 55,787 1.09% 1.36%
Falcon Ventures II, L.P. 2,936 0.06% 0.07%
Wakefield Group 14,681 0.29% 0.36%
Technology Crossover Ventures, C.V. 25,598 0.50% 0.62%
Technology Crossover Ventures, L.P. 323,240 6.33% 7.88%
Noro-Moseley Partners 116,279 2.28% 2.84%
------------------------------------
697,675 13.66% 17.01%
------------------------------------
Preferred Stock (Series F @ $9.60/Share)
Greylock Limited Partnership 50,566 0.99% 1.23%
Sutter Hill Ventures 24,822 0.49% 0.61%
Sutter Hill Associates, L.P. 12,570 0.25% 0.31%
Highland Capital Partners II 29,977 0.59% 0.73%
Hancock Venture Partners and: 41,670 0.82% 1.02%
Falcon Ventures II, L.P. 2,193 0.04% 0.05%
Wakefield Group 10,965 0.21% 0.27%
Technology Crossover Ventures, C.V. 2,133 0.04% 0.05%
Technology Crossover Ventures, L.P. 26,926 0.53% 0.66%
Noro-Moseley Partners 9,687 0.19% 0.24%
Genstar Investment Corporation 632 0.01% 0.02%
Spitfire Capital Partners 208,334 4.08% 5.08%
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Holdings After $6M @ $9.60/share
Diluted Voting
Shares % %
<S> <C> <C> <C>
Chase Capital Partners 208,334 4.08% 5.08%
-------------------------------------
628,809 12.31% 15.33%
-------------------------------------
Employee ISO Shares Reserved 839,292 16.43%
Warrants (Series C @ $7/share)
Technology Ventures LLC 87,500 1.71%
Warrants (Series D @ $8.55/share)
Greylock Limited Partnership 7,484 0.15%
Sutter Hill Ventures and: 3,671 0.07%
Tow Partners 353 0.01%
Anvest L.P. 282 0.01%
G. Leonard Baker 457 0.01%
Wells Fargo Bank (William H. Younger) 141 0.00%
Tench Coxe 165 0.00%
Ronald L. Perkins 42 0.00%
Genstar Investment Corporation 93 0.00%
Wythes Living Trust 84 0.00%
David L. Anderson 175 0.00%
Younger Living Trust 147 0.00%
James C. Gaither 13 0.00%
Highland Capital Partners II 4,437 0.09%
Silicon Valley Bank (reserves) 8,201 0.16%
-------------------------
25,745 0.50%
-------------------------
Warrants (Series E @ $8.60/share)
Silicon Valley Bank 8,721 0.17%
Warrants (Series F @ $9.60/share dated 6/5/97)
Greylock Limited Partnership 3,720 0.07%
Sutter Hill Ventures 1,826 0.04%
Sutter Hill Associates, L.P. 925 0.02%
Highland Capital Partners II 2,205 0.04%
Hancock Venture Partners and: 3,066 0.06%
Falcon Ventures II, L.P. 161 0.00%
Wakefield Group 807 0.02%
Technology Crossover Ventures, C.V. 157 0.00%
Technology Crossover Ventures, L.P. 1,981 0.04%
Noro-Moseley Partners 713 0.01%
Genstar Investment Corporation 46 0.00%
-------------------------
15,607 0.31%
-------------------------
Warrants (Series F @ $9.60/share dated 8/5/97)
Greylock Limited Partnership 7,440 0.15%
Sutter Hill Ventures 3,652 0.07%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Holdings After $6M @ $9.60/share
Diluted Voting
Shares % %
<S> <C> <C> <C>
Sutter Hill Associates, L.P. 1,850 0.04%
Highland Capital Partners II 4,411 0.09%
Hancock Venture Partners and: 6,131 0.12%
Falcon Ventures II, L.P. 323 0.01%
Wakefield Group 1,613 0.03%
Technology Crossover Ventures, C.V. 314 0.01%
Technology Crossover Ventures, L.P. 3,962 0.08%
Noro-Moseley Partners 1,425 0.03%
Genstar Investment Corporation 93 0.00%
-------------------------
31,214 0.61%
-------------------------
TOTAL 5,108,786 100.00% 100.00%
====================================
</TABLE>
5
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SQL FINANCIALS INTERNATIONAL, INC.
The undersigned, being the President and Chief Executive Officer of
SQL FINANCIALS INTERNATIONAL, INC., a Delaware corporation, hereby certifies
that:
1.
(a) The name of the Corporation is SQL FINANCIALS INTERNATIONAL, INC.
(the "Corporation").
(b) The date of filing the original Certificate of Incorporation of
the Corporation with the Secretary of State of Delaware was November 20, 1991.
2.
This Amended and Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation, as amended, of the
Corporation and was duly adopted by written consent of the stockholders of the
Corporation in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware (the "Code"), and written
notice thereof was given to all non-participating stockholders in accordance
with Section 228(d) of the Code.
3.
The Certificate of Incorporation of the Corporation, as restated and
amended hereby, shall, upon its filing with the Secretary of State of the State
of Delaware, read in its entirety as follows:
Article 1: Name
The name of this Corporation is:
SQL FINANCIALS INTERNATIONAL, INC.
1
<PAGE>
Article 2: Agent
The name and address in the State of Delaware of this Corporation's
registered office and initial agent for service of process (located in New
Castle County) are as follows:
THE CORPORATION TRUST COMPANY
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
Article 3: Purpose
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
Article 4: Share Structure
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is 9,500,000
shares, of which 6,000,000 shares are Common Stock, $.0001 par value per share,
and 3,500,000 shares are Preferred Stock, $1.00 par value per share.
The Preferred Stock may be issued from time to time in one or more
series with distinctive serial designations, at such purchase prices and with
such relative rights, preferences, privileges and restrictions as are determined
from time to time by the Board of Directors. The shares of each series of
Preferred Stock may vary from the shares of any other series of Preferred Stock
in the Conversion Rate, Conversion Value, Conversion Price and any other factors
which are determined by the price per share paid for such Preferred Stock, and
as to redemption rights, if any, and voting rights, if any, but shall otherwise
be identical. The Board of Directors may create any such series of Preferred
Stock by resolution duly adopted pursuant to authority hereby granted.
On the date this document is filed with the Delaware Secretary of
State, (i) 262,500 shares of Preferred Stock issued and outstanding are known
and previously have been designated as Series A Convertible Preferred Stock
("Series A Preferred Stock"), (ii) 454,888 shares of Preferred Stock, of which
454,888 shares are issued and outstanding, are known and previously have been
designated as Series B Convertible Preferred Stock ("Series B Preferred Stock"),
(iii) 516,072 shares of Preferred Stock, of which 428,572 shares are issued and
outstanding, are known and designated as Series C Convertible Preferred Stock
("Series C
2
<PAGE>
Preferred Stock"), (iv) 727,500 shares of Preferred Stock, of which 701,755
shares are issued and outstanding, are known and designated as Series D
Convertible Preferred Stock ("Series D Preferred Stock"), and (v) 706,396 shares
of Preferred Stock, of which 697,675 shares are issued and outstanding, are
known and designated as Series E Convertible Preferred Stock ("Series E
Preferred Stock"). A total of 675,630 shares of Preferred Stock shall be known
and designated as Series F Convertible Prepared Stock ("Series F Preferred
Stock"). The Board of Directors from time to time may increase or decrease the
number of shares of any series, but not, in the case of a decrease, to a number
less than the number of shares of such series then outstanding.
The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and the Preferred Stock are as follows:
1. Dividends. The holders of the Preferred Stock shall be entitled
---------
to participate with the holders of Common Stock in any dividends paid or set
aside for payment (other than dividends payable solely in shares of Common
Stock) so that holders of the Preferred Stock shall receive with respect to each
share of Preferred Stock an amount equal to (x) the dividend payable with
respect to each share of Common Stock multiplied by (y) the number of shares
(and fraction of a share, if any) of Common Stock into which such share of
Preferred Stock is convertible as of the record date for such dividend.
2. Liquidation Preference.
----------------------
(a) Preference.
----------
(i) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntarily or involuntarily, the
holders of the Preferred Stock shall be entitled to receive prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of Common Stock of the Corporation, an amount
equal to (A) the consideration per share paid for such Preferred Stock,
which is equal to $4.00 per share of Series A Preferred Stock, $6.65 per
share of Series B Preferred Stock, $7.00 per share of Series C Preferred
Stock, $8.55 per share of Series D Preferred Stock, $8.60 per share of
Series E Preferred Stock and $9.60 per share of Series F Preferred Stock
plus (B) a further amount equal to any dividends declared or accrued but
unpaid on such shares, pari passu with the holders of all Additional Series
(as hereinafter defined) based on the relative liquidation preferences of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and such Additional Series. If, upon such liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to the shareholders of the Corporation are
insufficient to provide for the payment of the full aforesaid preferential
amount, such assets as are so available shall be distributed among the
holders of the Preferred Stock
3
<PAGE>
in proportion to the relative aggregate liquidation preferences of the
Preferred Stock so held.
(ii) After the payment or the setting apart for payment to
the holders of the Preferred Stock of the preferential amounts so payable
to them, if assets remain in the Corporation the holders of the Common
Stock of the Corporation shall receive all of the remaining assets of the
Corporation pro rata in accordance with the number of shares of Common
Stock held by them.
(iii) All amounts per share set forth in this subparagraph
2(a) shall be appropriately adjusted for any stock splits, stock
combinations, stock dividends or similar recapitalizations.
(b) Noncash Distributions. If any of the assets of the
---------------------
Corporation are to be distributed other than in cash under this paragraph 2 or
for any purpose, then the Board of Directors of the Corporation shall promptly
engage independent competent appraisers to determine the value of the assets to
be distributed to the holders of Preferred Stock or Common Stock. The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice to each holder of shares of Preferred Stock or Common Stock of
the appraiser's valuation.
(c) Consolidation or Merger. A consolidation or merger of the
-----------------------
Corporation with or into any other corporation or corporations (other than a
consolidation or merger following which the holders of 51% or more of the
capital stock of the resulting or surviving entity, based on voting power in the
election of directors, are persons or entities who were shareholders of the
Corporation immediately prior to such consolidation or merger), or a sale of all
or substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this paragraph 2,
unless in any such particular event the holders of more than 80% of the then
outstanding shares of Preferred Stock, voting together as a single class,
determine that such particular event shall not, for purposes of this paragraph
2, be deemed a liquidation, dissolution or winding up.
3. Voting Rights. Except as otherwise provided in the series
-------------
resolution creating any Additional Series (as hereinafter defined), the holder
of each share of Preferred Stock shall be entitled to the number of votes equal
to the number of shares of Common Stock into which each share of Preferred Stock
could be converted on the record date for the vote or written consent of
shareholders and, except as otherwise required by law, shall have voting rights
and powers equal to the voting rights and powers of the Common Stock. Except as
otherwise provided in the series resolution creating any Additional Series (as
hereinafter defined), the holder of each share of Preferred Stock shall be
entitled to notice of any shareholders' meeting in accordance with the bylaws of
the Corporation and shall vote with holders of the Common Stock upon all other
matters submitted to a vote of shareholders, except those matters required to be
submitted to a class or series vote pursuant to paragraph 5 or by law.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting
4
<PAGE>
from the above formula (after aggregating all shares of Common Stock into which
shares of Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half rounded upward to one).
4. Conversion. Preferred Stock shall be convertible into Common
----------
Stock, as follows:
(a) Right to Convert. Each share of 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 the Corporation. Each share of
Preferred Stock shall be convertible into the number of shares of Common Stock
which results from dividing the "Conversion Price" per share in effect at the
time of conversion into the "Conversion Value" per share. The number of shares
of Common Stock into which a share of Preferred Stock is convertible is
hereinafter referred to as the "Conversion Rate." Both the Conversion Price per
share of Preferred Stock (the "Conversion Price") and the Conversion Value per
share of Preferred Stock initially in effect shall be equal to the consideration
paid for such Preferred Stock, which is equal to $4.00 per share of Series A
Preferred Stock, $6.65 per share of Series B Preferred Stock, $7.00 per share of
Series C Preferred Stock; $8.55 per share of Series D Preferred Stock, $8.60
per share of Series E Preferred Stock, and $9.60 per share of Series F Preferred
Stock. The initial Conversion Price of Preferred Stock shall be subject to
adjustment as hereinafter provided.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at its then effective
Conversion Rate immediately upon the closing of a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering any of the corporation's securities (as that term is defined under the
Securities Act of 1933, as then in effect) with aggregate gross proceeds to the
Corporation, at the public offering price, of at least $10,000,000 and an
equivalent public offering price per share of Common Stock of at least $18.00
(such amount to be appropriately adjusted in the event of stock splits, stock
combinations, stock dividends or similar recapitalizations).
(c) Mechanics of Conversion. Before any holder of Preferred
-----------------------
Stock shall be entitled to convert the same into shares of Common Stock as
provided in paragraph 4(a), he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation and shall give written
notice to the Corporation at such office that he elects to convert the same. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock a certificate or certificates for the
number of shares of Common Stock to which he 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 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 on such date.
5
<PAGE>
In the event of an automatic conversion pursuant to paragraph 4(b),
the outstanding shares of Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation;
provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless the certificates evidencing such shares of Preferred Stock are
either delivered to the Corporation as provided above, or the holder notifies
the Corporation that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such delivery, or such
agreement and indemnification in the case of a lost certificate, issue and
deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of closing of the offering, 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 on such date.
(d) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the Conversion Price.
(e) Adjustment of Conversion Price. The Conversion Price of each
------------------------------
series of Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) If the Corporation shall issue any Common Stock or other
securities of the Corporation convertible into or exchangeable for Common
Stock (other than "Excluded Stock," as defined below, or stock dividends,
subdivisions, split-ups, combinations or dividends, which such events are
covered by subparagraphs 4(e)(iii), (iv), and (v)), for a consideration per
share less than the Conversion Price for such series in effect immediately
prior to the issuance of such Common Stock (or other securities convertible
into or exchangeable for Common Stock), then the Conversion Price for such
series shall forthwith be decreased immediately after such issuance to a
price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of: (x) the total number of
shares of Common Stock outstanding (including any shares of Common
Stock deemed to have been issued pursuant to subdivision (3) of this
subparagraph (i)) immediately prior to such issuance multiplied by the
Conversion Price in effect immediately prior to such issuance plus (y)
the consideration received by the Corporation upon such issuance, by
6
<PAGE>
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued
pursuant to subdivision (3) of this subparagraph (i)) immediately
after the issuance of such Common Stock (or other securities
convertible into or exchangeable for Common Stock).
For purposes of making any such calculation pursuant to this
subparagraph (i), the shares of Common Stock issuable upon conversion
of the outstanding shares of Preferred Stock, together with any other
shares of Common Stock deemed issued and outstanding pursuant to
subdivision (3) of this subparagraph (i), shall be deemed issued and
outstanding at all times. For the purposes of this subparagraph (i),
the following provisions shall also be applicable:
(1) In the case of the issuance of Common Stock for
cash, the consideration received therefor shall be deemed to be
the amount of cash paid therefor without deducting any discounts
or commissions paid or incurred by the Corporation in connection
with the issuance and sale thereof.
(2) In the case of the issuance of 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 in good faith by the Board of
Directors of the Corporation.
(3) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (other than
Excluded Stock), (ii) securities by their terms convertible or
exchangeable for Common Stock (other than Excluded Stock), or
(iii) options to purchase or rights to subscribe for such
convertible or exchangeable securities:
(C) 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 be issuable for a
consideration equal to the consideration (determined in the manner
provided in subdivisions (1) and (2) above), if any, received by the
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;
(D) 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
7
<PAGE>
subsequent conversion or exchange thereof, shall be deemed to be
issuable for a consideration equal to the consideration received by
the Corporation for any such securities and related options or rights,
plus the additional consideration, if any, to be received by the
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 subdivisions (1) and
(2) above);
(E) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options or rights or upon conversion
of or in exchange for such convertible or exchangeable securities 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
options or rights or securities were issued, provided that the
consideration for which such Common Stock is deemed to be issuable
does not exceed the issuance price of securities issued in the latest
bona fide round of financing by the Corporation;
(F) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion
of or exchange for such convertible or exchangeable securities, or on
any change in the minimum purchase price of such options, rights or
securities, other than a change resulting from the antidilution
provisions of such options, rights or securities, the Conversion Price
shall forthwith be readjusted to such Conversion Price as would have
obtained had the adjustment (and any subsequent adjustments) made upon
(x) the issuance of such options, rights or securities not exercised,
converted or exchanged prior to such change, as the case may be, been
made upon the basis of such change or (y) the options or rights
related to such securities not converted or exchanged prior to such
change, as the case may be, been made upon the basis of such change;
and
(G) on 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 shall forthwith be
readjusted to such Conversion Price as would have obtained had the
adjustment (and any subsequent adjustments) made upon the issuance of
such options, rights, convertible or exchangeable securities or
options or rights related to such convertible or exchangeable
securities, as the case may be, been made upon the basis of 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 convertible or exchangeable securities or upon the
exercise of the options or rights related to such convertible or
exchangeable securities, as the case may be.
8
<PAGE>
(ii) "Excluded Stock" shall mean:
(A) all shares of Common Stock issued and outstanding on the
date this document is filed with the Delaware Secretary of State;
(B) all shares of Common Stock into which shares of
Preferred Stock are convertible;
(C) up to 839,292 shares of Common Stock issued or issuable
on or after the date referred to in (ii)(A) above upon exercise of
options or other purchase rights granted to employees, officers,
directors or consultants of the Corporation and approved by the Board
of Directors of the Corporation (and any reissuance of such shares
after repurchase thereof);
(D) up to 87,500 shares of Series C Preferred Stock and up
to 25,745 shares of Series D Preferred Stock, in each case issuable
upon exercise of warrants issued on or after February 21, 1995;
(E) up to 8,721 shares of Series E Preferred Stock issuable
upon exercise of warrants issued on or after March 28, 1997;
(F) up to 46,821 shares of Series F Preferred Stock issuable
upon exercise of warrants issued on or after June 5, 1997; and
(G) all shares of Common Stock or other securities
(including options, warrants and other purchase rights) issued or to
be issued to employees, officers, directors, consultants, affiliates
or lenders of the Corporation after receipt of written consent to such
issuance from the holders of 60% of the then outstanding Preferred
Stock and approval of such issuance by the Board of Directors of the
Corporation.
Shares of Excluded Stock described in (C), (D), (E), (F) and
(G) of this subparagraph 4(e)(ii) shall not be deemed to be
outstanding for purposes of the computations of subparagraph 4(e)(i)
above until actually issued.
(iii) If the number of shares of Common Stock outstanding at
any time after the date hereof is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective,
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of the Preferred Stock shall
be increased in proportion to such increase of outstanding shares.
9
<PAGE>
(iv) If the number of shares of Common Stock outstanding at any
time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, on the effective date of such combination,
the Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of the Preferred Stock shall
be decreased in proportion to such decrease in outstanding shares.
(v) In case the Corporation shall declare a cash dividend upon
its Common Stock payable otherwise than out of retained earnings or shall
distribute to holders of its Common Stock shares of its capital stock
(other than Common Stock), stock or other securities of other persons,
evidences of indebtedness issued by the Corporation or other persons,
assets (excluding cash dividends) or options or rights (excluding options
to purchase and rights to subscribe for Common Stock or other securities of
the Corporation convertible into or exchangeable for Common Stock), then,
in such case, the holders of shares of Preferred Stock shall, concurrent
with the distribution to holders of Common Stock, receive a like
distribution based upon the number of shares of Common Stock into which
such Preferred Stock is then convertible.
(vi) in case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the stock of the Corporation
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or
merger of the Corporation with or into another person (other than a
consolidation or merger in which the Corporation is the continuing entity
and which does not result in any change in the Common Stock), or of the
sale or other disposition of all or substantially all the properties and
assets of the Corporation as an entirety to any other person, the shares of
Preferred Stock shall, if such event is not deemed a liquidation for
purposes of Subparagraph 2(c), after such reorganization, reclassification,
consolidation, merger, sale or other disposition, be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the entity resulting from such consolidation or surviving
such merger or to which such properties and assets shall have been sold or
otherwise disposed to which such holder would have been entitled if
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or other disposition he had converted his shares of Preferred
Stock into Common Stock. The provisions of this subparagraph (vi) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or other dispositions.
(vii) All calculations under this paragraph 4 shall be made to
the nearest cent or to the nearest one hundredth (1/100) of a share, as the
case may be.
(f) Minimal Adjustments. No adjustment in a Conversion Price need be
-------------------
made if such adjustment would result in a change in a Conversion Price of less
than $0.01. Any adjustment of less than $0.01 which is not made shall be carried
forward and shall be made
10
<PAGE>
at the time of and together with any subsequent adjustment which, on a
cumulative basis, amounts to an adjustment of $0.01 or more in a Conversion
Price.
(g) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of a Conversion Price pursuant to this paragraph 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price and Rate at the time in effect for the Preferred Stock
held, and (iii) 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 the
Preferred Stock.
(h) Notices of Record Date. In the event of any taking by the
----------------------
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, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified herein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend or distribution.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the 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 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 Preferred Stock, the Corporation will 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 purpose.
(j) Notices. Any notice required by the provisions of this paragraph
-------
4 to be given to the holder of shares of the Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his latest address appearing on the books of the
Corporation.
5. Redemption of Series A, Series B, Series C, Series D, Series E and
------------------------------------------------------------------
Series F Preferred Stock.
------------------------
(a) On the 75th day following any Preferred Redemption Date, as
defined below, and so long as any shares of Series A, Series B, Series C, Series
D, Series E or Series F Preferred Stock (for purposes of this Section 5
"Redeemable Preferred Stock") shall be outstanding, the Corporation shall at the
request of any holder of Redeemable Preferred Stock
11
<PAGE>
sent on or before the later of the 30th day following such Preferred Redemption
Date or the 10th day following receipt of the notice specified in paragraph 5(d)
(unless otherwise prevented by law and, if so prevented, as soon thereafter as
is permissible) redeem, at an amount per share equal to the Conversion Value of
such Redeemable Preferred Stock as of such Preferred Redemption Date plus
declared but unpaid dividends, if any, payable with respect thereto, the portion
of the shares of each such series of Preferred Stock held by such holder set
forth below. The total sum payable for shares of Preferred Stock on the
Preferred Redemption Date is hereinafter referred to as the "Preferred
Redemption Price." As used herein, the term "Preferred Redemption Date" shall
mean any of the following dates:
Percentage of
Outstanding Redeemable
Preferred Redemption Dates Preferred Stock
-------------------------- -------------------------
(i) The date of termination of
the employment of Joseph S.
McCall with the Corporation
for any reason other than
disability, as defined below 100.00%
(ii) September 30, 1998 33.33%
(iii) September 30, 1999 50.00%
(iv) September 30,2000 100.00%
(b) If upon any redemption the assets of the Corporation legally
available for redemption shall be insufficient to pay the holders of Redeemable
Preferred Stock the full amounts to which they shall be entitled, the holders of
shares of Redeemable Preferred Stock shall share ratably in any such redemption
according to the respective amounts which would be payable in respect of shares
held by them upon such redemption if all amounts payable on or with respect to
said shares were paid in full. If less than all the shares of Redeemable
Preferred Stock then outstanding are to be redeemed, the redemption shall be pro
rata with respect to such shares based upon the relative aggregate liquidation
preferences of the outstanding shares of Redeemable Preferred Stock then owned
by each holder thereof. On and after the Preferred Redemption Date (unless
default shall be made by the Corporation in the payment of the applicable
Preferred Redemption Price as hereinafter provided, in which event such rights
shall be exercisable until such default is cured), all rights in respect of the
shares of Redeemable Preferred Stock, to be redeemed, except the right to
receive the applicable Preferred Redemption Price as hereinafter provided, shall
cease and terminate; and such shares shall no longer be deemed to be
outstanding, whether or not the certificates representing such shares have been
received by the Corporation. As used herein, the term "disability" shall mean
the inability, for any medical reason, to perform substantial duties as an
executive officer of the Corporation, as determined in good faith by the Board
of Directors of the Corporation (excluding for this
12
<PAGE>
purpose Joseph S. McCall, if a director, and any representative of a holder of
Redeemable Preferred Stock who is a director).
(c) Any request for redemption as herein provided shall be mailed by
first class certified mail, return receipt requested, postage prepaid, to the
Corporation at its then current address. At any time on or after the Preferred
Redemption Date, the holders of record of shares of Redeemable Preferred Stock
to be redeemed shall be entitled to receive the applicable Preferred Redemption
Price upon actual delivery to the Corporation or its agent of the certificates
representing the shares to be redeemed.
(d) Within five business days following receipt of any request for
redemption as herein provided, the Corporation shall notify each other holder of
record of shares of Redeemable Preferred Stock which has not made a similar
request with respect to the Preferred Redemption Date in question. Such notice
shall specify the name of the holder or holders requesting redemption, the
number of shares covered by such request or requests, and the Corporation's
estimate of funds available for such purposes.
(e) The Corporation will not, and will not permit any subsidiary of
the Corporation to, purchase or acquire any shares of Redeemable Preferred Stock
otherwise than pursuant to the terms of this paragraph 5 or pursuant to an offer
made on the equivalent terms to all holders of Redeemable Preferred Stock at the
time outstanding.
(f) Once redeemed pursuant to the provisions of this paragraph 5,
shares of Redeemable Preferred Stock shall be canceled and not subject to
reissuance.
(g) No Redeemable Preferred Stock shall be entitled to the benefit of
a sinking fund or purchase fund.
(h) Notwithstanding anything contained herein to the contrary, the
redemption rights granted to the holders of Redeemable Preferred Stock pursuant
to the provisions of paragraph 5(a) above shall not be exercised by any holder
of Redeemable Preferred Stock if, in the sole discretion of such holder, the
exercise thereof would result in a violation of any statute or regulation
applicable to such holder.
6. Protective Provisions.
---------------------
(a) Approval of Preferred Stock. So long as any of the Preferred
---------------------------
Stock shall be outstanding the Corporation shall not without obtaining the
approval (by vote or written consent, as provided by law) of the holders of not
less than a majority of the outstanding shares of Preferred Stock:
(i) Change of Rights. Materially and adversely alter or change
----------------
the rights, preferences or privileges of the Preferred Stock; or
13
<PAGE>
(ii) Create a New Class. Create any new class or series of
------------------
shares having preferences over any outstanding shares of Preferred Stock as
to dividends or assets, or authorize or issue shares of stock of any class
or series or any bonds, debentures, notes or other obligations convertible
into or exchangeable for, or having option rights to purchase, any shares
of stock of this Corporation having any preference or priority as to
dividends or assets superior to or, except as provided in paragraph 6(b),
on a parity with any such preference or priority of any outstanding shares
of Preferred Stock; or
(iii) Reclassification. Reclassify any class or series of any
----------------
Common Stock into shares having any preference or priority as to dividends
or assets superior to or, except as provided in paragraph 6(b), on a parity
with any such preference or priority of Preferred Stock; or
(iv) Merger, Consolidation, Sale, etc., of Assets. Merge or
--------------------------------------------
consolidate with, or permit any of its subsidiaries to merge or consolidate
with, any entity, except that any such subsidiary may be merged into the
Corporation or any other such subsidiary; sell, lease, license or otherwise
dispose of, or permit any such subsidiary to sell, lease, license or
otherwise dispose of, all or substantially all of the consolidated assets
of the Corporation in any twelve-month period; provided, that this
paragraph 6(a)(iv) shall not be applicable with respect to any merger,
consolidation, sale, lease, license or other disposition yielding net
proceeds per share of Preferred Stock of at least $18.00 (such amount to be
appropriately adjusted in the event of stock splits, stock combinations,
stock dividends or similar recapitalizations). A sale of substantially all
of the consolidated assets of the Corporation means the sale or other
disposition of more than 50% of the value of the consolidated assets of the
Corporation; or
(v) Payment of Dividends. Pay any dividend with respect to
--------------------
its capital stock, other than dividends payable solely in shares of such
capital stock.
(b) Additional Series. Notwithstanding any other provision of this
-----------------
Certificate of Incorporation to the contrary, the Corporation may, without
obtaining the consent of holders of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the
Series E Preferred Stock, the Series F Preferred Stock or any Additional Series
(as hereinafter defined), authorize by resolution of its Board of Directors (a
"series resolution") and issue one or more additional series of the
Corporation's Preferred Stock (each such series being referred to herein as an
"Additional Series"); provided, however, that (i) each such Additional Series
-------- -------
shall have substantially the same terms, powers, preferences and rights as the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock and the Series
F Preferred Stock except that the liquidation preference, the Conversion Value
and the initial Conversion Price for each such Additional Series shall equal the
purchase price per share paid for such stock, (ii) such Additional Series need
not have voting rights or redemption rights, and (iii) in
14
<PAGE>
all other respects each share of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock and any such Additional Series shall be pari
----
passu (with the shares of Series A Preferred Stock, Series B Preferred Stock,
- -----
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock and each such Additional Series to share in liquidation
proceeds based on their relative liquidation preferences).
Article 5: Liability of Directors
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same now exists or may hereafter be amended in a manner
more favorable to directors, a director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
Article 6: Indemnification of Directors
The Corporation shall indemnify to the full extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor of the Corporation.
Article 7: Balloting at Elections
Election of directors need not be by written ballot except and to the
extent provided in the bylaws of the Corporation.
Article 8: Amendment of Bylaws
The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal bylaws of the Corporation, but the stockholders may make
additional bylaws and may alter or repeal any bylaw whether adopted by them or
otherwise.
Article 9: Corporate Books
The books of the Corporation may be kept (subject to any provision of
law) outside the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the bylaws of the Corporation.
15
<PAGE>
Article 10: Incorporator
The name and mailing address of the incorporator is as follows:
G. Donald Johnson, Esq.
Womble Carlyle Sandridge & Rice,
a Professional Limited Liability Company
1275 Peachtree Street, N.E.
Suite 700
Atlanta, Georgia 30309
IN WITNESS WHEREOF, the undersigned has duly executed this Amended and
Restated Certificate of Incorporation on the ______ day of September, 1997.
SQL FINANCIALS INTERNATIONAL, INC.
ATTEST: BY:
----------------------------------
STEPHEN P. JEFFERY,
President
- -------------------------------
ARTHUR G. WALSH, Secretary
[CORPORATE SEAL]
16
<PAGE>
EXHIBIT 10.5
SQL FINANCIALS INTERNATIONAL, INC.
SQL 1992 STOCK PLAN
1. PURPOSE. The purpose of this SQL 1992 Stock Plan (the "Plan") is to
-------
advance the interests of SQL Financials International, Inc., a Delaware
corporation (the "Company"), by strengthening the ability of the Company to
attract, retain and motivate key employees, consultants and other individual
contributors of or to the Company or any present or future parent or subsidiary
of the Company (the "Company Group") by providing them with an opportunity to
purchase or receive as bonuses stock of the Company and thereby permitting them
to share in the Company's success. It is intended that this purpose will be
effected by granting (i) incentive stock options ("Incentive Options") which are
intended to qualify under the provisions of Section 422 of the Internal Revenue
Code of 1986, as heretofore and hereafter amended (the "Code"), and non-
statutory stock options ("Nonqualified Options") which are not intended to meet
the requirements of Section 422 of the Code and which are intended to be taxed
under Section 83 of the Code (both Incentive Options and Nonqualified Options
shall be collectively referred to as "Options"), (ii) stock purchase
authorizations ("Purchase Authorizations") and (iii) stock bonus awards
("Bonuses").
2. EFFECTIVE DATE. This Plan was adopted by the Board of Directors of the
--------------
Company (the "Board") on November 22, 1992 and approved by the stockholders of
the Company on November 22, 1992, effective November 22, 1992.
3. STOCK COVERED BY THE PLAN. Subject to adjustment as provided in
-------------------------
Sections 9 and 10 below, the shares that may be made subject to Options,
Purchase Authorizations or Bonuses under this Plan ("Shares") shall not exceed
in the aggregate 100,000 shares of the common stock, $.0001 par value, of the
Company ("Common Stock"). Any Shares subject to an Option or Purchase
Authorization which for any reason expires or is terminated unexercised as to
such Shares and any Shares reacquired by the Company pursuant to forfeiture or a
repurchase right hereunder may again be the subject of an Option, Purchase
Authorization or Bonus under the Plan. The Shares purchased pursuant to
Purchase Authorizations or the exercise of Options under this Plan or issued as
Bonuses may, in whole or in part, be either authorized but unissued Shares or
issued Shares reacquired by the Company.
4. ADMINISTRATION. This Plan shall be administered by the Board, whose
--------------
construction and interpretation of the Plan's terms and provisions shall be
final and conclusive. The Board shall have authority, subject to the express
provisions of the Plan, to construe the Plan and the respective Options,
Purchase Authorizations, Bonuses and related agreements, to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the terms and
provisions of the respective Options, Purchase Authorizations, Bonuses and
related agreements, and to make all other determinations in the judgment of the
Board necessary or desirable for the administration of the Plan. The Board may
correct any defect or supply any
<PAGE>
omission or reconcile any inconsistency in the Plan or in any Option, Purchase
Authorization, Bonus, or related agreement in the manner and to the extent it
shall deem expedient to carry the Plan into effect, and it shall be the sole and
final judge of such expediency. No director shall be liable for any action or
determination made in good faith. The Board may, to the full extent permitted
by law, delegate any or all of its powers under the Plan to a committee (the
"Committee") appointed by the Board, and if the Committee is so appointed and to
the extent such powers are delegated, all references to the Board in the Plan
shall mean and relate to such Committee.
5. ELIGIBLE RECIPIENTS. Options, Purchase Authorizations and Bonuses may
-------------------
be granted to such key employees, consultants or other individual contributors
of or to the Company Group, including without limitation members of the Board
and members of any scientific or technical advisory boards, as are selected by
the Board (a "Participant"); provided, that only employees of the Company Group
shall be eligible for grant of an Incentive Option.
6. DURATION OF THE PLAN. This Plan shall terminate ten (10) years from
--------------------
the effective date hereof, unless terminated earlier pursuant to Section 13
hereafter, and no Options, Purchase Authorizations or Bonuses may be granted or
made thereafter.
7. TERMS AND CONDITIONS OF OPTIONS, PURCHASE AUTHORIZATIONS AND BONUSES.
--------------------------------------------------------------------
Options, Purchase Authorizations and Bonuses granted or made under this Plan
shall be evidenced by agreements in such form and containing such terms and
conditions as the Board shall determine; provided, however, that such agreements
shall evidence among their terms and conditions the following:
(a) PRICE. The purchase price per Share payable upon the
-----
exercise of each Option or the purchase pursuant to each Purchase
Authorization granted or made hereunder shall be determined by the Board at
the time the Option or Purchase Authorization is granted or made. Subject
to the condition of paragraph 7(j)(i), if applicable, the purchase price
per Share payable upon the exercise of each Incentive Option granted
hereunder shall not be less than one hundred percent (100%) of the fair
market value per Share of the Common Stock on the day the Incentive Option
or Purchase Authorization is granted or made. The purchase price per Share
payable on exercise of each Nonqualified Option or upon the purchase of
Shares pursuant to each Purchase Authorization granted hereunder shall be
not less than eighty-five percent (85%) of the fair market value per Share
of the Common Stock on the date of the grant. Fair market value shall be
determined in accordance with procedures to be established in good faith by
the Board. Bonus Shares shall be issued in consideration of services
previously rendered, which shall be valued for such purposes by the Board
or the Committee, as the case may be.
(b) NUMBER OF SHARES. Each agreement shall specify the number of
----------------
Shares to which it pertains.
2
<PAGE>
(c) EXERCISE OF OPTIONS. Each Option shall be exercisable for
-------------------
the full amount or for any part thereof and at such intervals or in such
installments as the Board may determine at the time it grants such Option;
provided, however, that no Option shall be exercisable with respect to any
Shares later than ten (10) years after the date of the grant of such Option
(or five (5) years in the case of Incentive Options to which paragraph
7(j)(ii) applies). An Option shall be exercisable only by delivery of a
written notice to the Company's Treasurer, or any other officer of the
Company designated by the Board to accept such notices on its behalf,
specifying the number of Shares for which the Option is exercised and
accompanied by either (i) payment or (ii) if permitted by the Board,
irrevocable instructions to a broker to promptly deliver to the Company
full payment in accordance with (ii) of the first sentence of paragraph
7(d) of the amount necessary to pay the aggregate exercise price. With
respect to an Incentive Option, the permission of the Board referred to in
clause (ii) of the preceding sentence must be granted at the time the
Incentive Option is granted.
(d) PAYMENT. Payment shall be made in full (i) at the time the
-------
Option is exercised, (ii) promptly after the Participant forwards the
irrevocable instructions referred to in paragraph 7(c)(ii) above to the
appropriate broker, if exercise of an Option is made pursuant to paragraph
7(c)(ii) above, or (iii) at the time the purchase pursuant to a Purchase
Authorization is made. Payment shall be made either (a) in cash, (b) by
check, (c) if permitted by the Board (with respect to an Incentive Option,
such permission to have been granted at the time of the Incentive Option
grant), by delivery and assignment to the Company of shares of Company
stock having a fair market value (as determined by the Board) equal to the
exercise or purchase price, (d) if permitted by the Board, stated in the
agreement evidencing the Option or Purchase Authorization, and to the
extent permitted by any applicable law, by the Participant's recourse
promissory note, which note must be due and payable not more than five (5)
years after the date the Option or Purchase Authorization is exercised, or
(e) by a combination of (a), (b), (c) and/or (d). If shares of Company
stock are to be paid for the exercise price of an Incentive Option, the
Company prior to such payment must be furnished with evidence satisfactory
to it that the acquisition of such shares and their transfer in payment of
the exercise price satisfy the requirements of Section 422 of the Code and
other applicable laws.
(e) WITHHOLDING TAXES; DELIVERY OF SHARES. The Company's
-------------------------------------
obligation to deliver Shares upon exercise of an Option or upon purchase
pursuant to a Purchase Authorization or issuance pursuant to a Bonus shall
be subject to the Participant's satisfaction of all applicable federal,
state and local income and employment tax withholding obligations. Without
limiting the generality of the foregoing, the Company shall have the right
to deduct from payments of any kind otherwise due to the Participant any
federal, state or local taxes of any kind required by law to be withheld
with respect to any Shares issued upon exercise of Options or purchased or
issued pursuant to Purchase Authorizations or Bonuses. The Participant may
elect to satisfy such obligation(s), in whole or in part, by (i) delivering
to the Company a check for the
3
<PAGE>
amount required to be withheld, or (ii) if the Board approves in any
specific or general case, having the Company withhold Shares or delivering
to the Company already-owned shares of Common Stock, having a value equal
to the amount required to be withheld. The value of Shares to be withheld
or delivered shall be based on the Company's determination of the fair
market value of a share of Common Stock on the date the amount of tax to be
withheld is to be determined (the "Tax Date"). The Participant's election
to have Shares withheld for this purpose will be subject to the following
restrictions, with such modifications thereof and subject to such other
restrictions which at the time are imposed by any law or related regulation
or rule or any agreement or Company policy: (1) the election must be made
prior to the Tax Date, (2) the election must be irrevocable and in writing,
(3) any shares to be used to satisfy the Participant's withholding
obligation must not be subject to any repurchase, forfeiture, unfulfilled
vesting or other similar requirements, (4) the election will be subject to
the disapproval of the Board, and (5) if at the time of election the
Participant is a person whose transactions in stock of the Company are
subject to Section 16(b) of the Exchange Act, such election may not be made
within six months of the date the Option, Purchase Authorization or Bonus
is granted and must be made in the ten-day "window period" beginning on the
third day following the release of the Company's quarterly or annual
summary statement of sales and earnings; provided, that if, pursuant to
Section 83 of the Code, the Tax Date of such Participant is deferred until
six months after exercise or purchase and the Participant elects to have
Shares withheld, the full number of Shares will be issued on exercise,
purchase or Bonus grant, but the Participant will be unconditionally
obligated to tender back to the Company the proper number of Shares.
(f) NON-TRANSFERABILITY. No Option or Purchase Authorization
-------------------
shall be transferable by the Participant otherwise than by will or the laws
of descent or distribution, and each Option or Purchase Authorization shall
be exercisable during the Participant's lifetime only by the Participant.
(g) TERMINATION OF OPTIONS AND PURCHASE AUTHORIZATIONS. Each
--------------------------------------------------
Purchase Authorization shall terminate and may no longer be exercised if
the Participant ceases for any reason to provide services to the Company or
a subsidiary. Except to the extent the Board provides specifically in an
agreement evidencing an Option for a lesser period (or a greater period, in
the case of Nonqualified Options only), each Option shall terminate and may
no longer be exercised if the Participant ceases for any reason to provide
services to the Company or a subsidiary in accordance with the following
provisions:
(i) if the Participant ceases to perform services for any reason
other than death or disability (as defined in Section
22(e)(3) of the Code), the Participant may, at any time
within a period of three (3) months after the date of such
cessation of the performance of services, exercise the
Option to the extent that the Option was exercisable on the
date of such cessation:
4
<PAGE>
(ii) if the Participant ceases to perform services because of
disability (as defined in Section 22(e)(3) of the Code), the Participant
may, at any time within a period of one (1) year after the date of such
cessation of the performance of services, exercise the Option to the extent
that the Option was exercisable on the date of such cessation; and
(iii) if the Participant ceases to perform services because of
death, the Option, to the extent that the Participant was entitled to
exercise it on the date of death, may be exercised within a period of one
year after the Participant's death by the person or persons to whom the
Participant's rights under the Option pass by will or by the laws of
descent or distribution;
provided, however, that no Option or Purchase Authorization may be
exercised to any extent by anyone after the date of its expiration.
(h) RIGHTS AS STOCKHOLDER. A Participant shall have no rights as
---------------------
a stockholder with respect to any Shares covered by an Option, Purchase
Authorization or Bonus until the date of issuance of a stock certificate in
the Participant's name for such Shares.
(i) REPURCHASE OF SHARES BY THE COMPANY. Any Shares purchased or
-----------------------------------
acquired upon exercise of an Option or pursuant to a Purchase Authorization
or Bonus may in the discretion of the Board be subject to repurchase by or
forfeiture to the Company if and to the extent and at the repurchase price,
if any, specifically set forth in the option, purchase or bonus agreement
pursuant to which the Shares were purchased or acquired; provided, that
such repurchase or forfeiture rights of the Company shall expire at no less
than a twenty percent (20%) per year rate over no longer than a five year
period. Certificates representing Shares subject to such repurchase or
forfeiture may be subject to such escrow and stock legending provisions as
may be set forth in the option, purchase or bonus agreement pursuant to
which the Shares were purchased or acquired.
(j) 10% STOCKHOLDER. If any Participant to whom an Incentive
---------------
Option is granted pursuant to the provisions of the Plan is on the date of
grant the owner of stock (as determined under Section 424(d) of the Code)
possessing more than 10% of the total combined voting power or value of all
classes of stock of the Company, its parent, if any, or subsidiaries, then
the following special provisions shall be applicable:
(i) The exercise price per Share subject to such Option shall not
be less than 110% of the fair market value of each Share on the date of
grant; and
5
<PAGE>
(ii) The Option shall not have a term in excess of five years
from the date of grant.
8. RESTRICTIONS ON INCENTIVE OPTIONS. Incentive Options granted
---------------------------------
under this Plan shall be specifically designated as such and shall be subject to
the additional restriction that the aggregate fair market value, determined as
of the date the Incentive Option is granted, of the Shares with respect to which
Incentive Options are exercisable for the first time by a Participant during any
calendar year shall not exceed $100,000. If an Incentive Option which exceeds
the $100,000 limitation of this paragraph 8 is granted, the portion of such
Option which is exercisable for shares in excess of the $100,000 limitation
shall be treated as a Nonqualified Option pursuant to Section 422(d) of the
Code. In the event that such Participant is eligible to participate in any
other stock incentive plans of the Company, its parent, if any, or a subsidiary
which are also intended to comply with the provisions of Section 422 of the
Code, such annual limitation shall apply to the aggregate number of shares for
which options may be granted under all such plans.
9. STOCK DIVIDENDS; STOCK SPLITS; STOCK COMBINATIONS;
--------------------------------------------------
RECAPITALIZATIONS. Appropriate adjustment shall be made by the Board in the
- -----------------
maximum number of Shares subject to the Plan and in the number, kind, and
exercise or purchase price of Shares covered by outstanding Options and Purchase
Authorizations granted hereunder to give effect to any stock dividends, stock
splits, stock combinations, recapitalizations and other similar changes in
the capital structure of the Company after the effective date of the Plan.
10. MERGER; SALE OF ASSETS. In the event of a change of the Common
----------------------
Stock resulting from a merger or similar reorganization as to which the Company
is the surviving corporation, the number and kind of Shares which thereafter may
be purchased pursuant to an Option or Purchase Authorization under the Plan and
the number and kind of Shares then subject to Options or Purchase Authorizations
granted hereunder and the price per Share thereof shall be appropriately
adjusted in such manner as the Board may deem equitable to prevent dilution or
enlargement of the rights available or granted hereunder. Except as otherwise
determined by the Board, a merger or a similar reorganization which the Company
does not survive, or a sale of all or substantially all of the assets of the
Company, shall cause every Option and Purchase Authorization hereunder to
terminate, to the extent not then exercised, unless any surviving entity agrees
to assume the obligations hereunder; provided, however, that, in the case of
such a merger or similar reorganization, or such a sale of all or substantially
all of the assets of the Company, if there is no such assumption, the Board may
provide that any unexercisable portion of any one or more of the outstanding
Options or Purchase Authorizations and the unvested Shares acquired upon
exercise of any one or more of such Options or Purchase Authorizations or
acceptance of any one or more of the outstanding Bonuses shall be immediately
exercisable and vested as of such date prior to such merger, similar
reorganization or sale of assets as the Board determines.
11. INVESTMENT REPRESENTATIONS; TRANSFER RESTRICTIONS. The Company
-------------------------------------------------
may require Participants, as a condition of purchasing Shares pursuant to the
exercise of an Option
6
<PAGE>
or to a Purchase Authorization or receipt of shares as a Bonus, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Shares for the Participant's own account for
investment and not with any present intention of selling or otherwise
distributing the same, and to such other effects as the Company deems necessary
or appropriate (including without limitation confirmation that the Participant
is aware of any applicable restrictions on transfer of the Shares, as specified
in the by-laws of the Company or otherwise) in order to comply with federal and
applicable state securities laws.
12. DEFINITIONS.
-----------
(a) The term "employee" shall have, for purposes of this Plan,
the meaning ascribed to "employee" under Section 3401(c) of the Code and
the regulations promulgated thereunder.
(b) The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as heretofore and hereafter amended.
(c) The term "parent" shall have, for purposes of this Plan, the
meaning ascribed to it under Section 424(e) of the Code and the regulations
promulgated thereunder.
(d) The term "subsidiary" shall have, for all purposes under
this Plan, the meaning ascribed to it under Section 424(f) of the Code and
the regulations promulgated thereunder.
13. TERMINATION OR AMENDMENT OF PLAN. The Board may at any time
--------------------------------
terminate the Plan or make such changes in or additions to the Plan as it deems
advisable without further action on the part of the stockholders of the Company,
provided:
(a) that no such termination or amendment shall adversely affect
or impair any then outstanding Option, Purchase Authorization, Bonus or
related agreement without the consent of the Participant holding such
Option, Purchase Authorization, Bonus or related agreement; and
(b) that no such amendment which (i) increases the maximum number
of Shares subject to this Plan (except to the extent provided in Section
3), (ii) to the extent that compliance with Rule 16b-3 requires stockholder
approval in such event, materially increases the benefits accruing to
Participants, or (iii) materially modifies the requirements as to
eligibility for participation in the Plan may be made without obtaining, or
being conditioned upon, stockholder approval.
With the consent of the Participant affected, the Board may amend
outstanding Options, Purchase Authorizations, Bonuses or related agreements in a
manner not inconsistent with the Plan. The Board shall have the right to amend
or modify the terms and provisions of
7
<PAGE>
the Plan and of any outstanding Incentive Options granted under the Plan to the
extent necessary to qualify any or all such Options for such favorable federal
income tax treatment (including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422 of the Code.
8
<PAGE>
EXHIBIT 10.6
1998 STOCK INCENTIVE PLAN
OF
SQL FINANCIALS INTERNATIONAL, INC.
<PAGE>
1998 STOCK INCENTIVE PLAN
OF
SQL FINANCIALS INTERNATIONAL, INC.
1. PURPOSE
The purpose of the 1998 Stock Incentive Plan of SQL Financials
International, Inc. (the "Plan") is to encourage and enable selected employees,
directors and independent contractors of SQL Financials International, Inc. (the
"Corporation") and its related corporations to acquire or to increase their
holdings of common stock of the Corporation (the "Common Stock") and other
proprietary interests in the Corporation in order to promote a closer
identification of their interests with those of the Corporation and its
stockholders, thereby further stimulating their efforts to enhance the
efficiency, soundness, profitability, growth and stockholder value of the
Corporation. This purpose will be carried out through the granting of benefits
(collectively referred to herein as "Awards") to selected employees, independent
contractors and directors, including the granting of incentive stock options
("Incentive Options"), nonqualified stock options ("Nonqualified Options"),
stock appreciation rights ("SARs"), restricted stock awards ("Restricted Stock
Awards"), and restricted units ("Restricted Units") to such participants.
Incentive Options and Nonqualified Options shall be referred to herein
collectively as "Options." Restricted Stock Awards and Restricted Units shall be
referred to herein collectively as "Restricted Awards."
2. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Compensation Committee of the
Board of Directors (the "Committee"); provided, however, that the Board of
Directors of the Corporation may, in its sole discretion, assume administration
of the Plan in whole or in part. (For the purposes herein, references to the
Committee shall also include the Board of Directors if it is acting in its
administrative capacity.) Unless the Board shall determine otherwise, the
Committee shall include no fewer than the minimum number of "non-employee
directors," as such term is defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required by Rule 16b-3.
(b) Any action of the Committee with respect to the Plan may be taken by a
written instrument signed by all of the members of the Committee and any such
action so taken by written consent shall be as fully effective as if it had been
taken by a majority of the members at a meeting duly held and called. Subject to
the provisions of the Plan, and unless authority is granted to the chief
executive officer as provided in Section 2(c), the Committee shall have full and
final authority in its discretion to take any action with respect to the Plan
including, without limitation, the authority (i) to determine all matters
relating to Awards, including selection of individuals to be granted Awards, the
types of Awards, the number of shares of the Common Stock, if any, subject to an
Award, and all terms, conditions, restrictions and limitations of an Award; (ii)
to prescribe the form or forms of the agreements evidencing any Awards granted
under the Plan; (iii) to establish, amend and rescind rules and regulations for
the administration of the Plan; and (iv) to construe and interpret the Plan and
agreements evidencing Awards granted under the Plan, to establish and interpret
rules and regulations for administering the Plan and to make all other
determinations deemed necessary or advisable for administering the Plan. The
Committee shall also have authority, in its sole discretion, to accelerate the
date that any Award which was not otherwise exercisable or vested shall become
exercisable or vested in whole or in part without
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any obligation to accelerate such date with respect to any other Award granted
to any recipient. In addition, the Committee shall have the authority and
discretion to establish terms and conditions of Awards as the Committee
determines to be necessary or appropriate to conform to the applicable
requirements or practices of jurisdictions outside of the United States.
(c) Notwithstanding Section 2(b), the Committee may delegate to the chief
executive officer or president of the Corporation the authority to grant Awards,
and to make any or all of the determinations reserved for the Committee in the
Plan and summarized in Section 2(b) herein with respect to such Awards, to any
individual who, at the time of said grant or other determination, (i) is not
deemed to be an officer or director of the Corporation within the meaning of
Section 16 of the Exchange Act; (ii) is not deemed to be a Covered Employee; and
(iii) is otherwise eligible under Section 5. To the extent that the Committee
has delegated authority to grant Awards pursuant to this Section 2(c) to the
chief executive officer or president, references to the Committee shall include
references to such person, subject, however, to the requirements of the Plan,
Rule 16b-3 and other applicable law.
3. EFFECTIVE DATE
The effective date of the Plan shall be February 5, 1998 (the "Effective
Date"). Awards may be granted under the Plan on and after the effective date,
but no Awards will be granted after February 5, 2008.
4. SHARES OF STOCK SUBJECT TO THE PLAN; AWARD LIMITATIONS
(a) The number of shares of Common Stock that may be issued pursuant to
Awards shall be 200,000 shares of authorized but unissued shares or treasury
shares of the Corporation, subject to adjustments and increases as provided in
this Section 4; provided that the number of shares that may be issued hereunder
shall automatically increase to one million (1,000,000) shares upon consummation
of the Corporation's initial public offering.
(b) The Corporation hereby reserves sufficient authorized shares of Common
Stock to meet the grant of Awards hereunder. Any shares subject to an Award
which is subsequently forfeited, expires or is terminated may again be the
subject of an Award granted under the Plan. To the extent that any shares of
Common Stock subject to an Award are not delivered to a Participant (or his
beneficiary) because the Award is forfeited or canceled or because the Award is
settled in cash, such shares shall not be deemed to have been issued for
purposes of determining the maximum number of shares of Common Stock available
for issuance under the Plan. If the option price of an Option granted under the
Plan is satisfied by tendering shares of Common Stock, only the number of shares
issued net of the shares of Common Stock tendered shall be deemed issued for
purposes of determining the maximum number of shares of Common Stock available
for issuance under the Plan.
(c) If there is any change in the shares of Common Stock because of a
merger, consolidation or reorganization involving the Corporation or a related
corporation, or if the Board of Directors of the Corporation declares a stock
dividend or stock split distributable in shares of Common Stock, or if there is
a change in the capital stock structure of the Corporation or a related
corporation affecting the Common Stock, the number of shares of Common Stock
reserved for issuance under the Plan shall be
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correspondingly adjusted, and the Committee shall make such adjustments to
Awards or to any provisions of this Plan as the Committee deems equitable to
prevent dilution or enlargement of Awards.
(d) Subject to the terms of this Section 4, in no event shall an employee
be granted Awards under the Plan for more than 200,000 shares of Common Stock
(or the equivalent value thereof based on the Fair Market Value of the Common
Stock on the date of grant of the Award) during any calendar year.
5. ELIGIBILITY
An Award may be granted only to an individual who satisfies the following
eligibility requirements on the date the Award is granted:
(a) The individual is either (i) an employee of the Corporation or a
related corporation, (ii) a director of the Corporation or a related
corporation, or (iii) an independent contractor, consultant or advisor
(collectively, "independent contractors") providing services to the Corporation
or a related corporation. For this purpose, an individual shall be considered
to be an "employee" only if there exists between the individual and the
Corporation or a related corporation the legal and bona fide relationship of
employer and employee.
(b) With respect to the grant of Incentive Options, the individual does not
own, immediately before the time that the Incentive Option is granted, stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation. Notwithstanding the foregoing, an
individual who owns more than ten percent of the total combined voting power of
the Corporation may be granted an Incentive Option if the option price (as
determined pursuant to Section 6(b) herein, is at least 110% of the Fair Market
Value of the Common Stock (as defined in Section 6(b) herein), and the option
period (as defined in Section 6(c) herein) does not exceed five years. For this
purpose, an individual will be deemed to own stock which is attributable to him
under Section 424(d) of the Internal Revenue Code of 1986, as amended (the
"Code").
(c) The individual, being otherwise eligible under this Section 5, is
selected by the Committee as an individual to whom an Award shall be granted (a
"Participant").
6. OPTIONS
(a) Grant of Options: Subject to the limitations of the Plan, the
Committee may in its sole and absolute discretion grant Options to such eligible
individuals in such numbers, upon such terms and at such times as the Committee
shall determine. Both Incentive Options and Nonqualified Options may be granted
under the Plan. To the extent necessary to comply with Section 422 of the Code
and related regulations, if an Option is designated as an Incentive Option but
does not qualify as such under Section 422 of the Code, the Option (or portion
thereof) shall be treated as a Nonqualified Option.
(b) Option Price: The price per share at which an Option may be exercised
(the "option price") shall be established by the Committee at the time the
Option is granted and shall be set forth in the terms of the agreement
evidencing the grant of the Option; provided, that (i) in the case of an
Incentive Option, the option price shall be no less than the Fair Market Value
per share of the Common
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Stock on the date the Option is granted and (ii) in no event shall the option
price per share of any Option be less than the par value per share of the Common
Stock. In addition, the following rules shall apply:
(i) An Incentive Option shall be considered to be granted on the
date that the Committee acts to grant the Option, or on any later date
specified by the Committee as the effective date of the Option. A
Nonqualified Option shall be considered to be granted on the date the
Committee acts to grant the Option or any other date specified by the
Committee as the date of grant of the Option.
(ii) For the purposes of the Plan, the Fair Market Value of the
shares shall be determined in good faith by the Committee in accordance
with the following provisions: (A) if the shares of Common Stock are listed
for trading on the New York Stock Exchange or the American Stock Exchange,
the Fair Market Value shall be the closing sales price of the shares on the
New York Stock Exchange or the American Stock Exchange (as applicable) on
the date immediately preceding the date the Option is granted, or, if there
is no transaction on such date, then on the trading date nearest preceding
the date the Option is granted for which closing price information is
available, and, provided further, if the shares are quoted on the Nasdaq
National Market or the Nasdaq SmallCap Market of the Nasdaq Stock Market,
the Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such system on the
date immediately preceding the date the Option is granted for which such
information is available; or (B) if the shares of Common Stock are not
listed or reported in any of the foregoing, then the Fair Market Value
shall be determined by the Committee in accordance with the applicable
provisions of Section 20.2031-2 of the Federal Estate Tax Regulations, or
in any other manner consistent with the Code and accompanying regulations.
(iii) In no event shall there first become exercisable by an employee
in any one calendar year Incentive Options granted by the Corporation or
any related corporation with respect to shares having an aggregate Fair
Market Value (determined at the time an Incentive Option is granted)
greater than $100,000.
(c) Option Period and Limitations on the Right to Exercise Options
(i) The term of an Option (the "option period") shall be determined
by the Committee at the time the Option is granted. With respect to
Incentive Options, such period shall not extend more than ten years from
the date on which the Option is granted. Any Option or portion thereof not
exercised before expiration of the option period shall terminate. The
period during which an Option may be exercised shall be determined by the
Committee at the time the Option is granted.
(ii) An Option may be exercised by giving written notice to the
Corporation at such place as the Corporation shall direct. Such notice
shall specify the number of shares to be purchased pursuant to an Option
and the aggregate purchase price to be paid therefor, and shall be
accompanied by the payment of such purchase price. Such payment shall be in
the form of (A) cash; (B) shares of Common Stock owned by the Participant
at the time of exercise; (C) shares of Common Stock withheld upon exercise;
(D) delivery of written notice of exercise to the Corporation and delivery
to a broker of written notice of exercise and irrevocable instructions
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<PAGE>
to promptly deliver to the Corporation the amount of sale or loan proceeds
to pay the option price; or (E) a combination of the foregoing methods, as
elected by the Participant. Shares tendered or withheld in payment on the
exercise of an Option shall be valued at their Fair Market Value on the
date of exercise, as determined by the Committee by applying the provisions
of Section 6(b)(ii).
(iii) Notwithstanding Section 6(c)(i) herein, no Option granted to a
Participant who was an employee at the time of grant shall be exercised
unless the Participant is, at the time of exercise, an employee as
described in Section 5(a), and has been an employee continuously since the
date the Option was granted, subject to the following:
(A) An Option shall not be affected by any change in the terms,
conditions or status of the Participant's employment, provided that
the Participant continues to be an employee of the Corporation or a
related corporation.
(B) The employment relationship of a Participant shall be
treated as continuing intact for any period that the Participant is on
military or sick leave or other bona fide leave of absence, provided
that the period of such leave does not exceed ninety days, or, if
longer, as long as the Participant's right to reemployment is
guaranteed either by statute or by contract. The employment
relationship of a Participant shall also be treated as continuing
intact while the Participant is not in active service because of
disability. The Committee shall determine whether a Participant is
disabled within the meaning of this paragraph.
(C) Unless an individual option agreement provides otherwise, if
the employment of a Participant is terminated because of disability
within the meaning of subparagraph (B), or if the Participant dies
while he is an employee or dies after the termination of his
employment because of disability, the Option may be exercised only to
the extent exercisable on the date of the Participant's termination of
employment or death while employed (the "termination date"), except
that the Committee may in its discretion accelerate the date for
exercising all or any part of the Option which was not otherwise
exercisable on the termination date. The Option must be exercised, if
at all, prior to the first to occur of the following, whichever shall
be applicable: (X) the close of the period of twelve months next
succeeding the termination date; or (Y) the close of the option
period. In the event of the Participant's death, such Option shall be
exercisable by such person or persons as shall have acquired the right
to exercise the Option by will or by the laws of intestate succession.
(D) Unless an individual option agreement provides otherwise, if
the employment of the Participant is terminated for any reason other
than disability (as defined in subparagraph (B)) or death or for
"cause," his Option may be exercised to the extent exercisable on the
date of such termination of employment, except that the Committee may
in its discretion accelerate the date
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<PAGE>
for exercising all or any part of the Option which was not otherwise
exercisable on the date of such termination of employment. The Option
must be exercised, if at all, prior to the first to occur of the
following, whichever shall be applicable: (X) the close of the period
of three (3) months next succeeding the termination date; or (Y) the
close of the option period. If the Participant dies following such
termination of employment and prior to the earlier of the dates
specified in (X) or (Y) of this subparagraph (D), the Participant
shall be treated as having died while employed under subparagraph (C)
immediately preceding (treating for this purpose the Participant's
date of termination of employment as the termination date). In the
event of the Participant's death, such Option shall be exercisable by
such person or persons as shall have acquired the right to exercise
the Option by will or by the laws of intestate succession.
(E) Unless an individual option agreement provides otherwise, if
the employment of the Participant is terminated for "cause," his
Option shall lapse and no longer be exercisable as of the effective
time of his termination of employment, as determined by the Committee.
For purposes of this subparagraph (E) and subparagraph (D), the
Participant's termination shall be for "cause" if such termination
results from the Participant's (X) dishonesty or conviction of a
crime; (Y) failure to perform his duties to the satisfaction of the
Corporation; or (Z) engaging in conduct that could be materially
damaging to the Corporation without a reasonable good faith belief
that such conduct was in the best interest of the Corporation. The
determination of "cause" shall be made by the Committee and its
determination shall be final and conclusive.
(F) Notwithstanding the foregoing, the Committee shall have
authority, in its discretion, to extend the period during which an
Option may be exercised; provided that, in the event that any such
extension shall cause an Incentive Option to be designated as a
Nonqualified Option, no such extension shall be made without the prior
written request and consent of the Participant.
(iv) Notwithstanding Section 6(c)(i), herein, an Option granted to a
Participant who was an independent contractor or director of the
Corporation or a related corporation at the time of grant (and who does not
thereafter become an employee, in which case he shall be subject to the
provisions of Section 6(c)(iii) herein) may be exercised only to the extent
exercisable on the date of the Participant's termination of service to the
Corporation or a related corporation (unless the termination was for
cause), and must be exercised, if at all, prior to the first to occur of
the following, as applicable: (X) the close of the period of three (3)
months next succeeding the termination date; or (Y) the close of the option
period. If the services of such a Participant are terminated for cause (as
defined in Section 6(c)(iii)(E) herein), his Option shall lapse and no
longer be exercisable as of the effective time of his termination of
services, as determined by the Committee. Notwithstanding the foregoing,
the Committee may in its discretion accelerate the date for exercising all
or any part of an Option which was not otherwise exercisable on the
termination date or extend the period during which an Option may be
exercised, or both.
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<PAGE>
(v) A Participant or his legal representative, legatees or
distributees shall not be deemed to be the holder of any shares subject to
an Option unless and until certificates for such shares are delivered to
him or them under the Plan.
(vi) Nothing in the Plan shall confer upon the Participant any right
to continue in the service of the Corporation or a related corporation as
an employee, director, or independent contractor or to interfere in any way
with the right of the Corporation or a related corporation to terminate the
Participant's employment or service at any time.
(vii) A certificate or certificates for shares of Common Stock
acquired upon exercise of an Option shall be issued in the name of the
Participant (or his beneficiary) and distributed to the Participant (or his
beneficiary) as soon as practicable following receipt of notice of exercise
and payment of the purchase price.
(d) Nontransferability of Options
(i) Options shall not be transferable other than by will or the laws
of intestate succession. The designation of a beneficiary does not
constitute a transfer. An Option shall be exercisable during the
Participant's lifetime only by him or by his guardian or legal
representative.
(ii) If a Participant is subject to Section 16 of the Exchange Act,
shares of Common Stock acquired upon exercise of an Option may not, without
the consent of the Committee, be disposed of by the Participant until the
expiration of six months after the date the Option was granted.
7. STOCK APPRECIATION RIGHTS
(a) Grant of SARs: Subject to the limitations of the Plan, the Committee
may in its sole and absolute discretion grant SARs to such eligible individuals,
in such numbers, upon such terms and at such times as the Committee shall
determine. SARs may be granted to an optionee of an Option (hereinafter called a
"Related Option") with respect to all or a portion of the shares of Common Stock
subject to the Related Option (a "Tandem SAR") or may be granted separately to
an eligible key employee (a "Freestanding SAR"). Subject to the limitations of
the Plan, SARs shall be exercisable in whole or in part upon notice to the
Corporation upon such terms and conditions as are provided in the agreement
relating to the grant of the SAR.
(b) Tandem SARs: A Tandem SAR may be granted either concurrently with the
grant of the Related Option or (if the Related Option is a Nonqualified Option)
at any time thereafter prior to the complete exercise, termination, expiration
or cancellation of such Related Option. Tandem SARs shall be exercisable only at
the time and to the extent that the Related Option is exercisable (and may be
subject to such additional limitations on exercisability as the Committee may
provide in the agreement), and in no event after the complete termination or
full exercise of the Related Option. For purposes of determining the number of
shares of Common Stock that remain subject to such Related Option and for
purposes of determining the number of shares of Common Stock in respect of which
other Awards may be granted, upon the exercise of Tandem SARs, the Related
Option shall be considered to have been
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<PAGE>
surrendered to the extent of the number of shares of Common Stock with respect
to which such Tandem SARs are exercised. Upon the exercise or termination of the
Related Option, the Tandem SARs with respect thereto shall be canceled
automatically to the extent of the number of shares of Common Stock with respect
to which the Related Option was so exercised or terminated. Subject to the
limitations of the Plan, upon the exercise of a Tandem SAR, the Participant
shall be entitled to receive from the Corporation, for each share of Common
Stock with respect to which the Tandem SAR is being exercised, consideration
equal in value to the excess of the Fair Market Value of a share of Common Stock
on the date of exercise over the Related Option price per share; provided, that
the Committee may, in any agreement granting Tandem SARs, establish a maximum
value payable for such SARs.
(c) Freestanding SARs: Unless an individual agreement provides otherwise,
the base price of a Freestanding SAR shall be not less than 100% of the Fair
Market Value of the Common Stock (as determined in accordance with Section
6(b)(ii) herein) on the date of grant of the Freestanding SAR. Subject to the
limitations of the Plan, upon the exercise of a Freestanding SAR, the
Participant shall be entitled to receive from the Corporation, for each share of
Common Stock with respect to which the Freestanding SAR is being exercised,
consideration equal in value to the excess of the Fair Market Value of a share
of Common Stock on the date of exercise over the base price per share of such
Freestanding SAR; provided, that the Committee may, in any agreement granting
Freestanding SARs, establish a maximum value payable for such SARs.
(d) Exercise of SARs:
(i) Subject to the terms of the Plan, SARs shall be exercisable in
whole or in part upon such terms and conditions as are provided in the
agreement relating to the grant of the SAR. The period during which an SAR
may be exercisable shall not exceed ten years from the date of grant or, in
the case of Tandem SARs, such shorter option period as may apply to the
Related Option. Any SAR or portion thereof not exercised before expiration
of the period stated in the agreement relating to the grant of the SAR
shall terminate.
(ii) SARs may be exercised by giving written notice to the
Corporation at such place as the Committee shall direct. The date of
exercise of the SAR shall mean the date on which the Corporation shall have
received notice from the Participant of the exercise of such SAR.
(iii) No SAR may be exercised unless the Participant is, at the time
of exercise, an eligible Participant, as described in Section 5, and has
been a Participant continuously since the date the SAR was granted, subject
to the provisions of Sections 6(c)(iii) and (iv) herein.
(e) Consideration; Election: The consideration to be received upon the
exercise of the SAR by the Participant shall be paid in cash, shares of Common
Stock (valued at Fair Market Value on the date of exercise of such SAR in
accordance with Section 6(b)(ii) herein) or a combination of cash and shares of
Common Stock, as elected by the Participant, subject to the terms of the Plan
and the applicable agreement. The Corporation's obligation arising upon the
exercise of the SAR may be paid currently or on a deferred basis with such
interest or earnings equivalent as the Committee may determine. A certificate or
certificates for shares of Common Stock acquired upon exercise of an SAR for
shares shall be issued in the name of the Participant (or his beneficiary) and
distributed to the Participant (or his beneficiary) as soon as practicable
following receipt of notice of exercise. No fractional shares of
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Common Stock will be issuable upon exercise of the SAR and, unless otherwise
provided in the applicable agreement, the Participant will receive cash in lieu
of fractional shares.
(f) Limitations: The applicable SAR agreement shall contain such terms,
conditions and limitations consistent with the Plan as may be specified by the
Committee. Unless otherwise so provided in the applicable agreement or the Plan,
any such terms, conditions or limitations relating to a Tandem SAR shall not
restrict the exercisability of the Related Option.
(g) Nontransferability:
(i) SARs shall not be transferable other than by will or the laws of
intestate succession. The designation of a beneficiary does not constitute
a transfer. SARs may be exercised during the Participant's lifetime only by
him or by his guardian or legal representative.
(ii) If the Participant is subject to Section 16 of the Exchange Act,
shares of Common Stock acquired upon exercise of an SAR may not, without
the consent of the Committee, be disposed of by the Participant until the
expiration of six months after the date the SAR was granted.
8. RESTRICTED AWARDS
(a) Grant of Restricted Awards: Subject to the limitations of the Plan,
the Committee may in its sole and absolute discretion grant Restricted Awards to
such individuals in such numbers, upon such terms and at such times as the
Committee shall determine. A Restricted Award may consist of a Restricted Stock
Award or a Restricted Unit, or both. Restricted Awards shall be payable in cash
or whole shares of Common Stock (including Restricted Stock), or partly in cash
and partly in whole shares of Common Stock, in accordance with the terms of the
Plan and the sole and absolute discretion of the Committee. The Committee may
condition the grant or vesting, or both, of a Restricted Award upon the
continued service of the Participant for a certain period of time, attainment of
such performance objectives as the Committee may determine, or upon a
combination of continued service and performance objectives and as set forth in
the applicable agreement. The Committee shall determine the nature, length and
starting date of the period during which the Restricted Award may be earned (the
"Restriction Period") for each Restricted Award, which shall be as stated in the
agreement to which the Award relates. In the case of Restricted Awards based
upon performance criteria, or a combination of performance criteria and
continued service, the Committee shall determine the performance objectives to
be used in valuing Restricted Awards and determine the extent to which such
Awards have been earned. Performance objectives may vary from participant to
participant and between groups of participants and shall be based upon such
Corporation, business unit and/or individual performance factors and criteria as
the Committee in its sole discretion may deem appropriate, including, but not
limited to, sales targets, earnings per share, return on equity, return on
assets, total revenue or total return to stockholders. The Committee shall
determine the terms and conditions of each Restricted Award, including the form
and terms of payment of Awards. The Committee shall have sole authority to
determine whether and to what degree Restricted Awards have been earned and are
payable and to interpret the terms and conditions of Restricted Awards and the
provisions herein.
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(b) Earning of Restricted Awards: If the applicable agreement so provides,
a Restricted Award granted to a Participant may be deemed to be earned as of the
first to occur of the completion of the Restriction Period, retirement,
displacement, death or disability of the Participant, or acceleration of the
Restricted Award, provided that, in the case of Restricted Awards based upon
performance criteria or a combination of performance criteria and continued
service, the Committee shall have sole discretion to determine if, and to what
degree, the Restricted Awards shall be deemed earned at the end of the
Restriction Period or upon the retirement, displacement, death or disability of
the Participant. If the agreement does not so provide, then the Restricted
Award shall be deemed earned only as the agreement provides. In addition, the
following rules shall also apply to the earning of Restricted Awards:
(i) Completion of Restriction Period: For this purpose, a Restricted
Award shall be deemed to be earned upon completion of the Restriction
Period (except as otherwise provided herein for performance-based
Restricted Awards). In order for a Restricted Award to be deemed earned,
the Participant must have been continuously employed or in service during
the Restriction Period. Continuous employment or service shall mean
employment with or service to any combination of the Corporation and one or
more related corporations, and a temporary leave of absence with consent of
the Corporation shall not be deemed to be a break in continuous employment
or service.
(ii) Retirement of the Participant: For this purpose, the Participant
shall be deemed to have retired as of the earlier of (A) his normal
retirement date under the retirement plan established by the Corporation
for its employees which is applicable to the Participant, or (B) his
retirement date under a contract, if any, between the Participant and the
Corporation providing for his retirement from the employment of the
Corporation or a related corporation prior to such normal retirement date,
or (C) a mutually agreed upon early retirement date under such retirement
plan of the Corporation between the Participant and the Corporation.
(iii) Displacement of the Participant: For this purpose, the
Participant shall be deemed to have been displaced in the event of the
termination of the Participant's employment or service due to the
elimination of the Participant's job or position without fault on the part
of the Participant.
(iv) Death or Disability of the Participant: Except as otherwise
provided herein for performance-based Restricted Awards, if the Participant
shall terminate continuous employment or service because of death or
disability before a Restricted Award is otherwise deemed to be earned
pursuant to this Section 8(b), the Participant shall be deemed to have
earned a percentage of the Award (rounded to the nearest whole share in the
case of Restricted Awards payable in shares) determined by dividing the
number of his full years of continuous employment or service then completed
during the Restriction Period with respect to the Award by the number of
years of such Restriction Period.
(v) Acceleration of Restricted Awards by the Committee:
Notwithstanding the provisions of this Section 8(b), the Committee, in its
sole and absolute discretion, may accelerate the date that any Restricted
Award granted to the Participant shall be deemed to be earned in whole or
in part, without any obligation to accelerate such date with respect to
other Restricted Awards granted to the Participant or to accelerate such
date with respect to Restricted
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Awards granted to any other Participant, or to treat all Participants
similarly situated in the same manner.
(c) Forfeiture of Restricted Awards: If the employment or service of a
Participant shall be terminated for any reason, and the Participant has not
earned all or part of a Restricted Award pursuant to the terms herein, such
Award to the extent not then earned shall be forfeited immediately upon such
termination and the Participant shall have no further rights with respect
thereto.
(d) Dividend and Voting Rights; Share Certificates: A Participant shall
have no dividend rights or voting rights with respect to shares reserved in his
name pursuant to a Restricted Award payable in shares but not yet earned
pursuant to Section 8(b). A certificate or certificates for shares of Common
Stock representing a Restricted Award payable in shares shall be issued in the
name of the Participant and distributed to the Participant (or his beneficiary)
as soon as practicable following the date that the shares subject to the Award
are earned as provided in Section 8(b). No certificate shall be issued hereunder
in the name of the Participant (or his beneficiary) except to the extent the
shares represented thereby have been earned.
(e) Nontransferability:
(i) The recipient of a Restricted Award shall not sell, transfer,
assign, pledge or otherwise encumber shares subject to the Award until the
Restriction Period has expired or until all conditions to vesting have been
met.
(ii) Restricted Awards shall not be transferable other than by will
or the laws of intestate succession. The designation of a beneficiary does
not constitute a transfer.
(iii) If a Participant of a Restricted Award is subject to Section 16
of the Exchange Act, shares of Common Stock subject to such Award may not,
without the consent of the Committee, be sold or otherwise disposed of
within six months following the date of grant of such Award.
9. WITHHOLDING
The Corporation shall withhold all required local, state and federal taxes
from any amount payable in cash with respect to an Award. The Corporation shall
require any recipient of an Award payable in shares of the Common Stock to pay
to the Corporation in cash the amount of any tax or other amount required by any
governmental authority to be withheld and paid over by the Corporation to such
authority for the account of such recipient. Notwithstanding the foregoing, the
recipient may satisfy such obligation in whole or in part, and any other local,
state or federal income tax obligations relating to such an Award, by electing
(the "Election") to have the Corporation withhold shares of Common Stock from
the shares to which the recipient is entitled. The number of shares to be
withheld shall have a Fair Market Value as of the date that the amount of tax to
be withheld is determined (the "Tax Date") as nearly equal as possible to (but
not exceeding) the amount of such obligations being satisfied. Each Election
must be made in writing to the Committee in accordance with election procedures
established by the Committee.
10. PERFORMANCE-BASED COMPENSATION
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<PAGE>
To the extent that Section 162(m) of the Code is applicable, the Committee
shall have discretion to determine the extent, if any, that Awards conferred
under the Plan to Covered Employees, as such term is defined in Section 19(b)
herein, shall comply with the qualified performance-based compensation exception
to employer compensation deductions set forth in Section 162(m) of the Code.
11. SECTION 16(B) COMPLIANCE
It is the general intent of the Corporation that transactions under the
Plan which are subject to Section 16 of the Exchange Act shall comply with Rule
16b-3 under the Exchange Act. Notwithstanding anything in the Plan to the
contrary, the Committee, in its sole and absolute discretion, may bifurcate the
Plan so as to restrict, limit or condition the use of any provision of the Plan
to participants who are officers or directors subject to Section 16 of the
Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other participants.
12. NO RIGHT OR OBLIGATION OF CONTINUED EMPLOYMENT
Nothing contained in the Plan shall require the Corporation or a related
corporation to continue the employment or service of a Participant, nor shall
any such individual be required to remain in the employment or service of the
Corporation or a related corporation. Except as otherwise provided in the Plan,
Awards granted under the Plan to employees of the Corporation or a related
corporation shall not be affected by any change in the duties or position of the
participant, as long as such individual remains an employee of, or in service
to, the Corporation or a related corporation.
13. UNFUNDED PLAN; RETIREMENT PLANS
(a) Neither a Participant nor any other person shall, by reason of the
Plan, acquire any right in or title to any assets, funds or property of the
Corporation or any related corporation including, without limitation, any
specific funds, assets or other property which the Corporation or any related
corporation, in their discretion, may set aside in anticipation of a liability
under the Plan. A participant shall have only a contractual right to the Common
Stock or amounts, if any, payable under the Plan, unsecured by any assets of the
Corporation or any related corporation. Nothing contained in the Plan shall
constitute a guarantee that the assets of such corporations shall be sufficient
to pay any benefits to any person.
(b) In no event shall any amounts accrued, distributable or payable under
the Plan be treated as compensation for the purpose of determining the amount of
contributions or benefits to which any person shall be entitled under any
retirement plan sponsored by the Corporation or a related corporation that is
intended to be a qualified plan within the meaning of Section 401(a) of the
Code.
14. AMENDMENT AND TERMINATION OF THE PLAN
The Plan may be amended or terminated at any time by the Board of Directors
of the Corporation; provided, that (i) such amendment or termination shall not,
without the consent of the recipient of an Award, adversely affect the rights of
the recipient with respect to an outstanding Award; and (ii) approval of an
amendment by the stockholders of the Corporation shall only be required in the
event such stockholder approval of any such amendment is required by applicable
law, rule or regulation.
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<PAGE>
15. RESTRICTIONS ON SHARES
The Committee may impose such restrictions on any shares representing
Awards hereunder as it may deem advisable, including without limitation
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"), under the requirements of any stock exchange or similar organization and
under any blue sky or state securities laws applicable to such shares.
Notwithstanding any other Plan provision to the contrary, the Corporation shall
not be obligated to issue or deliver shares of Common Stock under the Plan or
make any other distribution of benefits under the Plan, or take any other
action, unless such delivery, distribution or action is in compliance with all
applicable laws, rules and regulations (including but not limited to the
requirements of the Securities Act). The Corporation may cause a restrictive
legend to be placed on any certificate issued pursuant to an Award hereunder in
such form as may be prescribed from time to time by applicable laws and
regulations or as may be advised by legal counsel.
16. APPLICABLE LAW
The Plan shall be governed by and construed in accordance with the laws of
the State of Delaware.
17. STOCKHOLDER APPROVAL
The Plan is subject to approval by the stockholders of the Corporation,
which approval must occur, if at all, within 12 months of the effective date of
the Plan. Awards granted prior to such stockholder approval shall be
conditioned upon and shall be effective only upon approval of the Plan by such
stockholders on or before such date.
18. CHANGE OF CONTROL
(a) Notwithstanding any other provision of the Plan to the contrary, in
the event of a Change of Control (as defined in Section 19(b) herein):
(i) All Options and SARs outstanding as of the date of such Change
of Control shall become fully exercisable, whether or not then otherwise
exercisable.
(ii) Any restrictions including but not limited to the Restriction
Period applicable to any Restricted Award shall be deemed to have expired,
and such Restricted Awards shall become fully vested and payable to the
fullest extent of the original grant of the applicable Award.
(iii) Notwithstanding the foregoing, in the event of a merger, share
exchange, reorganization or other business combination affecting the
Corporation or a related corporation, the Committee may, in its sole and
absolute discretion, determine that any or all Awards granted pursuant to
the Plan shall not vest or become exercisable on an accelerated basis, if
the Board of Directors of the surviving or acquiring corporation, as the
case may be, shall have taken such action, including but not limited to the
assumption of Awards granted under the Plan or the grant of substitute
awards (in either case, with substantially similar terms as Awards granted
under the Plan), as in the opinion of the Committee is equitable or
appropriate to protect the rights and
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<PAGE>
interests of participants under the Plan. For the purposes herein, the
Committee authorized to make the determinations provided for in this
Section 18(a)(iii) shall be appointed by the Board of Directors, two-thirds
of the members of which shall have been directors of the Corporation prior
to the merger, share exchange, reorganization or other business
combinations affecting the Corporation or a related corporation.
(b) For the purposes herein, a "Change of Control" shall be deemed to have
occurred on the earliest of the following dates:
(i) The date any entity or person shall have become the beneficial
owner of, or shall have obtained voting control over, (x) fifty-one percent
(51%) or more of the outstanding Common Stock of the Corporation if the
Corporation's stock is not then registered with the SEC and publicly traded
or (y) forty percent (40%) or more of the outstanding Common Stock of the
Corporation if the Corporation has consummated its initial public offering;
(ii) The date the stockholders of the Corporation approve a
definitive agreement (A) to merge or consolidate the Corporation with or
into another corporation, in which the Corporation is not the continuing or
surviving corporation or pursuant to which any shares of Common Stock of
the Corporation would be converted into cash, securities or other property
of another corporation, other than a merger or consolidation of the
Corporation in which holders of Common Stock immediately prior to the
merger or consolidation have the same proportionate ownership of Common
Stock of the surviving corporation immediately after the merger as
immediately before, or (B) to sell or otherwise dispose of all or
substantially all the assets of the Corporation; or
(iii) The date there shall have been a change in a majority of the
Board of Directors of the Corporation within a 12-month period unless the
nomination for election by the Corporation's stockholders of each new
director was approved by the vote of two-thirds of the directors then still
in office who were in office at the beginning of the 12-month period.
(For purposes herein, the term "person" shall mean any individual,
corporation, partnership, group, association or other person, as such term
is defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act,
other than the Corporation, a subsidiary of the Corporation or any employee
benefit plan(s) sponsored or maintained by the Corporation or any
subsidiary thereof, and the term "beneficial owner" shall have the meaning
given the term in Rule 13d-3 under the Exchange Act.)
19. CERTAIN DEFINITIONS
For purposes of the Plan, the following terms shall have the meaning
indicated:
(a) "Agreement" means any written agreement or agreements between the
Corporation and the recipient of an Award pursuant to the Plan relating to the
terms, conditions and restrictions of Options, SARs, Restricted Awards and any
other Awards conferred herein.
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<PAGE>
(b) "Covered Employee" shall have the meaning given the term in Section
162(m) of the Code or the regulations thereunder.
(c) "Disability" shall mean the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death, or which has lasted or can
be expected to last for a continuous period of not less than twelve months.
(d) "Parent" or "parent corporation" shall mean any corporation (other
than the Corporation) in an unbroken chain of corporations ending with the
Corporation if each corporation other than the Corporation owns stock possessing
50% or more of the total combined voting power of all classes of stock in
another corporation in the chain.
(e) "Predecessor" or "predecessor corporation" means a corporation which
was a party to a transaction described in Section 424(a) of the Code (or which
would be so described if a substitution or assumption under that Section had
occurred) with the Corporation, or a corporation which is a parent or subsidiary
of the Corporation, or a predecessor of any such corporation.
(f) "Related corporation" means any parent, subsidiary or predecessor of
the Corporation.
(g) "Restricted Stock" shall mean shares of Common Stock which are subject
to Restricted Awards payable in shares, the vesting of which is subject to
restrictions set forth in the Plan or the agreement relating to such Award.
(h) "Subsidiary" or "subsidiary corporation" means any corporation (other
than the Corporation) in an unbroken chain of corporations beginning with the
Corporation if each corporation other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in another corporation in the chain.
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<PAGE>
1998 STOCK INCENTIVE PLAN
OF SQL FINANCIALS INTERNATIONAL, INC.
(EMPLOYEE OPTION AGREEMENT)
THIS AGREEMENT (the "Agreement"), made the _____ day of ____________, ____,
between SQL FINANCIALS INTERNATIONAL, INC., a Delaware corporation (the
"Corporation"), and ______________________, an employee of the Corporation or a
related corporation (the "Optionee");
R E C I T A L S :
- - - - - - - -
In furtherance of the purposes of the 1998 Stock Incentive Plan of SQL
Financials International, Inc., as it may be hereafter amended (the "Plan"), the
Corporation and the Optionee hereby agree as follows:
1. The rights and duties of the Corporation and the Optionee under this
Agreement shall in all respects be subject to and governed by the provisions of
the Plan, the terms of which are incorporated herein by reference.
2. The Corporation hereby grants to the Optionee pursuant to the Plan, as
a matter of separate inducement and agreement in connection with his employment
or service to the Corporation, and not in lieu of any salary or other
compensation for his services, the right and Option (the "Option") to purchase
all or any part of an aggregate of _______________ (_________) shares (the
"shares") of the Common Stock of the Corporation, at an option price of
_____________________________ ($__________) per share. The Option to purchase
_____________ (_____) of the shares shall be designated as an Incentive Option.
The Option to purchase ________________ (_____) of the shares shall be
designated as a Nonqualified Option. To the extent that any Option is
designated as an Incentive Option and such Option does not qualify as an
Incentive Option, it shall be treated as a Nonqualified Option. Except as
otherwise provided in the Plan, the Option will expire if not exercised in full
before ______________, ______.
3. The Option shall become exercisable on the date or dates set forth on
Schedule A attached hereto. To the extent that an Option which is exercisable
is not exercised, such Option shall accumulate and be exercisable by the
Optionee in whole or in part at any time prior to expiration of the Option.
Upon the exercise of an Option in whole or in part, the Optionee shall pay the
option price to the Corporation in accordance with the provisions of the Plan,
and the Corporation shall as soon thereafter as practicable deliver to the
Optionee a certificate or certificates for the shares purchased.
4. Nothing contained in this Agreement or the Plan shall require the
Corporation or a related corporation to continue to employ the Optionee for any
particular period of time, nor shall it require the Optionee to remain in the
employ of the Corporation or such related corporation for any particular period
of time. Except as otherwise expressly provided in the Plan, all rights of the
Optionee under the Plan with respect to the unexercised portion of his Option
shall terminate upon termination of the employment of the Optionee with the
Corporation or a related corporation.
<PAGE>
5. Except as may be otherwise provided in the Plan, this Option shall not
be transferable other than by will or the laws of intestate succession. This
Option shall be exercisable during the Optionee's lifetime only by the Optionee.
6. This Agreement may be modified, amended or terminated only by the
written consent of the parties hereto.
7. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective executors, administrators, next-of-kin,
successors and assigns.
8. Except as otherwise provided in the Plan or herein, this Agreement
shall be construed and enforced according to the laws of the State of Delaware.
IN WITNESS WHEREOF, this Agreement has been executed in behalf of the
Corporation and by the Optionee on the day and year first above written.
SQL FINANCIALS INTERNATIONAL, INC.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
Attest:
Secretary
[Corporate Seal]
OPTIONEE
___________________________________(SEAL)
Name:____________________________________
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<PAGE>
1998 STOCK INCENTIVE PLAN
OF SQL FINANCIALS INTERNATIONAL, INC.
(EMPLOYEE OPTION AGREEMENT)
SCHEDULE A
Date Option granted: __________________, ______.
Date Option expires: __________________, ______.
Number of shares subject to Option: _______ shares.
Option price (per share): $________.
Date Installment Number of Shares Incentive or
First Exercisable in Installment Nonqualified Stock Option
- ----------------- ----------------- -------------------------
<PAGE>
1998 STOCK INCENTIVE PLAN
OF SQL FINANCIALS INTERNATIONAL, INC.
(NON-EMPLOYEE DIRECTOR/INDEPENDENT CONTRACTOR AGREEMENT)
THIS AGREEMENT (the "Agreement"), made the ______ day of ____________,
____, between SQL FINANCIALS INTERNATIONAL, INC., a Delaware corporation (the
"Corporation"), and ______________________ (the "Optionee");
R E C I T A L S :
- - - - - - - -
In furtherance of the purposes of the 1998 Stock Incentive Plan of SQL
Financials International, Inc., as it may be hereafter amended (the "Plan"),
the Corporation and the Optionee hereby agree as follows:
1. The rights and duties of the Corporation and the Optionee under this
Agreement shall in all respects be subject to and governed by the provisions of
the Plan, the terms of which are incorporated herein by reference.
2. The Corporation hereby grants to the Optionee pursuant to the Plan, as
a matter of separate inducement and agreement in connection with his services to
the Corporation or a related corporation, and not in lieu of any salary or other
compensation for his services, the right and Option (the "Option") to purchase
all or any part of an aggregate of _______________ (_________) shares (the
"shares") of the Common Stock of the Corporation, at an option price of
__________________________ ($__________) per share. The Option shall be
designated as a Nonqualified Option. Except as otherwise provided in the Plan,
the Option will expire if not exercised in full before ____________, _____.
3. The Option shall become exercisable on the date or dates shown on
Schedule A. To the extent that an Option which is exercisable is not exercised,
such Option shall accumulate and be exercisable by the Optionee in whole or in
part at any time prior to expiration of the Option. Upon the exercise of an
Option in whole or in part, the Optionee shall pay the option price to the
Corporation in accordance with the provisions of the Plan, and the Corporation
shall as soon thereafter as practicable deliver to the Optionee a certificate or
certificates for the shares purchased.
4. Nothing contained in this Agreement or the Plan shall require the
Corporation or a related corporation to continue to require the services of the
Optionee for any particular period of time, nor shall it require the Optionee to
remain in service to the Corporation or such related corporation for any
particular period of time. Except as otherwise expressly provided in the Plan,
all rights of the Optionee under the Plan with respect to the unexercised
portion of his Option shall terminate upon termination of the service of the
Optionee with the Corporation or a related corporation.
5. Except as may be otherwise provided by the Plan, this Option shall not
be transferable other than by will or the laws of intestate succession. This
Option shall be exercisable during the Optionee's lifetime only by the Optionee.
<PAGE>
6. This Agreement may be modified, amended or terminated only by the
written consent of the parties hereto.
7. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective executors, administrators, next-of-kin,
successors and assigns.
8. Except as otherwise provided herein or in the Plan, this Agreement
shall be construed and enforced according to the laws of the State of Delaware.
IN WITNESS WHEREOF, this Agreement has been executed in behalf of the
Corporation and by the Optionee on the day and year first above written.
SQL FINANCIALS INTERNATIONAL, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
Attest:
Secretary
[Corporate Seal]
OPTIONEE
_________________________________(SEAL)
Name:__________________________________
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<PAGE>
1998 STOCK INCENTIVE PLAN
OF SQL FINANCIALS INTERNATIONAL, INC.
(NON-EMPLOYEE DIRECTOR/INDEPENDENT CONTRACTOR AGREEMENT)
SCHEDULE A
Date Option granted: __________________, _____.
Date Option expires: __________________, _____.
Number of shares subject to Option: _______ shares.
Option price (per share): $________.
Date Installment Number of Shares
First Exercisable in Installment
----------------- -----------------
<PAGE>
EXHIBIT 10.7
STATE OF GEORGIA
COUNTY OF FORSYTH
LEASE
THIS LEASE, made this 20th day of March, 1997, between TECHNOLOGY
PARK/ATLANTA, INC.,a Georgia Corporation (hereinafter called "Lessor"), and SQL
FINANCIALS INTERNATIONAL, INC., a Delaware Corporation (hereinafter called
"Lessee");
W I T N E S S E T H: THAT,
WHEREAS, Lessor is the owner of that certain building situated at 3950 Johns
Creek Court, Suwanee, Forsyth County, Georgia (hereinafter called the
"Building") and located on the property (hereinafter called the "Land"; the Land
and the Building are herein collectively called the "Property") described on
Exhibit "A", attached hereto and by this reference incorporated herein; and
WHEREAS, Lessee wishes to lease from Lessor approximately 41,158 rentable
square feet (37,562 usable square feet) of the Building, which area is outlined
in red on the diagram marked Exhibit "B", attached hereto and by this reference
incorporated herein and made a part hereof (hereinafter called the "Premises");
NOW, THEREFORE, in consideration of the payment of the rent and the keeping
and performance of the covenants and agreements by Lessee as hereinafter set
forth, Lessor does hereby lease to Lessee, and Lessee does hereby lease from
Lessor, the Premises. Lessor has not made any representation or warranty as to
the suitability of the Premises for the conduct of Lessee's business. No
easement for light or air is included in the Premises.
FOR AND IN CONSIDERATION of the leasing of the Premises as aforesaid, the
parties hereby covenant and agree as follows:
1. TERM. Subject to Section 22 hereof, the term (hereinafter called the
"Lease Term") of this Lease shall commence on June 15, 1997 (hereinafter called
the "Commencement Date") and, unless sooner terminated pursuant to the
provisions hereof, shall expire at 11:59 p.m. on the day before the date which
is eighty-five (85) months after the Commencement Date.
2. RENT.
2.1 The annual base rental (hereinafter called "Annual Base Rental")
for the Premises shall be THREE HUNDRED EIGHTY SIX THOUSAND FOUR HUNDRED SEVENTY
THREE AND 68/100 DOLLARS ($386,473.68). The Annual Base Rental shall be payable
in equal monthly installments of THIRTY TWO THOUSAND TWO HUNDRED SIX AND
14/100 DOLLARS ($32,206.14) (hereinafter called "Base Rent") in advance on the
first day of each and every calendar month during the Lease Term. Base Rent
shall be prorated at the rate of 1/30th of the Base Rent per day for any partial
month. Beginning July 1, 1998 and each July 1 thereafter throughout the Lease
Term, the Annual Base Rental and Base Rent shall automatically increase by an
amount equal to three percent (3%) over the preceding twelve month's Annual Base
Rental, and Base Rent. The first monthly Base Rent payment (for the period
beginning June 15, 1997 through July 14, 1997) shall not be required to be paid.
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<PAGE>
2.2 Lessee shall pay the rent and all other sums, amounts, liabilities,
and obligations which Lessee herein assumes or agrees to pay (whether designated
Base Rent, additional rent, costs, expenses, damages, losses, or otherwise) (all
of which are hereinafter called "Amount Due") as herein provided promptly at the
times and in the manner herein specified without deduction, setoff, abatement,
counterclaim, or defense, except as otherwise provided for in this Lease. If
any Amount Due is not received by Lessor within five (5) days after written
notice following the date on which it is due, Lessee shall pay Lessor a late
charge equal to five percent (5%) of the amount of such past due payment,
notwithstanding the date on which such payment is actually paid to Lessor. If
such Amount Due is not paid within thirty (30) days of the date on which it was
originally due, then, in addition to such late charge, Lessee shall pay Lessor
interest on such Amount Due from the date on which it was originally due until
the date it is actually paid at a rate per annum equal to the lesser of (I) the
prime rate of interest announced by Wachovia Bank of Georgia, N.A., or its
successors, from time to time for 90-day unsecured loans to its best commercial
customers plus five percent (5%) or (ii) the maximum rate permitted by
applicable law. Any such late charge and interest shall be due and payable at
the time of actual payment of the Amount Due. Any Amount Due payable to Lessor
by Lessee shall be paid in cash or by check at the office of Lessor, c/o
Technology Park/Atlanta, Inc., Suite 150, 11555 Medlock Bridge Road, Duluth,
Georgia 30155, or at such other place or places as Lessor may from time to time
designate in writing.
2.3 Contemporaneously with the execution of this Lease, Lessee shall
pay Lessor a security deposit in the amount of NINETY SIX THOUSAND SIX HUNDRED
EIGHTEEN AND 42/100 DOLLARS ($96,618.42) (hereinafter called the "Security
Deposit") to be held by Lessor without interest for the performance by Lessee of
Lessee's covenants and obligations under this Lease. If Lessee shall at any
time fail to pay any Amount Due, Lessor may, but shall not be obligated to, from
time to time and without prejudice to any other remedy, apply all or any portion
of the Security Deposit to the extent necessary toward the payment of any such
Amount Due. In the event Lessor applies the Security Deposit or a portion
thereof as provided in this paragraph 2.3, Lessee shall immediately upon notice
from Lessor of such application pay the amount so applied to Lessor, it being
the intent of the parties that the Security Deposit held by Lessor always be in
the amount stated above. It is expressly understood and agreed, however, that
the Security Deposit shall not be considered an advance payment of rent or a
measure of Lessor's damages in the event of any default by Lessee. If, at the
expiration or other termination of this Lease, Lessee is not in default of any
of its covenants, the Security Deposit shall be returned by Lessor to Lessee
with accrued interest. Lessor agrees to deposit the Security Deposit in an
interest bearing account with a federally insured national bank, which shall
earn and accrue interest as may from time to time be normally paid at said bank.
Providing Lessor has no outstanding claim on the Security Deposit, then Lessor
shall return the Security Deposit plus earned interest to Lessee within thirty
(30) days following the expiration date of the Lease
3. INTENTIONALLY DELETED
4. SHARED EXPENSES.
4.1 During the Lease Term, Lessee shall pay as additional rent Lessee's
Proportionate Share (as hereinafter defined) of Shared Expenses (as hereinafter
defined). Lessee shall also pay as additional rent all other charges, costs and
expenses not included within Shared Expenses which are incurred by Lessor as a
result of any use of the Premises by Lessee. Lessee's Proportionate Share of
Shared Expenses shall be prorated as necessary for any year during which this
Lease is effective for less than the full twelve month calendar year. Shared
Expenses shall be calculated on an accrual basis.
4.2 "Total Rentable Area" shall mean all space within the Building
designed and designated for individual tenant occupancy whether such space is
currently subject to a lease by an individual tenant or not, including publicly
used hallways, stairways, elevators, restrooms, entryways, atriums or similar
areas used in common with other tenants of the Building, if any. The parties
hereby acknowledge that the Total Rentable Area within the Building is 71,208
square feet.
4.3 "Lessee's Proportionate Share" shall mean that proportion of the
Shared Expenses that the area of the
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<PAGE>
Premises bears to the Total Rentable Area of the Building. Specifically, the
parties acknowledge that the Premises occupied by Lessee are 41,158 square feet
out of a Total Rentable Area of 71,208 square feet; therefore, for any
applicable period, the Lessee's Proportionate Share of Shared Expenses, to be
paid by Lessee to Lessor, is 57.80%.
4.4 For purposes of this Lease, the term "Shared Expenses" shall mean
the operating and maintenance expenses incurred by Lessor pertaining to all
areas of the Building and the Land used in common with other tenants of the
Building, including, but not limited to, the exterior structure, walls and roof
of the Building, publicly used hall walkways, stairways, lawns, gardens,
sidewalks, driveways and parking lots (herein collectively called the "Common
Area"). Shared Expenses shall include, but not be limited to:
4.4.1 The wages and salaries of all employees directly engaged
in the operation and maintenance of the Common Area, including employers' Social
Security taxes, unemployment, and other employment taxes which may be levied on
or with respect to such wages and salaries, and attributable overhead expenses.
4.4.2 All janitorial and other cleaning expenses and office
supplies and material used in the operation and maintenance of the Common Area
by Lessor.
4.4.3 The cost of water, sewer, heating, lighting, ventilation,
electricity, air conditioning, and any other utilities supplied or paid for by
Lessor for the Common Area and the cost of maintaining the systems supplying the
same.
4.4.4 The cost of all agreements for maintenance and service
of the Common Area, including, but not limited to, agreements relating to pest
control and the cleaning and maintenance of equipment.
4.4.5 The cost of all sprinkler systems, fire extinguishers,
fire hoses, security services and protective services or devices rendered to or
in connection with the Land and the Building or any part thereof.
4.4.6 Insurance premiums for insurance for the Building and
Land required to be maintained by Lessor hereunder or which Lessor deems
appropriate (exclusive of additional premiums caused and paid for by Lessee or
other tenants of the Building).
4.4.7 The cost of repairs and general maintenance of the Common
Area and Land, including, but not limited to: maintenance of common facilities;
lawn mowing, gardening, landscaping and irrigation of landscaped areas; line
painting, pavement maintenance, sweeping and sanitary control; removal of snow,
trash, rubbish, garbage and other refuse; the cost of personnel to implement
such services, to direct parking and to police the common facilities; the cost
of exterior and interior painting; and the cost of maintenance of sewers and
utility lines.
4.4.8 The amortization (together with reasonable financing
charges) of the cost of installation of capital investment items which are
installed for the purpose of reducing operating expenses, promoting safety,
complying with governmental requirements or maintaining the first class nature
of the Property.
4.4.9 All taxes, assessments and governmental or other charges,
general or special, ordinary or extraordinary, foreseen or unforeseen, which are
levied, assessed or otherwise imposed against the Land, street lights, personal
property, or rents, or on the right or privilege of leasing the Land or
collecting rents thereon by any federal, state, county or municipal government
or by any special sanitation district or by any other governmental or quasi-
governmental entity that has taxing or assessment authority, and any other taxes
and assessments attributable to the Building or its operation, including but not
limited to any Impositions payable by Lessor pursuant to Section 16 hereof; but
exclusive of federal or state income taxes of Lessor.
4.4.10 All management expenses attributable to the Common Area
and Land, including, but not
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limited to: administrative expenses associated with collecting rent, arranging
for and assuring continuity of Common Area services, supervising maintenance or
repair, enforcing rules and regulations and generally assuring compliance with
the terms of this and other leases; salaries or wages of persons employed or
contracted to manage the Building; the cost of supplies and materials, equipment
and furnishings necessary for such management functions; the cost of telephone
service, attributable overhead expenses and any other expenses and management
fees directly relating to the management of the Building. The management fee
will not exceed 3% of the Building gross revenue.
4.4.11 All assessments (if any) assessed against the Land
during the Lease Term pursuant to any protective covenants now or hereafter of
record against the Land, including, without limitation, any assessments imposed
for the maintenance and repair of the common areas of Johns Creek pursuant to
the covenants described in Section 26 hereof.
4.4.12 Those items specified in paragraph 7.1 hereof which are
Lessor's responsibility to maintain.
4.4.13 Any cost or expense which is normally treated in
accordance with generally accepted accounting principals as being of a capital
nature shall not be included as Shared Expenses.
4.4.14 Any cost or expense for which the Lessor receives
reimbursement from insurance proceeds (exclusive of the amount of the insurance
deductible) shall not be included as a Shared Expense.
4.5 Nothing contained in this Section 4, including, but not limited to
the definition of "Shared Expenses" contained in Paragraph 4.4 hereof, shall
imply any duty on the part of Lessor to pay any expense or provide any service,
except as otherwise provided for herein.
4.6 Prior to the Commencement Date and prior to each December 31
thereafter during the Lease Term, Lessor shall reasonably estimate the amount
of Shared Expenses and Lessee's Proportionate Share of Shared Expenses for the
ensuing calendar year or (if applicable) fractional portion thereof and notify
Lessee in writing of such estimate. Such estimate shall be made by Lessor in the
exercise of its sole discretion. The amount of additional rent specified in
each such notification shall be paid by Lessee to Lessor in equal monthly
installments in advance on the Commencement Date and on the first day of each
calendar month thereafter during the Lease Term, at the same time and in the
same manner as Base Rent.
4.7 On or before each March 1 during the Lease Term, Lessor shall
advise Lessee of the amount of actual Shared Expenses for such prior calendar
year or fractional part thereof (if applicable). If Lessee's Proportionate
Share of Shared Expenses for such calendar year proves to be greater than the
estimated amount, Lessor shall invoice Lessee for the deficiency as soon as
practicable after the amount of underpayment as been determined, and Lessee
shall pay such deficiency to Lessor within thirty (30) days following its
receipt of such invoice. If, however, Lessee's Proportionate Share of Shared
Expenses for such calendar year is lower than the estimated amount, Lessee shall
receive a credit toward the next ensuing monthly payment of the estimated amount
of Lessee's Proportionate Share of Shared Expenses in an amount of such
overpayment, provided however, that in the event of the expiration or other
termination of this Lease, Lessee shall be refunded such overpayment as soon as
practicable thereafter after the amount of overpayment has been determined but
in no event not later than thirty (30) days after the date of such expiration or
other termination.
4.8 Lessee may, upon ten (10) days' prior written notice to Lessor, at
Lessee's expense and at any reasonable time, audit the books and supporting
documentation of Lessor pertaining exclusively to the calculation of Shared
Expenses. If Lessee disputes the amount of additional rent due pursuant to
paragraph 4.7 hereof, Lessee may institute arbitration proceedings and such
dispute shall be settled by arbitration in the City of Atlanta, Georgia, by a
panel of three members in accordance with the rules then in effect of the
American Arbitration Association; provided, however, that Lessee shall
immediately pay any disputed amount to Lessor, and if the arbitrators find that
Lessee has paid more than Lessee's Proportionate Share of Shared Expenses for
the previous calendar year, Lessor shall immediately pay such amount to Lessee.
The decision of the arbitrators acting hereunder shall be binding and conclusive
upon the parties.
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Lessor and Lessee shall each pay one-half of the cost of such arbitration;
provided, however, that if the arbitrators determine that the arbitration
proceedings were not instituted in good faith by Lessee, Lessee shall pay the
full cost thereof.
5. USE.
5.1 Lessee (and its permitted assignees and subtenants) shall use the
Premises only for general business, administrative, sales, service, and product
development, not in violation of the protective or restrictive covenants
hereinafter referred to, and for no other purpose without the prior written
consent of Lessor. Lessee shall operate its business in the Premises during the
entire Lease Term and in a reputable manner in compliance with all applicable
laws, ordinances, regulations, covenants, restrictions, and other matters shown
on the public records, now in force or hereafter enacted. Lessee will not
permit, create, or maintain any disorderly conduct, trespass, noise, or nuisance
whatsoever about the Premises which has a tendency to annoy or disturb any
persons occupying adjacent premises either within or without the Building.
5.2 Lessee shall not place or maintain machines, equipment, or other
apparatus which causes vibrations or noise that may be transmitted to the
Building structure or to any space to such a degree as to be objectionable to
Lessor or to any tenant, occupant, or other person in the Building. Lessee
shall not make or permit any odor that is objectionable to the public or to
other occupants of the Building, to emanate from the Premises, and shall not
create, permit, or maintain a nuisance thereon, and shall not do any act tending
to injure the reputation of the Building.
5.3 Lessee shall cause all loading and unloading of any goods or
materials delivered to or sent from the Premises to be done only in the loading
dock area of the Premises or, if no loading dock area is located at the
Premises, then at the loading dock area of the Building or such other dock area
as Lessor may designate. Under no circumstances shall Lessee allow any goods or
materials delivered to or sent from the Premises to be stored on, accumulate on
or obstruct the loading dock area, dumpster pad, sidewalks, driveways, parking
areas, entrances or other public areas or spaces of the Building or the
Property. Lessee acknowledges that violations of this Paragraph 5.3 shall
constitute a material breach of this Lease.
5.4 Lessee shall not perform or permit any work, including, but not
limited to, assembly, construction, mechanical work, painting, drying, layout,
cleaning, or repair of goods or materials, to be done on the loading dock,
sidewalks, driveways, parking areas, landscaped areas of the Building or the
Property.
5.5 Lessee shall not use, handle, store, deal in, discharge, or
fabricate any environmentally hazardous wastes, substances or materials as the
same are now or hereafter may be defined or classified by any local, state, or
federal environmental protection legislation or regulation issued pursuant
thereto except for cleaning supplies, toners, and similar materials which are
not in reportable quantities as defined and required by Federal or State Laws.
6. UTILITIES AND SERVICE.
6.1 Lessee shall pay during the Lease Term the costs of all utilities
furnished to the Premises, including, without limitation, water, gas (if any),
electricity, sewer and refuse disposal. To the extent water, sewer and refuse
disposal for the Premises and other tenant space within the Building are not
separately billed to Lessee and the other tenants of the Building, the costs for
such services shall be paid by Lessee to Lessor as a Shared Expense. Lessee
shall be solely responsible for the payment of all telephone and cable charges,
including, without limitation, the cost of installation at the Premises of all
telephone and cable equipment which shall be installed at the request of Lessee.
The furnishing of and cost of janitorial services for the Premises shall be the
sole responsibility of Lessee.
6.2 Except in the event of Lessor's negligence or willful misconduct,
Lessor shall not be held liable for any damage or injury suffered by Lessee or
by any of Lessee's licensees, agents, invitees, servants, employees,
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contractors, or subcontractors or any other person or entity engaged, invited,
or allowed to come onto the Premises by Lessee (hereinafter collectively
referred to as "Lessee Parties"), resulting directly, indirectly, proximately,
or remotely from the installation, use, or interruption of any utility service
to the Premises or Building, including, but not limited to, temporary failure to
supply any heating, air conditioning, electrical, water, or sewer services, or
any of them. No temporary failure to provide services shall relieve Lessee from
fulfillment of any covenant of this Lease, including, without limitation, the
covenant to pay any Amount Due in the manner and amounts, and promptly at the
times set forth herein.
7. MAINTENANCE.
7.1 Lessor shall not be obligated to maintain or make any repairs or
replacements to the Premises during the Lease Term except for the roof,
foundation, exterior walls (excluding, however, glass doors), all exterior sewer
and exterior utility lines to the Building, and the Common Area, and Lessee
covenants and agrees to assume all responsibility of repair and maintenance of
the Premises.
7.2 Upon commencement of the Lease Term, Lessee shall accept (excepting
Punch List items) the Premises for its intended use, and Lessee shall, at its
sole cost, risk, expense and liability, keep and maintain the Premises in good
order and repair, and in compliance with all applicable governmental codes,
ordinances and regulations. Lessee shall also (i) keep all sewer and utility
lines servicing the Premises, including, without limitation, all sewer
connections, plumbing, heating, ventilating and air conditioning equipment and
appliances, wiring and glass, in good order and repair; (ii) provide janitorial
services for the Premises; and (iii) keep the Premises free from all litter,
dirt, debris and obstructions and in a clean and sanitary condition. Lessee
shall enter into a contract approved by Lessor for the maintenance of all
heating, ventilating, and air conditioning equipment located in or serving the
Premises. At all times the Premises shall be kept in accordance with the
standards then prevailing in Johns Creek and all such maintenance, repair,
replacement and work performed pursuant to this section shall be performed in
accordance with such standards.
7.3 At the expiration or other termination of this Lease, Lessee shall
surrender the Premises (and the keys thereto) in as good condition as when
received, loss by fire or other casualty not the result of any act or omission
of Lessee, or ordinary wear and tear only, excepted.
7.4 Nothing in this Section 7 shall be deemed to relieve Lessee from
any liability which Lessee may have to Lessor under the terms of this Lease or
otherwise, on account of any damage as may be caused to the Premises or the
Building by the negligence or misconduct of Lessee or any of the Lessee Parties.
7.5 As used in this Section 7, "repair and maintenance" shall include
repairs and replacements, and the standard shall be the good, clean and safe
condition of a first class business park building in north suburban Atlanta,
Georgia.
8. FORCE MAJEURE. In the event that either party hereto shall be delayed
or hindered in or prevented from the performance of any act required hereunder
by reason of strikes, lockouts, labor troubles, inability to procure materials,
failure of power, restrictive government laws or regulations, riots,
insurrection, war, or other reason of a like nature other than finance not the
fault of the party delayed in performing work or doing acts required under the
terms of this Lease, then performance of such act shall be excused for the
period of the delay and the period for the performance of any such act shall be
extended for a period equivalent to the period of the delay. The provisions of
this Section 8 shall not cancel, postpone, or delay the due date of any payment
to be made by Lessee hereunder, nor operate to excuse Lessee from prompt payment
of any Amount Due required by the terms of this Lease.
9. PROPERTY AND LIABILITY INSURANCE.
9.1 Throughout the Lease Term, Lessor will insure the Building
(excluding foundations and excavations), the Building standard leasehold
improvements, and the machinery, boilers, and equipment contained therein owned
by Lessor (excluding any property Lessee is obliged to insure pursuant to
Paragraph 9.3 below) against damage by fire and
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the perils insured in the standard all risk coverage endorsement. Lessor shall
also, throughout the Lease Term, carry public liability insurance with respect
to the ownership and operation of the Building.
9.2 Lessee shall comply with all insurance regulations so the lowest
fire, extended coverage, and liability insurance rates available for use of the
Building as normal office space may be obtained by Lessor and will not use or
keep any substance or material in or about the Premises which may vitiate or
endanger the validity of insurance on the Building, increase the hazard or the
risk beyond that for a normal business park building, or result in an increase
in premium on the insurance on the Building. If any insurance policy upon the
Premises or the Building or any part thereof shall be canceled or shall be
threatened by the insurer to be canceled, the coverage thereunder reduced or
threatened to be reduced, or the premium therefor increased or threatened to be
increased in any way by the insurer by reason of the use and occupation of the
Premises by Lessee or by any assignee or subtenant of Lessee and if Lessee fails
to remedy the condition giving rise to the cancellation, reduction, or premium
increase or threat thereof within twenty-four (24) hours after notice thereof by
Lessor, Lessor may, at its option, do any one of the following:
9.2.1 Declare a default by Lessee, and thereupon the provisions
of Section 12 shall apply; or
9.2.2 Enter upon the Premises and remedy the condition giving
rise to the cancellation, reduction, or premium increase or threat thereof, and
in such event, Lessee shall forthwith pay the cost thereof to Lessor as
additional rent; and if Lessee fails to pay such cost, Lessor may declare a
default by Lessee and thereupon the provisions of Section 12 shall apply (Lessor
shall not be liable for any damage or injury caused to any property of Lessee or
of others located on the Premises as a result of the reentry); or
9.2.3 If the sole action taken by the insurer is to raise the
premium or other monetary cost of the insurance, demand payment from Lessee of
the premium or other cost as additional rent hereunder, and if Lessee fails to
pay the increase to Lessor within ten (10) days of written demand by Lessor,
Lessor may declare a default by Lessee and thereupon the provisions of Section
12 shall apply. Lessee acknowledges that it has no right to receive any proceeds
from any insurance policies carried by Lessor and that such insurance will be
for the sole benefit of Lessor with no coverage for Lessee for any risk insured
against.
9.3 Lessee shall, during its occupancy of the Premises and during the
entire Lease Term, at its sole cost and expense, obtain, maintain, and keep in
full force and effect, and with Lessee, Lessor, and Lessor's mortgagees named as
additional insureds therein as their respective interests may appear, the
following types and kinds of insurance:
9.3.1 Upon property of every description and kind owned by
Lessee and located in the Building or for which Lessee is legally liable or
which was installed by or on behalf of Lessee, including, without limitation,
furniture, fittings, installations, alterations, additions, partitions, and
fixtures (excluding, however, those improvements, if any, installed by Lessor in
accordance with paragraph 10.1 hereof), against all risk of loss in an amount
not less than one hundred percent (100%) of the full replacement cost thereof;
9.3.2 Public liability insurance in an amount not less than
$1,000,000.00 for any one occurrence or such higher limits as Lessor may
reasonably require from time to time; the insurance shall include coverage
against liability for bodily injuries or property damage arising out of the use
by or on behalf of Lessee of owned, non-owned, or hired automobiles and other
vehicles for a limit not less than that specified above; and shall also include
coverage for "Fire Legal" liability with respect to the Premises in an amount
not less than $100,000 or such higher limits as Lessor may reasonably require
from time to time.
9.3.3 Workers' compensation insurance in the amount required by
law to protect Lessee's employees; and
9.3.4 Any other form or forms of insurance that Lessor may
reasonably require from time to time, in form, in amounts, and for insurance
risks against which a prudent tenant would protect itself.
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9.4 All insurance policies shall be taken out with companies acceptable
to Lessor licensed and registered to operate in the State of Georgia and in form
reasonably satisfactory to Lessor. The insurance may be by blanket insurance
policy or policies. Lessee shall deliver certificates evidencing the insurance
policies and any endorsement, rider, or renewal thereof, to Lessor.
Certificates evidencing renewals shall be delivered to Lessor no later than
fifteen (15) days after each renewal, as often as renewal occurs, and in no
event less than fifteen (15) days prior to the date on which the policy would
otherwise expire. All insurance policies shall require the insurer to notify
Lessor and Lessor's mortgagees in writing thirty (30) days prior to any material
change, cancellation, or termination thereof.
9.5 Lessor and Lessee hereby release the other from any and all
liability or responsibility to the other or to anyone claiming through or under
them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any other perils insured or insurable (whether or not such
insurance is obtained) in policies of fire and extended coverage insurance
covering such property even if such loss or damage shall have been caused by the
fault or negligence of the other party, or any one for whom such party may be
responsible (other than acts, such as intentional wrongdoing or criminal
conduct, that are not waived in the standard waiver of subrogation provision in
commercial property insurance at the time of the loss or damage).
10. ALTERATIONS AND IMPROVEMENTS.
10.1 Lessor shall improve the Premises in accordance with working
drawings to be approved by Lessee and Lessor prior to commencement of
construction. Lessor shall have such work performed promptly, diligently and in
a good and workmanlike manner. Lessor shall provide Lessee with an allowance
(the "Allowance") of EIGHT HUNDRED TWENTY THREE THOUSAND ONE HUNDRED SIXTY AND
NO/100 DOLLARS ($823,160.00) ($20.00 per rentable square foot) for the design,
supervision and construction of the improvements to the Premises in accordance
with such drawings, including, without limitation, all costs of design, all
costs of materials and labor to install such improvements, (Lessor will not
charge an overhead and supervisory fee for initial design and construction), and
Lessor will pay all such costs as and when incurred by Lessor on a timely basis
to the extent of the Allowance. Lessor shall provide at Lessor's expense, the
base Building improvements which include the slab, four exterior walls, roof,
main sprinkler lines, standard window blinds, dock high loading doors, and
exterior improvements, and does not include alteration of loading dock doors,
striping parking on the truck court, mechanical systems, electrical distribution
or plumbing (excepting main domestic water and sewer lines). If such costs
should exceed the Allowance, then Lessee shall pay for all such costs in excess
of the Allowance on the Commencement Date. Prior to the Lease Commencement
Date, Lessor and Lessee will inspect the Premises to determine any deficiencies
in construction of the improvements ( the "Punch List") and Lessor will work
diligently to correct; or start to correct, Punch List items within thirty (30)
days following their disclosure. Lessor shall withhold ten percent (10%) of the
Allowance from the general contractor until such time as the Punch List items
have been completed.
10.1.1 The Lessor and Lessee agree to work diligently to complete
architectural, mechanical, electrical, plumbing, and finish schedule
construction drawings by; April 1, 1997 and, to price, permit, and issue a
release for construction by April 21, 1997. The Lessor will make a reasonable
effort to provide early access to the Premises for the purpose of installing
telecommunications and computer network cabling, and to begin installation of
modular furniture. In the event the Lessor has not received a complete set of
construction drawings which have been approved and released for construction by
Lessee and permitted by April 21, 1997, then the extent of the delay from said
date shall correspondingly delay those dates included in Section 10.1.1 and
Section 22 hereof. Any such delays other than those prescribed in Section 22
shall not extend or delay the payment of Base Rent as prescribed in Section 2.1.
10.1.2 Any contractor/supplier warranties applying to work or
materials performed by Lessor on behalf of Lessee shall be assigned to Lessee.
10.1.3 Lessor and Lessee will cooperatively work together with the
contractor to timely satisfy any punch list items which have not been completed
prior to the Commencement Date.
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10.2 Lessee shall not make any alterations, additions, or improvements
in or to the Premises, nor install or attach fixtures in or to the Premises,
without the prior written consent of Lessor, which consent Lessor shall not
unreasonably withhold, delay or condition. All alterations, additions, or
improvements made, installed in, or attached to the Premises by Lessee, upon the
consent specified above, shall be made at Lessee's expense in a good and
workmanlike manner, strictly in accordance with the plans and specifications
approved by Lessor, all applicable laws, ordinances, regulations, and other
requirements of any appropriate governmental authority, and any applicable
covenants or other restrictions. Prior to the commencement of any such work,
Lessee shall deliver to Lessor certificates issued by insurance companies
licensed and registered to operate in the State of Georgia evidencing that
workers' compensation insurance and public liability insurance, all in amounts
satisfactory to Lessor, are in force and effect and maintained by all
contractors and subcontractors engaged by Lessee to perform the work.
10.3 Lessee shall keep the Premises free from all liens, preliminary
notices of liens, right to liens, or claims of liens of contractors,
subcontractors, mechanics, or materialmen for work done or materials furnished
to the Property at the request of Lessee. Whenever and so often as any such
lien shall attach or claims or notices thereof shall be filed against the
Property or any part thereof as a result of work done or materials furnished to
the Property at the request of Lessee, Lessee shall, within ten (10) days after
Lessee has notice of the claim or notice of lien, cause it to be discharged of
record, which discharge may be accomplished by deposit or bonding proceedings.
If Lessee shall fail to cause the lien, or such claim or notice thereof, to be
discharged within the ten-day period, then, in addition to any other right or
remedy, Lessor may, but shall not be obligated to, discharge it either by paying
the amount claimed to be due or by procuring the discharge of the lien, or claim
or notice thereof, by deposit or bonding proceedings. Any amount so paid by
Lessor and all costs and expenses, including, without limitation, attorneys'
fees, incurred by Lessor in connection therewith shall constitute additional
rent payable by Lessee under this Lease and shall be paid by Lessee in full on
demand of Lessor together with interest thereon at the rate set forth in
paragraph 2.2 hereof from the date it was paid by Lessor. Lessee shall not have
the authority to subject the interest or estate of Lessor to any liens, rights
to liens, or claims of liens for services, materials, supplies, or equipment
furnished to Lessee, and all persons contracting with Lessee are hereby charged
with notice that they must look to Lessee and to Lessee's interest only to
secure payment.
10.4 All alterations, additions, or improvements, including, but not
limited to, fixtures, partitions, counters, and window and floor coverings,
which may be made or installed by either of the parties hereto upon the
Premises, irrespective of the manner of annexation, and irrespective of which
party may have paid the cost thereof, excepting only movable office furniture
and shop equipment put in at the expense of Lessee, shall be the property of
Lessor, and shall remain upon and be surrendered with the Premises as a part
thereof at the expiration or other termination of this Lease, without
disturbance, molestation, or injury. Notwithstanding the foregoing, however,
Lessor may elect that any or all installations made or installed by or on behalf
of Lessee be removed at the end of the Lease Term, and, if Lessor so elects, it
shall be Lessee's obligation to restore the Premises to the condition they were
prior to the alterations, additions, or improvements on or before the expiration
or other termination of this Lease. Such removal and restoration shall be at
the sole expense of Lessee. Further, notwithstanding anything contained herein
to the contrary except as otherwise provided in paragraph 9.3.1 hereof, Lessor
shall be under no obligation to insure the alterations, additions, or
improvements or anything in the nature of a leasehold improvement made or
installed by or on behalf of Lessee, the Lessee Parties, or any other person,
and such improvements shall be on the Premises at the risk of Lessee only.
10.5 In the event Lessor makes any capital investment, major structural
repairs or improvements in or to the Premises or Building which are required due
to any act or omission of Lessee or any of the Lessee Parties, any and all cost
and expenses incurred by Lessor in making the capital investment, major
structural repairs, or improvements shall constitute additional rent payable by
Lessee under this Lease and shall be paid by Lessee in full on demand of Lessor,
together with interest thereon from the date of the demand at the rate set forth
in paragraph 2.2 hereof.
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11. ASSIGNMENT OR SUBLETTING.
11.1 Lessee shall not assign this Lease, or any interest herein, or
sublet or allow any other person, firm, or corporation to use or occupy the
Premises, or any part thereof, without the prior written consent of Lessor,
which consent will not be unreasonably withheld or delayed. Lessor shall have
the right to make such investigations as it deems reasonable and necessary in
determining the acceptability of the proposed assignee or subtenant. Such
investigations may include inquiries into the financial background, business
history, capability of the proposed assignee or subtenant in its line of
business, and the quality of its operations. Under no circumstances shall
Lessor be obligated to consent to the assignment of this Lease or the subletting
of the Premises to any entity whose operations violate the restrictive covenants
described in Section 26 hereof. Lessee shall provide to Lessor such information
as Lessor may reasonably require to enable it to determine the acceptability of
the proposed assignee or subtenant, including information concerning all of
the foregoing matters, and Lessor shall have no obligation to consent to any
assignment or subletting unless it has received from Lessee (at no cost or
expense to Lessor) the most recent audited financial statements of the proposed
assignee or subtenant and such other information as Lessor reasonably requires.
For purposes of this Section 11, a transfer of more than fifty percent (50%) of
the outstanding and issued voting stock of Lessee shall be deemed an assignment
within the meaning of and be governed by this Paragraph. Lessor specifically
acknowledges that a public offering or private placement of the stock of Lessee
in which new shares are issued for fair value determined by the Board of Lessee
shall not be considered an assignment requiring the Lessor's consent hereunder.
No assignment or subletting (with or without the consent of Lessor) shall
release Lessee from its obligations under this Lease nor shall Lessee permit
this Lease or any interest herein or in the tenancy hereby created to become
vested in or owned by any other person, firm, or corporation by operation of law
or otherwise. The power of Lessor to give or withhold its consent to any
assignment or subletting shall not be exhausted by the exercise thereof on one
or more occasions, but shall be a continuing right and power with respect to any
type of transfer, assignment or subletting.
11.2 If Lessee shall assign this Lease or sublet the Premises in any
way not authorized by the terms hereof, the acceptance by Lessor of any Amount
Due from any person claiming as assignee, sublessee, or otherwise shall not be
construed as a recognition of or consent to the assignment or subletting or as a
waiver of the right of Lessor thereafter to collect any rent from Lessee, it
being agreed that Lessor may at any time accept any Amount Due under this Lease
from any person offering to pay it without thereby acknowledging the person so
paying as a lessee in place of Lessee herein named, and without releasing Lessee
from the obligations of this Lease, and without recognizing the claims under
which such person offers to pay any Amount Due, but it shall be taken to be a
payment on account by Lessee.
12. DEFAULTS.
12.1 In the event that (I) Lessee shall fail to pay the Base Rent or
any other Amount Due for more than five (5) days after Lessor's written notice
of such failure, or (ii) Lessee shall fail to comply with any of the terms,
covenants, conditions, or agreements herein contained or any of the rules and
regulations now or hereafter established for the government of the Building and
such failure to comply continues for ten (10) days after Lessor's written notice
to Lessee thereof, or (iii) Lessee shall fail for more than thirty (30) days
after written notice thereof from Lessor to Lessee to comply with any term,
provision, condition or covenant of any other agreement between Lessor and
Lessee; or shall not have diligently undertaken to cure the cause of default;
then Lessor shall have the option, but not the obligation, to do any one or more
of the following in addition to, and not in limitation of, any other remedy
permitted by law, in equity or by this Lease:
12.1.1 Terminate this Lease, in which event Lessee shall
surrender the Premises to Lessor immediately upon expiration of ten (10) days
from the date of the service upon Lessee of written notice to that effect,
without any further notice or demand. In the event Lessor shall become entitled
to the possession of the Premises by any termination of this Lease herein
provided, and Lessee shall refuse to surrender or deliver up possession of the
Premises after the service of such notice, then Lessor may, without further
notice or demand, enter into and upon the Premises, or any part thereof, and
take possession of and repossess the Premises as Lessor's former estate, and
expel, remove, and put out of possession Lessee and its effects, using such
help, assistance and force in so doing as may be
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needful and proper, without being liable for prosecution or damages therefor,
and without prejudice to any remedy allowed by law available in such cases.
Lessee shall indemnify Lessor for all loss, cost, expense, and damage which
Lessor may suffer by reason of the termination, whether through inability to
relet the Premises, or through decrease in rent or otherwise. In the event of
such termination, Lessor may, at its option, recover forthwith as damages a sum
of money equal to the total of (a) the cost of recovering the Premises
(including, without limitation, attorneys' fees and cost of suit), (b) the
unpaid rent earned at the time of termination, plus late charges and interest
thereon at the rate specified in paragraph 2.2 hereof, (c) the present value
(discounted at the rate of 8% per annum) of the balance of the rent for the
remainder of the Lease Term less the present value (discounted at the same rate)
of the fair market rental value of the Premises for said period, and (d) any
other sum of money and damages owed by Lessee to Lessor.
12.1.2 Without terminating this Lease, retake possession of the
Premises and rent the Premises, or any part thereof, for such term or terms and
for such rent and upon such conditions as Lessor may, in its sole discretion,
think best, making such changes, improvements, alterations, and repairs to the
Premises as may be required. All rent received by Lessor from any reletting
shall be applied first to the payment of any indebtedness other than rent due
hereunder from Lessee; second, to the payment of any costs and expenses of the
reletting, including but not limited to brokerage fees, attorneys' fees and
costs of such changes, improvements, alterations, and repairs; third, to the
payment of rent due and unpaid hereunder; and the residue, if any, shall be held
by Lessor and applied in payment of future rent or damage as they may become due
and payable hereunder. If the rent received from the reletting during the Lease
Term is at any time insufficient to cover the costs, expenses, and payments
enumerated above, Lessee shall pay any deficiency to Lessor, as often as it
shall arise, on demand.
12.1.3 Correct or cure the default and recover any amount
expended in so doing, together with interest thereon until paid.
12.1.4 Recover any and all costs incurred by Lessor arising out
of or from the default, including but not limited to reasonable attorneys' fees.
12.2 In addition to any other rights which Lessor may have, Lessor, in
person or by agent, may enter upon the Premises and take possession of all or
any part of Lessee's property in the Premises, and may sell all or any part of
such property at a public or private sale, in one or successive sales, with or
without notice, to the highest bidder for cash, and, on behalf of Lessee, sell
and convey all or part of the property to the highest bidder, delivering to the
highest bidder all of Lessee's title and interest in the property sold to him.
The proceeds of the sale of the property shall be applied by Lessor toward the
reasonable costs and expenses of the sale, including, without limitation,
attorneys' fees, and then toward the payment of all sums then due by Lessee to
Lessor under the terms of this Lease. Any excess remaining shall be paid to
Lessee or any other person entitled thereto by law. Such sale shall bar
Lessee's right of redemption.
12.3 In the event of a default under this Lease by Lessee, Lessor shall
be entitled to all equitable remedies, including, without limitation, injunction
and specific performance.
12.4 Pursuit of any of the remedies herein provided shall not preclude
the pursuit of any other remedies herein provided or any other remedies provided
at law or in equity. Failure by Lessor to enforce one or more of the remedies
herein provided shall not be deemed or construed to constitute a waiver of any
default, or any violation or breach of any of the terms, provisions, or
covenants herein contained.
13. BANKRUPTCY. The filing or preparation for filing by or against Lessee
of any petition in bankruptcy, insolvency, or for reorganization under the
Federal Bankruptcy Code, any other federal or state law now or hereafter
relating to insolvency, bankruptcy, or debtor relief, or an adjudication that
Lessee is insolvent, bankrupt, or an issuance of an order for relief with
respect to Lessee under the Federal Bankruptcy Code, any other federal or state
law now or hereafter relating to insolvency, bankruptcy, or debtor relief, or
the execution by Lessee of a voluntary assignment for the benefit of, or a
transfer in fraud of, its general creditors, or the failure of Lessee to pay its
debts as they mature, or the levying on under execution of the interest of
Lessee under this Lease, or the filing or preparation for filing by Lessee
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of any petition for a reorganization under the Federal Bankruptcy Code, or for
the appointment of a receiver or trustee for a substantial part of Lessee's
assets or to take charge of Lessee's business, or of any other petition or
application seeking relief under any other federal or state laws now or
hereafter relating to insolvency, bankruptcy, or debtor relief, or the
appointment of a receiver or trustee for a substantial part of Lessee's assets
or to take charge of Lessee's business, shall automatically constitute a default
in this Lease by Lessee for which Lessor may, at any time or times thereafter,
at its option, exercise any of the remedies and options provided to Lessor in
Section 12 hereof; provided, however, that if such petition be filed by a third
party against Lessee, and Lessee desires in good faith to defend against the
petition and is not in any way in default of any obligation hereunder at the
time of filing the petition, and Lessee within ninety (90) days thereafter
procures a final adjudication that it is solvent and a judgment dismissing the
petition, then this Lease shall be fully reinstated as though the petition had
never been filed. In the event Lessor elects to terminate this Lease as provided
for in this Section, Lessee shall pay forthwith to Lessor as liquidated damages,
the difference between the unpaid rent reserved in this Lease at the time of
such termination and the then reasonable rental value of the Premises for the
balance of the Lease Term, and Lessee acknowledges that said sum is reasonable
and shall not be construed as a penalty.
14. DAMAGE AND CONDEMNATION.
14.1 In the event during the Lease Term the Premises are damaged by fire
or other casualty, but not to such an extent that repairs and rebuilding cannot
reasonably be completed within one hundred twenty (120) days of the date of the
event causing the damage, Lessor may, at Lessor's option, repair and rebuild the
Premises. If Lessor elects to repair and rebuild the Premises, this Lease shall
remain in full force and effect, but Lessor may require Lessee temporarily to
vacate the Premises while they are being repaired and, subject to the provisions
of this Paragraph 14.1, rent shall abate during this period to the extent that
the Premises are untenantable; provided, however, that Lessor shall not be
liable to Lessee for any damage or expense which temporarily vacating the
Premises may cause Lessee. If the Premises are not repaired, rebuilt, or
otherwise made suitable for occupancy by Lessee within the aforesaid one hundred
twenty (120) day period, Lessee shall have the right, by written notice to
Lessor, to terminate this Lease, in which event rent shall be abated for the
unexpired Lease Term, effective as of the date of the written notification, but
the other terms and conditions of this Lease shall continue and remain in full
force and effect until Lessee shall have vacated the Premises, removed all
Lessee's personal property therefrom and delivered peaceable possession thereof
to Lessor. If Lessor elects not to repair and rebuild the Premises or if the
Building or any part thereof be so damaged that repairs and rebuilding cannot
reasonably be completed within one hundred twenty (120) days of the date of the
event causing the damage, Lessor may by written notice to Lessee terminate this
Lease in which event rent shall be abated for the unexpired Lease Term,
effective as of the date of the written notification, but the other terms and
conditions of this Lease shall continue and remain in full force and effect
until Lessee shall have vacated the Premises, removed all Lessee's personal
property therefrom and delivered peaceable possession thereof to Lessor.
Failure by Lessee to comply with any provision of this Paragraph 14.1 shall
subject Lessee to such costs, expenses, damages, and losses as Lessor may incur
by reason of Lessee's breach hereof.
14.2 In the event the Building shall be taken, in whole or in part, by
condemnation or the exercise of the right of eminent domain, or if in lieu of
any formal condemnation proceedings or actions, if any, Lessor shall sell and
convey the Premises, or any portion thereof, to the governmental or other public
authority, agency, body, or public utility, seeking to take the Premises, the
Property or any portion thereof, then Lessor, at its option, may terminate this
Lease upon twenty (20) days' prior written notice to Lessee and prepaid rent
shall be proportionately refunded from the date of possession by the condemning
authority. All damages awarded for the taking, or paid as the purchase price
for the sale and conveyance in lieu of formal condemnation proceedings, whether
for the fee or the leasehold interest, shall belong to and be the property of
Lessor; provided, however, Lessee shall have the sole right to reclaim and
recover from the condemning authority, but not from Lessor, such compensation as
may be separately awarded or recoverable by Lessee in Lessee's own right on
account of any and all costs or loss (including loss of business) to which
Lessee might be put in removing Lessee's merchandise, furniture, fixtures,
leasehold improvements, and equipment to a new location. Lessee shall execute
and deliver any instruments, at the expense of Lessor, that Lessor may deem
necessary to expedite any condemnation proceedings, to effectuate a proper
transfer of title to such governmental or other public authority,
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agency, body or public utility seeking to take or acquire the lands and
Premises, or any portion thereof. Lessee shall vacate the Premises, remove all
Lessee's personal property therefrom and deliver up peaceable possession thereof
to Lessor or to such other party designated by Lessor in the aforementioned
notice. Failure by Lessee to comply with any provisions of this Paragraph 14.2
shall subject Lessee to such costs, expenses, damages, and losses as Lessor may
incur by reason of Lessee's breach hereof. If Lessor chooses not to terminate
this Lease, then to the extent and availability of condemnation proceeds
received by Lessor and subject to the rights of any mortgagee thereto, Lessor
shall, at the sole cost and expense of Lessor and with due diligence and in a
good and workmanlike manner, restore and reconstruct the Premises within one
hundred twenty (120) days after the date of the physical taking, and such
restoration and reconstruction shall make the Premises reasonably tenantable and
suitable for the general use being made by Lessee prior to the taking; provided,
however, that Lessor shall have no obligation to restore and reconstruct
Lessee's leasehold improvements unless and to the extent that Lessor receives an
award of condemnation proceeds specifically designated as compensation for such
improvements. Notwithstanding the foregoing, if Lessor has not completed the
restoration and reconstruction within one hundred twenty (120) days after the
date of physical taking, Lessee, in addition to any other rights and remedies
Lessee may have, shall have the right to cancel this Lease. If this Lease
continues in effect after the physical taking, the rent payable hereunder shall
be equitably adjusted both during the period of restoration and reconstruction
and during the unexpired portion of the Lease Term.
14.3 In the event Lessor, during the Lease Term, shall be required by
any governmental authority or the order or decree of any court, to repair,
alter, remove, reconstruct, or improve (hereinafter collectively called
"Repairs") any part of the Premises, then the Repairs may be made by and at the
expense of Lessor and shall not in any way affect the obligations or covenants
of Lessee herein contained, and Lessee hereby waives all claims for damages or
abatement of rent because of the Repairs. If the Repairs shall render the
Premises untenantable and if the Repairs are not completed within one hundred
twenty (120) days after the date of the notice, requirement, order, or decree,
either party hereto upon written notice to the other party given not later than
one hundred thirty (130) days after the date of the notice, requirement, order,
or decree, may terminate this Lease, in which case rent shall be apportioned and
paid to the date the Premises were rendered untenantable; provided however that
where the requirement by a governmental authority having jurisdiction to repair,
alter, remove, reconstruct, or improve any part of the Premises arises out of
any act or omission by Lessee, then the Repairs shall be effected promptly at
the sole cost and expense of Lessee and there shall not, in any event, be any
abatement of rent nor any right in Lessee to terminate this Lease whether or not
the completion of the Repairs takes more than one hundred twenty (120) days.
15. TAXES.
15.1 Subject to Lessee's obligation to pay its Proportionate Share
thereof as a Shared Expense, Lessor shall pay all taxes, assessments and other
governmental charges, general or special, ordinary or extraordinary, foreseen or
unforeseen, including any installments thereof (herein called "Impositions"),
levied, assessed or otherwise imposed by any lawful authority or payable with
respect to the Land or the Building.
15.2 If at any time during the Lease Term the methods of taxation
prevailing at the Commencement Date shall be altered so that in lieu of, or as a
substitute for, the whole or any part of the taxes, assessments, levies,
impositions or charges now levied, assessed or imposed on real estate and the
improvements thereon, there shall be levied, assessed or imposed a tax,
assessment, levy, fee or other charge: (I) on or measured by the rents received
therefrom; (ii) measured by or based in whole or in part upon the Premises and
imposed upon Lessor; or (iii) measured by the rent payable by Lessee under this
Lease, then all such taxes, assessments, levies, impositions, charges or fees or
the part thereof so measured or based, shall be deemed to be included within the
definition of "Impositions". The tax, levy, or other imposition to which
reference is made hereinabove shall include sales, excise or similar taxes, but
shall not include any net income, franchise, estate or inheritance taxes imposed
on Lessor.
15.3 In the event that a tax or assessment attributable to environmental
protection legislation, as distinguished from a tax or assessment in the nature
of a real estate property tax, is imposed upon Lessor by a governmental
authority having jurisdiction over the Land, which tax or assessment is
attributable to a portion of the
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Common Area being parking facilities available to the Lessee, its servants,
agents, employees, invitees, licensees, contractors or subcontractors, such tax
or assessment shall be included within the definition of "Impositions".
15.4 On behalf of Lessor and at Lessee's sole cost and expense, Lessee
may contest any assessment or the imposition of any Tax against the Land or the
Building. Lessor agrees to execute appeals, petitions, suit papers and other
documents legally necessary in connection with any such contest and, at no
expense to Lessor, to cooperate reasonably in such proceedings, all upon
Lessee's written request. During any such contest, Lessee shall take all steps
legally necessary, including payments under protest, to prevent foreclosure and
public sale or other divesting of Lessor's title by reason of nonpayment of
taxes.
16. LIABILITY OF LESSOR.
16.1 Except in the event of Lessor's negligence or willful misconduct
and subject to paragraph 9.5 hereof, Lessee shall indemnify, defend, and hold
harmless Lessor, at Lessee's expense, against (a) any default by Lessee or
permitted assignee or subtenant hereunder; (b) any act or negligence of Lessee
or any of the Lessee Parties; and (c) all claims for damages to persons or
property by reason of the use or occupancy of the Premises not caused by Lessor.
Lessee shall not be liable to Lessor, or Lessor's agents, servants, employees,
contractors, customers or invitees for any damage to person or property caused
by any act, omission or neglect of Lessor, its agents, servants or employees.
More over, Lessor shall not be liable for any damage, injury, destruction, or
theft to or of the Premises, the personal property of Lessee or any of the
Lessee Parties, Lessee, or any of the Lessee Parties arising from any use of the
Premises, or any sidewalks, entranceways, or parking areas serving the Premises,
or the act or neglect of co-tenants or any other person, or the malfunction of
any equipment or apparatus serving the Premises, or any loss thereof by
mysterious disappearance or otherwise.
16.2 Lessee expressly agrees to look solely to Lessor's interest in the
Property for the recovery of any judgment against Lessor, it being agreed that
Lessor (and its partners and shareholders) shall never be personally liable for
any such judgment. The provision contained in the foregoing sentence is not
intended to, and shall not, limit any right that Lessee might otherwise have to
obtain injunctive relief against Lessor or Lessor's successors-in-interest.
17. RIGHT OF ENTRY.
17.1 After reasonable notice to Lessee (except in case of an emergency)
Lessor reserves the right, for itself, its mortgagees, or their respective
agents and duly authorized representatives, to enter and be upon the Premises at
any time and from time to time to inspect the Premises and to repair, maintain,
alter, improve, and remodel, but Lessor shall not materially interfere with
Lessee's normal operation Lessee shall not be entitled to any compensation,
damages, or abatement or reduction in rent on account of any such repairs,
maintenance, alterations, improvements or remodeling. Except as otherwise
provided in this Lease, nothing contained in this Paragraph 17.1 shall imply any
duty on the part of Lessor to repair, maintain, alter, improve, or remodel.
17.2 After reasonable notice to Lessee, Lessee shall permit Lessor or
Lessor's agents at any reasonable hour of the day to enter into or upon and go
through and view the Premises and to exhibit the Premises to prospective
purchasers or tenants.
18. BUILDING RULES AND REGULATIONS. Lessor reserves the right to establish
reasonable rules and regulations pertaining to the use and occupancy of the
Building, which rules and regulations may be changed by Lessor from time to
time, and shall be uniformly applicable to all tenants in the Building. Lessee
shall comply with any rules and regulations established by Lessor pursuant to
this Section 18.
19. PROPERTY LEFT ON THE PREMISES. Upon the expiration of this Lease, or if
the Premises should be abandoned by Lessee, or if this Lease should terminate
for any cause, or if Lessee should be dispossessed after default, if at the time
of any such expiration, abandonment, termination or dispossession, Lessee or its
assignees,
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subtenants, agents, servants, employees, contractors, or any other person
controlled by Lessee or claiming under Lessee should leave any property of any
kind or character in or upon the Premises, such property shall be the property
of Lessor and the fact of such leaving of property in or upon the Premises shall
be conclusive evidence of the intent by Lessee or such person to abandon such
property so left in or upon the Premises, and such leaving shall constitute
abandonment of the property. It is understood and acknowledged by the parties
hereto that none of Lessor's servants, agents or employees, have or shall have
the actual or apparent authority to waive any portion of this Section 19, and
neither Lessee nor any other person designated above shall have any right to
leave any such property upon the Premises beyond the time set forth herein
without the written consent of Lessor. Lessor, its agents or attorneys, shall
have the right and authority without notice to Lessee or anyone else, to remove
and destroy, store, sell or otherwise dispose of, such property, or any part
thereof, without being in any way liable to Lessee or anyone else therefor.
Lessee shall be liable to Lessor for all reasonable and necessary expenses
incurred in such removal and destruction, storage, sale or other disposition of
such property. The said property removed or the proceeds from the sale or other
disposition thereof shall belong to the Lessor as compensation for the removal
and disposition of said property.
20. OTHER INTERESTS.
20.1 This Lease and Lessee's interest hereunder shall at all times be
subject and subordinate to the lien and security title of any deeds to secure
debt, deeds of trust, mortgages, or other interests heretofore or hereafter
granted by Lessor or which otherwise encumber or affect the Premises and to any
and all advances to be made thereunder and to all renewals, modifications,
consolidations, replacements, substitutions, and extensions thereof (all of
which are hereinafter called the "Mortgage"); provided, however, that this
subordination shall be effective if, and only if, the holder of any such
Mortgage shall execute a subordination, non-disturbance and attornment agreement
in a form reasonably satisfactory to Lessee agreeing that Lessee's rights to
occupy the Premises in accordance with the terms of this Lease shall not be
disturbed following foreclosure or delivery of a deed in lieu of foreclosure
unless Lessee is in default of its obligations hereunder beyond applicable
notice and cure periods. As of the date hereof, no Mortgage presently encumbers
the Building. In confirmation of such subordination, however, Lessee shall, at
Lessor's request, promptly execute, acknowledge, and deliver any instrument
which may be required to evidence subordination to any Mortgage and, to the
holder thereof, and, in the event of a failure so to do, Lessor may, in addition
to any other remedies for breach of covenant hereunder, execute, acknowledge,
and deliver the instrument as the agent or attorney-in-fact of Lessee, and
Lessee hereby irrevocably constitutes Lessor its attorney-in-fact for such
purpose, Lessee acknowledging that the appointment is coupled with an interest
and is irrevocable. Lessee hereby waives and releases any claim it might have
against Lessor or any other party for any actions lawfully taken by the holder
of any Mortgage.
20.2 In the event of a sale or conveyance by Lessor of Lessor's interest
in the Premises other than a transfer for security purposes only, Lessor shall
be relieved, from and after the date of transfer, of all obligations and
liabilities accruing thereafter on the part of Lessor, provided that any funds
in the hands of Lessor at the time of transfer in which Lessee has an interest
shall be delivered to the successor of Lessor. This Lease shall not be affected
by any such sale and Lessee shall attorn to the purchaser or assignee.
21. LANDLORD'S LIEN. All property of Lessee now or subsequently located
upon the Premises during the Lease Term shall be held and bound by a lien for
payment of rent, damages and all other payments required to be made by Lessee
under this Lease, and for full performance of all agreements to be performed by
Lessee hereunder.
22. DELAYED POSSESSION. If Lessor shall fail to deliver to Lessee actual
possession of the Premises by June 15, 1997 rent shall abate until possession is
given, but Lessor shall not be liable to Lessee for such failure, and the
Commencement Date shall become the date on which possession is given.
Notwithstanding the foregoing, however, if the Premises are not available for
occupancy by Lessee on August 15, 1997, this Lease shall be voidable by either
party, and if voided, all payments made to Lessor by Lessee hereunder, if any,
shall be immediately refunded to Lessee by Lessor; provided, however, that such
date shall be extended to the extent that construction is delayed by any of the
reasons set forth in Section 8 or other conditions beyond Lessor's control or by
amendments to the working drawings for the improvements to the Premises
requested by Lessee. The Premises shall be "available for occupancy" when a
Certificate of Occupancy has been issued for the Premises.
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23. HOLDING OVER. There shall be no renewal, extension, or reinstatement of
this Lease by operation of law. In the event of holding over by Lessee after
the expiration or sooner termination of this Lease, with Lessor's acquiescence
and without any express agreement of the parties, Lessee shall be a tenant at
sufferance and all of the terms, covenants, and conditions of this Lease shall
be applicable during that period, except that Lessee shall pay Lessor as Base
Rent for the period of the hold over an amount equal to one and one-half times
the Base Rent which would have been payable by Lessee under Paragraph 2.1
hereof, had the hold-over period been part of the original Lease Term, together
with all additional rent due hereunder and together with any other Amount Due
under this Lease. The rent payable by Lessee during the hold-over period shall
be payable to Lessor on demand. If Lessee holds over as a tenant at sufferance,
Lessee shall vacate and deliver the Premises to Lessor upon demand. In the
event Lessee fails to surrender the Premises to Lessor upon expiration or other
termination of this Lease or of such tenancy at sufferance, then Lessee shall
indemnify Lessor against any and all loss or liability resulting from any delay
of Lessee in surrendering the Premises, including, but not limited to, any
amounts required to be paid to third parties who were to have occupied the
Premises and any attorneys' fees related thereto.
24. NO WAIVER. Lessee understands and acknowledges that no assent, express
or implied, by Lessor to any breach of any one or more of the terms, covenants
or conditions hereof shall be deemed or taken to be a waiver of any succeeding
or other breach, whether of the same or any other term, covenant or condition
hereof.
25. BINDING EFFECT. All terms and provisions of this Lease shall be binding
upon and apply to the successors, permitted assigns, and legal representatives
of Lessor and Lessee or any person claiming by, through, or under either of them
or their agents or attorneys, subject always, as to Lessee, to the restrictions
contained in Section 11 hereof.
26. COMPLIANCE WITH PROTECTIVE COVENANTS. In addition to and without in any
way limiting any of the other provisions of this Lease, Lessee shall comply with
any protective covenants now or hereafter of record against the Building or the
Property and with any changes to the covenants duly adopted. It is expressly
acknowledged that all uses of the Building and Premises are subject to the
covenants, conditions and restrictions of Forsyth County filed at Deed Book
578, Page 504, Forsyth County, Georgia, records, as amended and extended.
27. SIGNS. Lessee shall not install, paint, display, inscribe, place, or
affix any sign, picture, advertisement, notice, lettering, or direction
(hereinafter collectively called "Signs") on the exterior of the Premises, the
Common Areas of the Building, the interior surface of glass and any other
location which could be visible from outside of the Premises without first
securing written consent from Lessor therefor. Any Sign permitted by Lessor
shall at all times conform with all municipal ordinances or other laws,
regulations, deed restrictions, and protective covenants applicable thereto.
Lessee shall remove all Signs at the expiration or other termination of this
Lease, at Lessee's sole risk and expense, and shall in a good and workmanlike
manner properly repair any damage caused by the installation, existence, or
removal of Lessee's Signs. Lessee shall have the right to place its corporate
name on the Building monument sign, which sign face will be shared with other
Building tenants. The signage will be subject to approval from the Johns Creek
architectural design review committee.
28. INTENTIONALLY DELETED.
29. ESTOPPEL CERTIFICATE. Lessee shall, at any time and from time to time,
upon not less than ten (10) business days' prior written notice from Lessor,
execute, acknowledge, and deliver to Lessor a statement in writing certifying
that this Lease is unmodified and in full force and effect (or if modified,
stating the nature of the modification and certifying that this Lease, as so
modified, is in full force and effect) and the dates to which the rent and other
charges are paid, and acknowledging that Lessee is paying rent on a current
basis with no offsets or claims, and that there are not, to Lessee's knowledge,
any uncured defaults on the part of Lessor hereunder (or specifying the offsets,
claims, or defaults, if any are claimed), and such other information (including
but not limited to the most recent financial statements) reasonably required by
Lessor. It is expressly understood and acknowledged that any such statement may
be relied upon by any prospective purchaser or encumbrancer of all or any
portion of the Property or by any other person to whom it is delivered.
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30. SEVERABILITY. The terms, conditions, covenants, and provisions of this
Lease shall be deemed to be severable. If any clause or provision herein
contained shall be adjudged to be invalid or unenforceable by a court of
competent jurisdiction or by operation of any applicable law, it shall not
affect the validity of any other clause or provision herein, but the other
clauses or provisions shall remain in full force and effect.
31. ENTIRE AGREEMENT. Lessee acknowledges that there are no covenants,
representations, warranties, or conditions, express or implied, collateral or
otherwise, forming part of or in any way affecting or relating to this Lease
save as expressly set out in this Lease and that this Lease together with the
Exhibits attached hereto constitutes the entire agreement between the parties
hereto and may not be modified except as herein explicitly provided or except by
subsequent agreement in writing of equal formality hereto executed by Lessor and
Lessee.
32. CUMULATIVE REMEDIES. In the event of any default, breach, or threatened
breach by Lessee of any of the covenants or provisions hereto, Lessor shall, in
addition to all other remedies as provided by this Lease, have the right of
injunction and/or damages and the right to invoke any remedy allowed at law or
in equity, and may have any one or more of the remedies contemporaneously. The
various rights, remedies, powers, options, and elections of Lessor reserved,
expressed, or contained in this Lease are cumulative and no one of them shall be
deemed to be exclusive of the others, or of such other rights, remedies, powers,
options, or elections as are now, or may hereafter, be conferred upon Lessor by
law.
33. PARKING AREAS AND COMMON AREA CONTROL.
33.1 Lessee acknowledges and agrees that the common areas of the
Building including, without limiting the generality of the foregoing, lawns,
gardens, parking areas, sidewalks, driveways, foyers, hallways, washrooms, and
stairwells not within the Premises shall at all times be subject to the
exclusive control and management of Lessor. Lessor shall have the right to
change the area, level, location, and arrangement of common areas so long as in
so doing Lessor does not materially and adversely affect ingress to and egress
from the Building or the Premises.
33.2 Lessee and the Lessee Parties shall not use more than Lessee's
proportionate share of the parking spaces in the parking areas made available to
the Building by Lessor. Lessee covenants and agrees to fully cooperate with
Lessor in the enforcement of any program of rules and regulations designed for
the orderly control and operation of parking areas. It is expressly understood
that Lessee will only require one loading dock to serve the Premises, and that
the truck loading area to the rear of the Building will be available for use as
a parking area, and Lessee's proportionate share of parking shall be agreed to
be four (4) parking spaces per 1,000 usable square feet of leased space.
34. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered in person or when
deposited in the United States mail, return receipt requested, addressed to the
parties at the respective addresses set out below:
If to Lessee: Prior to the Commencement Date:
SQL Financials International, Inc.
Two Ravinia Drive
Suite 1000
Atlanta, Georgia 30346
Attn: Vice President
Finance & Administration
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After the Commencement Date:
SQL Financials International, Inc.
3950 Johns Creek Court
Suite 100
Suwanee, Georgia 30174
Attn: Vice President
Finance & Administration
If to Lessor: Technology Park/Atlanta, Inc.
Suite 150
11555 Medlock Bridge Road
Duluth, Georgia 30155
Attention: Executive Vice President
or to such other addresses as the parties may direct from time to time by thirty
(30) days' written notice. However, the time period in which a response to any
notice, demand, or request must be given, if any, shall commence to run from the
date of receipt of the notice, demand, or request by the addressee thereof.
Rejection or other refusal to accept or the inability to deliver because of
changed address of which no notice was given shall be deemed to be receipt of
the notice, demand, or request sent. Lessee hereby appoints as its agent to
receive service of all dispossessory or distraint proceedings and notices in
connection therewith, the person in charge of or occupying the Premises at the
time; and if no person is in charge of or occupying the Premises, then the
service or notice may be made by attaching it on the main entrance to the
Premises and on the same day enclosing, directing, stamping, and marking by
first class mail a copy of the service or notice to Lessee at the last known
address of Lessee.
35. RECORDING. Neither this Lease nor any portion hereof shall be recorded
unless both parties hereto agree to the recording.
36. ATTORNEYS' FEES. Lessee or Lessor agrees to pay the other party's
reasonable attorneys' fees, collection costs, and other costs and expenses which
the prevailing party incurs in enforcing any of the obligations of either party
under this Lease.
37. HOMESTEAD. Lessee waives all homestead rights and exemptions which it
may have under any law as against any obligations owing under this Lease.
Lessee hereby assigns to Lessor its homestead right and exemption.
38. TIME OF ESSENCE. Time is of the essence of this Lease.
39. NO ESTATE IN LAND. This Lease shall create the relationship of landlord
and tenant between Lessor and Lessee, and nothing contained herein shall be
deemed or construed by the parties hereto, or by any third party, as creating
the relationship of principal and agent, or of partnership, or of joint venture,
or of any relationship other than landlord and tenant, between the parties
hereto. No estate shall pass out of Lessor and Lessee has only a usufruct not
subject to levy and sale.
40. ACCORD AND SATISFACTION. No payment by Lessee or receipt by Lessor of a
lesser amount than the Base Rent, additional rent, or any other Amount Due
herein stipulated shall be deemed to be other than on account of the earliest of
such amount then due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Lessor may accept the check or payment without prejudice to
Lessor's right to recover the balance of the rent or pursue any other remedy
provided in this Lease.
41. BROKERS' FEES. With the exception of Technology Park/Atlanta, Inc.,
broker representing Lessor and Cott & Lambert, Inc., broker representing Lessee;
Lessor and Lessee warrant and represent, each to the other, that it has had no
dealings with any broker or agent in connection with this Lease, and Lessor and
Lessee hereby indemnify
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<PAGE>
each other against, and agree to hold each other harmless from, any liability or
claim (and all expenses, including attorneys' fees, incurred in defending any
such claim or in enforcing this indemnity) for a real estate brokerage
commission or similar fee or compensation arising out of or in any way connected
with any claimed dealings with the indemnitor and relating to this Lease or the
negotiation thereof.
42. MISCELLANEOUS.
42.1 Words of any gender used in this Lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural unless the context otherwise requires.
42.2 The captions are inserted in this Lease for convenience only, and
in no way define, limit, or describe the scope or intent of this Lease, or of
any provision hereof, nor in any way affect the interpretation of this Lease.
42.3 This Lease is made and delivered in the State of Georgia and shall
be governed by and construed in accordance with the laws of the State of
Georgia.
For additional terms and stipulations of this Lease, if any, see Exhibit
"C", attached hereto and by this reference incorporated herein.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the day and year first above written.
LESSOR: TECHNOLOGY PARK ATLANTA, INC.
a Georgia Corporation
BY: /s/ Richard R. O'Brien
--------------------------------------
Richard R. O'Brien
TITLE: Executive Vice President
-----------------------------------
[Corporate Seal]
LESSEE: SQL FINANCIALS INTERNATIONAL, INC.
a Delaware Corporation
BY: /s/
--------------------------------------
TITLE:
-----------------------------------
ITS:
-------------------------------------
ATTEST:
----------------------------------
NAME:
------------------------------------
ITS:
-------------------------------------
[Corporate Seal]
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<PAGE>
SCHEDULE OF EXHIBITS
Exhibit "A" Legal Description
Exhibit "B" Outline of Premises
Exhibit "C" Special Stipulations
<PAGE>
EXHIBIT 'C'
SPECIAL STIPULATIONS
--------------------
1. FIRST RIGHT TO LEASE
1.1 Should any portion of the Building become vacant during the Lease Term
or any renewal, which vacancy is contiguous to the Premises, and which shall be
called the First Right to Lease Space ( hereinafter called "FRTL Space"); and if
Lessor receives an offer to lease said space acceptable to Lessor (hereinafter
called the "FRTL Lease Offer"), then Lessor shall give Lessee written notice of
the FRTL Lease Offer setting forth the terms and conditions thereof.
1.2 Lessee shall have and Lessor hereby grants to Lessee a first right of
refusal, exercisable at any time within five (5) business days from the date of
receipt of such notice, to include the FRTL space within the Premises and under
this Lease upon the terms and conditions set forth in the applicable FRTL Lease
Offer. If Lessee elects to exercise its first right of refusal, it shall prior
to the end of such five (5) business day period, submit written notice of such
exercise to the Lessor.
1.3 Notwithstanding anything contained herein to the contrary, Lessee shall
have no right to exercise such first right of refusal unless Lessee shall not be
in notified default of its obligations under this Lease beyond applicable
periods of notice and cure.
1.4 Lessee may not assign its first right of refusal except to a permitted
assignee of all of Lessee's rights under this Lease and then only in conjunction
with an assignment of this Lease.
1.5 Except as otherwise set forth in the applicable FRTL Lease Offer, the
leasehold improvements, if any, remaining in such space and not subject to
removal by the former lessee, thereof will be provided in their then existing
condition at the time said space is made available to Lessee.
1.6 Except as set forth above, in all respects, any such FRTL Space as to
which such option is exercised shall become a part of the Premises and any
reference in this Lease to such Premises shall be deemed to include such space,
and Lessee shall have no right to extend or sooner terminate this Lease with
respect to the FRTL Space unless otherwise provided in the FRTL Lease Offer
1.7 Lessee shall exercise its first right of refusal, if at all, within five
(5) business days after the Notice is received by Lessee; provided, however
Lessee shall use its reasonable efforts to respond in as short a time period as
the circumstances dictate. Lessee's obligation to pay the Annual Base Rental
for such space shall commence on the earlier of (i) the commencement date
provided for in the FRTL Lease Offer, or (ii) the date Lessee occupies any
portion of such FRTL Space.
1.8 In the event Lessee fails or elects not to exercise any first right of
refusal within said five (5) business day period, then Lessor shall have the
right to lease such space to the third party who made the offer to Lessor, but
if Lessor does not execute a lease pertaining to the applicable FRTL Space with
that third party within six (6) months after the date it provided Lessee the
applicable FRTL Offer, Lessee's first right to refusal as set forth herein shall
again be effective and Lessor must offer the applicable FRTL Space to Lessee
upon receipt of any offer to lease that space.
2. RENEWAL OPTION. Providing Lessee is not in default of this Lease beyond
any notice and beyond any cure periods, Lessor hereby grants Lessee an option to
extend the Lease Term for one additional five (5) year term by giving written
notice to Lessor two hundred seventy (270) days prior to the expiration of the
original Lease Term. The Annual Base Rent during the renewal term will be at
the market rental rates prevailing for renewals of similar quality space located
in the submarket called North Fulton and South Forsyth Counties of Atlanta,
Georgia. Market Rate shall be defined as the then fair market rental value of
the Premises as of the date of commencement of the renewal term, determined in
accordance with the provisions set forth below. The fair market rental value of
the Premises shall mean the rental (taking into consideration any tenant
improvement allowance, or other concessions) that would be agreed to
<PAGE>
by a lessor and a lessee, each of whom is willing, but neither of whom is
compelled, to enter into the lease transaction. The fair market rental value
shall be determined assuming the fair market rental value shall be projected to
the commencement date of the renewal term. The fair market rental value to be
determined shall take into account the following factors:
i. Rental for comparable premises in comparable existing buildings,
(taking into consideration, but not limited to, use, and location
within the applicable building improvements to the Premises, definition
of rentable area, quality, age and location of the applicable
buildings);
ii. The length of the rental term;
iii. The quality and credit worthiness of the Lessee.
If the Lessor and Lessee are unable to agree upon the fair market rental value,
the determination of fair market rental value shall be determined by three
appraisers selected according to the provisions of the American Arbitration
Association, and appraisers to have the MAI designation and a minimum of ten
(10) years experience in the Atlanta commercial real estate market. Lessee's
renewal rate shall be decided no later than thirty (30) days prior to the date
upon which Lessee must exercise notice to renew. The cost of arbitration shall
be shared equally by Lessor and Lessee.
3. LETTER OF CREDIT REQUIREMENTS Within sixty (60) days following the
execution of this Lease, Lessee shall deliver to Lessor an irrevocable and
unconditional standby letter of credit (the "Original Letter of Credit"), issued
for the benefit of Lessor, to be held by Lessor as security for the performance
by Lessee of Lessee's covenants and obligations hereunder. The Original Letter
of Credit shall be in the amount of TWO HUNDRED NINETY THOUSAND AND NO/100
DOLLARS ($290,000.00) (such Original Letter of Credit and any substituted or
replacement letter issued in accordance with this Section are collectively
referred to as the "Letter of Credit"; the Letter of Credit, the proceeds
thereof and any other monies paid hereunder are collectively referred to as the
"Security Deposit"), shall have an expiration date not earlier than 365 days
after the Commencement Date, as defined in this Lease Agreement, shall be issued
by Silicon Valley Bank, or such other bank as may by approved by Lessor in
writing, shall be transferrable in its entirety (but not in part) to any
successor beneficiary, and shall be on such terms and conditions as Lessor
reasonably requires.
Not less than ninety (90) days prior to the expiration date of the
Original Letter of Credit, and each year thereafter, Lessee shall deliver to
Lessor a substituted or replacement letter of credit issued for the benefit of
Lessor in the same amount as the Original Letter of Credit and with an
expiration date not earlier than 365 days from issuance. Such substituted or
replacement letter of credit shall be in form, content and insured by Silicon
Valley Bank, or such other bank as may by approved by Lessor in writing, which
approval will not be unreasonably withheld or delayed. Lessor shall be able to
draw upon the Original Letter of Credit in the event that, among other things,
Lessee fails to deliver to Lessor such substituted or replacement Letter of
Credit in the time and manner required hereinabove.
If Lessee shall at any time fail to pay any Amount Due when due, or
breaches any material covenant or material obligation hereunder and such breach
continues beyond any applicable cure period, Lessor may, but shall not be
obligated to, from time to time and without prejudice to any other remedy, draw
upon the Letter of Credit upon sight draft presented in strict compliance with
the terms thereof, and use all or a portion of the resulting monies to the
extent necessary for the payment of any such Amount Due or cure of such breach.
Lessor shall retain any remaining monies as the "Security Deposit" hereunder.
In the event Lessor applies the Security Deposit or a portion thereof as
provided in this Section, Lessee shall immediately upon notice from Lessor of
such application pay the amount so applied to Lessor, it being the intent of the
parties that the Security Deposit to be held by Lessor always be in the amount
stated herein. It is expressly understood and agreed, however, that the
Security Deposit shall not be considered an advance payment of rent or a measure
of Lessor's damages in the event of default by Lessee. Upon Lessee's vacation
of the Premises upon the expiration or other termination of the Lease, and
provided that Lessee is not then in default of any of its covenants or
obligations under this Lease, the Security Deposit shall be returned by Lessor
to Lessee with interest as set forth herein.
On the first (1st) day of April during the Term of this Lease, Lessee shall
deliver to Lessor Lessee's most recent annual, audited financial statements and
any other financial materials and information reasonably requested by
<PAGE>
Lessor. Lessor, in Lessor's reasonable discretion, may (but is under no
obligation to), by the delivery of written notice to Lessee, elect to terminate
Lessor's requirement for the issuance and maintenance of a letter of credit as
provided under Special Stipulations Section 3. Lessee may, by written notice to
Lessor request such termination, and Lessor shall respond to Lessee within
thirty (30) days of Lessor's receipt of such request, with Lessor's failure to
respond deemed an election not to terminate the letter of credit requirement.
<PAGE>
EXHIBIT 10.8
LICENSE AND PRIVATE LABEL AGREEMENT
This LICENSE AND PRIVATE LABEL AGREEMENT (the "Agreement") is
effective as of March 1, 1996, by and between PERSONNEL DATA SYSTEMS, INC., a
Pennsylvania corporation having its principal office at 670 Centry Parkway, Blue
Bell, Pennsylvania 19422-2320 ("PDS") and SQL FINANCIALS INTERNATIONAL, INC., a
Delaware corporation having its principal office at Two Ravinia Drive, Suite
1000, Atlanta, Georgia 30346 ("SFI").
ARTICLE I
BACKGROUND
WHEREAS, PDS is the owner of a computer software program and system
sometimes referred to as The Human Resource Manager program, as more
particularly described in Exhibit "A" attached hereto (the "Software"); and
----------
WHEREAS, SFI desires to purchase a paid-up and perpetual license to
the Software pursuant to the terms and conditions of this Agreement and to label
the Software as a product of SFI, in accordance with the provisions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE II
DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
1. "Affiliates" of a party to this Agreement shall mean any
subsidiary of a party or any person or entity that owns or controls ten percent
(10%) or more of the voting securities of a party to this Agreement.
2. "Confidential Information" shall mean the Software, the Related
Material, the terms of this Agreement and any other information of a party which
is designated proprietary or confidential, including, but not limited to,
information regarding the disclosing parties' customers, prospects, unannounced
products or prices and financial information.
3. "Customer of PDS" shall mean any person or entity who now
licenses or uses or previously licensed or used PDS' services, systems, or
software, including any Affiliates of such person or entity; or any person or
entity who becomes a user of PDS services, systems, or software during the Term
of this Agreement, or any person or entity who becomes a licensee
<PAGE>
of the Software through the sole efforts of PDS in selling or marketing its
services, systems, software, or the Software and Related Materials.
4. "Customer of SFI" shall mean any person or entity who now
licenses or uses or previously licensed or used SFI's services, systems or
software, including any Affiliates of such person or entity; or any person or
entity who becomes a user or purchaser of SFI's services, systems, software
during the Term of this Agreement, or any person or entity who becomes a
licensee of the Software through the efforts of SFI pursuant to this Agreement.
5. "Private Label" shall mean the labeling of the Software and
Related Materials by SFI under SFI's name or logo pursuant to this Agreement and
in accordance with SFI's marketing plan and the marketing of its financial
software products.
6. "Proprietary Rights" shall mean
(a) All rights, title and interests in all Letters Patent and
applications for Letters Patent, including any reissue, division,
continuation or continuation-in-part applications throughout the world now
or hereafter filed during the Term of the Agreement and corresponding or
based upon the Software and Related Material;
(b) All right, title and interest in all know-how, show-how and
other trade secret rights arising under the common law, state law, federal
law and laws of foreign countries and related to proprietary, confidential
information or trade secret either embodied in the Software including any
whole or partial copies, versions or derivations thereof occurring in any
form, or relating to the Software, or any improvements, enhancements and
modifications thereto;
(c) All right, title and interest in all copyright rights,
author's rights and all other literary property rights, to the Software
including all copies, versions, derivations, modifications, enhancements
and improvements thereto in any form made by PDS;
(d) All right, title and interest in all trademark, tradename
and/or service mark rights under the common law, state law, federal law and
laws of foreign countries relating to the Software; and
(e) All right, title and interest in any and all inventions
embodied in the Software including all modifications, enhancements and
improvements thereto made by PDS whether or not patentable including the
"look and feel," the display screen designs, menus, report formats,
information flow, presentation techniques, processing methods, input/output
file structure, database diagram, database design/architecture, navigation
techniques and data access methods.
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<PAGE>
7. "Related Materials or Related Material" shall mean information in
written or documentary form, human readable form or machine readable form in any
media, used or useful or in relating to the design, use, operation, testing,
debugging, support, maintenance or marketing of the Software, including, but not
limited to, system manuals, program manuals, test and diagnostic information,
support and maintenance information, training information, program listings,
flow charts, application manuals, user manuals and operating procedures.
8. "Software" shall mean The Human Resource Manager software of PDS,
as more particularly described in Exhibit "A," attached hereto including, but
----------
not limited to source code and object code on magnetic media and in human
readable form with interpretive comments, and all improvements, upgrades,
corrections, modifications, alternations, revisions, updates, extensions and/or
enhancements made to the Software by PDS during the Term of this Agreement.
Software shall not mean any improvements, modifications, alterations or
enhancements made to the Software by SFI during the Term of this Agreement.
9. "Software Specifications" shall mean the technical specifications
for the design, performance, operating, test, support and maintenance of the
Software, and all other documentation relating to such technical specifications,
as more particularly described in Exhibit "B" attached hereto.
----------
10. "Term" shall mean the term of this Agreement commencing on the
effective date of this Agreement, and continuing until SFI has paid the Purchase
Price in full, unless sooner terminated pursuant to paragraph 4 of Article IV or
paragraphs 2 and 3 of Article XII herein.
ARTICLE III
TERMS OF PURCHASE
1. Subject to the terms and conditions of this Agreement and in
reliance upon the warranties and indemnities of PDS contained herein, SFI agrees
to purchase and PDS agrees to sell to SFI a perpetual and paid-up license of the
Software and the Related materials. SFI and its Affiliates shall have the right
to use the Software internally as well as to license the Software to others.
Any modifications, enhancements and/or improvements to the Software made by SFI
shall be the sole property of SFI and PDS shall have no right, title or interest
in or to such improvements, enhancements and/or modifications made by SFI.
2. All of the Software licensed by SFI to Customers of SFI shall be
subject to the pricing, terms and conditions of SFI's standard Software License
Agreement as may be modified from time to time, a copy of which is attached
hereto as Exhibit "C."
----------
-3-
<PAGE>
ARTICLE IV
PURCHASE PRICE
1. SFI shall pay an aggregate purchase price of $2.0 million for the
Software and Related Materials (the "Purchase Price"). The Purchase Price shall
be paid to PDS as follows:
(a) $100,000 upon execution of this Agreement;
(b) Twenty-five percent (25%) of the license fees for the first
five (5) Customers of SFI; and
(c) Fifty percent (50%) of the license fees for the 6th and all
additional Customers of SFI until the Purchase Price has been paid in full.
Beginning with the 6th Customer of SFI, the minimum amount to be remitted
by SFI will be $25,000 per customer.
SFI shall remit such license fees to PDS in accordance with paragraph 3 of this
Article. For purposes of this Agreement and this paragraph, license fees shall
mean the fees for the use of the Software and shall not include implementation
and/or support fees.
2. SFI shall offer support services to its Customers for support of
the Software and Related Materials and shall charge its Customers for such
services based on rates determined solely by SFI. PDS shall have no right to
royalties or other fees for charges to Customers of SFI for implementation
services or for support services of any type or for the licensing of financial
software.
3. Payments for the Purchase Price of the Software based on license
fees generated shall be due and payable to PDS twenty-five (25) calendar days
after the calendar month in which SFI receives the payment for the license fee
from the licensee of the Software from SFI.
4. At any time during the term of this Agreement, SFI shall have the
right to prepay the Purchase Price less all prior payments then made toward the
Purchase Price and, upon such payment, all obligations of SFI under this
Agreement shall terminate and SFI shall have no further obligation to remit
payments to PDS in connection with sales of the Software.
5. PDS hereby grants SFI the option to extend the Purchase Price
payment due date from December 31, 1997 to December 31, 1998, provided that in
the event SFI exercises this option the Purchase Price shall be increased by
$1.0 million to $3.0 million.
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<PAGE>
ARTICLE V
REPORTING REQUIREMENTS
1. SFI shall keep true and accurate records relating to the Software
licensed to Customers of SFI under this Agreement. Such reports to PDS shall be
made quarterly within twenty-five (25) days following the end of the quarter.
This report shall contain only summary information sufficient to permit
verification of the payments of the Purchase Price due hereunder. SFI may
eliminate or redact customer names or other information or details from such
reports that would identify any Customer of SFI. During the term of this
Agreement SFI shall permit PDS's independent auditor at PDS's sole expense, to
examine during SFI's regular business hours such reports and any other
documentation of SFI pertinent to this Agreement upon request, but not more
frequently than once in any calendar year.
2. In the event that the PDS independent auditor determines that the
actual amount due to PDS is greater than the amount paid to PDS, PDS shall
notify SFI of this discrepancy and SFI shall have thirty (30) days to correct
such discrepancy or respond in writing to the discrepancy. If a discrepancy is
agreed to by PDS and SFI and if such discrepancy exceeds twenty percent (20%) of
the amount reported by SFI to PDS, then SFI shall pay the cost and expense of
said independent auditor in performing the audit, not to exceed $2,500.00 per
audit. Representatives of the independent auditors of PDS shall protect the
confidentiality of SFI's Confidential Information and abide by SFI's reasonable
security regulations while on SFI's premises.
ARTICLE VI
CUSTOMER NON-SOLICITATION COVENANT
During the Term of this Agreement, each of the parties hereto covenant
and promise that it will not directly or indirectly solicit any Customer of the
other party for the sale to such Customer of Software (except as contemplated in
paragraph 1 of Article VIII) or any other product competitive with any one or
more products of the other party hereto.
ARTICLE VII
CONFIDENTIALITY REQUIREMENTS
1. Each party shall hold the Confidential Information in strict
confidence and will not make any disclosures (including methods or concepts
utilized in the Confidential Information) without the prior express written
consent of the other party, except to employees (for purposes relating solely to
the receiving party's internal business and data processing needs) who have
agreed in writing to maintain the confidentiality of all Confidential
Information in a manner consistent with this Agreement.
-5-
<PAGE>
2. Confidential Information shall not include, and this Article VII
shall not apply to information disclosed by one party to the other which:
(a) was in one party's possession or was known prior to its
receipt from the other except for data, computer programs and/or
documentation relating to the Software which was furnished to SFI by PDS
for the purposes of developing demonstrating and/or explaining the Software
to SFI.
(b) is developed by one party independent of the other
Confidential Information received hereunder;
(c) is or becomes public knowledge without the fault of the other
party;
(d) is received by one party after notification to the other that
such party will not accept any further information in confidence; or
(e) is disclosed by either party under obligation created by
court or government action, provided that the receiving party first gives
the disclosing party the opportunity to object and/or attempt to limit such
disclosure.
3. Each party shall return or destroy all copies of the other's
Confidential Information at any time upon request and in any case within thirty
(30) calendar days.
4. Neither party shall use the other party's name or refer to the
other in any marketing literature without the prior written approval of the
other except as provided below.
5. PDS hereby grants SFI permission to publish, distribute and use
all or any portion of the Software and Related Material, including
documentation, technical, promotional and advertising material related to the
Software and Related Material. PDS hereby grants SFI permission to use the name
"Personnel Data Systems, Inc." as a source referenced in advertising and
promotional activities relating to the Software.
ARTICLE VII
MARKETING
1. PDS and SFI shall use their reasonable efforts to market the
Software. SFI acknowledges that PDS may market and sell the Software, provided
that PDS does not market or sell the Software to any Customer of SFI. PDS shall
make available to SFI customer references that PDS may receive from time to
time.
2. PDS shall provide to SFI either (i) 100 hours of marketing and
sales training and assistance or an employee of PDS dedicated to SFI for one
month for marketing and sales training and assistance at SFI's offices in
Atlanta, Georgia. Such training and assistance
-6-
<PAGE>
shall involve assisting in software presentations, responding to proposals and
demonstrating product capabilities. SFI shall reimburse PDS for all of its
reasonable out-of-pocket expenses incurred by PDS in connection with its
training and assistance to SFI pursuant to this paragraph provided that SFI
receives receipts or other evidence of the amount and nature of such expenses.
ARTICLE IX
SUPPORT AND INSTALLATION OF SOFTWARE
1. PDS agrees that during the term of this Agreement, PDS shall at
PDS' sole expense, support and maintain the Software in conformance with the
Software Specifications.
2. Should PDS become aware of any errors or be notified by SFI of
any errors in the Software and Related Material, PDS shall promptly take
appropriate measures to correct such errors and provide such corrections to SFI
no later than twenty (20) calendar days after notice from SFI of such errors.
Such support assistance shall include but not be limited to those services
performed by PDS to ensure the proper operation and function of Software through
replacement, updates, revisions and new releases of the Software and Related
Material, and through consultation, as may be required.
3. During the Term of this Agreement, PDS shall provide to SFI at
PDS's sole expense 240 hours of training for support and installation of the
Software and shall maintain, at its sole expense, telephone support for the
Software.
4. During the Term of this Agreement, PDS shall provide at least 100
hours of development support to SFI, at Atlanta, SFI's Georgia, offices. Such
development support shall be for the purposes of training SFI with regard to the
Software design and allowing SFI to integrate and enhance the Software. SFI
shall reimburse PDS for all of its reasonable out-of-pocket expenses incurred by
PDS in connection with its development support to SFI pursuant to this paragraph
provided that SFI receives receipts or other evidence of the amount and nature
of such expenses.
5. During the Term of this Agreement, PDS shall, at its sole
expense, provide such other training to enable SFI to otherwise exercise its
rights under this Agreement. Such training shall be during normal business
hours and shall commence within thirty (30) calendar days of receipt of a
written request from SFI.
6. During the Term of this Agreement, PDS shall provide all
documentation to SFI regarding the Software and Related Material and all
upgrades with regard to the Software and Related Material.
-7-
<PAGE>
ARTICLE X
WARRANTY
1. PDS warrants that PDS has good and marketable title to the
Software, and to all Proprietary Rights and licenses with respect thereto
granted to SFI pursuant to the terms of this Agreement. PDS warrants that it
has the right to license the Software to SFI and that each production version of
the Software licensed to SFI, as updated from time to time, will operate in
conformity with the Software Specifications and will equal or exceed the
performance levels set forth in the Software Specifications.
2. PDS further warrants that the Software and Related Material do
not infringe any patent, copyright, trade secret, trademark or other legal or
equitable rights of any third party.
3. PDS further warrants that the Software and Related Material are
substantially free from defects in workmanship, and are as described in the
Software Specifications.
ARTICLE XI
PROPRIETARY RIGHTS INDEMNITY
1. PDS shall take all steps necessary to protect its Proprietary
Rights in the Software and Related Material including the placement of a proper
statutory copyright or trade secret notice as applicable on all copies of the
Software and Related Material. PDS agrees to provide written notification to
SFI of the copyright and/or trade secret notice to be used by SFI on any copies
of the Software and Related Material.
2. PDS shall defend or settle, at its own expense, any claim, cause
of action or proceeding brought against SFI, its Affiliates or Customers which
is based in whole or in part on a claim that the Software or Related Material
infringes any patent, copyright or trade secret. PDS shall indemnify and hold
harmless SFI, its Affiliates, Customers, officers, directors and employees from
any and all liability, loss, costs, damages or expenses (including court costs,
disbursements, reasonable attorney's fees and expert witness fees) arising out
of or in connection with any claim by any person or entity that the Software or
the Related Material infringes any patent, copyright or trade secret (the
"Claim"). SFI shall provide PDS with reasonable cooperation and all information
relating to such claim or cause of action in SFI's possession.
3. SFI shall give PDS notice of any such Claim promptly after SFI
receives notice thereof (and in no event more than thirty (30) days after
receiving such notice), and PDS will undertake the defense thereof by
representatives of their own choosing; provided, however, that the failure to
give such notice shall not affect the liability of PDS unless and only to the
extent such failure prejudices the ability of PDS to defend against or mitigate
damages arising out of such claim. All reasonable costs and expenses of such
defense, and any settlement or compromise resulting from the defense of any
Claim shall be paid by PDS. In the event that PDS, within a reasonable time
after
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<PAGE>
receipt of notice of any such Claim, but in no event more than thirty (30)
days after receipt of such notice, fails to defend, SFI will (without further
notice to PDS) have the right to undertake the defense, compromise or settlement
of such Claim on behalf of and for the account and risk of PDS.
4. If a claim is made that the Software or the Related Material
infringes any patent, copyright or trade secret or if PDS or SFI believes that a
likelihood of such claim exists, PDS shall at the option of SFI procure for SFI
the right to continue using and selling the Software or the Related Material,
modify the Software or the Related Material to make it non-infringing, but still
meet the specifications therefor, or replace the Software or the Related
Material with non-infringing Software or Related Material of similar capability.
If none of the foregoing alternatives is reasonably available to PDS, PDS shall
refund to SFI any purchase price paid by SFI.
5. SFI agrees to indemnify and hold harmless PDS from any and all
liability, loss, costs, damages or expenses (including court costs,
disbursements, reasonable attorney's fees and expert witness fees) arising from
any cause of action by any person claiming that any modifications or
enhancements to the Software made by SFI infringes any patent, copyright or
trade secret (the "Modification Claim").
6. PDS shall give SFI notice of any such Modification Claim promptly
after PDS receives notice thereof (and in no event more than thirty (30) days
after receiving such notice), and SFI will undertake the defense thereof by
representatives of their own choosing; provided, however, that the failure to
give such notice shall not affect the liability of SFI unless and only to the
extent such failure prejudices the ability of SFI to defend against or mitigate
damages arising out of such Modification Claim. All reasonable costs and
expenses of such defense, and any settlement or compromise resulting from the
defense of any Modification Claim shall be paid by SFI. In the event that SFI,
within a reasonable time after receipt of notice of any such Modification Claim,
but in no event more than thirty (30) days after receipt of such notice, fails
to defend, PDS will (without further notice to SFI) have the right to undertake
the defense, compromise or settlement of such Modification Claim on behalf of
and for the account and risk of SFI.
ARTICLE XII
TERM AND TERMINATION OF AGREEMENT
1. This Agreement shall become effective on the effective date of
this Agreement and all obligations of SFI hereunder including any payments
required hereby, shall terminate upon SFI's payment in full of the Purchase
Price, whether by prepayment or otherwise. The license and other rights granted
to SFI shall survive any such termination hereof.
2. If either party hereto shall fail to perform or observe any of
the material terms and conditions to be performed or observed under this
Agreement, the other party may give written notice to the defaulting party
specifying the respects in which the defaulting party has so failed to perform
or observe the terms and conditions of this Agreement, and in the event that
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<PAGE>
any default so indicated shall not be remedied by the defaulting party within
sixty (60) calendar days after such notice, the party not in default may within
thirty (30) calendar days thereafter, terminate this Agreement by giving written
notice to the defaulting party of such termination.
3. Notwithstanding anything contained herein to the contrary, if
either party hereto shall merge with or if all or substantially all of the
assets or a majority of the equity interests of such party is acquired by
another entity, the other party to this Agreement may, in its sole and absolute
discretion, terminate this Agreement upon thirty (30) days notice to the other
party. If such party does not terminate this Agreement, this Agreement shall
then be binding upon and shall inure to the benefit of the person or entity with
which PDS or SFI may be sold, merged or consolidated. Notwithstanding the
foregoing, the parties agree that the provisions of this paragraph do not apply
to an initial public offering or private placement of the stock of any party to
this Agreement.
ARTICLE XII
EFFECT OF TERMINATION
1. Upon termination of this Agreement before the end of the Term or
before SFI pays the entire Purchase Price of the Software as provided in Article
III, SFI shall cease marketing and selling licenses of the Software. All
licenses of the Software made prior to the termination of this Agreement shall
continue in effect until the termination or expiration of the license agreement
under which the Software was licensed to a Customer of SFI. SFI may continue
using one copy of the most recent release of the Software then in SFI's
possession solely for the purpose of continuing customer service for licenses
sold by SFI to its Customers.
2. Should this Agreement expire or be terminated for any reason,
neither party will be liable to the other because of such expiration or
termination for compensation, reimbursement or damages on account of the loss of
prospective profits, anticipated sales, goodwill or on account of expenditures,
investments, leases or commitments in connection with the business of PDS or
SFI, or for any other reason whatsoever flowing from such termination or
expiration. However, expiration or termination of this Agreement shall not
release SFI from its liability to pay PDS any portion of the Purchase Price
accruing from license sales prior to such termination and shall not limit either
party from pursuing any other remedies available to it.
ARTICLE XIV
RELATIONSHIP BETWEEN THE PARTIES
SFI shall in all matters relating to this Agreement act as an
independent contractor. Nothing in this Agreement shall be deemed to constitute
SFI as a partner, joint venturer, franchisee, agent or employee of PDS. Neither
party will represent that it has any authority to assume or create any
obligation, express or implied, on behalf of the other party, or to represent
the other party.
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<PAGE>
ARTICLE XV
NOTICES
Any and all written notices, communications and deliveries between PDS
and SFI with reference to this Agreement shall be sufficiently made on the date
of mailing if sent by first class registered or certified mail, telecopy, or
overnight courier to the respective address, subject to change upon written
notice, of the other party as follows:
In the case of SFI:
Mr. Steve Jeffery
SQL Financials International, Inc.
Two Ravinia Drive, Suite 1000
Atlanta, Georgia 30346
In the case of PDS:
Mr. Steve Brody, President
Personnel Data Systems
670 Centry Parkway
Blue Bell, Pennsylvania 19422-2320
ARTICLE XVI
GOVERNING LAW
The laws of the State of Georgia shall govern with respect to the
construction and enforcement of this Agreement.
ARTICLE XVII
SURVIVAL OF PROVISIONS
The term of any rights and licenses granted by SFI pursuant to Article
III hereunder shall be for the full term of such rights and licenses and shall
survive any termination of this Agreement. In addition, the rights and
obligations of the parties under Articles VI, VII, X, XI and XIII shall survive
the expiration or termination of this Agreement.
ARTICLE XVIII
EFFECT OF HEADINGS
The Article headings appearing in this Agreement are inserted only as
a matter of convenience and in no way define, limit, construe or describe the
scope or intent of the Article, or affect this Agreement.
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<PAGE>
ARTICLE XIX
INTEGRATION
This Agreement and the attached Addendum sets forth the entire
Agreement and understanding of the parties relating to the subject matter
contained herein, and supersedes and merges all prior discussions and agreements
between them, relating to the subject matter contained herein or any other
products of SFI or PDS. Neither party shall be bound by any definition,
condition, warranty or representation other than as expressly set forth in this
Agreement or the Addendum, or as subsequently set forth in writing signed by the
party to be bound thereby.
ARTICLE XX
COUNTERPARTS
This Agreement may be executed in counterparts each of which shall be
deemed an original, but all of which together shall constitute one and the same
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the date first above written.
PERSONNEL DATA SYSTEMS, INC.
By: /s/
-----------------------------------------
Name:_______________________________________
Title:______________________________________
SQL FINANCIALS INTERNATIONAL, INC.
By: /s/
-----------------------------------------
Name:_______________________________________
Title:______________________________________
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<PAGE>
ADDENDUM TO
LICENSE AND PRIVATE LABEL AGREEMENT
This Addendum to License and Private Label Agreement (the "Addendum")
is made effective as of March 1, 1996, by and between PERSONNEL DATA SYSTEMS,
INC., a Pennsylvania corporation having its principal office at 670 Centry
Parkway, Blue Bell, Pennsylvania 19422-2320 ("PDS") and SQL FINANCIALS
INTERNATIONAL, INC., a Delaware corporation having its principal office at Two
Ravinia Drive, Suite 1000, Atlanta, Georgia 30346 ("SFI").
NOW, THEREFORE, in consideration of the execution of the License and
Private Label Agreement (the "Agreement") and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
XXI SFI shall have the option to terminate this Agreement on or before March
1, 1997 if SFI shall have paid $500,000 of the Purchase Price to PDS. In the
event that $500,000 shall have been paid to PDS from SFI and SFI exercises its
option to terminate this Agreement on March 1, 1997, all rights, duties and
obligations of the parties hereto shall cease and shall be of no force or
effect. In the event that SFI does not exercise its option to terminate the
Agreement pursuant to this paragraph, SFI shall not be required to make any
minimum payment or other payment to PDS except as otherwise specifically
provided in this Agreement.
XXII This Addendum shall be in addition to the other provisions of the
Agreement.
XXIII This Addendum may be executed in counterparts each of which shall be
deemed an original, but all of which together shall constitute one and the same
Addendum.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Addendum effective as of the date first above written.
PERSONNEL DATA SYSTEMS, INC.
By: /s/
-----------------------------------------
Name:_______________________________________
Title:______________________________________
SQL FINANCIALS INTERNATIONAL, INC.
By: /s/
-----------------------------------------
Name:_______________________________________
Title:______________________________________
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<PAGE>
EXHIBIT 10.9
Silicon Valley Bank
Loan and Security Agreement
Borrower: SQL Financials International, Inc.
Address: Two Ravina Drive, Suite 1000
Atlanta, Georgia 30346
Borrower: SQL Financials Services, L.L.C.
Address: Two Ravina Drive, Suite 1000
Atlanta, Georgia 30346
Date: March 28, 1997
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named
above (jointly and severally, the "Borrower"), whose chief executive office is
located at the above address ("Borrower's Address"). The Schedule to this
Agreement (the "Schedule") shall for all purposes be deemed to be a part of this
Agreement, and the same is an integral part of this Agreement. (Definitions of
certain terms used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 Loans. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing.
1.2 Interest. All Loans and all other monetary Obligations shall bear interest
at the rate shown on the Schedule, except where expressly set forth to the
contrary in this Agreement. Interest shall be payable monthly, on the last day
of the month. Interest may, in Silicon's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Silicon may, in its discretion, charge interest to Borrower's
Deposit Accounts maintained with Silicon. Regardless of the amount of
Obligations that may be out standing from time to time, Borrower shall pay
Silicon minimum monthly interest during the term of this Agreement in the amount
set forth on the Schedule (the "Minimum Monthly Interest").
1.3 Overadvances. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
<PAGE>
1.4 Fees. Borrower shall pay Silicon the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Silicon and are not
refundable.
1.5 Letters of Credit. At the request of Borrower, Silicon may, in its sole
discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, "Letters of Credit"). The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges (including charges of Silicon) for the issuance of
Letters of Credit, together with such additional fee as Silicon's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon
harmless from any loss, cost, expense, or liability, including payments made by
Silicon, expenses, and reasonable attorneys' fees incurred by Silicon arising
out of or in connection with any Letters of Credit. Borrower agrees to be bound
by the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto. Borrower understands
that Letters of Credit may require Silicon to indemnify the issuing bank for
certain costs or liabilities arising out of claims by Borrower against such
issuing bank. Borrower hereby agrees to indemnify and hold Silicon harmless
with respect to any loss, cost, expense, or liability incurred by Silicon under
any Letter of Credit as a result of Silicon's indemnification of any such
issuing bank. The provisions of this Loan Agreement, as it pertains to Letters
of Credit, and any other present or future documents or agreements between
Borrower and Silicon relating to Letters of Credit are cumulative.
2. SECURITY INTEREST.
2.1 Security Interest. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Silicon a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the
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<PAGE>
foregoing, together with all other property in which Silicon may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and will
continue to be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. * Borrower is and will continue
to be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, ** or any law or any material agreement
or instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instru ment which is binding upon Borrower or
its property.
* Borrower, if a limited liability company, is and will continue to be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.
** or any other organizational agreement or documentation relating to the
Borrower,
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Silicon at least 30 days prior
written notice before opening any additional place of business,
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<PAGE>
changing its chief executive office, or moving any of the Collateral to a
location other than Borrower's Address or one of the locations set forth on the
Schedule.
3.4 Title to Collateral; Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others. None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture. Borrower
is not and will not become a lessee under any real property lease pursuant to
which the lessor may obtain any rights in any of the Collateral and no such
lease now prohibits, restrains, impairs or will prohibit, restrain or impair
Borrower's right to remove any Collateral from the leased premises. Whenever
any Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Borrower shall, whenever requested by Silicon, use its best efforts
to cause such third party to execute and deliver to Silicon, in form acceptable
to Silicon, such waivers and subordinations as Silicon shall specify, so as to
ensure that Silicon's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full
force and effect, and will comply with all the terms of, any lease of real
property where any of the Collateral now or in the future may be located.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately advise Silicon in writing of any material
loss or damage to the Collateral.
3.6 Books and Records. Borrower has maintained and will maintain at Borrower's
Address complete and accurate books and records, comprising an accounting system
in accordance with generally accepted accounting principles.
3.7 Financial Condition, Statements and Reports. All financial statements now
or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Silicon and the date hereof,
there has been no material adverse change in the financial condition or business
of Borrower. Borrower is now and will continue to be solvent.
3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and
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Borrower has timely paid, and will timely pay, all foreign, federal, state and
local taxes, assessments, deposits and contributions now or in the future owed
by Borrower. Borrower may, however, defer payment of any contested taxes,
provided that Borrower (i) in good faith contests Borrower's obligation to pay
the taxes by appropriate proceedings promptly and diligently instituted and
conducted, (ii) notifies Silicon in writing of the commencement of, and any
material development in, the proceedings, and (iii) posts bonds or takes any
other steps required to keep the contested taxes from becoming a lien upon any
of the Collateral. Borrower is unaware of any claims or adjustments proposed for
any of Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid, and shall continue to
pay all amounts necessary to fund all present and future pension, profit sharing
and deferred compensation plans in accordance with their terms, and Borrower has
not and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency. Borrower shall, at all times, utilize the services of
an outside payroll service providing for the automatic deposit of all payroll
taxes payable by Borrower *.
* or other service or system reasonably acceptable to Silicon
3.9 Compliance with Law. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 Litigation. Except as disclosed in the Schedule, there is no claim, suit,
litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 * or more, or involving $100,000 * or more in the aggregate.
* on a joint basis for Borrowers
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any
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Loan will be used to purchase or carry any "margin stock" or to extend credit to
others for the purpose of purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 Representations Relating to Receivables. Borrower represents and warrants
to Silicon as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing un conditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 Schedules and Documents relating to Receivables. Borrower shall deliver to
Silicon transaction reports and loan requests, schedules and assignments of all
Receivables, and schedules of collections, all on Silicon's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Silicon's security interest and other rights in all of
Borrower's Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein. Loan requests received after 2:30 PM *will not be considered by Silicon
until the next Business Day. Together with each such schedule and assignment,
or later if requested by Silicon, Borrower shall furnish Silicon with copies
(or, at Silicon's request, originals) of all contracts, orders, invoices, and
other similar documents, and all original shipping instructions, delivery
receipts, bills of lading, and other evidence of delivery, for any goods the
sale or disposition of which gave rise to such Receivables, and Borrower
warrants the genuineness of all of the fore going. Borrower shall also furnish
to Silicon an aged accounts receivable trial balance in such form and at such
intervals as Silicon shall request. In addition, Borrower shall deliver to
Silicon the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any
Receivables, immediately upon receipt thereof and in the same form as received,
with all necessary indorsements, all of which shall be
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with recourse. Borrower shall also provide Silicon with copies of all credit
memos within two days after the date issued.
* (Pacific time)
4.4 Collection of Receivables. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a blocked account agreement in such form as Silicon may specify.
Silicon or its designee may, at any time, notify Account Debtors that the
Receivables have been assigned to Silicon. *
* Prior to an Event of Default, Silicon agrees to permit Borrower to
participate concurrently in the notification process to Account Debtors referred
to in the preceding sentence in a manner reasonably acceptable to Silicon,
provided that on and after an Event of Default and during the continuance
- --------
thereof such notification process may occur without any notice to, or
participation with, Borrower and Silicon may effect such notification at any
time.
4.5. Remittance of Proceeds. All proceeds arising from the disposition of any
Collateral shall be delivered, in kind, by Borrower to Silicon in the original
form in which received by Borrower not later than the following Business Day
after receipt by Borrower, to be applied to the Obligations in such order as
Silicon shall determine; provided that, if no Default or Event of Default has
occurred, Borrower shall not be obligated to remit to Silicon the proceeds of
the sale of worn out or obsolete equipment disposed of by Borrower in good faith
in an arm's length transaction for an aggregate purchase price of $50,000 or
less * (for all such transactions in any fiscal year). Borrower agrees that it
will not commingle proceeds of Collateral with any of Borrower's other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Silicon. Nothing in this Section
limits the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
* on a joint basis for Borrowers
4.6 Disputes. Borrower shall notify Silicon promptly of all disputes or claims
relating to Receivables. Borrower shall not forgive (completely or partially),
compromise or settle any Receivable for less than payment in full, or agree to
do any of the foregoing, except that Borrower may do so, provided that: (i)
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of
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<PAGE>
Default has occurred and is continuing; and (iii) taking into account all such
discounts settlements and forgiveness, the total outstanding Loans will not
exceed the Credit Limit. Silicon may, at any time after the occurrence * of an
Event of Default, settle or adjust disputes or claims directly with Account
Debtors for amounts and upon terms which Silicon considers advisable in its
reasonable credit judgment and, in all cases, Silicon shall credit Borrower's
Loan account with only the net amounts received by Silicon in payment of any
Receivables.
* and during the continuance
4.7 Returns. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 Verification. Silicon may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.
4.9 No Liability. Silicon shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Silicon be deemed to be responsible for any of Borrower's obligations
under any contract or agreement giving rise to a Receivable. Nothing herein
shall, however, relieve Silicon from liability for its own gross negligence or
willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 Financial and Other Covenants. Borrower shall at all times comply with the
financial and other covenants set forth in the Schedule.
5.2 Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to
8
<PAGE>
Silicon, in such form and amounts as Silicon may reasonably require, and
Borrower shall provide evidence of such insurance to Silicon, so that Silicon is
satisfied that such insurance is, at all times, in full force and effect. All
such insurance policies shall name Silicon as an additional loss payee, and
shall contain a lenders loss payee endorsement in form reasonably acceptable to
Silicon. Upon receipt of the proceeds of any such insurance, Silicon shall apply
such proceeds in reduction of the Obligations as Silicon shall determine in its
sole discretion, except that, provided no Default or Event of Default has
occurred and is continuing, Silicon shall release to Borrower * insurance
proceeds with respect to Equipment totaling less than $100,000, which shall be
utilized by Borrower for the replacement of the Equipment with respect to which
the insurance proceeds were paid. Silicon may require reasonable assurance that
the insurance proceeds so released will be so used. If Borrower fails to provide
or pay for any insurance, Silicon may, but is not obligated to, obtain the same
at Borrower's expense. Borrower shall promptly deliver to Silicon copies of all
reports made to insurance companies.
* on a joint basis
5.3 Reports. Borrower, at its expense, shall provide Silicon with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as Silicon shall from time to time reasonably specify.
5.4 Access to Collateral, Books and Records. At reasonable times, and on *
Business Day's notice, Silicon, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records **.
Silicon shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but Silicon shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $500 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining Silicon's
written consent, which may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Silicon the same rights with
respect to access to books and records and related rights as Silicon has under
this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of its books and records (except that Borrower
does not waive any attorney-client privilege).
* five
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** provided that upon the occurrence and during the continuance of an Event
--------
of Default the five Business Days' notice shall be deemed reduced to one
Business Day's notice
5.5 Negative Covenants. Except as may be permitted in the Schedule, Borrower
shall not, without Silicon's prior written consent, do any of the following:
(i) merge or consolidate with another corporation or entity; (ii) acquire any
assets, except in the ordinary course of business; (iii) enter into any other
transaction outside the ordinary course of business; (iv) sell or transfer any
Collateral, except for the sale of finished Inventory in the ordinary course of
Borrower's business, and except for the sale of obsolete or unneeded Equipment
in the ordinary course of business; (v) store any Inventory or other Collateral
with any warehouseman or other third party *; (vi) sell any Inventory on a sale-
or-return, guaranteed sale, consignment, or other contingent basis; (vii) make
any loans of any money or other assets; (viii) incur any debts, outside the
ordinary course of business, which would have a material, adverse effect on
Borrower or on the prospect of repayment of the Obligations; (ix) guarantee or
otherwise become liable with respect to the obligations of another party or
entity; (x) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Borrower's stock; (xii) make
any change in Borrower's capital structure which would have a material adverse
effect on Borrower or on the prospect of repayment of the Obligations; or (xiii)
or (xiv) dissolve or elect to dissolve **. Transactions permitted by the
foregoing provisions of this Section are only permitted if no Default or Event
of Default would occur as a result of such transaction.
* , other than in connection with the placement of source code in escrow in
the ordinary course of the Borrower's business
** provided that nothing herein shall preclude the consummation of the
--------
initial public offering of the Borrower's common stock (the "IPO")
5.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
5.7 Further Assurances. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
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6. TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date.
6.2 Early Termination. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three Business Days after written
notice of termination is given to Silicon; or (ii) by Silicon at any time after
the occurrence * of an Event of Default, without notice, effective immediately.
* and during the continuance
6.3 Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; pro vided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination
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<PAGE>
shall in any way affect or impair any right or remedy of Silicon, nor shall any
such termination relieve Borrower of any Obligation to Silicon, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Silicon shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Silicon's
security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit; or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule or shall fail to perform any other non-
monetary Obligation which by its nature cannot be cured; or (e) Borrower shall
fail to perform any other non-monetary Obligation, which failure is not cured
within 5 Business Days after the date due; or (f) Any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (j) the commencement of any proceeding against Borrower or
any guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 30 days after the date commenced; or (k)
revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing, or
commencement of proceedings by any guarantor of any of the Obligations under any
bankruptcy or insolvency law; or (l) revocation or termination of, or limitation
or denial of liability upon, any pledge of any certificate of deposit,
securities or other property or asset of any kind pledged by any third party to
secure any or all of the Obligations, or any attempt to
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<PAGE>
do any of the foregoing, or commencement of proceedings by or against any such
third party under any bankruptcy or insolvency law; or (m) Borrower makes any
payment on account of any indebtedness or obligation which has been subordinated
to the Obligations other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or (n)
there shall be a change in the record or beneficial ownership of an aggregate of
more than 20% of the outstanding shares of stock of Borrower, in one or more
transactions, compared to the ownership of outstanding shares of stock of
Borrower in effect on the date hereof, without the prior written consent of
Silicon *; or (o) Borrower shall generally not pay its debts as they become due,
or Borrower shall conceal, remove or transfer any part of its property, with
intent to hinder, delay or defraud its creditors, or make or suffer any transfer
of any of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or (p) there shall be a material adverse change in
Borrower's business or financial condition; or (q) Silicon, acting in good faith
and in a commercially reasonable manner, deems itself insecure because of the
occurrence of an event prior to the effective date hereof of which Silicon had
no knowledge on the effective date or because of the occurrence of an event on
or subsequent to the effective date. Silicon may cease making any Loans
hereunder during any of the above cure periods, and thereafter if an Event of
Default has occurred.
* other than in connection with the IPO
7.2 Remedies. Upon the occurrence * of any Event of Default, Silicon, at its
option, and without notice or demand of any kind (all of which are hereby
expressly waived by Borrower), may do any one or more of the following: (a)
Cease making Loans or otherwise extending credit to Borrower under this
Agreement or any other document or agreement; (b) Accelerate and declare all or
any part of the Obligations to be immediately due, payable, and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any Obligation; (c) Take possession of any or all of
the Collateral wherever it may be found, and for that purpose Borrower hereby
authorizes Silicon without judicial process to enter onto any of Borrower's
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as Silicon deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however, that
should Silicon seek to take possession of any of the Collateral by Court
process, Borrower hereby irrevocably waives: (i) any bond and any surety or
security relating thereto required by any statute, court rule or otherwise as an
incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Silicon retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to assemble
any or all of the Collateral and make
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<PAGE>
it available to Silicon at places designated by Silicon which are reasonably
convenient to Silicon and Borrower, and to remove the Collateral to such
locations as Silicon may deem advisable; (e) Complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Silicon shall have the right to
use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all
other property without charge; (f) Sell, lease or otherwise dispose of any of
the Collateral, in its condition at the time Silicon obtains possession of it or
after further manufacturing, processing or repair, at one or more public and/or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other than
oral announcement at the time scheduled for sale. Silicon shall have the right
to conduct such disposition on Borrower's premises without charge, for such time
or times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Silicon may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Silicon to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Silicon's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables and
the like for less than face value; (h) Offset against any sums in any of
Borrower's general, special or other Deposit Accounts with Silicon; and (i)
Demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by Silicon with respect to the foregoing shall be added
to and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional four percent per annum.
* and during the continuance
7.3 Standards for Determining Commercial Reasonableness. Borrower and Silicon
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the
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<PAGE>
collateral in general, non-specific terms; (iii) The sale is conducted at a
place designated by Silicon, with or without the Collateral being present; (iv)
The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of
the purchase price in cash or by cashier's check or wire transfer is required;
(vi) With respect to any sale of any of the Collateral, Silicon may (but is not
obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. Silicon shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
7.4 Power of Attorney. Upon the occurrence * of any Event of Default, without
limiting Silicon's other rights and remedies, Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Silicon agrees to exercise the following
powers in a commercially reasonable manner: (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Silicon's
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Silicon the same rights of access and other rights with respect
thereto as Silicon has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and
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<PAGE>
all reasonable sums paid and any and all reasonable costs, expenses,
liabilities, obligations and attorneys' fees incurred by Silicon with respect to
the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. In no event shall Silicon's
rights under the foregoing power of attorney or any of Silicon's other rights
under this Agreement be deemed to indicate that Silicon is in control of the
business, management or properties of Borrower.
* and during the continuance
7.5 Application of Proceeds. All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Silicon in
the exercise of its rights under this Agreement, second to the interest due upon
any of the Obligations, and third to the principal of the Obligations, in such
order as Silicon shall determine in its sole discretion. Any surplus shall be
paid to Borrower or other persons legally entitled thereto; Borrower shall
remain liable to Silicon for any deficiency. If, Silicon, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Silicon shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set forth in
this Agreement, Silicon shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable.
--------------
"Affiliate" means, with respect to any Person, a relative, partner, shareholder,
---------
director, officer, or employee of such Person, or any parent or subsidiary of
such Person, or any Person controlling, controlled by or under common control
with such Person.
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"Business Day" means a day on which Silicon is open for business.
------------
"Code" means the Uniform Commercial Code as adopted and in effect in the State
----
of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
----------
"Default" means any event which with notice or passage of time or both, would
-------
constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
---------------
"Eligible Inventory" [NOT APPLICABLE].
------------------
"Eligible Receivables" means Receivables arising in the ordinary course of
--------------------
Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate. + Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "Minimum
-------
Eligibility Requirements") are the minimum requirements for a Receivable to be
- ------------------------
an Eligible Receivable: (i) * the Receivable must not be outstanding for more
than 90 days from its invoice date, ** (ii) the Receivable must not represent
progress billings, or be due under a fulfillment or requirements contract with
the Account Debtor, (iii) the Receivable must not be subject to any
contingencies (including Receivables arising from sales on consignment,
guaranteed sale or other terms pursuant to which payment by the Account Debtor
may be conditional), (iv) the Receivable must not be owing from an Account
Debtor with whom the Borrower has any dispute (whether or not relating to the
particular Receivable), (v) the Receivable must not be owing from an Affiliate
of Borrower, (vi) the Receivable must not be owing from an Account Debtor which
is subject to any insolvency or bankruptcy proceeding, or whose financial
condition is not acceptable to Silicon, or which, fails or goes out of a
material portion of its business, (vii) the Receivable must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to Silicon's satisfaction, with the United States
Assignment of Claims Act)***, (viii) the Receivable must not be owing from an
Account Debtor located outside the United States or Canada (unless pre-approved
by Silicon in its discretion in writing, or backed by a letter of credit
satisfactory to Silicon, or FCIA insured satisfactory to Silicon), (ix) the
Receivable must not be owing from an Account Debtor to whom Borrower is or may
be liable for goods purchased from such Account Debtor or otherwise ****.
Receivables owing from one Account Debtor will not be deemed Eligible
Receivables to the extent they exceed 25% of the total eligible Receivables
outstanding. In addition, if more than 50% of the Receivables owing from an
Account Debtor ***** (without regard to unapplied credits) or are otherwise
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not eligible Receivables, then all Receivables owing from that Account Debtor
will be deemed ineligible for borrowing. Silicon may, from time to time, in its
discretion, revise the Minimum Eligibility Requirements, upon written notice to
the Borrower.
+ Eligible Receivables shall also include, with respect to SFI, the
Receivables relating to maintenance contract billings, which Silicon, in its
sole judgment, shall deem eligible for borrowing, based on such considerations
as Silicon may from time to time deem appropriate (such Receivables are referred
to herein as the "Maintenance Billing Receivables")
* with respect to SQL Financials Services, L.L.C. ("SFS"),
** and with respect to SQL Financials International, Inc. ("SFI"), the
Receivable must not be outstanding for more than 90 days from its invoice date
for Receivables having due dates of 90 days or less, provided that on a case by
--------
case basis invoices with due dates of up to 182 days from the invoice date may
be deemed eligible in the discretion of Silicon, provided, further, with respect
-------- -------
to second year Maintenance Billing Receivables, such Receivables must not be
outstanding more than 45 days prior to their due date nor more than 30 days
after their due date (the dating and other criteria set forth in the clause (i)
are collectively referred to as the "Dating Criteria").
Further, the following specific Receivables shall not be deemed ineligible by
virtue of their noncompliance with the Dating Criteria for up to 30 days from
their due dates: (1) account debtor of First Data Corp. for $107,000 due August
15, 1997; (2) account debtor of J & W Seligman & Co. for $93,500 due June 30,
1997; (3) account debtor of Merit Behavioral Care Corp. for $183,600 due June
27, 1997; (4) account debtor of Motel 6 for $108,200 due July 31, 1997; and (5)
account debtor of Tom's Foods for $69,300 due June 30, 1997
*** provided that individual orders or contracts in an amount not to exceed
--------
$10,000 per order or contract will not be considered ineligible by virtue of the
restriction set forth in this clause (vii) (the "Permitted Government
Receivables"), provided, further, that in no event shall the aggregate amount of
-------- -------
Permitted Government Receivables exceed $100,000 at any one time
**** unless a no-offset agreement is entered into between such Account
Debtor and Silicon in form acceptable to Silicon in its discretion
***** do not qualify because of non-compliance with the Dating Criteria
"Equipment" means all of Borrower's present and hereafter acquired machinery,
---------
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of
18
<PAGE>
the foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Event of Default" means any of the events set forth in Section 7.1 of this
----------------
Agreement.
"General Intangibles" means all general intangibles of Borrower, whether now
-------------------
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
"Obligations" means all present and future Loans, advances, debts, liabilities,
-----------
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to Silicon, whether evidenced by this Agreement or any note or other
instrument or document, whether arising from an extension of credit, opening
of a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by Silicon in Borrower's debts
owing to others), absolute or contingent, due or to become due, including,
without limitation, all interest, charges, expenses, fees, attorney's fees,
expert witness fees, audit fees, letter of credit fees, collateral monitoring
fees, closing fees, facility fees, termination fees, minimum interest charges
and any other sums chargeable to Borrower under this Agreement or under any
other present or future instrument or agreement between Borrower and Silicon.
19
<PAGE>
"Permitted Liens" means the following: (i) purchase money security interests in
---------------
specific items of Equipment; (ii) leases of specific items of Equipment; (iii)
liens for taxes not yet payable; (iv) additional security interests and liens
consented to in writing by Silicon, which consent shall not be unreasonably
withheld; (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods *. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
* ; and (ix) a lien in favor of Leasing Technologies International, Inc.
("LTI") in the "LTI Equipment" and such other items of property as set forth in
and subject to the terms and conditions of the Intercreditor Agreement dated
______________________ between LTI and Silicon.
"Person" means any individual, sole proprietorship, partnership, joint venture,
------
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
"Receivables" means all of Borrower's now owned and hereafter acquired accounts
-----------
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
Other Terms. All accounting terms used in this Agreement, unless otherwise
- -----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
20
<PAGE>
9. GENERAL PROVISIONS.
9.1 Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 2:30 PM * on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan account for the amount of any item of payment which is returned
to Silicon unpaid.
* (Pacific time)
9.2 Application of Payments. All payments with respect to the Obligations may
be applied, and in Silicon's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Silicon shall determine in its sole
discretion.
9.3 Charges to Accounts. Silicon may, in its discretion, require that Borrower
pay monetary Obligations in cash to Silicon, or charge them to Borrower's Loan
account, in which event they will bear interest at the same rate applicable to
the Loans. Silicon may also, in its discretion, charge any monetary Obligations
to Borrower's Deposit Accounts maintained with Silicon.
9.4 Monthly Accountings. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 Notices. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Silicon or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. Notices to Silicon shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
21
<PAGE>
9.6 Severability. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 Integration. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Silicon and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
-----------------
understandings, representations or agreements between the parties which are not
- -------------------------------------------------------------------------------
set forth in this Agreement or in other written agreements signed by the parties
- --------------------------------------------------------------------------------
in connection herewith.
- -----------------------
9.8 Waivers. The failure of Silicon at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Silicon shall not waive or
diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
9.9 No Liability for Ordinary Negligence. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.
9.10 Amendment. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Silicon.
9.11 Time of Essence. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement.
22
<PAGE>
9.12 Attorneys Fees and Costs. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to Borrower. In satisfying Borrower's obligation
-----------------------------------
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
- --------------------------------------------------------------------
convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas,
- --------------------------------------------------------------------------------
but Borrower acknowledges and agrees that Levy, Small & Lallas is representing
- ------------------------------------------------------------------------------
only Silicon and not Borrower in connection with this Agreement. If either
- ----------------------------------------------------------------
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including (but not limited to)
reasonable attorneys' fees and costs incurred in the enforcement of, execution
upon or defense of any order, decree, award or judgment. All attorneys' fees
and costs to which Silicon may be entitled pursuant to this Paragraph shall
immediately become part of Borrower's Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations.
9.13 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Silicon; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release Borrower
from its liability for the Obligations. *
* Other than as qualified in the proviso that follows, Silicon agrees not
knowingly to assign its interest in this Agreement to a competitor of the
Borrower, provided that upon the occurrence and during the continuance of an
--------
Event of Default there shall be no restrictions whatsoever regarding the
assignees of the rights of Silicon hereunder.
9.14 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
23
<PAGE>
9.15 Limitation of Actions. Any claim or cause of action by Borrower against
Silicon, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.16 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
9.17 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 Mutual Waiver of Jury Trial. BORROWER AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY
24
<PAGE>
OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Borrower:
SQL Financials International, Inc.
By /s/
----------------------------------
President or Vice President
By /s/
----------------------------------
Secretary or Ass't Secretary
Borrower:
SQL Financials services, L.L.C.
By /s/
----------------------------------
Title:
By /s/
----------------------------------
Title:
Silicon:
SILICON VALLEY BANK
By /s/
----------------------------------
Title
------------------------------
25
<PAGE>
Silicon Valley Bank
Schedule to
Loan and Security Agreement
Borrower:
SQL Financials International, Inc.
Address:
Two Ravina Drive, Suite 1000
Atlanta, Georgia 30346
Borrower:
SQL Financials _Services, L.L.C.
Address:
Two Ravina Drive, Suite 1000
Atlanta, Georgia 30346
Date:
March 28, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrowers of even date.
1. Credit Limit
(Section 1.1):
An amount not to exceed the lesser of:
(i) $3,000,000 at any one time outstanding, on a joint and consolidated
basis for SQL Financials International, Inc. and SQL Financials Services,
L.L.C.; or
(ii) the sum of:
(A) 80% of the amount of Borrower's Eligible Receivables (as
defined in Section 8 above) (other than for Maintenance Billing
Receivables (as defined in Section 8 above)); plus
----
(B) 65% of the amount of Borrower's Maintenance Billing
Receivables; plus
----
(C) $500,000.
Loans made to the Borrower pursuant to subsection (ii)(C) above to the
extent there remains no availability therefor under (ii)(A) or (ii)(B) are
referred to herein as the "Overadvance Loans."
<PAGE>
Letter of Credit Sublimit
(Section 1.5):
$500,000, on a joint and consolidated basis for SQL Financials
International, Inc. and SQL Financials Services, L.L.C.
Foreign Exchange
Contract Sublimit
Up to $500,000 of the Credit Limit (the "Contract Limit") may be utilized
for spot and future foreign exchange contracts (the "Exchange Contracts"). The
Credit Limit available at any time shall be reduced by the following amounts
(the "Foreign Exchange Reserve") on each day (the "Determination Date"): (i) on
all outstanding Exchange Contracts on which delivery is to be effected or
settlement allowed more than two Business Days from the Determination Date, 10%
of the gross amount of the Exchange Contracts; plus (ii) on all outstanding
Exchange Contracts on which delivery is to be effected or settlement allowed
within two Business Days after the Determination Date, 100% of the gross amount
of the Exchange Contracts. In lieu of the Foreign Exchange Reserve for 100% of
the gross amount of any Exchange Contract, the Borrower may request that Silicon
debit the Borrower's bank account with Silicon for such amount, provided
Borrower has immediately available funds in such amount in its bank account.
Silicon may, in its discretion, terminate the Exchange Contracts at any
time (a) that an Event of Default occurs or (b) that there is not sufficient
availability under the Credit Limit and Borrower does not have available funds
in its bank account to satisfy the Foreign Exchange Reserve. If either Silicon
or Borrower terminates the Exchange Contracts, and without limitation of the FX
Indemnity Provisions (as referred to below), Borrower agrees to reimburse
Silicon for any and all fees, costs and expenses relating thereto or arising in
connection therewith.
Borrower shall not permit the total gross amount of all Exchange Contracts
on which delivery is to be effected and settlement allowed in any two business
day period to be more than $250,000 (the "Settlement Limit"), nor shall Borrower
permit the total gross amount of all Exchange Contracts to which Borrower is a
party, outstanding at any one time, to exceed the Contract Limit.
Notwithstanding the above, however, the amount which may be settled in any
two (2) Business Day period may, in Silicon's sole discretion, be increased
above the Settlement Limit up to, but in no event to exceed, the amount of the
Contract Limit (the "Discretionary Settlement Amount") under either of the
following circumstances (the "Discretionary Settlement Circumstances"):
(i) if there is sufficient availability under the Credit Limit in the
amount of the Foreign Exchange Reserve as of each Determination Date, and
Silicon in advance shall reserve the full amount of the Foreign Exchange
Reserve against the Credit Limit; or
(ii) if there is insufficient availability under the Credit Limit as
to settlements within any two (2) business day period, and if Silicon is
able to: (A) verify good funds overseas prior to crediting Borrower's
deposit account with Silicon (in the case of Borrower's sale of foreign
currency); or (B) debit Borrower's deposit account with Silicon prior to
delivering foreign currency overseas (in the case of Borrower's purchase of
foreign currency);
2
<PAGE>
Provided that it is expressly understood that Silicon's willingness to
--------
adopt the Discretionary Settlement Amount is a matter of Silicon's sole
discretion and the existence of the Discretionary Settlement Circumstances in no
way means or implies that Silicon shall be obligated to permit the Borrower to
exceed the Settlement Limit in any two Business Day period.
In the case of Borrower's purchase of foreign currency, Borrower shall
instruct Silicon in advance upon settlement either to treat the settlement
amount as an advance under the Credit Limit, or to debit Borrower's account for
the amount settled.
The Borrower shall execute all standard form applications and agreements of
Silicon in connection with the Exchange Contracts, and without limiting any of
the terms of such applications and agreements, the Borrower will pay all
standard fees and charges of Silicon in connection with the Exchange Contracts.
Without limiting any of the other terms of this Loan Agreement or any such
standard form applications and agreements of Silicon, Borrower agrees to
indemnify Silicon and hold it harmless, from and against any and all claims,
debts, liabilities, demands, obligations, actions, costs and expenses
(including, without limitation, attorneys' fees of counsel of Silicon's choice),
of every nature and description, which it may sustain or incur, based upon,
arising out of, or in any way relating to any of the Exchange Contracts or any
transactions relating thereto or contemplated thereby (collectively referred to
as the "FX Indemnity Provisions").
The Exchange Contracts shall have maturity dates no later than the Maturity
Date.
2. Interest.
Interest Rate (Section 1.2):
A rate equal to the "Prime Rate" in effect from time to time, plus 2.75%
per annum, provided that the Interest Rate applicable to Overadvance Loans and
--------
related Obligations shall be equal to the "Prime Rate" in effect from time to
time, plus 3.00% per annum. Interest shall be calculated on the basis of a 360-
day year for the actual number of days elapsed. "Prime Rate" means the rate
announced from time to time by Silicon as its "prime rate;" it is a base rate
upon which other rates charged by Silicon are based, and it is not necessarily
the best rate available at Silicon. The interest rate applicable to the
Obligations shall change on each date there is a change in the Prime Rate.
Minimum Monthly
Interest (Section 1.2): N/A.
3. Fees (Section 1.4):
Loan Fee:
$37,500, payable concurrently herewith, on a joint basis for both
Borrowers. (Any Commitment Fee previously paid by the Borrower in connection
with this loan shall be credited against this Fee.)
Collateral Monitoring Fee:
3
<PAGE>
$500, per calendar month, payable in arrears (prorated for any partial
calendar month at the beginning and at termination of this Agreement), on a
joint basis for both Borrowers.
Unused Line Fee:
Borrower shall pay Silicon an Unused Line Fee, in addition to all interest
and other fees payable hereunder. The amount of the Unused Line Fee shall be
.50% per annum multiplied by an amount equal to $3,000,000 minus the average
daily balance of the outstanding Loans. The Unused Line Fee shall be computed
and paid monthly, in arrears, on the last day of each month.
4. Maturity Date
(Section 6.1):
One year from the date of this Agreement, subject to automatic renewal as
provided in Section 6.1 above, and early termination as provided in Section 6.2
above.
5. Financial Covenants
(Section 5.1):
SQL Financials International, Inc. shall comply with all of the following
covenants on a consolidated basis. Compliance shall be determined as of the end
of each month, except as otherwise specifically provided below:
Cash: Borrower shall maintain, at all times, (1) at least $1,000,000 in
the aggregate of cash on hand on deposit with Silicon or (2) cash on hand on
deposit with Silicon plus Loan availability hereunder in of at least $1,000,000.
Profitability: Borrower shall not incur a loss (after taxes) for the fiscal
quarter ending March 31, 1997 in excess of $2,725,000, nor shall Borrower incur
a loss (after taxes) for the fiscal quarter ending June 30, 1997 in excess of
$1,975,000, nor shall Borrower incur a loss (after taxes) for the fiscal quarter
ending September 30, 1997 in excess of $250,000, and Borrower shall not incur
any loss (after taxes) for the fiscal quarter December 31, 1997.
Determination of compliance with the foregoing financial covenants shall be
done in compliance with generally accepted accounting principles, consistently
applied.
6. Reporting.
(Section 5.3):
Borrower shall provide Silicon with the following:
1. Monthly Receivable listing, showing invoice date, payment terms, and due
dates, within ten days after the end of each month.
2. Monthly accounts payable agings, aged by due date, and outstanding or held
check registers, if any, within ten days after the end of each month.
3. Monthly reconciliations of Receivable agings, transaction reports, and
general ledger, within ten days after the end of each month.
4. [reserved]
4
<PAGE>
5. Monthly unaudited consolidated and consolidating financial statements, as
soon as available, and in any event within thirty days after the end of
each month.
6. Monthly Compliance Certificates, within thirty days after the end of each
month, in such form as Silicon shall reasonably specify, signed by the Vice
President -- Finance and Administration of Borrower, certifying that as of
the end of such month Borrower was in full compliance with all of the terms
and conditions of this Agreement, and setting forth calculations showing
compliance with the financial covenants set forth in this Agreement and
such other information as Silicon shall reasonably request.
7. Quarterly unaudited consolidated and consolidating financial statements, as
soon as available, and in any event within forty-five days after the end of
each fiscal quarter of Borrower.
8. Annual operating budgets (including income statements, balance sheets and
cash flow statements, by month) for the upcoming fiscal year of Borrower
within thirty days after the end of each fiscal year of Borrower.
9. Annual consolidated and consolidating financial statements, as soon as
available, and in any event within 120 days following the end of Borrower's
fiscal year, certified by independent certified public accountants
acceptable to Silicon.
7. Compensation
(Section 5.5): Not Applicable
8. Borrower Information:
Prior Names of Borrower
(Section 3.2): See Representations and Warranties of Borrower dated March
13, 1997.
Prior Trade Names of Borrower
(Section 3.2): See Representations and Warranties of Borrower dated March
13, 1997.
Existing Trade Names of Borrower
(Section 3.2): See Representations and Warranties of Borrower dated March
13, 1997.
Other Locations and Addresses
(Section 3.3): See Representations and Warranties of Borrower dated March
13, 1997.
Material Adverse Litigation
(Section 3.10): None
9. Other Covenants
(Section 5.1): Borrower shall at all times comply with all of the following
additional covenants:
(1) Banking Relationship. Borrower shall at all times maintain its primary
banking relationship with Silicon.
(2) Warrants. SFI shall provide Silicon with warrants to purchase 8,721 shares
of Series E Preferred stock of the Borrower, at $8.60 per share, on the
terms and conditions in the Warrant
5
<PAGE>
and related documents being executed concurrently with this Agreement,
which shall be satisfactory to Silicon.
(3) Registration of Copyrights. Within 90 days from the date hereof, Borrower
shall have taken all necessary actions in order to register with the United
States Copyright Office all Collateral comprising copyrightable subject
matter (the "Copyrightable Collateral") relating to accounts and Borrower
shall execute and deliver to Silicon all documentation that Silicon deems
necessary or desirable in order to perfect its security interest in
accounts relating to the Copyrightable Collateral; Borrower shall provide
to Silicon evidence of all filings relating to the registration of the
Copyrightable Collateral. Failure to perform the above shall constitute an
Event of Default hereunder. The time periods referenced herein relate only
to the actions that Borrower undertakes and not to the processing time of
the United States Copyright Office relating thereto.
(4) LTI Financing; Intercreditor Agreement. As a condition to the making of
any Loans hereunder, Borrower shall enter into an equipment financing
transaction with LTI in such amount and on such terms and conditions as are
acceptable to Silicon in its discretion. Further, in connection with such
transaction, LTI and Silicon shall enter into an intercreditor agreement
regarding the security interests of each in the property of the Borrower,
which agreement shall be satisfactory to Silicon in its discretion.
Borrower:
SQL Financials International, Inc.
By
-------------------------------
President or Vice President
By
-------------------------------
Secretary or Ass't Secretary
Borrower:
SQL Financials SERVICES, L.L.C.
By
-------------------------------
Title:
By
-------------------------------
Title:
Silicon:
SILICON VALLEY BANK
By
-------------------------------
Title
----------------------------
6
<PAGE>
EXHIBIT 10.10
MASTER LEASE AGREEMENT
This Master Lease Agreement (the "Lease") is made the 13th day of March, 1997
between Leasing Technologies International, Inc., with its principal office at
Soundview Plaza, 1266 Main Street, Stamford, CT 06902 (the "Lessor"), and SQL
Financials International, Inc., with its principal office at 2 Ravinia Drive,
Suite 1000, Atlanta, GA 30346 (the "Lessee"). The parties hereto agree as
follows:
1. Lease:
-----
This Lease establishes the general terms and conditions by which Lessor may
lease to Lessee the Equipment (the "Equipment") listed on each Equipment
Schedule executed periodically pursuant to this Lease. Each such Equipment
Schedule shall incorporate by reference the terms of this Lease, and shall be a
separate lease agreement as to the Equipment listed thereon for all purposes,
including default. In the event of any conflict between the terms and conditions
of this Lease and the terms and conditions of any Equipment Schedule(s) or
Rider(s) thereto, the terms and conditions of such Equipment Schedule(s) or
Rider(s) shall prevail.
2. Definitions:
-----------
(a) The "Installation Date" means the date determined in accordance with
the applicable Equipment Schedule.
(b) The "Commencement Date" means, as to any item of Equipment designated
on any Equipment Schedule where the Installation Date for such item of Equipment
falls on the first day of the month, that date, or, in any other case, the first
day of the month following the month in which such Installation Date falls.
(c) The "Daily Rental" means 1/30th of the amount set forth as the monthly
rental in the applicable Equipment Schedule.
3. Term of Lease:
-------------
The term of this Lease, as to all Equipment designated on any Equipment
Schedule, shall commence on the Installation Date for such Equipment, and shall
continue for an initial period ending that number of months as is specified on
the applicable Equipment Schedule from the Commencement Date for the last item
of Equipment to be installed (the "Initial Term"). The term of this Lease for
all such Equipment shall be automatically extended for successive monthly
periods until terminated in accordance with this Lease. Any termination shall
be effective only on the last day of the Initial Term or the last day of any
such successive monthly period.
-------
4. Rental:
------
<PAGE>
The monthly rental payable hereunder is as set forth in the Equipment
Schedule(s). Rental shall begin to accrue on the Installation Date for each item
of Equipment and shall be due and payable by Lessee in advance on the first day
of each month. If the Installation Date does not fall on the first day of a
month, the rental for that period of time from the Installation Date until the
Commencement Date shall be an amount equal to the Daily Rental multiplied by the
number of days from (and including) the Installation Date to (but not including)
the Commencement Date and shall be due and payable on the Installation Date. In
addition to the monthly rental set forth in the Equipment Schedule(s), Lessee
shall pay to Lessor an amount equal to all taxes paid, payable or required to be
collected by Lessor, however designated, which are levied or based on the
rental, on the Lease or on the Equipment or on its purchase for lease hereunder,
or on its use, lease, operation, control or value (including, without
limitation, state and local privilege or excise taxes based on gross revenue),
any penalties or interest in connection therewith which are attributable to
Lessee's negligence or taxes or amounts in lieu thereof paid or payable by
Lessor in respect of the foregoing, but excluding taxes based on Lessor's net
income. Personal property taxes assessed on the Equipment during the term
hereof shall be paid by Lessee. Lessee agrees that Lessor, or Lessor's agent may
file all required property tax returns and reports and pay all taxes thereon
pertaining to the Equipment. In such event, Lessee shall reimburse Lessor or
Lessor's agent for all costs and expenses incurred in connection therewith,
provided that such costs and expenses (including property taxes) shall not
exceed the property taxes pursuant to statutory tax rates and regulations. If
requested by Lessor, Lessee agrees to file, on behalf of Lessor, all required
property tax returns and reports concerning the Equipment with all appropriate
governmental agencies, and, within not more than thirty (30) days after the due
date of such filing to send Lessor confirmation of such filing.
Interest on any past due payments, including but not limited to
administrative charges and any other charges or fees arising out of or related
to this Lease, shall accrue at the rate of 1 1/2% per month, or if such rate
shall exceed the maximum rate allowed by law, then at such maximum rate, and
shall be payable on demand. Charges for taxes, penalties and interest shall be
promptly paid by Lessee when invoiced by Lessor.
As security for the full performance of all of Lessee's obligations under
each Equipment Schedule, Lessee shall, simultaneously with the execution and
delivery of each Equipment Schedule, deposit with Lessor the amount set forth on
such Equipment Schedule. The security deposit shall be promptly returned to
Lessee by Lessor upon the expiration of such Equipment Schedule and return or
purchase of all Equipment, as the case may be, provided that all Lessee
obligations under such Equipment Schedule have been fulfilled.
5. Installation, Use and Quiet Possession of Equipment:
---------------------------------------------------
(a) Lessee, at its own expense, will provide the required suitable electric
current to operate the Equipment and appropriate installation facilities as
specified by the manufacturer.
2
<PAGE>
(b) Any equipment, cards, disks, tapes or other items not specified in the
Equipment Schedule(s) which are used on or in connection with the Equipment must
meet the specifications of the manufacturer and shall be acquired by Lessee at
its own expense.
(c) Lessee shall use the Equipment solely in connection with Lessee's
business and for no other purpose. Subject to the preceding sentence, Lessee
shall be entitled to unlimited usage of the Equipment without extra charge by
Lessor.
(d) Unless otherwise set forth in the applicable Equipment Schedule, Lessee
will at all times keep the Equipment in its sole possession and control. The
Equipment shall not be moved from the location stated in the applicable
Equipment Schedule without the prior written consent of Lessor. Notwithstanding
the foregoing, Lessor acknowledges that some items of Equipment may (a) be in
the possession of Lessee's employees for an extended period of time or (b) may
be returned to the manufacturer or service company for repair. Lessee shall,
with respect to such items of Equipment, maintain records with respect to such
items of Equipment indicating the location and serial number thereof, and shall
furnish to Lessor within ten days after the close of each calendar quarter, a
list of such items of Equipment which shall identify such items of Equipment by
location (including the name, address and telephone number of the employee
utilizing such Equipment or of the repair company, as the case may be) and
serial number. In addition, Lessee shall obtain from such employees and furnish
to Lessor an acknowledgment that such Equipment is owned by Lessor. Lessee
shall indemnify and hold Lessor harmless from any adverse tax consequences
resulting from the movement and location of the Equipment set forth in this
Section. Any failure to comply with this section shall constitute a default
pursuant to Section 9 (c) of this Lease.
(e) After prior notice to Lessor, Lessee may, at its own expense, make
alterations in or add attachments to the Equipment, provided such alterations or
attachments do not interfere with the normal and satisfactory operation or
maintenance of the Equipment or with Lessee's ability to obtain and maintain the
maintenance contract required by Section 5(h) hereof. The manufacturer or other
organization selected by Lessee and approved in writing by Lessor to maintain
the Equipment ("Maintenance Organization") may incorporate engineering changes
or make temporary alterations to the Equipment upon request of Lessee. All such
alterations and attachments shall be and become the property of Lessor or, at
the option of Lessee, shall be removed by Lessee and the Equipment restored, at
Lessee's expense, to its original condition as of the Installation Date thereof,
reasonable wear and tear only excepted, and upon the removal and restoration,
the alteration and/or attachment which was made by Lessee shall become the
property of Lessee.
(f) So long as Lessee is not in default hereunder, neither Lessor nor any
party claiming through or under Lessor shall interfere with Lessee's use or
possession of any Equipment during the term of this Lease.
(g) Lessee shall, during the term of this Lease, at its expense, keep the
Equipment in good working order and condition and make all necessary
adjustments, repairs and replacements
3
<PAGE>
and shall not use or permit the Equipment to be used in any manner or for any
purpose for which, in the opinion of the manufacturer, the Equipment is not
designed or reasonably suitable.
(h) Unless otherwise set forth in the applicable Equipment Schedule, Lessee
shall, during the term of this Lease, at its own expense, enter into and
maintain in force a contract with the manufacturer or the Maintenance
Organization covering at least prime shift maintenance of each item of
Equipment. Such contract shall commence upon expiration of the manufacturer's
warranty period, if any, relating to such item. Lessee shall furnish Lessor
with a copy of such contract(s).
(i) At the termination of the applicable Equipment Schedule, Lessee at its
expense shall return, if permitted by the applicable Equipment Schedule, not
less than all the Equipment subject thereto to Lessor (at the location
designated by Lessor within the Continental United States) in the same operating
order, repair, condition and appearance as on the Installation Date, reasonable
wear and tear only excepted. Lessee shall, prior to such termination, arrange
and pay for any repairs, changes and manufacturer's certifications as are
necessary for the manufacturer or Maintenance Organization to accept the
Equipment under contract maintenance at its then standard rates. Lessee shall
return all accessories supplied with the Equipment, including but not limited to
all manuals, cables and software diskettes. Lessee shall promptly pay, after
receipt of an invoice therefore, all costs and expenses pertaining to the
replacement of any missing items and for the repair of any Equipment necessary
to meet the standards set forth herein, together with any audit, inspection or
certification charges reasonably incurred by Lessor.
6. Leasehold Rights and Inspection:
-------------------------------
(a) Lessee shall have no interest in the Equipment other than the rights
acquired as a lessee hereunder and the Equipment shall remain personalty
regardless of the manner in which it may be installed or attached. Lessee
shall, at Lessor's request, affix to the Equipment, tags, decals or plates
furnished by Lessor, indicating Lessor's ownership and Lessee shall not permit
their removal or concealment. Lessee shall replace any such tag, decal or plate
which may be removed or destroyed or become illegible. Lessee shall keep all
Equipment free from any marking or labeling which might be interpreted as a
claim of ownership thereof by Lessee or any party other than Lessor or anyone
claiming through Lessor.
(b) Lessee shall keep the Equipment free and clear of all liens and
encumbrances except liens or encumbrances arising through the actions or
omissions of Lessor. LESSEE SHALL NOT ASSIGN OR OTHERWISE ENCUMBER THIS LEASE
OR ANY OF ITS RIGHTS HEREUNDER OR SUBLEASE THE EQUIPMENT WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR except that Lessee may assign this Lease or sublease
the Equipment to its parent or any subsidiary corporation, or to a corporation
which shall have acquired all or substantially all of the property of Lessee by
merger, consolidation or purchase. No permitted assignment or sublease shall
relieve Lessee of any of its obligations hereunder.
4
<PAGE>
(c) Lessor or its agents shall upon reasonable prior notice have free
access to the Equipment at all reasonable times for the purpose of inspection
and for any other purpose contemplated by this Lease. Lessor shall not be
required to furnish prior notice if Lessee is in default under this Lease.
(d) Lessee shall immediately notify Lessor of all details concerning any
damage to, or loss of, the Equipment arising out of any event or occurrence
whatsoever, including but not limited to, the alleged or apparent improper
manufacture, functioning or operation of the Equipment.
7. No Warranties By Lessor:
-----------------------
Lessee represents that, at the Installation Date thereof, it shall have (a)
thoroughly inspected the Equipment; (b) determined for itself that all items of
Equipment are of a size, design, capacity and manufacture selected by it; and
(c) satisfied itself that the Equipment is suitable for Lessee's purposes.
LESSOR SUPPLIES THE EQUIPMENT AS IS AND NOT BEING THE MANUFACTURER OF THE
EQUIPMENT, THE MANUFACTURER'S AGENT OR THE SELLER'S AGENT, MAKES NO WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED AS TO THE EQUIPMENT'S MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, DESIGN, CONDITION, QUALITY, CAPACITY, MATERIAL
OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE, it being agreed that
all such risks, as between Lessor and Lessee, are to be borne by Lessee. Lessee
agrees to look solely to the manufacturer or to suppliers of the Equipment for
any and all warranty claims and any and all warranties made by the manufacturer
or the supplier of Lessor are, to the extent to which the same may be
assignable, hereby assigned to Lessee for the term of the applicable Equipment
Schedule. Lessee agrees that Lessor shall not be responsible for the delivery,
installation, maintenance, operation or service of the Equipment or for delay or
inadequacy of any or all of the foregoing. Lessor shall not be responsible for
any direct or consequential loss or damage resulting from the installation,
operation or use of the Equipment or otherwise. Lessee will defend, indemnify
and hold Lessor harmless against any and all claims, demands and liabilities
arising out of or in connection with the design, manufacture, possession or
operation of the Equipment.
8. Risk of Loss on Lessee:
----------------------
(a) Beginning on the Installation Date thereof and continuing until the
Equipment is either returned to Lessor or purchased by Lessee as provided in
this Lease, Lessee relieves Lessor of responsibility for all risks of physical
damage to or loss or destruction of the Equipment, howsoever caused. During the
term of this Lease as to any Equipment Schedule, Lessee shall, at its own
expense, keep in effect "all risk" property insurance and public liability
insurance policies covering the Equipment designated in each Equipment Schedule.
The public liability insurance policy shall be in such amount as is reasonably
acceptable to Lessor. The "all risk" property insurance policy shall be for an
amount not less than the replacement cost of the Equipment. Lessor, its
successors and assigns and/or such other party as may be designated by
5
<PAGE>
any thereof to Lessee, in writing, shall be named as additional insureds and
loss payees on such policies, which shall be written by an insurance company of
recognized responsibility which is reasonably acceptable to Lessor. Evidence of
such insurance coverage shall be furnished to Lessor no later than the
Installation Date set forth in the Equipment Schedule(s) and, from time to time,
thereafter as Lessor may request. Such policies shall provide that no less than
ten days written notice shall be given Lessor and any other party named as loss
payee prior to cancellation of such policies for any reason. To the extent of
Lessor's interest therein, Lessee hereby irrevocably appoints Lessor or any
other party named as loss payee as Lessee's attorney-in-fact coupled with an
interest to make claim for, receive payment of, and execute any and all
documents that may be required to be provided to the insurance carrier in
substantiation of any such claim for loss or damage under said insurance
policies, and to endorse Lessee's name to any and all drafts or checks in
payment of the loss proceeds.
(b) If any item of Equipment is rendered unusable as a result of any
physical damage to, or destruction of, the Equipment, Lessee shall give to
Lessor immediate notice thereof and this Lease shall continue in full force and
effect without any abatement of rental. Lessee shall determine, within fifteen
(15) days after the date of occurrence of such damage or destruction, whether
such item of Equipment can be repaired. In the event Lessee determines that the
item of Equipment cannot be repaired, Lessee shall either, at its expense,
promptly replace such item of Equipment and convey title to such replacement to
Lessor free and clear of all liens and encumbrances, and this Lease shall
continue in full force and effect as though such damage or destruction had not
occurred, or pay Lessor therefor in cash the Stipulated Loss Value (defined
below) within sixty (60) days of such loss or damage. "Stipulated Loss Value,"
as used herein, shall be an amount as shown on Exhibit A to the applicable
Equipment Schedule. In the event Lessee determines that such item of Equipment
can be repaired, Lessee shall cause such item of Equipment to be promptly
repaired. All proceeds of insurance received by Lessor, the designated loss
payee, or Lessee under the policy referred to in the preceding paragraph of this
Section shall be applied toward the cost of any such repair or replacement so
long as Lessee shall not be in default of its obligations hereunder.
9. Events of Default and Remedies:
------------------------------
The occurrence of any one of the following shall constitute an Event of
Default hereunder:
(a) Lessee fails to pay an installment of rent on or before the date when
the same becomes due and payable and such failure continues for a period of ten
days;
(b) Lessee attempts to remove, sell, transfer, encumber, sublet or part
with possession of the Equipment or any items thereof, except as expressly
permitted herein;
(c) Lessee shall fail to observe or perform any of the other obligations
required to be observed or performed by Lessee hereunder and such failure shall
continue uncured for thirty (30) days after written notice thereof to Lessee by
Lessor or the then assignee hereof;
6
<PAGE>
(d) Lessee ceases doing business as a going concern, makes an assignment
for the benefit of creditors, admits in writing its inability to pay its debts
as they become due, files a voluntary petition of bankruptcy, is adjudicated a
bankrupt or an insolvent, files a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar arrangement under any present or future statute, law or regulation or
files an answer admitting the material allegations of the petition filed against
it in any such proceeding, consents to or acquiesces in the appointment of a
trustee, receiver, or liquidator of it or of all or any substantial part of its
assets or properties, or if it or its shareholders shall take any action looking
to its dissolution or liquidation;
(e) Within sixty (60) days after the commencement of any proceedings
against Lessee seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such proceedings shall not have been dismissed, or if within sixty
(60) days after the appointment without Lessee's consent or acquiescence of any
trustee, receiver or liquidator of it or of all or any substantial part of its
assets and properties, such appointment shall not be vacated;
(f) Lessee defaults in the performance or observation of any material term,
condition or covenant of its loan agreement, with Silicon Valley Bank ("SVB"),
and SVB accelerates the obligations of Lessee due thereunder, or if Lessee is in
default in the payment of any obligation in excess of $75,000.00 with respect to
any other loan agreement, indenture, trust agreement, lease or similar agreement
to which it is a party or by which Lessee is bound and such default continues
beyond any applicable cure period;
(g) Lessee enters into any transaction, the effect of which adversely
affects (i) a material portion of Lessee's business value and (ii) the ability
of Lessee, in Lessor's reasonable judgment, to repay Lessee's obligations under
the Lease as they become due. Lessee shall have sixty days, after notice
thereof, to cure the default set forth in this Section 9 (g).
Upon the occurrence of an Event of Default, Lessor may at its option do any
one or more of the following: (i) by notice to Lessee terminate this Lease as
to any or all Equipment Schedules; (ii) whether or not this Lease is terminated
as to any or all Equipment Schedules, take possession on not less than three (3)
days' notice of any or all of the Equipment listed on any or all Equipment
Schedules, wherever situated, and for such purpose, enter upon any premises
without liability for so doing or Lessor may cause Lessee and Lessee hereby
agrees, to return said Equipment to Lessor as provided in this Lease; (iii)
recover from Lessee, as liquidated damages for loss of a bargain and not as a
penalty, all past due amounts as well as an amount equal to the present value of
all monies to be paid by Lessee during the remaining Initial Term or any
successive period then in effect, calculated by discounting at the rate of six
percent (6%) per annum compounded monthly, which payment shall become
immediately due and payable; and (iv) sell, dispose of, hold, use or lease any
Equipment as Lessor in its sole discretion may determine in accordance with the
Uniform Commercial Code (and Lessor shall not be obligated to give preference to
the sale, lease or other disposition of the Equipment over the sale, lease or
other disposition of similar equipment owned or leased by Lessor).
7
<PAGE>
In the event that Lessee shall have first paid to Lessor or its assigns the
liquidated damages referred to in (iii) above, Lessee shall thereafter be
entitled to receive all rentals or proceeds received from any reletting or sale
of the Equipment during the balance of the Initial Term (after deduction of
Lessor's expected residual value of the Equipment at the expiration of the
Initial Term or any extension thereof and of all expenses incurred in connection
therewith) said amount never to exceed the amount of the liquidated damages paid
by Lessee. Lessee agrees that Lessor shall have no obligation to sell the
Equipment. The preceding sentence shall not affect Lessor's obligation to
mitigate its damages in accordance with applicable law. Lessee shall in any
event remain fully liable for reasonable damages as provided by law and for all
costs and expenses incurred by Lessor or its assigns on account of such default
including but not limited to all court costs and reasonable attorney's fees.
Lessee hereby agrees that, in any event, it will be liable for any deficiency
after any lease or other disposition of the Equipment. The rights afforded
Lessor hereunder shall not be deemed to be exclusive, but shall be in addition
to any rights or remedies provided by law.
10. Net Lease:
---------
Except as otherwise specifically provided in this Lease, it is understood
and agreed that this is a net lease, and that, as between Lessor and Lessee,
Lessee shall be responsible for all costs and expenses of every nature
whatsoever arising out of or in connection with or related to this Lease or the
Equipment (including, but not limited to, transportation in and out, rigging,
manufacturer's approved packing, installation, certification costs and
disconnect charges). Lessee hereby agrees that in the event that Lessee fails to
pay or perform any obligation under this Lease, Lessor may, at its option, pay
or perform said obligation and any payment made or expense incurred by Lessor in
connection therewith shall become additional rent which shall be due and payable
by Lessee upon demand. Lessee acknowledges that Lessor may, from time to time,
and at Lessee's request, execute and deliver purchase orders pertaining to the
purchase of equipment to be leased pursuant to this Lease. Lessee agrees that
it will indemnify and hold Lessor harmless from and against any and all loss,
cost, liability and expense that Lessor may incur as a result of the execution
and delivery of such purchase orders.
11. Assignment:
----------
Lessee agrees that Lessor may transfer or assign all or any part of
Lessor's right, title, and interest but not its obligations in, under or to the
Equipment and this Lease and any or all sums due or to become due pursuant to
any of the above, to any third party other than a competitor of Lessee (the
"Assignee") for any reason and that the Assignee may so re-assign and transfer
in each case subject to the terms and provisions of this Lease. Lessee agrees
that upon receipt of written notice from Lessor or Assignee of such assignment,
Lessee shall perform all of its obligations hereunder for the benefit of
Assignee and any successor assignee and, if so directed in writing by Lessor,
shall pay all sums due or to become due thereunder directly to the Assignee or
to any other party designated by the Assignee. Lessee hereby covenants,
represents and warrants as follows and agrees that the Assignee and any
successor assignee shall be entitled to rely on and shall be considered a third
party beneficiary of the following
8
<PAGE>
covenants, representations and warranties: (i) Lessee's obligations hereunder
are absolute and unconditional and are not subject to any abatement, reduction,
recoupment, defense, offset or counterclaim available to Lessee for any reason
whatsoever including operation of law, defect in the Equipment, failure of
Lessor or Assignee to perform any of its obligations hereunder or for any other
cause or reason whatsoever, whether similar or dissimilar to the foregoing; (ii)
Lessee shall not look to Assignee or any successor assignee to perform any of
Lessor's obligations hereunder; (iii) Lessee will not amend or modify this
Agreement without the prior written consent of the Assignee and any successor
assignee; and (iv) Lessee will send a copy to Assignee and any successor
assignee of each notice which Lessee sends to Lessor.
12. Representations and Warranties of Lessee:
-----------------------------------------
Lessee represents and warrants to Lessor and its assigns, as follows:
1. The execution, delivery and performance of this Lease has been duly
authorized and, upon execution by Lessor and Lessee, will constitute a valid
obligation binding upon and enforceable against Lessee in accordance with its
terms, subject to laws governing creditors' rights, judicial discretion and
equitable remedies;
2. The performance by Lessee will not result in any breach, default or
violation of, Lessee's certificate of incorporation or by-laws or any agreement
to which Lessee is a party;
3. Lessee is in good standing in its jurisdiction of incorporation and in
any jurisdiction in which any of the Equipment is to be located, if so required
under the laws of such jurisdiction; and
4. Any and all financial statements or other information with respect to
Lessee heretofore furnished by Lessee to Lessor was, when furnished, and remains
at the time of execution of this Lease, true and complete in all material
respects as of the date hereof.
Lessor represents and warrants to Lessee as follows:
1. The execution, delivery and performance of this Lease has been duly
authorized and, upon execution by Lessor and Lessee, will constitute a valid
obligation binding upon and enforceable against Lessor in accordance with its
terms, subject to laws governing creditors' rights; and
2. The performance by Lessor will not result in any breach, default or
violation of, Lessor's certificate of incorporation or by-laws or any agreement
to which Lessor is a party;
The foregoing representations and warranties shall survive the expiration
or termination of this Lease.
13. End of Lease:
------------
9
<PAGE>
Provided (i) no Event of Default has occurred and is continuing and
(ii) Lessee has made all payments in accordance with the Lease, upon written
notice furnished by Lessee no later than four (4) months prior to the expiration
of the Initial Term, Lessee shall, with respect to each Equipment Schedule elect
only such alternatives as may be set forth on the Equipment Schedule.
To the extent that any of such alternatives involves a determination of
Fair Market Value, the Fair Market Value shall be defined and determined by the
provisions of this Section. For purposes hereof, Fair Market Value shall mean
the amount that would obtain in a retail arm's length transaction between an
informed and willing lessee-buyer in possession and an informed and willing
lessor-seller. Rental charges previously paid pursuant to the applicable
Equipment Schedule shall have no effect on the determination of Fair Market
Value. Unless otherwise stated in the Equipment Schedule: the Fair Market Value
for items set forth on the Equipment Schedule which do not have a readily
ascertainable market value, (including but not limited to software, cabling and
certain equipment) shall be determined by multiplying the Lessor's acquisition
cost of such items by a fraction, the numerator of which shall be the Fair
Market Value of the other items and the denominator of which shall be the
Lessor's acquisition cost of such other items; and the determination of Fair
Market Value shall be based upon the assumption that all items set forth on the
Equipment Schedule or included with the Equipment may be transferred to, and
used by, a third party user. In such determination, all alternative uses in the
hands of each buyer or lessee, including, without limitation, the further
leasing of the Equipment shall be taken into account in making such
determination.
Not less than ninety (90) days prior to the end of the Initial Term, Lessee
may provide written notice to Lessor of Lessee's intention to exercise the
purchase or extension option described above. If, on or before a date sixty
(60) days prior to the expiration of the Initial term Lessor and Lessee are
unable to agree upon a determination of the fair market value of the Equipment,
such fair market value shall be determined in accordance with the procedure for
appraisal as described below. After a determination of the fair market value of
the Equipment has been made in accordance with the procedure described below,
Lessee may exercise its option to purchase the Equipment for the fair market
value thereof by delivering written notice to Lessor not more than ten (10) days
after completion of appraisal as described below.
Appraisal shall mean a procedure whereby two independent appraisers,
neither of whom shall be a manufacturer of such Items of Equipment, one chosen
by Lessee and one by Lessor, shall mutually agree upon the amount in question
based upon the definition set forth below. Each party shall deliver a written
notice to the other party appointing its appraiser on or before a date sixty
days prior to the expiration of the Initial Term. If within fifteen (15) days
after appointment of the two appraisers as described above, the two appraisers
are unable to agree upon the amount in question, a third independent appraiser,
who shall not be a manufacturer of such Items of Equipment, shall be chosen
within five (5) business days thereafter by the mutual consent of such first two
appraisers or, if such first two appraisers fail to agree upon the appointment
of a third appraiser, such appointment shall be made by an authorized
representative of the American Arbitration Association or any organization
successor thereof. The decision of the third appraiser so appointed and chosen
shall be given ten (10) business days after the
10
<PAGE>
selection of such third appraiser. Lessee shall pay the fees and expenses of its
appraiser and one-half of the fees and expenses of such third appraiser, if any.
The Lease, including the obligation to pay monthly rentals, shall remain in
effect pending the determination of Fair Market Value.
14. Additional Collateral:
----------------------
In order to secure the prompt and full performance of all of Lessee's
obligations (the "Obligations") arising under the Lease, the Lessee hereby
grants to Lessor a security interest in the equipment set forth on Exhibit A
annexed hereto and made a part hereof, as additional collateral (the
"Collateral") for the performance of the Obligations. Lessee agrees to deliver
to Lessor, at any time or times hereafter, any Uniform Commercial Code financing
statements and amendments and all other agreements, documents and instruments
requested by Lessor to perfect and maintain Lessor's security interest in the
Collateral and pay any cost incurred in connection with the filing or recording
of such documents, agreements or instruments. Lessee represents and warrants
that subject only to the lien or security interest of SVB it has title to the
equipment, free and clear of all liens, claims or encumbrances and that the
obligations pertaining to the other Equipment subject to this Lease shall apply
to the Collateral, including but not limited to the obligation to adequately
insure and maintain the Collateral and to inform Lessor of any change in the
location of the Collateral. Upon a default under the Lease in the payment or
performance of any of the Obligations which continues beyond any grace or cure
periods, Lessor shall have all of the rights of a secured party under the
Uniform Commercial Code.
15. Miscellaneous:
-------------
(a) During the term of this Lease, Lessee hereby agrees to deliver to
Lessor or Assignee and any successor assignee a copy of Lessee's monthly
unaudited financial statements, and the annual financial budget for the upcoming
year as soon as available and as it may be adjusted during the year which will
be held in confidence by Lessor, but may be disclosed to Lessor's officers,
directors and consultants as well as Lessor's financing institutions. Lessee
shall also furnish, as soon as available and in any event within ninety (90)
days after the last day of Lessee's fiscal year, a copy of Lessee's annual
audited statements and consolidating and consolidated balance sheet, if any, as
of the end of such fiscal year, accompanied by the opinion of an independent
certified public accounting firm of recognized standing. The Lessee shall
furnish such other financial information as may be reasonably requested by
Lessor, including but not limited to any material changes in budgets or
financial reports furnished to the Lessee's Board of Directors or Shareholders.
(b) This Lease constitutes the entire agreement between Lessee and Lessor
with respect to the Equipment, and except as agreed upon in writing no covenant,
condition or other term or provision hereof may be waived or modified orally.
11
<PAGE>
(c) All notices hereunder shall be in writing and shall be delivered in
person or sent by registered or certified mail, postage prepaid, or by facsimile
transmission (confirmed by registered mail as set forth in this section) to the
address of the other party as set forth herein or to such other address as such
party shall have designated by proper notice.
(d) This Lease shall be binding upon and inure to the benefit of Lessor
and Lessee and their respective successors and assigns (including any subsequent
assignee of Assignee).
(e) If any term or provision of this Lease or the application thereof to
any person is, to any extent, invalid or unenforceable, the remainder of this
Lease, or the application of such provision to the person other than those to
which it is invalid or unenforceable, shall not be affected thereby, and each
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
(f) No waiver of any of the terms and conditions hereof shall be effective
unless in writing and signed by the party against whom such waiver is sought to
be enforced. Any waiver of the terms hereof shall be effective only in the
specific instance and for the specific purpose given. The subsequent acceptance
of rental payments hereunder by Lessor shall not be deemed a waiver of any prior
existing breach by Lessee regardless of Lessor's knowledge of such prior
existing breach at the time of acceptance of such rental payments.
(g) Lessor is hereby authorized by Lessee to cause this Lease or other
instruments, including Uniform Commercial Code Financing Statements to be filed
or recorded for the purpose of showing Lessor's interest in the Equipment and
Lessee agrees that Lessor may execute such instruments for and on behalf of
Lessee. All filing fees reasonably incurred by Lessor in connection therewith
and filing fees incurred by Lessor's assignees in perfecting security interests
shall be paid by Lessee or reimbursed to Lessor by Lessee.
(h) In the event of any conflict between the terms and conditions of this
Lease and the terms and conditions of any Equipment Schedule(s) or Rider(s)
thereto, the terms and conditions of such Equipment Schedule(s) or Rider(s)
shall prevail.
(i) No consent or approval provided for herein shall be binding upon
Lessor or Lessee unless signed on its behalf by an officer. THIS LEASE AND EACH
EQUIPMENT SCHEDULE SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF CONNECTICUT
AND SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF SUCH STATE. The Lessee
accepts for itself the non-exclusive jurisdiction of any Federal or State court
of competent jurisdiction in the State of Connecticut in any action, suit or
proceeding of any kind against it which arises out of or by reason of this Lease
or any Equipment Schedule.
(j) Lessee acknowledges that the late payment by Lessee to Lessor of
monthly rental and other sums due hereunder will cause Lessor harm and to incur
costs not contemplated by this Lease, the precise amount and severity of which
will be difficult to ascertain. Such costs include, but are not limited to,
administrative, accounting and legal charges which Lessor may
12
<PAGE>
incur due to such late payment. Accordingly, if any monthly rent or any other
sum due from Lessee shall not be received by Lessor or Lessor's assignee within
twenty (20) days after the same is due, Lessee shall pay to Lessor or Lessor's
assignee a late charge equal to five per cent (5%) of such overdue amount
monthly until such overdue amount is paid. Lessee acknowledges that such late
charge represents a fair and reasonable estimate of the cost Lessor will incur
by reason of a late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's default, if any, with respect
to such overdue amounts, nor prevent Lessor from exercising any of the other
rights and remedies which Lessor may have pursuant to this Lease.
(k) The obligations which Lessee is required to perform during the term of
this Lease shall survive the expiration or other termination of this Lease.
(l) Lessee will promptly execute and deliver to Lessor such further
documents and assurances and take such further action as Lessor may reasonably
request in order to effectuate the intent and purpose of this Lease and to
establish and protect the rights, interests and remedies intended to be created
in favor of Lessor hereunder, including without limitation, the execution and
filing of financing statements and continuation statements with respect to this
Lease, the Equipment and any Equipment Schedule. Lessee authorizes Lessor to
effect any such filing and Lessor's reasonable expenses (together with the
reasonable expenses of Lessor's assignees in this regard) shall be payable by
Lessee on demand.
LESSOR: LESSEE:
Leasing Technologies International, Inc. SQL Financials International, Inc.
BY: /s/ BY: /s/
------------------------------------- -------------------------------
Name Name
--------------------------------- ---------------------------
Title: Title:
------------------------------- -------------------------
Date: Date:
-------------------------------- --------------------------
13
<PAGE>
EXHIBIT A
TO
MASTER LEASE AGREEMENT DATED MARCH 13, 1997 (THE "LEASE")
BETWEEN LEASING TECHNOLOGIES INTERNATIONAL, INC. (THE "LESSOR")
AND SQL FINANCIALS INTERNATIONAL, INC. (THE "LESSEE")
Collateral
----------
All of the assets of the Lessee, wherever located and whether now owned or
hereafter acquired or arising, and all proceeds therefrom, including but not
limited to:
(i) all of the Lessee's inventory, goods, wares, merchandise, raw materials,
supplies, work in process, finished goods, and other personal property of every
kind and description held for sale or lease or furnished or to be furnished
under any contract of service, and all goods which are in transit, and all
returned, repossessed and rejected goods of the foregoing description, and any
other tangible personal property held by the Lessee for licensing, processing,
sale or other business purpose or to be used, licensed or consumed in the
Lessee's business;
(ii) all machinery, equipment, motor vehicles, furniture, office equipment and
supplies, plant equipment, tools, dies, molds, fixtures and leasehold
improvements of Lessee, of every kind and description, wherever located and
including all additions, improvements, accessions and substitutions thereto;
(iii) accounts receivable now owned or hereafter acquired and all proceeds
thereof. "Accounts Receivable" means all accounts receivable of Debtor,
including but not limited to (i) all notes, drafts, acceptances and other
instruments representing or evidencing a right to payment for goods sold or
leased, or services rendered, whether or not earned by performance; (ii) all
general intangibles of Debtor that constitute debts obligations or liabilities
owed to Debtor arising out of or in connection with such accounts receivable;
(iii) all of Debtor's chattel paper of every kind and description from account
debtors including all additions thereto and substitutions therefor. (iv) all
files, records (including, without limitation computer programs, disks, tapes
and related electronic data processing media) and writings of Debtor or in which
Debtor has an interest in any way relating to the foregoing property and all
rights of Debtor to the retrieval from third parties of electronically processed
and recorded information pertaining to any of such property; (v) all of
Debtor's documents and instruments constituting or evidencing the foregoing and
(vi) all guaranties and securities for, and all proceeds of any of the
foregoing.
(iv) all insurance proceeds, whether arising out of any of the foregoing or
otherwise.
LESSOR: LESSEE:
Leasing Technologies International, Inc. SQL Financials International, Inc.
BY: BY:
------------------------------------- -------------------------------
Name Name
--------------------------------- ---------------------------
Title: Title:
------------------------------- -------------------------
Date: Date:
-------------------------------- --------------------------
<PAGE>
EQUIPMENT SCHEDULE NO. ____ ("EQUIPMENT SCHEDULE")
TO
MASTER LEASE AGREEMENT DATED ______________, 1996 ("LEASE")
--
BETWEEN Leasing Technologies International, Inc. ("LESSOR")
AND __________________________ ("LESSEE")
1. EQUIPMENT:
Model/ Purchase Serial
Qty Feature Description Mfr Price Number
- --- ------- ----------- --- ----- ------
2. EQUIPMENT LOCATION:
3. INSTALLATION DATE: _____________________. If this space is not completed,
the Installation Date shall be: the date which the Vendor(s) determines to
be the date of installation, which, Lessee agrees, will not occur without
Lessor's prior written consent or the fifth day following delivery of the
Equipment to the location set forth in Section 2, whichever is earlier; or
in the case of Equipment which is the subject of a sale and leaseback
between Lessor and Lessee, the date upon which Lessor obtains title to the
Equipment from Lessee (but not later than the date Lessor pays for the
Equipment).
4. COMMENCEMENT DATE: ____________________. (Subject to the terms and
conditions of Section 3 of the Lease, if all of the Equipment is not
installed on the same date).
5. INITIAL TERM: _______________________ months.
6. MONTHLY RENTAL: $___________. The Monthly Rental set forth in this section
is conditional upon Lessor acquiring the Equipment at a purchase price of
$__________ based on an 8.25% Prime Interest Rate. Lessor and Lessee agree
that the Monthly Rental shall be increased by $_______ for each one-quarter
of one percent (1/4 of 1%) by which the Prime Interest Rate (as stated by
Citibank N.A.) increases prior to the Commencement Date, or the date Lessor
has received sufficient documentation so as to finance the Lease, whichever
is later. Lessee agrees that it shall confirm the amount of the rental
payable hereunder after adjustment, if any, in such form as Lessor may
request.
7. LESSOR'S OBLIGATIONS: Lessor's obligations under this Equipment Schedule are
subject to there being no tax legislation enacted prior to the Installation
Date which would have an adverse effect on the rights or anticipated
benefits to Lessor or any Assignee.
8. SECURITY DEPOSIT: $______________.
Page 1 of 2
<PAGE>
EQUIPMENT SCHEDULE NO. ____ ("EQUIPMENT SCHEDULE")
TO
MASTER LEASE AGREEMENT DATED______________ , 1996 ("LEASE")
--
BETWEEN Leasing Technologies International, Inc. ("LESSOR")
AND __________________________ ("LESSEE")
9. END OF LEASE: Provided (i) no Event of Default has occurred and is
continuing and (ii) Lessee has made all payments in accordance with the
Lease, upon written notice furnished by Lessee to Lessor no earlier than
one-hundred eighty (180) days and no later than one hundred twenty (120)
days prior to the expiration of the Initial Term, Lessee shall either:
(a) Extend the Initial Term for not less than all the Equipment for an
additional 12 months at Fair Market Value rental;
(b) Purchase not less than all the Equipment at Fair Market Value for a
purchase price equal to the Fair Market Value thereof as of the end
of the Initial Term, plus any taxes applicable at the time of
purchase. The purchase price shall be paid by Lessee to Lessor at
least thirty (30) days before the expiration of the Initial Term;
(c) Extend the Initial Term for not less than all the Equipment for an
additional 12 months at a Monthly Rental equal to _______% of the
Monthly Rental paid by Lessee during the Initial Term, provided all
payments have been made in accordance with the Lease and there shall
be no default under the Lease by Lessee, title to the Equipment shall
pass to Lessee at the expiration of the 12 month extension and upon
payment of $1.00; or
(d) Return not less than all the Equipment, subject to a remarketing
charge equal to ______% of the Purchase Price.
10. LEASE AGREEMENT: All of the terms, covenants and conditions set forth in the
Lease are incorporated herein by reference as if the same had been set forth
herein in full.
LESSOR: LESSEE:
Leasing Technologies International, Inc. SQL Financials International, Inc.
BY: BY:
------------------------------------- -------------------------------
Name Name
--------------------------------- ---------------------------
Title: Title:
------------------------------- -------------------------
Date: Date:
-------------------------------- --------------------------
This is Counterpart No. ___ of ___ executed Counterparts of this Equipment
Schedule. Counterpart No. 1 of this Equipment Schedule shall constitute the
only original executed counterpart of this Equipment Schedule. For purposes of
perfection of a security interest in chattel paper by possession under the
Connecticut Uniform Commercial Code, (a) such Counterpart shall be deemed the
only original counterpart of this Equipment Schedule, and transfer or possession
of such Counterpart shall effect such perfection, (b) transfer or possession of
no other purported Counterpart of this Equipment Schedule shall effect such
perfection and (c) transfer or possession of an original counterpart of the
Master Lease Agreement shall not be necessary to effect such perfection.
Page 2 of 2
<PAGE>
CERTIFICATE OF ACCEPTANCE
-------------------------
To: Leasing Technologies International, Inc.
Soundview Plaza
1266 Main Street
Stamford, CT 06902
From: ______________________________, Lessee under that certain Master Lease
Agreement ("Lease") dated __________________________, hereby certifies to
Leasing Technologies International, Inc., Lessor under the said Lease, that, to
wit:
1. The Lessee is a corporation in good standing in ____________, the state of
its incorporation.
2. The signatures which appear in said Lease have been duly authorized by the
Lessee and the Lease constitutes a valid and binding obligation of, and is
enforceable by its terms against Lessee.
3. All items of equipment ("Equipment") described in Equipment Schedule
No. ____ to the said Lease, have been delivered to Lessee.
4. The equipment has been received and inspected, and is approved and accepted
by Lessee, effective _________________________________, 1997.
5. As of the date hereof, the Lessee's interest in the Equipment is free and
clear of any liens and encumbrances other than those created by and in favor
of the Lessor.
6. The Lessee hereby represents and warrants that no event of Default or event
which, with the giving of notice or the lapse of time, or both, would become
such an Event of Default has occurred and is continuing under the Lease.
7. The Lessee hereby represents and warrants that the Lessee has obtained all
insurance policies, with respect to the Equipment, that may be required
under the terms of the Lease and such policies are in full force and effect.
Lessee is delivering this Certificate to Lessor pursuant to and in connection
with the said Lease.
LESSOR: LESSEE:
Leasing Technologies International, Inc. SQL Financials International, Inc.
BY: BY:
------------------------------------- -------------------------------
Name Name
--------------------------------- ---------------------------
Title: Title:
------------------------------- -------------------------
Date: Date:
-------------------------------- --------------------------
<PAGE>
EQUIPMENT SCHEDULE NO. ____
TO
MASTER LEASE AGREEMENT DATED _______________________
EXHIBIT A
---------
STATEMENT OF CASUALTY VALUES
----------------------------
Monthly Stipulated Monthly Stipulated Loss
Pmt. Made Value* Pmts. Made Value*
- --------- ------ ---------- ------
1 120.00 19 84.00
2 118.00 20 82.00
3 116.00 21 80.00
4 114.00 22 78.00
5 112.00 23 76.00
6 110.00 24 74.00
7 108.00 25 72.00
8 106.00 26 70.00
9 104.00 27 68.00
10 102.00 28 66.00
11 100.00 29 64.00
12 98.00 30 62.00
13 96.00 31 60.00
14 94.00 32 58.00
15 92.00 33 56.00
16 90.00 34 54.00
17 88.00 35 52.00
18 86.00 36 50.00
* Expressed as a percentage of Lessor's original purchase price for the
equipment.
LESSOR: LESSEE:
Leasing Technologies International, Inc. SQL Financials International, Inc.
BY: BY:
------------------------------------- -------------------------------
Name Name
--------------------------------- ---------------------------
Title: Title:
------------------------------- -------------------------
Date: Date:
-------------------------------- --------------------------
<PAGE>
EXHIBIT 10.11
MASTER NOTE AND SECURITY AGREEMENT
----------------------------------
Stamford, Connecticut
March 20, 1997
1. Master Agreement.
----------------
(a) This Agreement sets forth the basic terms and conditions upon which
LEASING TECHNOLOGIES INTERNATIONAL, INC. (together with its successors and
assigns, collectively, the "Lender"), shall, in its sole and absolute
------
discretion, lend to SQL FINANCIALS INTERNATIONAL, INC., a corporation organized
under the laws of the State of Delaware (the "Borrower"), and the Borrower shall
--------
borrow from the Lender, funds to purchase (or refinance the purchase of) the
items of "Equipment" specified (and as defined in) one or more loan schedules
---------
hereto to be entered into from time to time (each, a "Loan Schedule"). Each
-------------
Loan Schedule shall reference this Master Note and Security Agreement (this
"Agreement") and shall be deemed to incorporate therein all of the terms and
---------
conditions hereof, unless and to the extent any provisions hereof are expressly
excluded or modified therein, and shall contain such additional terms as the
Lender and the Borrower shall, in their sole discretion, agree upon. Each Loan
Schedule, together with the terms and conditions of this Agreement so
incorporated therein, shall constitute a separate promissory note that evidences
a separate loan with respect to the Equipment specified in such Loan Schedule.
Each Loan Schedule may be assigned by the Lender and/or reassigned by any
assignee(s) thereof separate and apart from any other Loan Schedule(s)
hereunder. With respect to each Loan Schedule, the Lender or its respective
assignee(s) shall have all of the rights of the "Lender" thereunder and with
respect to the Equipment and other Collateral covered thereby, and such rights
shall be separately exercisable by the Lender or such assignee(s), as the case
may be, collectively with all of the other Loan Schedules then held by the
Lender or such assignee(s), but exclusively and independently of the rights of
the Lender or such assignee(s) with respect to any other Loan Schedule(s) not
then held by the Lender or such assignee(s).
(b) The term "Loan" as used in this Agreement shall mean any and all of
----
the liabilities and obligations of the Borrower under a loan evidenced by a
particular Loan Schedule, which is entered into by the Lender and the Borrower
under this Agreement with respect to the Equipment specified in such Loan
Schedule. Capitalized terms used in this Agreement and not otherwise defined
shall have the meanings ascribed to them in the relevant Loan Schedule.
2. Terms of Payment.
-----------------
(a) FOR VALUE RECEIVED, the Borrower hereby promises to pay to the order
of the Lender, the "Principal Sum" set forth in each Loan Schedule, in the
-------------
"Total Number of Monthly Installments" set forth in such Loan Schedule,
------------------------------------
consisting of the "Number of Consecutive Monthly Installments" of principal and
------------------------------------------
interest set forth in such Loan Schedule, each payable in advance, and the
"Final Payment" of principal and interest set forth in such Loan Schedule,
-------------
together with all other sums then owing thereunder, payable on the "Final
-----
Payment Date" set
- ------------
<PAGE>
forth in such Loan Schedule; the first such consecutive monthly installment
shall be in the "First Monthly Installment Amount" set forth in such Loan
--------------------------------
Schedule and shall be due and payable on the "First Monthly Installment Date"
------------------------------
set forth in such Loan Schedule; the remaining consecutive monthly installments
shall each be in the "Remaining Consecutive Monthly Installment Amount" set
------------------------------------------------
forth in such Loan Schedule and shall thereafter be due and payable on the same
day of each month in each year as such First Monthly Installment Date and ending
on the "Last Consecutive Monthly Installment Date" set forth in such Loan
-----------------------------------------
Schedule; and the Final Payment and shall be due and payable on the Final
Payment Date, except as otherwise expressly provided in Sections 2(b), 2(c),
--------------------
2(d) or 17(b) hereof.
- -------------
(b) Notwithstanding anything to the contrary set forth in Section 2(a)
------------
hereof, if at least 120 days prior to the Final Payment Date under a Loan
Schedule, the Borrower gives the Lender written notice requesting that the
Lender extend and finance the repayment of the relevant Final Payment over an
additional 12-month term commencing on such Final Payment Date (the "Refinancing
-----------
Request"), and provided that no Event of Default (as hereinafter defined) and no
- -------
event or circumstance that, with the giving of notice or the passage of time, or
both, would constitute an Event of Default, including (without limitation) the
nonpayment or nonperformance of any outstanding liability or obligation under
this Agreement (each, a "Default"), shall have occurred and be continuing as of
-------
(i) the date such Refinancing Request is given, or (ii) the relevant Final
Payment Date, then such Final Payment shall not be due and payable on such Final
----
Payment Date but instead shall be payable in 12 equal monthly installments of
principal and interest, each in the "Refinanced Monthly Installment Amount" set
-------------------------------------
forth in the relevant Loan Schedule and due and payable on the same day of each
month as such Final Payment Date, commencing on such Final Payment Date.
(c) Notwithstanding anything to the contrary set forth in Section 2(a)
------------
hereof, so long as no Default or Event of Default has occurred and is continuing
on the Final Payment Date under a Loan Schedule and if, at least 120 days prior
to the relevant Final Payment Date, the Borrower notifies the Lender in writing
(the "Return Option Exercise Notice") of the Borrower's desire to transfer title
-----------------------------
to the related Equipment to the Lender in partial satisfaction of the Borrower's
obligation to pay the relevant Final Payment (the "Return Option"), the Borrower
-------------
shall receive a credit in an amount equal to the "Return Option Credit" set
--------------------
forth in such Loan Schedule against such Final Payment by unconditionally and
irrevocably transferring and assigning to the Lender or its designee on such
Final Payment Date all of the Borrower's right, title and interest in and to the
related Equipment; provided, however, that the Borrower pays the entire
remaining "Return Option Balance Amount" set forth in such Loan Schedule to the
----------------------------
Lender on the relevant Final Payment Date. If a Return Option Exercise Notice
is duly given as provided above, the relevant Return Option shall be exercised
by the Borrower delivering each of the following to the Lender, at the
Borrower's sole cost and expense, on or before the relevant Final Payment Date:
(i) a duly executed bill of sale in favor of the Lender with respect to all of
<PAGE>
the Equipment covered by the relevant Loan Schedule, in form and substance
satisfactory to the Lender and its counsel; (ii) payment in full of the relevant
Return Option Balance Amount; and (iii) the relevant Equipment, at a location
within the continental Untied States designated by the Lender, in the same
operating order, repair, condition and appearance as on the date hereof,
reasonable wear and tear only excepted, and with all engineering and safety
changes prescribed by the manufacturer or approved maintenance organization to
accept such Equipment under contract maintenance at its then standard rates.
The Borrower shall promptly pay any and all costs of repair, replacement,
deinstallation, packing, shipping and delivery of the relevant Equipment to the
Lender upon the Borrower's exercise of such Return Option. If the Borrower duly
satisfies all of the terms and conditions of this Section 2(c), the Borrower
------------
shall have fully satisfied all of its obligations under the related Loan
Schedule.
(d) Notwithstanding anything to the contrary set forth in Section 2(a) hereof,
------------
if the Borrower believes that the "Fair Market Value" (as hereinafter defined)
of the Equipment covered by a Loan Schedule as of the relevant Final Payment
Date will be less than the amount of the Final Payment under such Loan Schedule,
the Borrower may notify the Lender in writing at least 120 days prior to such
Final Payment Date of the Borrower's election to have the amount of such Final
Payment adjusted (the "Final Payment Adjustment Option Notice") to an amount
--------------------------------------
equal to the greater of (i) Fair Market Value of the relevant Equipment as of
such Final Payment Date, or (ii) the "Adjusted Final Payment" set forth in the
----------------------
such Loan Schedule. If such Final Payment Adjustment Option Notice is so given,
and so long as no Default or Event of Default has occurred and is continuing as
of (A) the date such Final Payment Adjustment Option Notice is given, or (B) the
relevant Final Payment Date, then unless the amount of such Adjusted Final
Payment is greater than the amount of such Final Payment, such Final Payment
shall automatically be deemed changed to such Adjusted Final Payment and the
Borrower irrevocably and unconditionally agrees to pay such Adjusted Final
Payment on the relevant Final Payment Date in lieu of such Final Payment. "Fair
----
Market Value" of any Equipment shall mean the amount as of the relevant Final
- ------------
Payment Date that would obtain for such Equipment in a retail arms'-length
transaction between an informed and willing buyer in possession under no
compulsion to buy and an informed and willing seller under no compulsion to
sell. The Lender shall initially determine the Fair Market Value of any
Equipment by notifying the Borrower thereof in writing at least 75 days prior to
the relevant Final Payment Date. If, on or before a date sixty (60) days prior
to the expiration of the Initial term Lender and Borrower are unable to agree
upon a determination of the fair market value of the Equipment, such fair market
value shall be determined in accordance with the procedure for appraisal as
described below. After a determination of the fair market value of the Equipment
has been made in accordance with the procedure described below, Borrower may
exercise its option to purchase the Equipment for the fair market value thereof
by delivering written notice to Lender not more than ten (10) days after
completion of appraisal as described below.
<PAGE>
Appraisal shall mean a procedure whereby two independent appraisers, neither of
whom shall be a manufacturer of such Items of Equipment, one chosen by Borrower
and one by Lender, shall mutually agree upon the amount in question based upon
the definition set forth below. Each party shall deliver a written notice to
the other party appointing its appraiser on or before a date sixty days prior to
the expiration of the Initial Term. If within fifteen (15) days after
appointment of the two appraisers as described above, the two appraisers are
unable to agree upon the amount in question, a third independent appraiser, who
shall not be a manufacturer of such Items of Equipment, shall be chosen within
five (5) business days thereafter by the mutual consent of such first two
appraisers or, if such first two appraisers fail to agree upon the appointment
of a third appraiser, such appointment shall be made by an authorized
representative of the American Arbitration Association or any organization
successor thereof. The decision of the third appraiser so appointed and chosen
shall be given ten (10) business days after the selection of such third
appraiser. Borrower shall pay the fees and expenses of its appraiser and one-
half of the fees and expenses of such third appraiser, if any. The Agreement,
including the obligation to pay monthly rentals, shall remain in effect pending
the determination of Fair Market Value.
(e) The installments described in Sections 2(a) and 2(b) hereof include
----------------------
interest on the unpaid principal amount of the relevant Loan from time to time
outstanding, computed on the basis of a 360-day year at the "Annual Interest
---------------
Rate" set forth in the relevant Loan Schedule.
- ----
(f) Intentionally deleted.
---------------------
(g) The Borrower shall have the right to prepay any Loan upon not less
than thirty (30) days prior written notice and upon payment of the (i) present
value of all monthly installments and the Final Payments calculated by
discounting at the rate of six per cent (6%) per annum, compounded monthly and
(ii) any prepayment fees which the Lender incurs as a result of such
prepayments, or upon the payment of such other amount as may be set forth in the
applicable schedule.
(h) Whenever any installment or other amount payable to the Lender by the
Borrower hereunder is not paid when due, the Borrower agrees to pay to the
Lender, on demand, as liquidated damages and not as a penalty: (i) a late charge
on such overdue amounts calculated at the interest rate stated in the relevant
Loan Schedule, or the maximum amount permitted under applicable law, whichever
is less, from the date such payment is due until the date such payment is made
in full to the Lender; and (ii) in addition, with respect to overdue installment
payments only, an administrative fee equal to five cents ($.05) for each one
dollar ($1.00) of such delayed installment payment overdue for more than twenty
(20) days, or the maximum amount permitted under applicable law, whichever is
less. The Borrower agrees to also reimburse the Lender on
<PAGE>
demand for any and all costs and expenses (including the Lender's attorneys'
fees and disbursements) arising out of or caused by this Agreement or any breach
by the Borrower hereunder, including (without limitation) any enforcement by the
Lender of its rights and remedies hereunder.
(i) All payments by the Borrower on account of principal, interest or fees
hereunder shall be made in lawful money of the United States of America, in
immediately available funds.
3. Grant of Security Interest. The Borrower hereby pledges, assigns and
--------------------------
grants to the Lender a continuing first priority security interest in and lien
on the following properties, assets and rights (collectively, the "Collateral"):
----------
(a) the Equipment as set forth (and defined) in each Loan Schedule hereunder,
together with all warranties thereon and all additions, improvements,
accessions, replacements and substitutions thereto and therefor, whether now
owned or hereafter acquired, and all proceeds and products thereof; (b) the
proceeds of any insurance payable to the Borrower with respect to the Equipment;
and (c) Subject only to the lien or security interest of Silicon Valley Bank
("SVB"), Borrower also pledges, assigns and grants to the Lender a security
interest and lien on all of the "Other Personal Property," if any, described in
-----------------------
any Loan Schedule hereunder and all proceeds and products thereof (it being
specifically understood that the other Personal Property shall secure the
obligations arising under each and every Loan Schedule). In addition, all other
property of the Borrower now or hereafter pledged to or held by the Lender to
secure any Obligations (as hereinafter defined), whether under this Agreement,
any Loan Schedule or otherwise, and all property now or hereafter leased by the
Lender to the Borrower, shall also serve as collateral security for the full
payment and performance of the Obligations.
4. Obligations Secured. The Collateral hereunder constitutes and will
-------------------
constitute continuing security for the full payment, performance and observance
by the Borrower of the following obligations (collectively, the "Obligations"):
-----------
(a) "Liabilities," which shall mean all of the indebtedness evidenced
-----------
by this Agreement and each Loan Schedule hereunder, together with all other
indebtedness, liabilities and obligations of any kind of the Borrower (or any
partnership or other group of which the Borrower is a member) to the Lender,
whether (i) for the Lender's own account, (ii) acquired directly or indirectly
by the Lender from the Borrower or others, (iii) absolute or contingent, joint
or several, secured or unsecured, liquidated or unliquidated, due or not due,
contractual or tortious, now existing or hereafter arising, or (iv) incurred by
the Borrower as principal, surety, endorser, guarantor, borrower, Borrower or
otherwise, and including (without limitation) all expenses and attorneys' fees
incurred by the Lender in connection with any such indebtedness, liabilities or
obligations or any of the Collateral (including any sale or other disposition of
the Collateral);
<PAGE>
(b) the prompt payment, when due, of all present and future
obligations and indebtedness of the Borrower to the Lender under this Agreement
and/or any Loan Schedule, as the same may hereafter be amended or modified, and
under any other agreement or instrument executed by the Borrower in favor of the
Lender, whether direct or indirect, absolute or contingent; and
(c) the strict performance and observance by the Borrower of all
warranties, covenants and agreements contained in this Agreement or any Loan
Schedule and any instrument or other agreement delivered by the Borrower to the
Lender.
5. Borrower Selected Equipment; Warranty Disclaimer. THE BORROWER
------------------------------------------------ ------------
REPRESENTS AND ACKNOWLEDGES THAT IT HAS SELECTED BOTH THE EQUIPMENT AND THE
- ---------------------------------------------------------------------------
VENDOR OF THE EQUIPMENT (THE "VENDOR") AND THAT THE EQUIPMENT SUITS THE
- -----------------------------------------------------------------------
BORROWER'S PARTICULAR NEEDS. THE LENDER MAKES NO REPRESENTATIONS OR WARRANTIES
- -------------------------------------------------------------------------------
OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY, EXPRESS OR IMPLIED, AS TO THE
- ---------------------------------------------------------------------------
EQUIPMENT OR ANY OTHER MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, TITLE TO
- --------------------------------------------------------------------------------
THE EQUIPMENT OR THE EQUIPMENT'S CONDITION, THE SUITABILITY OF THE EQUIPMENT,
- -----------------------------------------------------------------------------
ITS DURABILITY, CAPACITY, OPERATION, PERFORMANCE, DESIGN, MATERIALS, WORKMANSHIP
- --------------------------------------------------------------------------------
AND/OR QUALITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. THE
- ---------------------------------------------------------------------
BORROWER AGREES TO LOOK SOLELY TO THE MANUFACTURER, VENDOR OR CARRIER OF THE
EQUIPMENT FOR ANY CLAIM ARISING FROM ANY DEFECT, BREACH OF WARRANTY, FAILURE OR
DELAY IN DELIVERY, MISDELIVERY OR INABILITY TO USE THE EQUIPMENT FOR ANY REASON
WHATSOEVER, AND THE BORROWER'S OBLIGATIONS TO THE LENDER HEREUNDER SHALL NOT IN
ANY MANNER BE AFFECTED THEREBY. THE LENDER SHALL NOT BE LIABLE FOR ANY LOSS,
DAMAGE, INJURY OR EXPENSE CAUSED DIRECTLY OR INDIRECTLY BY ANY ITEM OF
EQUIPMENT, THE USE, MAINTENANCE, REPAIR, DEFECT OR SERVICING THEREOF, BY ANY
DELAY OR FAILURE TO PROVIDE SAME, BY ANY INTERRUPTION OF SERVICE OR LOSS OF
SERVICE OR LOSS OF USE, OR FAILURE TO PROVIDE SAME, OR FOR ANY LOSS OF BUSINESS
HOWEVER CAUSED. NO REPRESENTATION OR WARRANTY AS TO THE EQUIPMENT OR ANY OTHER
MATTER BY THE VENDOR OF THE EQUIPMENT SHALL BE BINDING ON THE LENDER, NOR SHALL
THE BREACH OF SUCH RELIEVE THE BORROWER OF, OR IN ANY WAY AFFECT, ANY OF THE
BORROWER'S OBLIGATIONS TO THE LENDER AS SET FORTH HEREIN.
6. Representations and Warranties. The Borrower represents, warrants,
-------------------------------
covenants and agrees that:
<PAGE>
(a) If the Borrower is a corporation or a partnership, it is duly
organized, existing and in good standing under the laws of its state of
incorporation, is duly qualified and in good standing under the laws of each
jurisdiction where the character of its properties or the transaction of its
business makes such qualification necessary, and has full power to own its
properties and assets and to carry on its business as now being conducted.
(b) The Borrower has full power and authority to execute, deliver and
perform this Agreement and each Loan Schedule, which has been duly authorized by
all necessary and proper corporate or partnership action. No consent of
stockholders, if any, or of any public authority is required as a condition to
the validity of this Agreement and each Loan Schedule. The making and
performance by the Borrower of this Agreement and each Loan Schedule will not
violate any provision of law and will not conflict with or result in a breach of
any order, writ, injunction or decree of any court or government
instrumentality, or its charter or by-laws or partnership agreement, if any, or
create a default under any agreement, note or indenture to which it is a party
or by which it is bound or to which any of its property is subject, or result in
the imposition of any lien, charge or encumbrance of any nature whatsoever upon
any of its properties or assets, except for the liens created under this
Agreement or any Loan Schedule.
(c) This Agreement and each Loan Schedule have been duly executed and
delivered, and constitutes the valid and legally binding obligation of the
Borrower, enforceable in accordance with its terms.
(d) The Borrower has good title to and is the lawful owner of the
Collateral free from all claims, liens, encumbrances, charges or security
interests whatsoever, except for the liens granted by this Agreement or any Loan
Schedule, the Collateral is and will be kept at the location(s) set forth in the
relevant Loan Schedule hereto.
(e) The provisions of this Agreement and each Loan Schedule create a
valid and perfected first priority security interest in the Collateral,
enforceable in accordance with their respective terms, subject to no prior or
equal lien, charge, encumbrance or security interest, upon the filing of
appropriate Uniform Commercial Code financing statements or equivalent
instruments, and notation and issuance of appropriate certificates of title,
with respect to the Collateral. Appropriate Uniform Commercial Code financing
statements or equivalent instruments and certificates of title with the Lender's
security interest duly noted thereon, with respect to the Collateral, have been
executed by the Borrower and delivered to the Lender for filing at the
appropriate offices.
(f) There are no judgments outstanding against the Borrower and there
are no actions or proceedings before any court or administrative agency pending
or, to the knowledge
<PAGE>
of the Borrower, threatened against the Borrower which, if determined adversely
to the Borrower, would affect the Collateral.
(g) The Borrower's principal office and place of business where it
maintains its records concerning the Collateral is at its address stated on the
relevant Loan Schedule. The Borrower has no other office or place of business,
except as indicated on the relevant Loan Schedule.
7. Insurance. The Borrower shall keep and maintain the Equipment and
----------
other Collateral insured against all risks of loss or damage from every cause
whatsoever, for not less than the replacement cost thereof or, if greater, the
maximum insurable value thereof. The Borrower shall also provide, for the
benefit of the Lender, public liability insurance (both personal injury and
property damage) covering the Equipment and other Collateral. The amount of any
such insurance shall be sufficient so that neither the Borrower nor the Lender
will be considered a co-insurer. Such insurance shall be in form, issued by
insurance companies and in amounts satisfactory to the Lender. Each insurer
shall agree, by endorsement upon the policy or policies issued by it or by
independent instrument furnished to the Lender, that it will give at least ten
(10) days' prior written notice of the effective date of any alteration or
cancellation of such policy and that coverage under such policy shall not be
affected by any default, misrepresentation or other breach by the Borrower or
the Lender under this Agreement or any Loan Schedule or such policy. The Lender
shall have the option but not the obligation, to pay the premiums to continue
any such canceled insurance policy in effect or to obtain like coverage. The
Borrower agrees that any payment made by the Lender pursuant to the foregoing
authorization (and interest thereon at the rate stated in the relevant Loan
Schedule from the date of such payment) shall become part of the Obligations and
be secured by the Collateral. The proceeds of all insurance payable as a result
of loss or damage to any item of the Equipment shall be applied to satisfy the
Obligations. The Borrower hereby irrevocably appoints the Lender as the
Borrower's attorney-in-fact to make claim for, receive payments of and execute
and endorse all documents, checks or drafts received in payment for loss or
damage under any such insurance policy. In all events, the Borrower shall be
liable for any loss, damage, expense or costs suffered or incurred by the Lender
relating to or in any manner pertaining to this Agreement or any Loan Schedule,
the Collateral or the use or operation of the Collateral.
8. Maintenance; Loss of Collateral. The Borrower acknowledges that, in
-------------------------------
making its decision to extend the credit evidenced by this Agreement and each
Loan Schedule to the Borrower, the Lender is depending heavily upon the
realizable value of the Collateral at all times during the term of this
Agreement and each Loan Schedule, and the Borrower hereby represents and
warrants to the Lender that the purchase price paid by the Borrower for the
Collateral represents the retail fair market value thereof. Accordingly, the
Borrower agrees at all times to maintain the Collateral in good operating
condition, repair and appearance, and protect the same
<PAGE>
from deterioration, other than normal wear and tear, keep the Collateral in its
exclusive possession and control at the location specified in the relevant Loan
Schedule and use the Collateral only in the regular course of its business
within its normal capacity, without abuse and in a manner contemplated by the
Vendor, shall comply with all laws, ordinances, regulations, requirements and
rules with respect to the use, maintenance and operation of the Collateral.
Notwithstanding the foregoing, Lender acknowledges that some items of Equipment
may (a) be in the possession of Borrower's employees for an extended period of
time or (b) may be returned to the manufacturer or service company for repair.
Borrower shall, with respect to such items of Equipment, maintain records with
respect to such items of Equipment indicating the location and serial number
thereof, and shall furnish to Lender within ten days after the close of each
calendar quarter, a list of such items of Equipment which shall identify such
items of Equipment by location (including the name, address and telephone number
of the employee utilizing such Equipment or of the repair company, as the case
may be) and serial number. In addition, Borrower shall obtain from such
employees and furnish to Lender an acknowledgment that such Equipment is owned
by Lender. Any failure to comply with this section shall constitute a default
pursuant to Section 17 of this Agreement. After prior notice to Lender, Borrower
may, at its own expense, make alterations in or add attachments to the
Equipment, provided such alterations or attachments do not interfere with the
normal and satisfactory operation or maintenance of the Equipment or with
Borrower's ability to obtain and maintain the maintenance contract required by
this Section 8. The manufacturer or other organization selected by Borrower and
approved in writing by Lender to maintain the Equipment ("Maintenance
Organization") may incorporate engineering changes or make temporary alterations
to the Equipment upon request of Borrower. All such alterations and attachments
shall be and become the property of Lender or, at the option of Borrower, shall
be removed by Borrower and the Equipment restored, at Borrower's expense, to its
original condition as of the Installation Date thereof, reasonable wear and tear
only excepted, and upon the removal and restoration, the alteration and/or
attachment which was made by Borrower shall become the property of Borrower. For
the purpose of assuring the Lender that the Collateral will be properly
serviced, the Borrower agrees, in the event that the Lender so requests, to
cause the Collateral to be maintained by the Vendor (or another maintenance
organization approved by the Lender in writing) pursuant to Vendor's standard
preventive maintenance contract or comparable maintenance contract, in each case
covering at least prime shift maintenance of each item of Collateral. The
Borrower hereby assumes the entire risk of loss, damage or destruction of the
Collateral from any and every cause whatsoever, except for any loss, damage or
destruction caused by Lender's gross negligence or intentional misconduct. The
Borrower agrees that any such loss, damage or destruction of the Collateral
shall not relieve the Borrower of its obligations hereunder, which obligations
shall remain absolute, unconditional and not subject to any claim, defense, set-
off, counterclaim, reduction or abatement of any kind whatsoever. In the event
of any loss, damage or destruction of any item of Collateral, the Borrower shall
give the Lender immediate written notice thereof and shall, at the Borrower's
sole expense (except to the extent of any proceeds of insurance maintained by
the Borrower which
<PAGE>
shall have been received by the Borrower as a result of such loss, damage or
destruction) and at the Lender's sole option, either (a) repair such item,
returning it to its previous condition, unless damaged beyond repair, or (b)
replace such item with a like item acceptable to the Lender, in good condition
and of equivalent value, which shall be included within the term "Collateral" as
used herein.
9. Books and Records. The Borrower shall give the Lender full and free
-----------------
access to the Collateral and to all books, correspondence and records of the
Borrower with respect thereto, (which will be held in confidence by Lender, but
may be disclosed to Lender's officers, directors and consultants as well as
Lender's financing institutions), and shall permit the Lender and its
representatives to examine the same and to make copies and extracts therefrom,
all at the Borrower's expense.
10. Taxes and Encumbrances. The Borrower shall promptly pay and discharge
----------------------
or cause to be paid and discharged all its obligations and liabilities,
including (without limitation) all taxes, assessments and governmental charges
upon it and its income or properties, when due unless and to the extent only
that the same shall be contested in good faith and by appropriate proceedings
and then only to the extent that a bond is filed in cases where the filing of a
bond is necessary to avoid the creation of a lien against any of the Collateral
or any of its other assets. The Borrower covenants and agrees to keep the
Collateral free and clear of all levies, liens, claims, security interests and
encumbrances (including, without limitation, any lease or sublease thereof) and
to promptly pay all charges, taxes and fees which may now or hereafter be
imposed upon the ownership, sale, purchase, possession or use of the Collateral,
except those in favor of the Lender. In addition, the Borrower shall timely
file all tax returns required in connection with the use, operation or
possession of the Collateral, and shall promptly furnish copies thereof to the
Lender.
11. Corporate Existence. If the Borrower is a corporation or partnership,
-------------------
the Borrower shall do, or cause to be done, all things necessary to preserve and
keep in full force and effect its corporate or partnership existence and all
franchises, rights and privileges necessary for the proper conduct of its
business, and continue to engage in the business of the same type as now
conducted by it.
12. Notice of Events of Default. The Borrower shall give notice in
---------------------------
writing promptly to the Lender of the occurrence of any event which constitutes,
or which with notice or lapse of time or both would constitute, an Event of
Default (as hereinafter defined).
13. Delivery of Financial Data. The Borrower warrants that all credit
--------------------------
applications, statements, financial reports and other information submitted by
it to the Lender are material inducements to the execution by the Lender of this
Agreement and each Loan Schedule and the
<PAGE>
financing provided hereunder. The Borrower warrants that all such credit
applications, statements, reports and other information are and all information
hereafter furnished by the Borrower to the Lender will be, true and correct in
all material respects as of the date submitted, that no such credit application,
statement, report or other information contains any untrue or misleading
information or omits any material fact necessary to make such application,
statement, report or other information not misleading and that the Borrower is
in no way affiliated with any Vendor of any of the Equipment. The Borrower
agrees to use its best efforts to obtain for the Lender such estoppel
certificates, landlord's and mortgagee's waivers or other similar documents as
the Lender may reasonably request. The Borrower agrees to deliver to the Lender:
(a) within 120 days after the end of each fiscal year, financial statements for
such fiscal year prepared by its certified public accountant ("CPA") in
---
accordance with generally accepted accounting principles ("GAAP"), (b) within 45
----
days after the end of each fiscal quarter, financial statements for such fiscal
quarter prepared in accordance with GAAP, and (c) at any time and from time to
time, within 15 days after the Borrower's request, federal tax returns and other
information regarding the Borrower and/or any Obligors (as hereinafter defined).
14. Principal Office. The Borrower shall not change its principal office
----------------
or the place where it maintains its records pertaining to the Collateral, as
specified in Sections 6(d) and 6(g) hereof, without giving the Lender at least
----------------------
thirty (30) days' prior written notice thereof.
15. Location of Collateral; Inspection; Labels. The Borrower shall not
------------------------------------------
remove or permit the removal of the Collateral from its present location as set
forth on the relevant Loan Schedule, without the prior written consent of the
Lender. The Lender and its representatives shall have the right to enter the
Borrower's premises from time to time upon reasonable notice to inspect, observe
or remove the Collateral and to confirm its existence, condition and proper
maintenance or otherwise protect the Lender's interest therein. Lender shall
not be required to furnish prior notice if Borrower is in default under this
Agreement. The Borrower shall comply with all laws, ordinances, regulations or
requirements of any governmental authority, official, board or department
relating to the Collateral's installation, possession, use or maintenance. The
Collateral shall remain personal property regardless of its affixation to any
realty. Upon the Lender's request, the Borrower shall affix and keep in a
prominent place on each item of Collateral labels, plates or other markings
indicating the Lender's security interest in the Collateral.
16. Option to Perform Obligations of the Borrower in Respect of the
---------------------------------------------------------------
Collateral. If the Borrower fails or refuses to make any payment, perform any
- ----------
covenant or obligation, or take any other action which the Borrower is obligated
hereunder to perform, observe, take or do hereunder, then the Lender may, at its
option, without notice or demand upon the Borrower and without releasing the
Borrower from any obligation or covenant hereof, perform, observe, take or do
the same in such manner and to such extent as the Lender may deem necessary or
<PAGE>
appropriate to protect any of the Collateral and its rights hereunder, including
(without limitation) obtaining insurance and the payment of any taxes and the
payment of any sums necessary to discharge liens or security interests at any
time levied or placed on the Collateral. The Borrower agrees that any payment
or expense incurred by the Lender pursuant to the foregoing authorization (and
interest thereon at the rate stated in the relevant Loan Schedule from the date
of incurring of any such expense) shall become part of the Obligations and be
secured by the Collateral set forth in this Agreement and each Loan Schedule.
17. Events of Default; Remedies. (a) If any one of the following events
---------------------------
(each, an "Event of Default") shall occur, then to the extent permitted by
----------------
applicable law, the Lender shall have the right to exercise any one or more of
the remedies set forth in Section 17(b) hereof: (i) the Borrower fails to make
-------------
any payment when due and such failure continues for a period of ten
days hereunder or any Obligor fails to pay when due any of the Obligations and
such failure continues for a period of ten days; or (ii) an Obligor fails to
observe or perform (A) any other agreement or obligation to be observed or
performed hereunder or under any Loan Schedule or other agreement, document or
instrument delivered to the Lender by or on behalf of an Obligor or otherwise
relating to any of the Obligations (collectively, the "Other Documents"), and
---------------
unless expressly set forth in this Agreement or any Loan Schedule, such failure
continues uncured for thirty (30) days following notice by Lender; or (B) any
other obligation of an Obligor to the Lender and unless expressly set forth in
this Agreement or any Loan Schedule, such failure continues uncured for thirty
(30) days following notice by Lender; or (iii) any representation or warranty
made by or on behalf of any Obligor in this Agreement or any Loan Schedule or in
any of the Other Documents shall at any time prove to have been incorrect or
untrue when made; or (iv) an Obligor makes any misrepresentation to the Lender
or fails to disclose to the Lender any material fact in connection with this
Agreement or any Loan Schedule or otherwise, either contemporaneously herewith
or at any time prior or subsequent to the execution hereof; or (v) an Obligor
breaches any warranty or agreement contained herein or in any of the Other
Documents, including, without limitation, the Borrower's failure to obtain or
maintain any insurance required by the Lender hereunder; or (vi) Borrower
defaults in the performance or observation of any material term, condition or
covenant of its loan agreement, with Silicon Valley Bank ("SVB"), and SVB
accelerates the obligations of Borrower due thereunder, or if Borrower is in
default in the payment of any obligation in excess of $75,000.00 with respect to
any other loan agreement, indenture, trust agreement, lease or similar agreement
to which it is a party or by which Borrower is bound and such default continues
beyond any applicable cure period; (vii) an Obligor fails to pay, withhold,
collect or remit when asserted or due any tax, assessment or other sum payable
with respect to the Collateral or any security for any of the Obligations
(including, without limitation, any premium on any insurance policy with respect
to any of the Collateral or any security for any of the Obligations, or any
insurance policy assigned to the Lender as security for any of the Obligations)
except any of the foregoing which is being contested in good faith and by
appropriate proceedings which serve as a matter of law to stay the
<PAGE>
enforcement thereof and for which the Obligor has established and is maintaining
adequate reserves, or the making of any tax assessment against any Obligor by
the United States or any state or local government; or (viii) a judgment is
entered against an Obligor in an amount in excess of $75,000, and such judgment
is not satisfied, dismissed or stayed within 30 days or any attachment, levy or
execution is made against any property of an Obligor, or any part of any
property of an Obligor is condemned or seized by any governmental authority or
court at the instance of such governmental authority; or (ix) the death of an
Obligor, if an individual, or the death of any individual member of an Obligor,
if a partnership or joint venture; or (x) Borrower enters into any transaction,
the effect of which adversely affects (i) a material portion of Borrower's
business value and (ii) the ability of Borrower, in Lender's reasonable
judgment, to repay Borrower's obligations under the Agreement as they become
due. Borrower shall have sixty days, after notice thereof, to cure the default
set forth in this Section 17(a)(x); or (xi) an Obligor fails (or an Obligor
admits in writing its inability) to generally pay its debts as they become due
or the insolvency or business failure of an Obligor; or (xii) the filing of an
application for appointment of a trustee, custodian or receiver for an Obligor
or of any part of an Obligor's property, or an assignment for the benefit of
creditors by an Obligor, or the making or sending of notice of any intended bulk
transfer by an Obligor; or (xiii) the filing of a petition in bankruptcy by or
against an Obligor, or the commencement by or against an Obligor of any
proceeding under any bankruptcy or insolvency law or statute, or any law or
statute relating to the relief of debtors or arrangement of debt, readjustment
of indebtedness, reorganization, receivership or composition, or the extension
of indebtedness; or (xiv) a material adverse change in the condition or affairs
(financial or otherwise) of Borrower or any other event or circumstance occurs
that materially impairs the prospects of full and prompt payment or performance
by Borrower of any of its Obligations; or (xv) the Borrower shall, at any time
without the prior written consent of the Lender, enter into an agreement to
change the location of the Collateral or permit any change in such location of
the Collateral, as specified in Section 6(d) hereof or (xvi) Borrower attempts
------------
to remove, sell, transfer, encumber, sublet or part with possession of the
Equipment or any item thereof, except as expressly permitted herein; no cure
period shall apply to this Section 17(a)(xvi). For purposes of this Agreement,
the term "Obligor" shall mean the Borrower and any guarantor, pledgor or
-------
hypothecator with respect to any of the Obligations, and any other party liable
for any of the Obligations of the Borrower in addition to the Borrower.
(b) Upon the occurrence of an Event of Default, at the Lender's sole
option, all or any part of the entire unpaid total amount of the Obligations
then owed to the Lender for the balance of the term thereof shall be at once due
and payable and the Lender may, without demand or legal process, enter upon the
premises where any or all of the Collateral securing such Obligations is
located, take possession of and remove same, and exercise any one or more of the
following rights and remedies, without liability to the Borrower therefor and
without affecting the Borrower's obligations hereunder: (i) sell, lease or
otherwise dispose of any or all of such Collateral or any part thereof at one or
more public or private sales, leases or other dispositions,
<PAGE>
at wholesale or retail, for such consideration, on such terms, for cash or on
credit, as the Lender may deem advisable, and the Lender may immediately,
without demand of performance and without intention of notice to sell or of the
time or place of sale or of redemption or of advertisement or other notice or
demand whatsoever to the Borrower, all of which are hereby expressly waived (if
notice of any sale or other disposition is required by law to be given, the
Borrower hereby agrees that a notice sent at least five (5) days before the time
of any intended public sale or of the time after which any private sale or other
disposition of such Collateral is to be made, shall be reasonable notice of such
sale or other disposition); or (ii) retain such Collateral or any part thereof,
crediting the Borrower with the reasonable fair market or rental value thereof
for the balance of the term of the related Loan Schedule; and/or (iii) require
the Borrower to assemble such Collateral at the Borrower's sole expense, for the
Lender's benefit, at a place designated by the Lender; and/or (iv) pursue any
other remedy granted by any existing or future document executed by the Borrower
or by law, including, without limitation, the rights and remedies of a secured
party under the Uniform Commercial Code as enacted in any jurisdiction in which
any of such Collateral may be located. At any public sale, the Lender may be the
purchaser of all or any part of such Collateral, free from any right of
redemption on the part of the Borrower, which right is hereby waived and
released. The Borrower agrees to pay all of the Lender's expenses, including but
not limited to the costs of repossessing, storing, repairing and preparing such
Collateral for sale or lease, any commissions payable in connection with any
such sale or lease, and reasonable attorney's fees and disbursements, if an
attorney shall be consulted. The net proceeds realized from any such sale, lease
or other disposition or the exercise of any other remedy, after deducting
therefrom all related expenses, shall be applied toward payment of the unpaid
Obligations due and to become due to the Lender hereunder, the Borrower to
remain personally liable for any deficiency. The Lender's recovery shall in no
event exceed the maximum amount permitted by law. If any of such Collateral is
leased by the Lender to a third party, the present value of such lease
receivable discounted at an interest rate of 12% per annum shall be credited to
the Borrower's liability to the Lender after deducting all expenses associated
with the lease of such Collateral and the Borrower shall remain liable for any
deficiency thereof. It is understood that facility of repossession in an Event
of Default is a basis for the financial accommodation reflected by this
Agreement and each Loan Schedule. Any late charges payable to the Lender under
Section 2(h) hereof shall be payable in addition to all amounts payable by the
- ------------
Lender as a result of exercise of any of the remedies herein provided. The
Borrower agrees to also reimburse the Lender for any expenses actually incurred
(including the Lender's attorneys' fees and expenses) arising out of or caused
by this Agreement or any Loan Schedule. Notwithstanding anything to the
contrary contained herein, if any one or more Loan Schedules are assigned by the
Lender to one or more assignees, the Collateral securing the Obligations under
each Loan Schedule shall be limited to the Collateral securing the Obligations
under each Loan Schedule then held by the Lender or such assignee, as the case
may be.
<PAGE>
18. Power of Attorney. The Borrower authorizes the Lender and does hereby
-----------------
make, constitute and appoint the Lender and any officer, employee or agent of
the Lender with full power of substitution, as the Borrower's true and lawful
attorney-in-fact with power, in its own name or in the name of the Borrower: (a)
upon the occurrence of an Event of Default, (i) to endorse any notes, checks,
drafts, money orders, or other instruments of payment (including payments under
or in respect of any policy of insurance) in respect of the Collateral that may
come into possession of the Lender, (ii) to sign and endorse any documents
relating to the Collateral, (iii) to pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or threatened
against the Collateral, and/or (iv) to grant, collect, receipt for, compromise,
settle and sue for monies due in respect of the Collateral; and (b) at any time,
or from time to time, (i) generally to do, at the Lender's option, all acts and
things that the Lender reasonably deems necessary or desirable to protect,
preserve and realize upon the Collateral and the Lender's security interests
therein, or (ii) in order to otherwise effectuate the intents of this Agreement
and each Loan Schedule, in each case as fully and effectually as the Borrower
might or could itself do; and the Borrower hereby ratifies all that such
attorney-in-fact shall lawfully do or cause to be done by virtue hereof. THIS
POWER OF ATTORNEY IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE FOR AS
LONG AS ANY OF THE OBLIGATIONS SHALL BE OUTSTANDING. The Borrower agrees that
any expense incurred by the Lender pursuant to the foregoing authorization, and
interest thereon at 1 1/2% per month or if such rate exceeds the maximum rate,
then at such maximum rate, from the date of incurring any such expense, shall
become part of the Obligations and be secured by the Collateral.
19. Assignment, Etc. The Borrower shall not assign, pledge, mortgage,
---------------
lease, transfer, encumber or otherwise dispose of any of its rights in the
Collateral or any part thereof, nor permit its use by anyone other than its
regular employees, without the Lender's prior written consent. Any such
purported transfer, assignment or other action without the Lender's prior
written consent shall be void. The Lender may, without notice to or consent by
the Borrower, transfer or assign this Agreement and each Loan Schedule or any
interest herein and may mortgage, pledge, encumber or transfer any of its rights
or interest in and to the Collateral or any part thereof other than a competitor
of Borrower and, without limitation, each assignee, transferee, pledgee and
mortgagee (which may include any affiliate of the Lender) shall have the right
to further transfer or assign its interest. Each such assignee, transferee,
pledgee and mortgagee shall have all of the rights (but none of the obligations)
of the Lender under this Agreement and each Loan Schedule. The Borrower hereby
acknowledges notice of the Lender's intended assignment of this Agreement and
each Loan Schedule and, upon such assignment, the Borrower agrees not to assert
against any such assignees, transferees, pledgees and mortgagees any defense,
claim, counterclaim, recoupment or set-off that the Borrower may have against
the Lender, whether arising under this Agreement or any Loan Schedule or
otherwise. Any assignee, transferee, pledgee or mortgagee of the Lender's
rights under this Agreement or any Loan Schedule shall
<PAGE>
be considered a third party beneficiary of all of the Borrower's
representations, warranties and obligations hereunder to the Lender. The
Borrower agrees (a) in connection with any such transfer or assignment, to
provide such instruments, documents, acknowledgments and further assurances as
the Lender or any assignee, transferee, mortgagee or pledgee may deem necessary
or advisable to effectuate the intents of this Agreement or any Loan Schedule or
any such transfer or assignment, with respect to such matters as the Agreement,
any Loan Schedule, the Collateral, the Borrower's obligations to such assignee,
transferee, mortgagee or pledgee and such other matters as may be reasonably
requested, and (b) that after receipt by the Borrower of written notice of
assignment from the Lender or from the Lender's assignee, transferee, pledgee or
mortgagee, all principal, interest and other amounts which are then and
thereafter become due under this Agreement or any Loan Schedule shall be paid to
such assignee, transferee, pledgee or mortgagee, at the place of payment
designated in such notice. This Agreement and each Loan Schedule shall be
binding upon the Borrower and its successors and shall inure to the benefit of
the Lender and its successors and assigns.
20. No Waiver. No failure on the part of the Lender to exercise, and no
---------
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Lender of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. No course of dealing between the Borrower and the
Lender nor any delay or omission on the part of the Lender shall operate as a
waiver of any rights of the Lender. Each and every right, remedy or power
hereby granted to the Lender or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Lender
from time to time. Waiver of any particular Event of Default shall not be
deemed to be a waiver of any other or subsequent Event of Default.
21. Further Assurances; Filing. The Borrower from time to time, at its
--------------------------
sole expense, will promptly execute and deliver all further instruments,
documents and assurances, and take all further action, that may be necessary or
desirable, or that the Lender may request, and hereby authorizes the Lender to
take all action (including the filing of any financing statements, continuation
statements or amendments thereto without the signature of the Borrower) as the
Lender may deem necessary, proper or desirable in order to perfect and protect
any security interest granted or purported to be granted hereby or to enable the
Lender to exercise and enforce its rights and remedies hereunder with respect to
any of the Collateral. The Borrower hereby authorizes the Lender to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of the Borrower where
permitted by law. A carbon, photographic or other reproduction of this
Agreement or any Loan Schedule or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law. The Borrower agrees to pay the Lender the actual fees
for such filing, recording or stamp fees or taxes arising from the filing or
recording of any such instrument or statement.
<PAGE>
22. Indemnity and Expenses. The Borrower shall and does hereby indemnify
----------------------
and save the Lender, its directors, officers, employees, agents, attorneys,
servants, successors and assigns, harmless from any and all liabilities
(including, without limitation, negligence, except for gross negligence, tort
and strict liability), damages, expenses, claims, actions, proceedings,
judgments, settlements, losses, liens and obligations (each, an "Indemnified
-----------
Claim"), including (without limitation) reasonable attorneys' fees and expenses
- -----
actually incurred, arising out of the ordering, purchase, delivery, rejection,
non-delivery, ownership, selection, possession, leasing, renting, financing,
operation (regardless of where, how and by whom operated), control, use,
condition (including but not limited to latent and other defects, whether or not
discoverable by the Borrower), maintenance, delivery, transportation, storage,
repair, furnishing of specifications with respect to, and the return or other
disposition of, the Equipment or any other Collateral, and any claims of patent,
trademark or copyright infringement or, in the event that the Borrower shall be
in default hereunder, arising out of the condition of any item of Equipment or
any other Collateral sold or disposed of after use by the Borrower, including
(without limitation) claims for injury to or death of persons and for damage to
property. The indemnities and obligations herein provided shall continue in
full force and effect notwithstanding the expiration, termination or can
cellation of this Agreement or any Loan Schedule for any reason whatsoever and
irrespective of whether the Borrower ever accepts the Equipment or any other
Collateral. The Borrower shall give the Lender prompt written notice of any
Indemnified Claim and, at the Lender's sole option, shall defend the Lender
against any Indemnified Claim at the Borrower's sole expense with attorney(s)
selected by the Lender. The Borrower is an independent contractor and nothing
con tained herein shall authorize the Borrower or any other person to operate
any item of Equipment or any other Collateral so as to incur any liability or
obligation for or on behalf of the Lender. The Borrower will upon demand pay to
the Lender the amount of any and all reasonable expenses actually incurred,
including the fees and disbursements of its counsel and of any experts and
agents, which the Lender may incur in connection with (a) the administration of
this Agreement or any Loan Schedule, (b) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (c) the exercise, enforcement or protection of any of the rights
of the Lender hereunder, or (d) the failure by the Borrower to perform or
observe any of the provisions hereof. The foregoing amounts shall become part
of the Obligations and secured by the Collateral as set forth in this Agreement
or any Loan Schedule and the Lender may at any time apply to the payment of all
such costs and expenses all proceeds arising from the possession or disposition
of all or any portion of the Collateral.
23. Modifications, Etc. Neither this Agreement nor any Loan Schedule, nor
-------------------
any provision hereof or thereof, may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by a duly
authorized representative of the party against whom enforcement of the change,
waiver, discharge or termination is sought.
<PAGE>
24. Termination. Upon the non-defeasible payment in full of all
-----------
Obligations, the Lender shall execute and deliver to the Borrower all such
documents and instruments as shall be necessary to evidence termination of this
Agreement or any Loan Schedule and the security interests created hereunder.
25. Entire Agreement: Partial Invalidity. This Agreement and each Loan
------------------------------------
Schedule constitutes the entire agreement of the Lender and the Borrower with
respect to the transactions covered hereby, and supersedes any and all prior
agreements, understandings and negotiations with respect thereto. If any
provision of this Agreement or any Loan Schedule is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this
Agreement or any Loan Schedule as a whole, but this Agreement or such Loan
Schedule shall be construed as though it did not contain the particular
provision or provisions held to be invalid or unenforceable and the rights and
obligations of the parties shall be construed and enforced to such extent as
shall be permitted by law.
26. Miscellaneous. (a) Any notice or other communication to a party
-------------
hereunder shall be sufficiently given if in writing and personally delivered or
mailed to said party by certified mail, return receipt requested, at its address
set forth herein or such other address as either may designate for itself in
such a notice to the other and such notice shall be deemed to have been given
when received if personally delivered or served by overnight delivery or three
(3) days after being sent by mail. Whenever the sense of this Agreement or any
Loan Schedule requires, words in the singular shall be deemed to include the
plural and words in the plural shall be deemed to include the singular. If more
than one Borrower is named herein, the liability of each shall be joint and
several. The headings set forth in this Agreement or any Loan Schedule are for
convenience of reference only, and shall not be given substantive effect.
(b) To the extent that any Loan Schedule evidencing a Loan hereunder
would constitute "chattel paper," as such term is defined under the Connecticut
Uniform Commercial Code, a security interest therein may be created only through
the transfer or possession of the original of Counterpart No. 1 of such Loan
Schedule executed pursuant to this Agreement. Transfer or possession of an
original counterpart of this Agreement shall not be necessary to perfect such
security interest and no security interest in any such Loan Schedule may be
created by the transfer or possession of any other counterpart of such Loan
Schedule or by the transfer or possession of any counterpart of this Agreement.
27. Choice of Law and Venue; Waiver of Jury Trial. THIS AGREEMENT AND
---------------------------------------------
EACH Loan Schedule SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF
CONNECTICUT, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW.
The Borrower hereby agrees that all actions or proceedings arising directly or
- ------------------------------------------------------------------------------
indirectly from or in connection with this Agreement or any Loan Schedule or
- ----------------------------------------------------------------------------
<PAGE>
any of the Collateral shall, at the Lender's sole option, be litigated only in
- ------------------------------------------------------------------------------
the Connecticut state courts or the United States District Court for the
- ------------------------------------------------------------------------
District of Connecticut sitting in Fairfield County, Connecticut. The Borrower
- ----------------------------------------------------------------
consents to the jurisdiction and venue of the foregoing courts and consents that
any process or notice of motion or other application to either of such courts or
a judge thereof may be served inside or outside the State of Connecticut or the
District of Connecticut by registered mail, return receipt requested, directed
to the Borrower at its address set forth in this Agreement or any Loan Schedule
(and service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service, or in such other manner as may
be permissible under the rules of said courts. THE LENDER AND THE BORROWER EACH
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF THIS AGREEMENT OR ANY LOAN SCHEDULE, OR THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER
CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN THE BORROWER AND THE LENDER. The
Borrower hereby waives the right to interpose any set-off or counterclaim or
cross-claim in any such litigation; provided, however, that nothing in this
Section 27 shall prevent the Borrower from asserting, in a separate and
- ----------
independent proceeding, any claim it may have against the Lender.
IN WITNESS WHEREOF, the parties hereby have caused these presents to
be duly executed by their authorized representatives on the date first above
written.
SQL FINANCIALS INTERNATIONAL, INC. LEASING TECHNOLOGIES
INTERNATIONAL, INC.
By: /s/ By: /s/
----------------------------- --------------------------------
(Title) (Title)
Attest:
/s/
------------------------------
(Title)
<PAGE>
Loan Schedule No. 01
to
Master Note and Security Agreement
dated March 20, 1997 (the "Agreement")
---------
between
Leasing Technologies International, Inc. (the "Lender")
------
and
SQL Financials International, Inc. (the "Borrower")
--------
The Lender and the Borrower agree that: (a) all of the terms and conditions
of the Agreement are hereby incorporated in this Loan Schedule by reference,
unless and to the extent such provisions are expressly excluded or modified
herein; and (b) this Loan Schedule, together with the terms and conditions of
the Agreement so incorporated herein, shall (i) constitute a single promissory
note to evidence a separate Loan made by the Lender to the Borrower under this
Schedule, and (ii) control the rights and obligations of the parties with
respect to such Loan, which Loan was made with respect to the personal property
described below (such personal property, together with all additions,
substitutions and replacements thereto, collectively, the "Equipment").
---------
Capitalized terms used and not otherwise defined herein shall have the meanings
assigned to them in the Agreement.
Sections 1(a) and 3: The term "Equipment" as used in this Loan Schedule and
- ------------------- ---------
in the Agreement shall include the following described personal property,
together with all warranties thereon, all replacement parts, repairs, additions
and accessories now or hereafter incorporated therein or affixed thereto, and
all additions, improvements, accessions, replacements and substitutions thereto
and therefor, whether now owned or hereafter acquired, and all proceeds and
products thereof:
Type Description Serial Number
- ---- ----------- -------------
SEE EXHIBIT A ATTACHED HERETO AND MADE A PART HEREOF.
"Other Personal Property" constituting "Collateral" under Section 3(c):
- -----------------------------------------------------------------------
See Exhibit B attached hereto and made a part hereof.
<PAGE>
Section 2(a): "Principal Sum": $531,004.57
- ------------- ------------- ----------
"Total Number of Monthly Installments": 37
------------------------------------ ---
"Final Payment": $108,856.00
------------- ----------
"Final Payment Date": March 31, 2000
------------------ --------------
"First Monthly Installment Amount": $34,930.00
-------------------------------- ---------
"First Monthly Installment Date": March 31, 1997
------------------------------ --------------
"Remaining Consecutive Monthly Installment Amount": $ 17,465.00
------------------------------------------------ ----------
"Last Consecutive Monthly Installment Date": February 29, 2000
----------------------------------------- -----------------
Section 2(b): "Refinanced Monthly Installment Amount": $9,606.00
- ------------- ------------------------------------- --------
Section 2(c): "Return Option Credit": $87,616.00
- ------------- -------------------- ---------
"Return Option Balance Amount": $21,240.00
---------------------------- ----------
Section 2(d): "Adjusted Final Payment": $53,100.00
- ------------- ---------------------- ---------
Section 2(e): "Annual Interest Rate": 21.95% per annum.
- ------------- -------------------- ------
Sections 2(h), 7
- ----------------
and 16: Late charge interest rate: 1.5% per month.
------
Sections 6(d), 8
- ----------------
and 15: Collateral Location(s):
------- ----------------------
See Exhibits A and C attached hereto and made a part hereof.
<PAGE>
Section 6(g): Borrower's Office(s) and/or Place(s) of Business:
- ------------- ------------------------------------------------
2 Ravinia Drive, Suite 1000
Atlanta, GA 30346
Section 8:
Notwithstanding Section 8 of the Agreement, Borrower may self-maintain the
Equipment under this Loan Schedule in a manner consistent with industry
maintenance standards, performing such maintenance and installing engineering
changes and improvements that are available, without additional charge to
Lender, in order to keep the Equipment at current engineering levels.
This is Counterpart No. ___ of 3 executed Counterparts of this Loan Schedule.
Counterpart No. 1 of this Loan Schedule shall constitute the only original
executed counterpart of this Loan Schedule. For purposes of perfection of a
security interest in chattel paper by possession under the Connecticut Uniform
Commercial Code, (a) such Counterpart shall be deemed the only original
counterpart of this Loan Schedule, and transfer or possession of such
Counterpart shall effect such perfection, (b) transfer or possession of no other
purported Counterpart of this Loan Schedule shall effect such perfection, and
(c) transfer or possession of an original counterpart of the Agreement shall not
be necessary to effect such perfection.
IN WITNESS WHEREOF, the parties hereby have caused these presents to be
duly executed by their authorized representatives on the date first above
written.
SQL FINANCIALS INTERNATIONAL, INC. LEASING TECHNOLOGIES
INTERNATIONAL, INC.
By: By:
-------------------------------- --------------------------------
(Title) (Title)
-------------------------- --------------------------
Attest:
- ------------------------------------
(Title)
-----------------------------
<PAGE>
EXHIBIT B TO
LOAN SCHEDULE NO. 01 TO
MASTER NOTE AND SECURITY AGREEMENT DATED MARCH 20, 1997 (THE "AGREEMENT")
BETWEEN LEASING TECHNOLOGIES INTERNATIONAL, INC. (THE "LENDER")
AND SQL FINANCIALS INTERNATIONAL, INC. (THE "BORROWER")
Collateral
----------
All of the assets of the Borrower (sometimes hereinafter called "Debtor"),
wherever located and whether now owned or hereafter acquired or arising, and all
proceeds therefrom, including but not limited to:
(i) all of the Debtor's inventory, goods, wares, merchandise, raw materials,
supplies, work in process, finished goods, and other personal property of every
kind and description held for sale or lease or furnished or to be furnished
under any contract of service, and all goods which are in transit, and all
returned, repossessed and rejected goods of the foregoing description, and any
other tangible personal property held by the Debtor for licensing, processing,
sale or other business purpose or to be used, licensed or consumed in the
Debtor's business;
(ii) all machinery, equipment, motor vehicles, furniture, office equipment and
supplies, plant equipment, tools, dies, molds, fixtures and leasehold
improvements of Debtor, of every kind and description, wherever located and
including all additions, improvements, accessions and substitutions thereto;
(iii) accounts receivable now owned or hereafter acquired and all proceeds
thereof. "Accounts Receivable" means all accounts receivable of Debtor,
including but not limited to (i) all notes, drafts, acceptances and other
instruments representing or evidencing a right to payment for goods sold or
leased, or services rendered, whether or not earned by performance; (ii) all
general intangibles of Debtor that constitute debts obligations or liabilities
owed to Debtor arising out of or in connection with such accounts receivable;
(iii) all of Debtor's chattel paper of every kind and description from account
debtors including all additions thereto and substitutions therefor. (iv) all
files, records (including, without limitation computer programs, disks, tapes
and related electronic data processing media) and writings of Debtor or in which
Debtor has an interest in any way relating to the foregoing property and all
rights of Debtor to the retrieval from third parties of electronically processed
and recorded information pertaining to any of such property; (v) all of
Debtor's documents and instruments constituting or evidencing the foregoing and
(vi) all guaranties and securities for, and all proceeds of any of the
foregoing.
(v) all insurance proceeds, whether arising out of any of the foregoing or
otherwise.
LENDER: BORROWER:
Leasing Technologies International, Inc. SQL Financials International,Inc.
BY: BY:
------------------------------------- --------------------------------
NAME: NAME:
----------------------------------- ------------------------------
TITLE: TITLE:
---------------------------------- -----------------------------
DATE: DATE:
----------------------------------- ------------------------------
<PAGE>
EXHIBIT 10.13
SQL Financials International, Inc.
Agreement with Joseph S. McCall
Agreement made as of the February 5, 1998, between SQL Financials
International, Inc., a Delaware corporation (the "Company"), having a principal
place of business located at 3950 Johns Creek Court, Suwanee, Georgia 30024, and
Joseph S. McCall, ("McCall"), a Georgia resident.
Whereas, McCall is an employee, officer and director of the Company, an
officer and manager of its subsidiary, SQL Financials Services, L.L.C. ("SQL
Services") and an officer and director of its subsidiary, SQL Financials Europe,
Inc., ("SQL Europe"), and now desires to resign as an officer of the Company, as
an officer and manager of SQL Services and as an officer and director of SQL
Europe; and
Whereas, McCall desires to continue serving as a member of the Board of
Directors of the Company until the Company's initial public offering of equity
securities registered pursuant to the Securities Act of 1933, as amended (the
"IPO") or such other date as he may determine; and
Whereas, McCall desires to resign as an employee of the Company following
the IPO; and
Whereas, McCall desires to provide consulting services to the Company as an
independent contractor after the IPO; and
Whereas, McCall and the Company are parties to an employment agreement (the
"Employment Agreement") dated February 21, 1995, governing certain terms of
McCall's employment by the Company (a copy of which is attached as Exhibit A);
---------
Whereas, McCall and the Company each desire to confirm the continuation of
certain provisions of the Employment Agreement and to provide for McCall's
future role as a consultant to the Company;
Now, therefore, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
1. McCall hereby resigns his position as chief executive officer of the
Company, his positions as an officer and manager of SQL Services and his
positions as an officer and director of SQL Europe, effective as of February 5,
1998, (the date of such resignation to be herein referred to as the "Effective
Date"). On or before the Effective Date, McCall will execute and deliver to the
Company written confirmation of his resignations in the form attached as
Exhibits B1, B2 and B3. The duties of McCall from the Effective Date through
- ----------------------
the Termination Date (as hereinafter defined) will include assistance with
matters pertaining to SFI Labs and the IPO.
<PAGE>
2. McCall shall continue as an employee of the Company from the Effective
Date through the Termination Date (as hereinafter defined), and the Company will
continue to pay to McCall his current base salary of $200,000 and any incentive
compensation to which he is entitled under the Company's current incentive
compensation plan. McCall and the Company hereby agree that the 1998
Compensation Plan for McCall dated January 1, 1998 and approved by the Board of
Directors shall continue to apply to McCall as a non-officer employee of the
Company from the Effective Date through the Termination Date (as hereinafter
defined).
3. On the earliest of (i) the closing date of the Company's IPO, (ii) a
Sale of the Company (as herein defined) or (iii) December 31, 1998 (in each
case, the "Termination Date"), McCall will resign his employment with the
Company. As used herein, the term "Sale of the Company" shall mean (a) any sale
of all or substantially all of the assets or shares of outstanding capital stock
of the Company to one or more third parties that are not affiliated with the
Company prior to such sale; (b) any liquidation of the Company; or (c) any
merger, consolidation or similar transaction to which the Company is a party and
following which the persons who were shareholders of the Company immediately
prior to the transaction hold less than a majority of the outstanding shares of
voting capital stock of the surviving or resulting corporation or other entity.
After the Termination Date, the Company shall have no further obligation to make
payments of any kind to McCall in respect of his employment other than amounts
due and payable hereunder.
4. On the first day of the seventh month following the Termination Date,
McCall may resign his position as a member of the Company's Board of Directors.
5. In consideration of the covenants contained in this Agreement, the
Company and McCall agree as follows:
A. Section 5 of the Employment Agreement is hereby amended to
provide that the Company shall pay McCall $37,500 in annual severance pay for a
period of two (2) years from the Termination Date. The Company agrees to pay
all of McCall's $75,000 in severance pay during the first year following the
Termination Date, which $75,000 amount shall be paid to McCall in equal semi-
monthly payments over the one year period from the Termination Date and shall be
subject to normal tax withholdings. McCall hereby acknowledges that the
payments provided under this Paragraph 5(A) are sufficient consideration for the
covenants contained in Section 5 of the Employment Agreement.
B. The Company shall pay to McCall $225,000, subject to normal tax
withholdings, which amount shall be paid by the Company on or before June 30,
1998.
C. McCall specifically, but without limitation, waives any and all
claims for severance or similar payments of any kind arising from his employment
by the Company except as specifically set forth in this paragraph 5.
-2-
<PAGE>
6. McCall and the Company have executed an Independent Contractor
Agreement (the "Consulting Agreement") in the form attached as Exhibit C,
---------
providing for the retention of McCall as a consultant to the Company effective
as of the Termination Date for the projects specifically identified in the
Consulting Agreement. The term of the Consulting Agreement shall be for one (1)
year from the Termination Date. The compensation paid to McCall under the
Consulting Agreement shall consist of (i) base compensation of $125,000 and (ii)
incentive compensation to a maximum of $100,000, payable in accordance with the
Company's 1998 Compensation Plan for Joseph S. McCall dated January 1, 1998 and
approved by the Board of Directors and thereafter in accordance with the 1999
Compensation Plan for Joseph S. McCall derived from the Company's 1999 Business
Plan revenue targets approved by the Board of Directors.
7. Except as to McCall's resignation of his position as Chief Executive
Officer of the Company and the modification to severance pay provided in
paragraph 5, the Employment Agreement hereby is confirmed and ratified in all
respects and remains in full force and effect according to its terms, including
without limitation all protective covenants by McCall to the Company.
8. McCall hereby confirms that he presently serves as Trustee under a
certain Amended and Restated Shareholders' Voting Agreement ("Voting Agreement")
dated September 1, 1995 by and among the holders of the common stock of the
Company. McCall covenants that he will promptly take such actions as requested
by the Board of Directors as are reasonably necessary to terminate the Voting
Agreement, including but not limited to the execution of a shareholders' consent
terminating the Voting Agreement.
9. McCall hereby acknowledges that he continues to have access to Company
Property as defined in the Employment Agreement (including Confidential
Information) and covenants that his use of Company Property during his continued
employment by the Company and his continued membership on the Board of Directors
is governed by Sections 1 and 3 of the Employment Agreement. Following the
later of the Termination Date or his resignation from the Board of Directors,
McCall covenants that, in accordance with Section 3 of the Employment Agreement,
he will return to the Company any and all Company Property (including
Confidential Information) in his possession or control; provided, however,
-------- -------
nothing in this paragraph shall apply to any property in the possession or
control of Technology Ventures, L.L.C. or McCall Consulting Group, Inc. pursuant
to their software licensing agreement with the Company of even date herewith.
10. (a) Except as expressly otherwise provided herein (including without
limitation any breach after the date hereof of the agreements, documents or
instruments set forth in Paragraph 17) and except for any claims which arise
because of breach of this Agreement by the Company, McCall hereby waives,
releases and promises never to assert any and all claims that he has or might
have against the Company and its subsidiaries, affiliated persons or entities,
officers, directors, stockholders, agents, attorneys, employees, successors or
assigns (including without limitation SQL Services and SQL Europe), arising from
or related to any or all of his employment with the Company, SQL Services or SQL
Europe as of the Effective Date, his
-3-
<PAGE>
resignation from such employment or his status as an officer or stockholder of
the Company. The foregoing release as it applies to officers, directors and
other individuals is intended to release such persons in all capacities,
including individual and official. The released claims include, but are not
limited to, claims arising under federal, state and local statutory or common
law, such as the Age Discrimination in Employment Act, Title VII of the Civil
Rights Act of 1964 and the law of contract and tort.
(b) Except as expressly otherwise provided herein (including without
limitation any breach after the date hereof of the agreements set forth in
Paragraph 17) and except for any claims which arise because of breach of this
Agreement by McCall, the Company hereby waives, releases and promises never to
assert any and all claims that it has or might have against McCall arising from
or related to any or all of his employment with the Company, SQL Services or SQL
Europe as of the Effective Date, his resignation from such employment or his
status as an officer of the Company. The released claims include, but are not
limited to, claims arising under federal, state and local statutory or common
law.
(c) IN CONNECTION WITH THIS RELEASE OF CLAIMS, McCALL AGREES THAT HE
HAS BEEN INFORMED IN WRITING THAT HE (A) HAD UP TO 21 CALENDAR DAYS TO CONSIDER
WHETHER OR NOT TO EXECUTE THIS AGREEMENT; (B) HAS SEVEN (7) CALENDAR DAYS
FOLLOWING THE EXECUTION OF THIS AGREEMENT TO REVOKE IT AND HAS BEEN INFORMED OF
THE METHOD OF SUCH REVOCATION; AND (C) HAS BEEN ADVISED TO CONSULT AN ATTORNEY
RELATIVE TO THIS MATTER PRIOR TO THE EXECUTION OF THIS AGREEMENT.
11. Neither McCall nor the Company will do anything for the purpose of
harming the business, reputation, customer relations, employee relations or
consultant relations of the other. Neither McCall nor the Company will make any
disparaging or derogatory remarks about the other. The covenants in this
Paragraph 12 will expire on the second anniversary of the Termination Date.
12. McCall hereby acknowledges that the agreement of the Company with
respect to payment of compensation beyond the Effective Date, as provided in
Paragraphs 3 and 4 of this Agreement, constitutes sufficient consideration with
respect to McCall's covenants contained in this Agreement.
13. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to its choice of law
provisions.
14. No amendment or waiver of this Agreement or any provision hereof shall
be binding upon the party against whom enforcement of such amendment or waiver
is sought unless it is made in writing and signed by or on behalf of such party
(and, in the case of the Company, approved by the Board of Directors or the
Chief Executive Officer of the Company). The waiver by either party of a breach
of any provision of this Agreement by the other party shall not
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<PAGE>
operate and be construed as a waiver or a continuing waiver by that party of any
subsequent breach of the same or any other provision of this Agreement by the
other party.
15. This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective heirs, executors and administrators,
successors and assigns, except that it may not be assigned by either party
without the written consent of the other.
16. Nothing in this Agreement shall be deemed to limit or otherwise
restrict the rights that McCall has to designate himself and three other persons
from time to time to be elected to serve on the Company's Board of Directors
pursuant to Section 10 of a certain Series F Convertible Preferred Stock
Purchase Agreement dated September 26, 1997.
17. This Agreement and the Consulting Agreement constitute the final and
entire agreement of the parties with respect to the matters covered hereby and
replaces and supersedes all other agreements and understandings relating to any
employment or consulting services that McCall has rendered, or will render, to
the Company, except for the Employment Agreement, which remains in full force
and effect pursuant to Paragraph 7, any right with respect to indemnification
that McCall may have pursuant to the Company's Amended and Restated Certificate
of Incorporation or Bylaws, which shall remain binding on the parties separately
from this Agreement, and the Series F Convertible Preferred Stock Purchase
Agreement dated September 26, 1997.
18. This Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision hereof shall be
prohibited or invalid under any such law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating or nullifying
the remainder of such provision or any other provisions of this Agreement. If
any one or more of the provisions contained in this Agreement or the Employment
Agreement, shall for any reason be held to be excessively broad as to duration,
geographical scope, activity or subject, such provisions shall be construed by
limiting and reducing it so as to be enforceable to the maximum extent permitted
by applicable law.
19. This Agreement may be executed in any number of counterparts, and with
counterpart signature pages, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
as of the date first above written.
SQL Financials International, Inc.
By: /s/ Stephen P. Jeffery
-------------------------------------
Stephen P. Jeffery, Pesident
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<PAGE>
EXHIBIT 10.14
INDEPENDENT CONTRACTOR AGREEMENT
--------------------------------
THIS INDEPENDENT CONTRACTOR AGREEMENT (this "Agreement"), is made and
entered into as of February 5, 1998, effective as of that date, by and between
SQL FINANCIALS INTERNATIONAL, INC., a Delaware corporation (hereinafter referred
to as the "Company"); and MCCALL CONSULTING GROUP, INC., a Georgia corporation
(hereinafter referred to as the "Contractor") (the Company and the Contractor
being sometimes referred to herein as the "parties").
W I T N E S S E T H:
WHEREAS, the Contractor has been rendering services to the Company prior to
the date of this Agreement as an independent contractor; and
WHEREAS, the Company desires to continue to retain the Contractor to render
services to the Company from time to time as an independent contractor; and
WHEREAS, it is the intent of the parties that this Agreement shall apply to
the Contractor's engagement by the Company for the full term thereof and, where
applicable, after such term; and shall apply regardless of the Contractor's
description and/or location, all as same may change from time to time; and
WHEREAS, the Contractor desires to continue performing the services set
forth herein for the Company, and the Company and the Contractor mutually desire
to set forth the terms and conditions of such arrangement, all as herein set
forth;
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants herein contained, the sum of $10.00 in hand paid, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
1. MUTUAL AGREEMENT. By the execution of this Agreement, both parties
----------------
evidence their assent to, and agreement to abide by, each and every term and
provision hereof.
2. DEFINITIONS. As used in this Agreement, the following words (and any
-----------
derivative form thereof) shall have the meaning set forth below:
a. AGREEMENT. This Independent Contractor Agreement.
---------
b. COMPANY. SQL Financials International, Inc., a Delaware
-------
corporation, and any successor corporation or assignee hereof.
c. COMPENSATION. This term means any and all payments and
------------
remuneration provided to the Contractor by the Company, regardless of the form
thereof, including but not limited
<PAGE>
to fees, commissions, discounts, incentives, advances and all other forms of
consideration for services rendered.
d. CUSTOMERS. Those persons, corporations, firms, partnerships, or
---------
any other entities whatsoever, which have purchased, licensed or leased or shall
purchase, license or lease after the date hereof, any of the Products offered by
the Company.
e. PRODUCTS. All goods, property, products, systems, or programs,
--------
now or hereafter offered for sale, license or lease by the Company to Customers
and prospective Customers.
3. SERVICES. The Company hereby retains the Contractor as an independent
--------
contractor for the Company to perform the services described on Exhibit "A"
-----------
attached hereto and incorporated herein as well as such other services as may be
reasonably requested from time to time by the Company, subject to mutual
agreement between the Contractor and the Company, and including such similar
services performed by Contractor for the Company prior to the date hereof
(collectively the "Services") on the terms and conditions set forth herein; and
the Contractor hereby agrees to perform such Services for the Company. The
Contractor agrees to devote its skills and reasonable best efforts to the
performance of such Services. Such Services shall be performed in a
professional manner using as high a degree of skill and care as is necessary in
the Contractor's discretion under the circumstances.
4. COMPENSATION FOR SERVICES. The Company shall pay Contractor as full
-------------------------
Compensation for the Services the amount set forth on Exhibit "B" attached
-----------
hereto. The Contractor acknowledges that it has been paid in full for all
Services rendered to the Company prior to the date hereof, except unbilled
services rendered during the prior thirty (30) day period. The Contractor shall
also be reimbursed for all reasonable and necessary business expenses of the
type approved by the Company and incurred by Contractor in connection with the
performance of the Services hereunder; provided that as a condition of
reimbursement, the Contractor shall submit verification of the nature and amount
of such expenses. All such expenses shall be reimbursed by the Company within
thirty (30) days of submission of invoices, vouchers, etc., documenting such
expenses. If requested by the Contractor, any approved anticipated expenses to
be incurred by the Contractor shall be advanced by the Company to the
Contractor.
5. CONFIDENTIAL INFORMATION. For the mutual benefit of the Contractor
------------------------
and the Company, the Company has provided and may provide the Contractor such
information and training in the Products offered by the Company and give
Contractor other assistance, support and access to Confidential Information
regarding the Company's business methods, products, services and Customers, all
as deemed necessary by the Company. All information or material regarding the
Company's business, the confidentiality of which has or could have commercial
value or utility in the business in which the Company is engaged or contemplates
engaging or information which if disclosed without authorization could be
detrimental to the business of the Company, including but not limited to its
business plans, methods of operation, products, software programs, documentation
of computer programs, programming procedures, algorithms, formulas, equipment,
techniques, existing and contemplated products, services, inventions, systems,
devices (whether or not
-2-
<PAGE>
patentable), management programs, sales literature, financial methods and
practices, plans, pricing, selling techniques, lists of the Company's Customers,
credit and financial data of the Company, and the Company's suppliers and
present and prospective Customers, particular business requirements of the
Company's present and prospective Customers, and special methods and processes
involved in the Company's business, shall be deemed Confidential Information and
trade secrets of the Company and the Company's exclusive property; provided,
--------
however, that Confidential Information shall not include information that has
- -------
entered the public domain other than through the actions of Contractor. The
Contractor shall not disclose any such Confidential Information or trade secrets
to any person or entity whatsoever, nor will it use any such Confidential
Information or trade secret concerning the Company, however obtained, other than
in the furtherance of the Company's business and at its direction provided,
--------
however, that nothing in this paragraph shall be construed to limit the
- -------
Contractor's subsequent use of information and training in the Products acquired
during the course of performing the Services that is not Confidential
Information. The provisions of this paragraph shall continue in full force and
effect during the term hereof, and survive the termination hereof for any reason
whatsoever.
6. OWNERSHIP AND ASSIGNMENT OF COPYRIGHTS, PROCESSES, PRODUCTS, OR
---------------------------------------------------------------
INVENTIONS.
- ----------
a. The Contractor acknowledges and agrees that any and all programs,
program modifications, documentation, works, manuals, pamphlets, instructional
materials, computer programs, program codes, files, tapes, other copyrightable
material, common law and statutory trademark rights, patent rights, or any
portions thereof, that have been or may be created, authored, written,
conceived, originated or discovered in whole or in part by Contractor or any of
its employees or agents during the course of (i) the performance of the Services
hereunder or (ii) the performance of any Services for the Company prior to the
date of this Agreement are and shall be the exclusive property of the Company,
and Contractor shall cooperate with the Company in the protection of the
Company's copyrights and proprietary rights therein and, to the extent deemed
desirable by the Company, the registration of such proprietary rights in the
name of the Company.
b. The Contractor shall immediately disclose and does hereby assign
to the Company all right, title and interest in and to all, systems, programs,
inventions, copyrights, patents, common law and statutory trademarks and any
other creations (all the foregoing, for purposes hereof are called "Inventions")
that the Contractor or any of its employees or agents may conceive, discover,
develop, or create or assist in whole or in part in performing the Services
hereunder. The Contractor does hereby assign to the Company all right, title
and interest in and to all Inventions that the Contractor or any of its
employees or agents may have conceived, discovered, developed, or created or
assisted in whole or in part during the performance of any Services for the
Company prior to the term of this Agreement. The Contractor shall comply with
all of the Company's instructions and sign and deliver all documents relative to
said Inventions (whether in the United States or any foreign country) requested
by the Company for the purpose of vesting, securing or confirming the Company's
title thereto.
c. Contractor represents and warrants to Company as following:
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<PAGE>
i. NATURE OF PERSONNEL ASSIGNED TO PROJECT. The personnel to
---------------------------------------
be assigned by Contractor to the projects contemplated by this
Agreement are and will be employees of Contractor and not
independent contractors engaged by Contractor. In the event any
such personnel are independent contractors or subcontractors
engaged by Contractor, Contractor shall immediately notify
Company before such contractors or subcontractors are permitted
to provide Services. Before any independent contractor or
subcontractor is permitted to provide Services, Contractor shall
ensure that each such contractor or subcontractor executes and
delivers to Company an agreement substantially similar to this
Agreement and which shall include, among other things, an
assignment of all proprietary rights in all Inventions developed
or produced by such contractor or subcontractor in connection
with the engagement hereunder, as well as covenants of
nondisclosure of Confidential Information and nonsolicitation of
Customers or employees.
ii. INDEPENDENT DEVELOPMENT. Any Inventions developed by
-----------------------
Contractor and its employees in connection with the engagement
hereunder shall be developed through the independent, creative
efforts of Contractor and/or its employees, and shall not be
based on or derived from the proprietary rights of any third
party (other than proprietary rights used by Contractor pursuant
to a duly executed license agreement from the owner thereof, with
full authority to sublicense), nor in violation of the rights of
others.
iii. AUTHORITY OF CONTRACTOR TO ASSIGN OR SUBLICENSE. Except
-----------------------------------------------
as otherwise provided herein, Contractor has the full right and
authority to assign or sublicense to Company all proprietary
rights in the Inventions created in connection with the
engagement hereunder, free and clear from any liens, claims,
licenses or encumbrances, and such assignment will not violate
any agreement, certificate or instrument to which Contractor is a
party or by which it is bound.
7. COMPANY PROPERTY. All property and materials (whether originals or
----------------
duplicates and including, but not in any way limited to, products, product
designs, features and functionality, catalogs, price lists, quotation guides,
books, records, manuals, sales and licensing presentation literature, training
materials, calling or business cards, Customer records, Customer files, Customer
names, Customer addresses, Company Policies, rules, directives, correspondence,
documents, contracts, orders, messages, memoranda, notes, circulars, agreements,
bulletins, invoices, receipts, keys, diskettes, equipment, programs and
software) in the possession or control of the Contractor, which in any way
relate or pertain to the Company's business, whether furnished to the Contractor
by the Company or prepared, compiled, or acquired by the Contractor while
engaged by the Company, are the sole property of the Company. The Contractor
shall at any time upon request of the Company, and in any event without request
promptly on termination of this Agreement, transfer and deliver over all such
tangible materials to the Company. The Company shall be under no
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<PAGE>
obligation to pay to the Contractor any sums of money otherwise then due the
Contractor or becoming due thereafter until the Contractor has fully and
unconditionally complied with the provisions of this paragraph.
8. CUSTOMER AND EMPLOYEE NON-SOLICITATION COVENANTS. The Contractor
------------------------------------------------
acknowledges that it is and will become intimately familiar with Customers'
names and addresses, particular needs, demands, practices, trade secrets,
methods of operation, products, services, contracts, accounts, techniques, and
other confidential information and that the protection of the Company requires
that all such knowledge and information must remain the sole and private
property of the Company not to be disclosed to any other party nor used by the
Contractor against the Company or for the Contractor's benefit, except as
expressly set forth in this Agreement; provided, however, that this paragraph
-------- -------
does not apply to any such knowledge or information that has entered the public
domain other than through the actions of Contractor. Accordingly, the
Contractor does hereby further warrant, represent, covenant, and agree during
the term of this Agreement, and for a period of two (2) years thereafter, as
follows:
a. COVENANT NOT TO SOLICIT BUSINESS FROM CERTAIN CUSTOMERS. The
--------------------------------------------------------
Contractor acknowledges that during the course of its engagement by the Company,
Contractor and its employees and agents may be given an opportunity to, make
contact with and strengthen ties with Customers and potential Customers of the
Company. During the term of this Agreement and for a period of two (2) years
thereafter, the Contractor shall not, directly or indirectly, for itself or any
other person or entity, solicit any Customer for the purchase or license of any
product competitive with any of the Products which are offered by the Company.
As used in the previous sentence, "Products" shall not include products that
are dissimilar to the Products in features, functionality, technical design and
price.
A "Customer" for purposes of this subparagraph 8.a. means any Customer
or prospective Customer with whom Contractor through its employees and agents
had Material Contact, as defined below, during the Contractor's engagement.
"Material Contact" shall be deemed to exist between the Contractor and
each Customer or potential Customer of the Company (1) with whom the Contractor
dealt; (2) whose dealings with the Company were coordinated or supervised by the
Contractor; or (3) about whom the Contractor obtained confidential information
in the ordinary course of business as a result of such Contractor's association
with the Company; within two (2) years prior to the date of the Contractor's
termination hereof.
b. COVENANT NOT TO SOLICIT EMPLOYEES. During the term of this
----------------------------------
Agreement and for a period of two (2) years thereafter, neither the Contractor
nor the Company shall employ or solicit the employment of any one (1) or more
employees of the other party for the purpose of causing such employee(s) to
leave such employ or to take employment with such party or a competitor of such
party, until such employee has ceased to be employed by the other party for a
period of six (6) months; provided, however, that this paragraph shall not be
-------- -------
deemed to prohibit (i) employment by the Contractor, Technology Ventures, L.L.C.
("Tech Ventures"), or any subsidiary
-5-
<PAGE>
of the Contractor or Tech Ventures, of any employees of the Company, if such
employment commences while Joseph S. McCall serves as a director of the Company
or (ii) employment by the Company, or any subsidiary of the Company, of any
employees of Contractor or Tech Ventures, if such employment commences while
Joseph S. McCall serves as a director of the Company.
The foregoing covenants in subparagraphs 8.a. and 8.b. on the part of
the Contractor shall be deemed covenants separate and apart from each other and
from any other provision herein contained, and the existence of any claim or
cause of action on the part of the Contractor against the Company, whether
arising from this Agreement or otherwise, shall in no way constitute a defense
to the enforcement of these covenants by the Company, nor in any way relieve the
Contractor from the effect of this paragraph. The separate covenants contained
in this paragraph are separate and severable and no one of them is dependent on
any other and all shall not be invalid if any one of them is declared invalid.
It is agreed and acknowledged by both parties that the restrictions in
the foregoing covenants in subparagraphs 8.a. and 8.b., as well as paragraphs 4,
5, 6 and 7 hereof, are reasonable, are not vague, overbroad, or indefinite, and
are designed to protect legitimate business interests of each party, and that in
the event of a breach of such covenants, the damages to either party would be
difficult or impossible to ascertain, and in addition to any other remedies
which either party may have under the law for breach of any or all of said
covenants, each party shall be entitled to injunctive and/or other equitable
relief against the violation of any said covenants. In the event that any court
of competent jurisdiction shall determine that any provision of this Agreement
or the application thereof is unenforceable because of the duration or scope
thereof, the parties hereto agree that said court in making such determination
shall have the power to reduce the duration and scope of such provision to the
extent necessary to make it enforceable, and that the Agreement in its reduced
form shall be valid and enforceable to the full extent permitted by law.
9. TERM; TERMINATION. This Agreement shall continue in full force and
-----------------
effect until (a) the completion of the AR Enhancement Project as set forth in
the September 10, 1997 engagement letter between the Company and Contractor as
amended by that certain November 14, 1997 letter agreement between the Company
and Contractor or (b) the completion of other projects mutually agreed upon as
requested by the Company from time to time, unless terminated earlier by either
party in the event of a breach by the other party of any of the terms or
conditions of this Agreement which remains uncured for a period of seven (7)
days. In the event of such earlier termination, the terminating party shall
give seven (7) days' written notice to the other party of its intention to so
terminate the Agreement. Such notice or any notice required under this
Agreement may be given to either party by delivery at the last known business
address of the other. Except for agreements and covenants herein specifically
provided to be performed or to remain in force following termination hereof, and
except for payment of any Compensation which might be owed to the Contractor for
Services performed prior to termination, neither party hereto shall, after
termination hereof, be under any further obligation to the other; provided that
Contractor shall deliver to the Company all of the Contractor's work in progress
as well as all other Company Property as set forth in paragraph 7 hereof.
Without limiting the generality of the foregoing, the parties shall remain
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<PAGE>
obligated to one another after termination hereof with respect to each parties'
agreements and covenants contained in paragraphs 4, 5, 6, 7 and 8 hereof.
10. PAYMENT OF ADVANCES. The Contractor agrees that upon the termination
-------------------
hereof, it shall repay to the Company immediately any and all advances for
expenses, compensation, or otherwise which were paid by the Company, including
the value of goods or services furnished to it or for its benefit, not offset by
earnings or other credits due. The Contractor's duty to repay advances shall
apply to all advances not fully earned, owned by, and vested in the Contractor,
whether such advances be against fees or otherwise, and whenever made and for
whatever purpose, and even if not expressly made repayable at the time of such
advance, it being the intent of the parties that all such advances shall be
covered by this paragraph. The Company shall be entitled to offset against any
amounts otherwise owed by the Company to the Contractor, the amount of any such
advances not repaid by the Contractor.
11. CONTRACTOR'S AUTHORITY. The Contractor shall not have any power or
----------------------
authority to accept any order or to enter into any contract, undertaking, or
agreement for or on behalf of the Company or to assume or create any obligation
or responsibility, express or implied, on behalf of or in the name of the
Company or to bind the Company in any manner whatsoever.
12. INDEPENDENT CONTRACTOR ARRANGEMENT. The parties agree that nothing in
----------------------------------
this Agreement shall be deemed to create the relationship of partnership, joint
venture, or an employer-employee relationship. It is understood by the parties
that the Contractor is an independent contractor, responsible for all of its own
local, state, and federal taxes, the payment of all salary and benefits of its
employees and agents providing services to the Company hereunder, and as such is
not under the control or management of the Company as to how or when the
Services are performed. The Contractor, for its employees and agents, hereby
specifically waives any claim of rights or benefits, whether present or future,
under the Company's retirement plans, or fringe benefits afforded its employees,
or the Company's payment of Social Security taxes, workmen's compensation,
unemployment compensation, or like benefits normally afforded its employees;
provided further that the Contractor, in its capacity as independent contractor,
shall, if requested by the Company, obtain and give to the Company waivers from
all persons employed or otherwise retained by him, individually acknowledging
that they are not employees of the Company and acknowledging further that they
waive any claim of rights or benefits normally afforded the Company's employees.
13. GEORGIA LAW TO GOVERN. This Agreement is executed within the State of
---------------------
Georgia, although it is contemplated that performance of the duties of the
Contractor may be either within or without the State of Georgia, and as a part
of the terms hereof, the parties covenant that the laws of the State of Georgia,
without regard to the conflicts of laws provisions of said State, shall govern
this Agreement, the execution and interpretation of it, and the rights of both
parties under it, including their heirs, administrators, executors, successors,
or assigns.
14. READING OF AGREEMENT. Both parties represent that they have read and
--------------------
understand the terms and conditions of this Agreement and each party
acknowledges receipt of a copy of the same.
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<PAGE>
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding
----------------
and agreement between the parties and all promises, representations, warranties,
or inducements made by either party to the other, not contained in writing
herein or made a part hereof by reference, are expressly superseded and shall
have no force or effect whatsoever, except as to the Company Policies,
procedures, rules, regulations, or other Company notices or communications, as
referred to in this Agreement, which are incorporated by reference thereto.
16. TIME OF ESSENCE. Time is of the essence of this Agreement.
---------------
17. ATTORNEYS' FEES. In the event it is necessary for either party to
---------------
employ an attorney at law to represent it or present its claim for damages,
injunction, specific performance, or recovery of money due, by reason of this
Agreement or any of the terms or provisions hereof, the other party shall pay,
in addition to such sums as may be due or such other relief to which the
complaining party may be entitled, reasonable fees for said attorney in the
event that the complaining party is the prevailing party in any cause of action
relating to this Agreement.
18. SEVERABILITY. If any covenant or other provision of this Agreement is
------------
invalid or unenforceable by reason of any rule of law or public policy, this
Agreement shall be construed in such a manner so as to delete therefrom the
covenant or provision so held to be invalid or unenforceable; and to the extent
that any provision is invalid or unenforceable but may be valid or enforceable
by limitation thereof, then such provision shall be enforceable to the fullest
extent permitted under the law of the jurisdiction in which enforcement is
sought; and if any particular provision is held to be invalid, illegal, or
unenforceable, all of the other covenants, terms, conditions, and provisions
shall be and remain in full force and effect.
19. BINDING EFFECT. This Agreement shall be binding upon and inure to the
--------------
benefit of each respective party's heirs, successors, legal representatives,
executors, and assigns.
20. SUMS UNPAID AT TERMINATION. In the event of termination of this
--------------------------
Agreement, it is contemplated that there may be sums due the Contractor by the
Company for Compensation, expenses, or otherwise. Regarding such sums otherwise
due by the Company to the Contractor for any reason whatsoever, it is hereby
stipulated and agreed that no such sums shall be due to or collectible by the
Contractor, its successors or assigns, if the Contractor breaches any of the
terms or conditions of this Agreement, in particular, those paragraphs relating
to protective covenants and protection of Confidential Information during or
after termination of the Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
-8-
<PAGE>
WITNESS the hand and seal of each party, this 5th day of February, 1998.
"COMPANY":
SQL FINANCIALS INTERNATIONAL, INC.
By: /s/ Stephen P. Jeffery
-----------------------------
STEPHEN P. JEFFERY, President
"CONTRACTOR":
McCALL CONSULTING GROUP, INC.
By: /s/ Joseph S. McCall
-----------------------------
JOSEPH S. MCCALL, President
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<PAGE>
EXHIBIT 10.15
INDEPENDENT CONTRACTOR AGREEMENT
--------------------------------
THIS INDEPENDENT CONTRACTOR AGREEMENT (this "Agreement"), is made and
entered into as of February 5, 1998, effective as of the Termination Date (as
defined below), by and between SQL FINANCIALS INTERNATIONAL, INC., a Delaware
corporation (hereinafter referred to as the "Company"); and JOSEPH S. MCCALL, a
Georgia resident (hereinafter referred to as the "Contractor") (the Company and
the Contractor being sometimes referred to herein as the "parties").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the Contractor to render services to
the Company from time to time as an independent contractor; and
WHEREAS, it is the intent of the parties that this Agreement shall apply to
the Contractor's engagement by the Company for the full term thereof and, where
applicable, after such term; and shall apply regardless of the Contractor's
description and/or location, all as same may change from time to time; and
WHEREAS, the Contractor desires to perform the services set forth herein
for the Company, and the Company and the Contractor mutually desire to set forth
the terms and conditions of such arrangement, all as herein set forth;
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants herein contained, the sum of $10.00 in hand paid, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
1. MUTUAL AGREEMENT. By the execution of this Agreement, both parties
----------------
evidence their assent to, and agreement to abide by, each and every term and
provision hereof.
2. DEFINITIONS. As used in this Agreement, the following words (and any
-----------
derivative form thereof) shall have the meaning set forth below:
a. AGREEMENT. This term includes this Independent Contractor
---------
Agreement.
b. COMPANY. SQL Financials International, Inc., a Delaware
-------
corporation, and any successor corporation or assignee hereof.
c. COMPENSATION. This term means any and all payments and
------------
remuneration provided to the Contractor by the Company, regardless of the form
thereof, including but not limited to fees, commissions, discounts, incentives,
advances and all other forms of consideration for services rendered.
<PAGE>
d. CUSTOMERS. Those persons, corporations, firms, partnerships, or
---------
any other entities whatsoever, which have purchased, licensed or leased or shall
purchase, license or lease after the date hereof, any of the Products offered by
the Company.
e. PRODUCTS. All goods, property, products, systems, and programs
--------
now or hereafter offered for sale, license or lease by the Company to Customers
and prospective Customers.
f. TERMINATION DATE. This term means the "Termination Date" as
----------------
defined in Paragraph 3 of the Agreement with Joseph S. McCall dated February 5,
1998.
3. SERVICES. The Company hereby retains the Contractor as an independent
--------
contractor for the Company to perform the services described on Exhibit "A"
-----------
attached hereto and incorporated herein as well as such other services as may be
reasonably requested from time to time by the Company, subject to mutual
agreement between the Contractor and the Company, (collectively the "Services")
on the terms and conditions set forth herein; and the Contractor hereby agrees
to perform such Services for the Company. Although the Company will not dictate
the time, manner, or method for the performance of the Services, the Contractor
agrees to devote his skills and reasonable best efforts to the performance of
such Services. Such Services shall be performed in a professional manner using
as high a degree of skill and care as is necessary in the Contractor's
discretion under the circumstances.
4. COMPENSATION FOR SERVICES. The Company shall pay Contractor as full
-------------------------
Compensation for the Services the amount set forth on Exhibit "B" attached
-----------
hereto. The Contractor shall also be reimbursed for all reasonable and necessary
business expenses of the type approved by the Company and incurred by Contractor
in connection with the performance of the Services hereunder; provided that as a
condition of reimbursement, the Contractor shall submit verification of the
nature and amount of such expenses. All such expenses shall be reimbursed by the
Company within thirty (30) days of submission of invoices, vouchers, etc.,
documenting such expenses. If requested by the Contractor, any approved
anticipated expenses to be incurred by the Contractor shall be advanced by the
Company to the Contractor.
5. CONFIDENTIAL INFORMATION. For the mutual benefit of the Contractor
------------------------
and the Company, the Company may provide the Contractor such information and
training in the Products offered by the Company and give Contractor other
assistance, support and access to Confidential Information regarding the
Company's business methods, products, services and Customers, all as deemed
necessary by the Company. All information or material regarding the Company's
business, the confidentiality of which has or could have commercial value or
utility in the business in which the Company is engaged or contemplates engaging
or information which if disclosed without authorization could be detrimental to
the business of the Company, including but not limited to its business plans,
methods of operation, products, software programs, documentation of computer
programs, programming procedures, algorithms, formulas, equipment, techniques,
existing and contemplated products, services, inventions, systems, devices
(whether or not patentable), management programs, sales literature, financial
methods and practices, plans, pricing, selling techniques, lists of the
Company's Customers, credit and financial data of the Company, and the
-2-
<PAGE>
Company's suppliers and present and prospective Customers, particular business
requirements of the Company's present and prospective Customers, and special
methods and processes involved in the Company's business, shall be deemed
Confidential Information and trade secrets of the Company and the Company's
exclusive property; provided, however, that Confidential Information shall not
-------- -------
include information that has entered the public domain other than through the
actions of Contractor. The Contractor shall not disclose any such Confidential
Information or trade secrets to any person or entity whatsoever, nor will it use
any such Confidential Information or trade secret concerning the Company,
however obtained, other than in the furtherance of the Company's business and at
its direction; provided, however, that nothing in this paragraph shall be
-------- -------
construed to limit the Contractor's subsequent use of information and training
in the Products acquired during the course of performing the Services that is
not Confidential Information. The provisions of this paragraph shall continue
in full force and effect during the term hereof, and survive the termination
hereof for any reason whatsoever.
6. OWNERSHIP AND ASSIGNMENT OF COPYRIGHTS, PROCESSES, PRODUCTS, OR
---------------------------------------------------------------
INVENTIONS.
- ----------
a. The Contractor acknowledges and agrees that any and all programs,
program modifications, documentation, works, manuals, pamphlets, instructional
materials, computer programs, program codes, files, tapes, other copyrightable
material, common law and statutory trademark rights, patent rights, or any
portions thereof, that have been or may be created, authored, written,
conceived, originated or discovered in whole or in part by Contractor in
performing the Services hereunder, are and shall be the exclusive property of
the Company, and Contractor shall cooperate with the Company in the protection
of the Company's copyrights and proprietary rights therein and, to the extent
deemed desirable by the Company, the registration of such proprietary rights in
the name of the Company.
b. The Contractor shall immediately disclose and does hereby assign
to the Company all right, title and interest in and to all systems, programs,
inventions, copyrights, patents, common law and statutory trademarks and any
other creations (all the foregoing, for purposes hereof are called "Inventions")
that the Contractor may conceive, discover, develop, or create or assist in
whole or in part in performing the Services hereunder. The Contractor shall
comply with all of the Company's instructions and sign and deliver all documents
relative to said Inventions (whether in the United States or any foreign
country) requested by the Company for the purpose of vesting, securing or
confirming the Company's title thereto.
c. Contractor represents and warrants to Company as following:
i. PERSONAL SERVICES CONTRACT. Contractor acknowledges that
--------------------------
this Agreement is in the nature of a personal services contract,
and the Services to be performed hereunder must be performed by
the Contractor personally and may not be assigned to a third-
party by the Contractor.
-3-
<PAGE>
ii. INDEPENDENT DEVELOPMENT. Any Inventions developed by
-----------------------
Contractor in connection with the engagement hereunder shall be
developed through the independent, creative efforts of
Contractor.
iii. AUTHORITY OF CONTRACTOR TO ASSIGN OR SUBLICENSE. Except as
-----------------------------------------------
otherwise provided herein, Contractor has the full right and
authority to assign or sublicense to Company all proprietary
rights in the Inventions created in connection with the
engagement hereunder, free and clear from any liens, claims,
licenses or encumbrances, and such assignment will not violate
any agreement, certificate or instrument to which Contractor is a
party or by which he is bound.
7. COMPANY PROPERTY. All property and materials (whether originals or
----------------
duplicates and including, but not in any way limited to, products, product
designs, features and functionality, catalogs, price lists, quotation guides,
books, records, manuals, sales and licensing presentation literature, training
materials, calling or business cards, Customer records, Customer files, Customer
names, Customer addresses, Company Policies, rules, directives, correspondence,
documents, contracts, orders, messages, memoranda, notes, circulars, agreements,
bulletins, invoices, receipts, keys, diskettes, equipment, programs and
software) in the possession or control of the Contractor, which in any way
relate or pertain to the Company's business, whether furnished to the Contractor
by the Company or prepared, compiled, or acquired by the Contractor while
engaged by the Company, are the sole property of the Company. The Contractor
shall at any time upon request of the Company, and in any event without request
promptly on termination of this Agreement, transfer and deliver over all such
tangible materials to the Company. The Company shall be under no obligation to
pay to the Contractor any sums of money otherwise then due the Contractor or
becoming due thereafter until the Contractor has fully and unconditionally
complied with the provisions of this paragraph.
8. CUSTOMER AND EMPLOYEE NON-SOLICITATION COVENANTS. The Contractor
------------------------------------------------
acknowledges that it is and will become intimately familiar with Customers'
names and addresses, particular needs, demands, practices, trade secrets,
methods of operation, products, services, contracts, accounts, techniques, and
other confidential information and that the protection of the Company requires
that all such knowledge and information must remain the sole and private
property of the Company not to be disclosed to any other party nor used by the
Contractor against the Company or for the Contractor's benefit, except as
expressly set forth in this Agreement; provided, however, that this paragraph
-------- -------
does not apply to any such knowledge or information that has entered the public
domain other than through the actions of Contractor. Accordingly, the
Contractor does hereby further warrant, represent, covenant, and agree during
the term of this Agreement, and for a period of two (2) years thereafter, as
follows:
a. COVENANT NOT TO SOLICIT BUSINESS FROM CERTAIN CUSTOMERS. The
--------------------------------------------------------
Contractor acknowledges that during the course of his engagement by the Company,
Contractor may be given an opportunity to, make contact with and strengthen ties
with Customers and potential Customers of the Company. During the term of this
Agreement and for a period of two (2) years thereafter, the
-4-
<PAGE>
Contractor shall not, directly or indirectly, for himself or any other person or
entity, solicit any Customer for the purchase or license of any product
competitive with any of the Products which are offered by the Company. As used
in the previous sentence, "Products" shall not include products that are
dissimilar to the Products in features, functionality, technical design and
price.
A "Customer" for purposes of this subparagraph 8.a. means any Customer
or prospective Customer with whom Contractor had Material Contact, as defined
below, during the Contractor's engagement.
"Material Contact" shall be deemed to exist between the Contractor and
each Customer or potential Customer of the Company (1) with whom the Contractor
dealt; (2) whose dealings with the Company were coordinated or supervised by the
Contractor; or (3) about whom the Contractor obtained confidential information
in the ordinary course of business as a result of such Contractor's association
with the Company; within two (2) years prior to the date of the Contractor's
termination hereof.
b. COVENANT NOT TO SOLICIT EMPLOYEES. During the term of this
----------------------------------
Agreement and for a period of two (2) years thereafter, neither the Contractor
nor the Company shall employ or solicit the employment of any one (1) or more
employees of the other party for the purpose of causing such employee(s) to
leave such employ or to take employment with such party or a competitor of such
party, until such employee has ceased to be employed by the other party for a
period of six (6) months; provided, however, that this paragraph shall not be
-------- -------
deemed to prohibit (i) employment by McCall Consulting Group, Inc. ("MCG"),
Technology Ventures, L.L.C. ("Tech Ventures"), or any subsidiary of MCG or Tech
Ventures, of any employees of the Company, if such employment commences while
Contractor serves as a director of the Company or (ii) employment by the
Company, or any subsidiary of the Company, of any employees of MCG or Tech
Ventures, if such employment commences while Contractor serves as a director of
the Company.
The foregoing covenants in subparagraphs 8.a. and 8.b. on the part of
the Contractor and the Company shall be deemed covenants separate and apart from
each other and from any other provision herein contained, and the existence of
any claim or cause of action on the part of either party against the other
party, whether arising from this Agreement or otherwise, shall in no way
constitute a defense to the enforcement of these covenants by such party, nor in
any way relieve the other party from the effect of this paragraph. The separate
covenants contained in this paragraph are separate and severable and no one of
them is dependent on any other and all shall not be invalid if any one of them
is declared invalid.
It is agreed and acknowledged by both parties that the restrictions in
the foregoing covenants in subparagraphs 8.a. and 8.b., as well as paragraphs 4,
5, 6 and 7 hereof, are reasonable, are not vague, overbroad, or indefinite, and
are designed to protect legitimate business interests of each party, and that in
the event of a breach of such covenants, the damages to either party would be
difficult or impossible to ascertain, and in addition to any other remedies
which either party may have under the law for breach of any or all of said
covenants, each party shall be entitled to injunctive and/or other equitable
relief against the violation of any said covenants. In the event that
-5-
<PAGE>
any court of competent jurisdiction shall determine that any provision of this
Agreement or the application thereof is unenforceable because of the duration or
scope thereof, the parties hereto agree that said court in making such
determination shall have the power to reduce the duration and scope of such
provision to the extent necessary to make it enforceable, and that the Agreement
in its reduced form shall be valid and enforceable to the full extent permitted
by law.
9. TERM; TERMINATION. This Agreement shall continue in full force and
-----------------
effect for one (1) year from the effective date of this Agreement unless
terminated earlier by either party in the event of a breach by the other party
of any of the terms or conditions of this Agreement which remains uncured for a
period of seven (7) days. In the event of such earlier termination, the
terminating party shall give seven (7) days' written notice to the other party
of its intention to so terminate the Agreement. Such notice or any notice
required under this Agreement may be given to either party by delivery at the
last known business address of the other. Except for agreements and covenants
herein specifically provided to be performed or to remain in force following
termination hereof, and except for payment of any Compensation which might be
owed to the Contractor for Services performed prior to termination, neither
party hereto shall, after termination hereof, be under any further obligation to
the other; provided that Contractor shall deliver to the Company all of the
Contractor's work in progress as well as all other Company Property as set forth
in paragraph 7 hereof. Without limiting the generality of the foregoing, the
parties shall remain obligated to one another after termination hereof with
respect to each parties' agreements and covenants contained in paragraphs 4, 5,
6, 7 and 8 hereof.
10. PAYMENT OF ADVANCES. The Contractor agrees that upon the termination
-------------------
hereof, it shall repay to the Company immediately any and all advances for
expenses, compensation, or otherwise which were paid by the Company, including
the value of goods or services furnished to it or for its benefit, not offset by
earnings or other credits due. The Contractor's duty to repay advances shall
apply to all advances not fully earned, owned by, and vested in the Contractor,
whether such advances be against fees or otherwise, and whenever made and for
whatever purpose, and even if not expressly made repayable at the time of such
advance, it being the intent of the parties that all such advances shall be
covered by this paragraph. The Company shall be entitled to offset against any
amounts otherwise owed by the Company to the Contractor, the amount of any such
advances not repaid by the Contractor.
11. CONTRACTOR'S AUTHORITY. The Contractor shall not have any power or
----------------------
authority to accept any order or to enter into any contract, undertaking, or
agreement for or on behalf of the Company or to assume or create any obligation
or responsibility, express or implied, on behalf of or in the name of the
Company or to bind the Company in any manner whatsoever.
12. INDEPENDENT CONTRACTOR ARRANGEMENT. The parties agree that nothing in
----------------------------------
this Agreement shall be deemed to create the relationship of partnership, joint
venture, or an employer-employee relationship. It is understood by the parties
that the Contractor is an independent contractor, responsible for all of its own
local, state, and federal taxes, and as such is not under the control or
management of the Company as to how or when the Services are performed. The
Contractor hereby specifically waives any claim of rights or benefits, whether
present or future,
-6-
<PAGE>
under the Company's retirement plans, or fringe benefits afforded its employees,
or the Company's payment of Social Security taxes, workmen's compensation,
unemployment compensation, or like benefits normally afforded its employees;
provided further that the Contractor, in its capacity as independent contractor,
shall, if requested by the Company, give to the Company a waiver acknowledging
that he is not an employee of the Company and acknowledging further that he
waives any claim of rights or benefits normally afforded the Company's
employees.
13. GEORGIA LAW TO GOVERN. This Agreement is executed within the State of
---------------------
Georgia, although it is contemplated that performance of the duties of the
Contractor may be either within or without the State of Georgia, and as a part
of the terms hereof, the parties covenant that the laws of the State of Georgia,
without regard to the conflicts of laws provisions of said State, shall govern
this Agreement, the execution and interpretation of it, and the rights of both
parties under it, including their heirs, administrators, executors, successors,
or assigns.
14. READING OF AGREEMENT. Both parties represent that they have read and
--------------------
understand the terms and conditions of this Agreement and each party
acknowledges receipt of a copy of the same.
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding
----------------
and agreement between the parties and all promises, representations, warranties,
or inducements made by either party to the other, not contained in writing
herein or made a part hereof by reference, are expressly superseded and shall
have no force or effect whatsoever, except as to the Company Policies,
procedures, rules, regulations, or other Company notices or communications, as
referred to in this Agreement, which are incorporated by reference thereto.
16. TIME OF ESSENCE. Time is of the essence of this Agreement.
---------------
17. ATTORNEYS' FEES. In the event it is necessary for either party to
---------------
employ an attorney at law to represent it or present its claim for damages,
injunction, specific performance, or recovery of money due, by reason of this
Agreement or any of the terms or provisions hereof, the other party shall pay,
in addition to such sums as may be due or such other relief to which the
complaining party may be entitled, reasonable fees for said attorney in the
event that the complaining party is the prevailing party in any cause of action
relating to this Agreement.
18. SEVERABILITY. If any covenant or other provision of this Agreement is
------------
invalid or unenforceable by reason of any rule of law or public policy, this
Agreement shall be construed in such a manner so as to delete therefrom the
covenant or provision so held to be invalid or unenforceable; and to the extent
that any provision is invalid or unenforceable but may be valid or enforceable
by limitation thereof, then such provision shall be enforceable to the fullest
extent permitted under the law of the jurisdiction in which enforcement is
sought; and if any particular provision is held to be invalid, illegal, or
unenforceable, all of the other covenants, terms, conditions, and provisions
shall be and remain in full force and effect.
-7-
<PAGE>
19. BINDING EFFECT. This Agreement shall be binding upon and inure to the
--------------
benefit of each respective party's heirs, successors, legal representatives,
executors, and assigns.
20. SUMS UNPAID AT TERMINATION. At the termination of this Agreement
--------------------------
there may be sums due the Contractor by the Company for Compensation, expenses,
or otherwise. Regarding such sums otherwise due by the Company to the Contractor
for any reason whatsoever, it is hereby stipulated and agreed that no such sums
shall be due to or collectible by the Contractor, its successors or assigns, if
the Contractor breaches any of the terms or conditions of this Agreement, in
particular, those paragraphs relating to protective covenants and protection of
Confidential Information during or after termination of the Agreement.
WITNESS the hand and seal of each party, this 5th day of February, 1998.
"COMPANY":
SQL FINANCIALS INTERNATIONAL, INC.
BY: /s/ Stephen P. Jeffery
---------------------------------
STEPHEN P. JEFFERY, President
"CONTRACTOR":
/s/ Joseph S. McCall
-------------------------------
JOSEPH S. McCALL, individually.
-8-
<PAGE>
EXHIBIT 10.16
SQL Financials International, Inc.
3950 Johns Creek Court
Suwanee, Georgia 30024
February 5, 1998
Mr. Joseph S. McCall
c/o SQL Financials International, Inc.
3950 Johns Creek Court
Suwanee, Georgia 30024
Re: 1998 Compensation Plan
----------------------
Dear Joe:
Attached is your 1998 Compensation Plan, effective as of January 1, 1998.
Please acknowledge your acceptance by signing below and initialing the 1998
Compensation Plan.
Sincerely,
/s/ Stephen P. Jeffery
Stephen P. Jeffery, President
Agreed to:
/s/ Joseph S. McCall
- ---------------------------------
Joseph S. McCall
Attachment: 1998 Compensation Plan
<PAGE>
1998 COMPENSATION PLAN
JOSEPH S. MCCALL
The following is the 1998 Compensation Plan for Joseph S. McCall, either as
an employee of SQL Financials International, Inc. (the "Company") or as an
Independent Contractor for the Company, in either case effective as of January
1, 1998 through December 31, 1998:
Annual Base Compensation: $200,000
Maximum Variable Compensation: $100,000 related to Revenue Targets
***
Revenue Target Variable Compensation based on the following performance metrics:
1998 Revenue Target $43.922 million
Quarterly Revenue Targets Q1: $7.758 million
Q2 $10.021 million
Q3 $11.398 million
Q4 $14.745 million
Achievement of less than 80% of the 1998 revenue target for
quarters 1 - 4: $0
Achievement of 80% or greater, but less than 100% of the 1998 revenue
target for quarters 1 - 4: $75,000
Achievement of 100% or greater of the 1998 revenue target for
quarters 1 - 4: $100,000
Payment of the revenue part of the variable compensation would be paid
quarterly and measured against the quarterly targets. Achievement of the
80% goal in a given quarter would result in a payment of $18,750 (25% of
$75,000). Achievement of the 100% goal in a given quarter would result in
a payment of $25,000 (25% of $100,000). However, overall achievement will
be "trued up" at the end of the year (i.e., the revenue goals will be
----
measured on an annual basis and the variable compensation adjusted
accordingly).
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
PRO FORMA
1995 1996 1997 1997
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net loss........................................ $(8,049) $(7,879) $(4,110) $(4,154)
Weighted average common shares outstanding...... 1,300 1,373 1,386 1,386
Conversion of preferred stock (1)............... 0 0 0 4,761
Exercise of warrant (2)......................... 0 0 0 131
Shares issued in the Acquisition................ 0 0 0 225
------- ------- ------- -------
Total...................................... 1,300 1,373 1,386 6,503
Basic and diluted net loss per share (4)........ $ (6.19) $ (5.74) $ (2.97)
======= ======= =======
Pro forma basic and diluted net loss per share.. $ (0.64)
=======
</TABLE>
- ---------
(1) Preferred Stock will be converted to Common Stock upon the Offering
(2) Shares of Common Stock to be issued upon conversion of the Preferred Stock
acquired upon the exercise of a warrant held by Tech Ventures
(3) Shares of Common Stock issued by the Company to in connection with the
purchase from Technology Ventures of its 20% minority interest in the
Services Subsidiary
(4) Basic and diluted earnings per share are the same as all common stock
equivalents are antidilutive
<PAGE>
EXHIBIT 21.1
The following are Subsidiaries of the Registrant:
SQL Financials Services, LLC
SQL Financials Europe, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountant, we hereby consent to the use of our reports
(and to all references to our firm) included in or made part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 19, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,213
<SECURITIES> 0
<RECEIVABLES> 4,390
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,095
<PP&E> 3,374
<DEPRECIATION> (1,867)
<TOTAL-ASSETS> 15,019
<CURRENT-LIABILITIES> 12,548
<BONDS> 0
25,112
0
<COMMON> 0
<OTHER-SE> (27,910)
<TOTAL-LIABILITY-AND-EQUITY> 15,019
<SALES> 0
<TOTAL-REVENUES> 25,988
<CGS> 0
<TOTAL-COSTS> 8,580
<OTHER-EXPENSES> 20,766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> (4,110)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,110)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,110)
<EPS-PRIMARY> (2.97)
<EPS-DILUTED> (2.97)
</TABLE>
